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Amendment No. 2 to Form S-1
Table of Contents

As filed with the Securities and Exchange Commission on March 21, 2005

Registration No. 333-121407

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 2

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

LAZARD LTD

(Exact name of Registrant as specified in its charter)

Bermuda   6199   98-0437848

(State or other jurisdiction of

incorporation or organization)

  

(Primary Standard Industrial

Classification Code Number)

  

(I.R.S. Employer

Identification Number)

Clarendon House

2 Church Street

Hamilton HM 11, Bermuda

(441) 295-1422

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Scott D. Hoffman, Esq.

Lazard Ltd

30 Rockefeller Plaza

New York, New York 10020

(212) 632-6000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Adam D. Chinn, Esq.

Craig M. Wasserman, Esq.

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019

(212) 403-1000

  

Kris F. Heinzelman, Esq.

Cravath, Swaine & Moore LLP

Worldwide Plaza

825 Eighth Avenue

New York, New York 10019

(212) 474-1000

Approximate date of commencement of proposed sale to the public:  As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box.  ¨

 

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to Be Registered   Proposed Maximum Offering Price (1)   Amount of Registration Fee (2)

Class A common stock, par value $0.01 per share

   $ 850,000,000   $ 100,045
(1) Estimated solely for purposes of calculating the amount of the registration fee in accordance with Rule 457(a) under the Securities Act of 1933, as amended.
(2) Registration fee previously paid in connection with the initial filing of this Registration Statement.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

 

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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion. Dated March 21, 2005.

 

                     Shares

LOGO

 

Class A Common Stock

 

 

This is an initial public offering of shares of Class A common stock, which we refer to as common stock, of Lazard Ltd, or “Lazard.” All of the shares of common stock are being sold by Lazard.

 

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $             and $            . Lazard intends to apply for listing of the common stock on the New York Stock Exchange under the symbol “LAZ”.

 

In addition to offering these shares of common stock, Lazard concurrently is offering pursuant to a separate prospectus $           million of equity security units, plus up to an additional $           million of units if the underwriters for that offering exercise their option to purchase additional equity security units. Lazard LLC also is offering $           million in principal amount of senior, unsecured notes concurrently in a private placement. The completion of this offering of common stock is subject to the completion of the offering of equity security units and the private placement of the Lazard LLC senior notes and also is subject to satisfaction of the conditions to the separation described in this prospectus. Lazard also intends to sell $150 million of securities that are the same as the equity security units and $50 million of our common stock to a third party in a private placement upon closing of this offering.

 

See “ Risk Factors” beginning on page 25 to read about important factors you should consider before buying shares of the common stock.

 

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

     Per Share
    Total

Initial public offering price

    $                 $             

Underwriting discount

    $      $  

Proceeds, before expenses, to Lazard

    $      $  

 

To the extent that the underwriters sell more than                      shares of common stock, the underwriters have the option to purchase up to an additional                      shares of common stock from Lazard at the initial public offering price less the underwriting discount.

 

 

The underwriters expect to deliver the shares against payment in New York, New York on                     , 2005.

 

Goldman, Sachs & Co.

Citigroup

Lazard

Merrill Lynch & Co.

Morgan Stanley

 

Credit Suisse First Boston   JPMorgan

 

 

Prospectus dated                      , 2005.

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Our Core Values

 

Integrity. We take great pride in the tradition of integrity that we have developed over 156 years.

 

Independence. We are dedicated to offering our clients independent, trusted and unbiased advice. We limit our participation in conflicting business activities.

 

Excellence. We endeavor to deliver service of exceptional quality to our clients, custom-tailored to their unique needs.

 

Intellectual Capital. Our people are our product, and intellectual capital is our principal asset. We therefore focus on attracting, training and retaining the best talent.

 

Clients. We take a client-centric perspective, attuned to their local needs. We emphasize a long-term approach to client relationships.

 

Heritage. Our heritage is distinctively Euro-American with deep, long-standing roots through local offices in our key markets. We link these offices together through a global network of industry expertise for the benefit of our clients.

 

Culture. Ours is an entrepreneurial culture that celebrates the individual while emphasizing teamwork. We strive to innovate and adapt as our markets change.

 

Ownership. Our managing directors are among our largest owners. We manage our business with an owner’s orientation focused on long-term stockholder returns.

 

Citizenship. We are deeply aware of the importance of our conduct to our employees, business partners, clients, regulators, investors and the public at large. Above all, we must earn and maintain their trust in all our daily endeavors.

 

Our Business

 

Financial Advisory

  

Asset Management

Ÿ 2004 Net Revenue of $655 million

Ÿ 131 managing directors and 512 other professionals as of December 31, 2004

  

Ÿ 2004 Net Revenue of $417 million

Ÿ 35 managing directors and 260 other professionals as of December 31, 2004

2004 Net Revenue  

Assets Under Management

$86 Billion as of December 31, 2004

LOGO

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PROSPECTUS SUMMARY

 

This is a public offering of Class A common stock of Lazard Ltd, which will be the holding company for the public’s common equity interests in our company. Unless the context otherwise requires, the terms:

 

  Ÿ   “Lazard,” “we,” “us” and “our” refer to Lazard Ltd, a newly-formed company incorporated under the laws of Bermuda, and its subsidiaries, including Lazard Group (as defined below) and the businesses, subsidiaries, assets and liabilities that Lazard Group will retain after the completion of the transactions described in this prospectus, and

 

  Ÿ   “Lazard Group” refers to Lazard LLC, a Delaware limited liability company that is the current holding company for our businesses, which will be renamed Lazard Group LLC in connection with this offering and in which Lazard Ltd will acquire a controlling interest upon completion of this offering.

 

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.

 

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our Class A common stock, which we refer to in this prospectus as our common stock. You should read this entire prospectus carefully, especially the risks of investing in our common stock discussed under “Risk Factors.”

 

Lazard

 

We are a preeminent international financial advisory and asset management firm that has long specialized in crafting solutions to the complex financial and strategic challenges of our clients. We serve a diverse set of clients around the world, including corporations, partnerships, institutions, governments and high-net worth individuals. We believe that what sets us apart is our dedication to:

 

  Ÿ   competing on the basis of our intellectual (rather than financial) capital, which is personified by our team of highly skilled professionals,

 

  Ÿ   demanding excellence and superior quality in all that we do,

 

  Ÿ   cultivating long-term, senior-level relationships with clients, through deep roots in local markets,

 

  Ÿ   linking together our local offices through a global network of industry expertise,

 

  Ÿ   remaining focused on our chosen lines of business to provide the highest degree of expertise and continuous innovation,

 

  Ÿ   emphasizing our tradition of integrity in all our dealings, and

 

  Ÿ   offering independent, trusted and unbiased advice.

 

Lazard was founded in 1848, expanded shortly thereafter to provision the needs of the California gold rush, and eventually evolved its business exclusively into financial services. Having recently united the historical New York, Paris and London “Houses” of Lazard under Lazard Group, we operate

 

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today from 27 cities in key business and financial centers across 15 countries in Europe, North America, Asia and Australia. We believe that the mix of our activities across business segments, geographic regions, industries and investment strategies helps to diversify and stabilize our revenue stream.

 

Our Strategic Positioning

 

We focus primarily on two business segments, Financial Advisory (including our Mergers and Acquisitions and Financial Restructuring practices) and Asset Management. Since January 2002, when new senior management joined our firm, we have made significant reinvestments in the intellectual capital of our business to strengthen ourselves for future growth and profitability. As a result of our strategic initiatives, we believe that we are now positioned such that:

 

  Ÿ   Our Mergers and Acquisitions practice is poised to capitalize on any future growth in the mergers and acquisitions market. This practice comprised 44% of our net revenue from continuing operations (as defined below in “—Glossary”) for the year ended December 31, 2004. During the fourth quarter of 2004, we experienced an approximate 28% increase in net revenue as compared to the corresponding period in 2003, which exceeded our rate of revenue growth for the first three quarters of 2004. This increase contributed to an approximate 15% increase in our Mergers and Acquisitions net revenue for 2004 as compared to 2003.

 

Our Financial Restructuring practice, which comprised 9% of our net revenue from continuing operations for the year ended December 31, 2004, provides countercyclical balance to our Mergers and Acquisitions practice. Following the recent economic recovery, and consistent with our expectation, this practice has experienced a substantial cyclical decline in revenue over the last year. With our leading position in this practice area, we believe that we are positioned to benefit from any resurgence in corporate credit defaults and financial distress.

 

  Ÿ   Our Asset Management business, which comprised 38% of our net revenue from continuing operations for the year ended December 31, 2004, is benefiting from new strategic and management initiatives. We have recently transitioned the senior management of our largest Asset Management subsidiary to the next generation of leadership. We have been making significant efforts to improve our investment management capabilities and to enhance and expand our platform of traditional and alternative investment products. During 2004, we grew our management and other fees by 25% versus 2003.

 

Our Business Model

 

We have a focused business model. We generate Financial Advisory revenue primarily from fees earned upon the closing of mergers and acquisitions, restructurings and other engagements on which we have provided advisory services. We generate Asset Management revenue primarily from investment advisory fees calculated as a percentage of the assets under our management, or “AUM.” Employment costs are our largest expense, a significant portion of which is paid in the form of discretionary bonuses. Our policy will be to set our total compensation and benefits expense, including amounts payable to our managing directors, at a level not to exceed 57.5% of our operating revenue, such that after considering other operating costs, we may realize our operating profit margin goal. For more information on our compensation and benefits expenses, see “Unaudited Pro Forma Financial Information” and “Risk Factors—Risks Related to the Separation—Our financial performance depends on our ability to achieve our target compensation expense level, and the failure to achieve this target level may materially adversely affect our results of operations and financial position.”

 

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Financial Advisory

 

Our Financial Advisory business provides advice in connection with a wide range of strategic and financial matters that are typically of great importance to our clients. Our goal is to continue to grow our business by fostering long-term, senior-level relationships with existing and new clients as their independent advisor on strategic transactions such as mergers, acquisitions, restructurings and other financial matters. Our Mergers and Acquisitions services include general strategic advice and transaction-specific advice regarding domestic and cross-border mergers and acquisitions, divestitures, privatizations, special committee assignments, takeover defenses, strategic partnerships, joint ventures and specialized real estate advisory services. We provide advice to managements and boards of directors, business owners, governments, institutions, investors and other interested parties on a worldwide basis. Our dedicated industry specialty groups include: consumer, financial institutions, financial sponsors, healthcare and life sciences, industrial, power and energy, real estate and technology, media and telecommunications. We also currently provide various corporate finance services, such as fund-raising for alternative investment firms and public and private financings.

 

Our Financial Restructuring practice, which specializes in helping companies in financial distress, is an important strategic component of our Financial Advisory business. We believe we are the leading financial restructuring advisory firm in the world, having advised on most of the largest and highest profile corporate restructurings over the last several years. We believe that we have been able to secure our leading position in this practice area through a combination of our restructuring and industry-related expertise and our independent position. This practice complements our Mergers and Acquisitions practice because it is generally more active when our Mergers and Acquisitions practice is less active. In addition, our Financial Restructuring practice often generates follow-on relationships and assignments that survive the completion of restructuring-related engagements.

 

In 2004, Financial Advisory net revenue totaled $655 million, accounting for 60% of our net revenue from continuing operations, and was earned from a diverse group of 435 clients. Fifty-four percent of this net revenue was generated in Europe, 45% in North America and 1% in the rest of the world.

 

Since January 2002, when new senior management joined our firm, our focus in our Financial Advisory business has been on:

 

  Ÿ   making a significant reinvestment in our intellectual capital with the addition of many senior professionals who we believe have strong client relationships and industry expertise. We have recruited or promoted 68 new managing directors from January 2002 through December 2004, contributing to a 48% increase, net of departures, in Financial Advisory managing director headcount over that period, with the result that approximately half of our Financial Advisory managing directors have joined our firm or been promoted since January 2002. While we will continue opportunistically to hire outstanding individuals to this practice, we anticipate that our recent managing director expansion program in this practice is now substantially complete,

 

  Ÿ   increasing our contacts with existing clients to further enhance our long-term relationships and our efforts in developing new client relationships,

 

  Ÿ   expanding the breadth and depth of our industry expertise and adding new practice areas,

 

  Ÿ   coordinating our industry specialty groups on a global basis, and

 

  Ÿ   broadening our global presence by adding six new regional offices and entering into strategic alliances in new geographies.

 

As a result, our Financial Advisory practice today consists of an experienced group of advisors with specialties across a wide range of industries and practice areas, operating, we believe, with

 

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increased quality and frequency of client contact. We made these investments during a period of financial market weakness, when many of our competitors were reducing senior staffing, to position us to capitalize more fully on any financial services industry recovery. We believe that it generally takes a new managing director from one to two years from the date of hiring to produce revenue at his or her full capacity. As a result, we believe that many of our new managing directors have not yet reached their full revenue generating potential.

 

In addition to the recent expansion of our Financial Advisory team, we believe that the following external market factors may enable our Financial Advisory practice to benefit from future growth in the global mergers and acquisitions advisory business:

 

  Ÿ   increasing demand for independent, unbiased financial advice, and

 

  Ÿ   a potential increase in cross-border mergers and acquisitions and large capitalization mergers and acquisitions, two of our areas of historical specialization, which have experienced greater than average declines in recent years.

 

Asset Management

 

Our Asset Management business provides investment management and advisory services to institutional clients, financial intermediaries, private clients and investment vehicles around the world. Our goal in our Asset Management business is to produce superior risk-adjusted investment returns and provide investment solutions customized for our clients. As of December 31, 2004, total AUM was $86.4 billion, of which approximately 80% was managed on behalf of institutional clients, including corporations, labor unions, public pension funds, insurance companies and banks, and through sub-advisory relationships, mutual fund sponsors, broker-dealers and registered advisors. As of the same date, approximately 20% of our AUM was managed on behalf of individual client relationships, which are principally with family offices and high-net worth individuals.

 

Many of our equity investment strategies share an investment philosophy that centers on fundamental security selection with a focus on the trade-off between a company’s valuation and its financial productivity. As of December 31, 2004, 81% of our AUM was invested in equities, 13% in fixed income, 3% in alternative investments, 3% in cash and less than 1% in merchant banking funds. As of the same date, approximately 56% of our AUM was invested in international (i.e., non-U.S.) investment strategies, 23% was invested in global investment strategies and 21% was invested in U.S. investment strategies.

 

We operate our Asset Management business through two principal subsidiaries, Lazard Asset Management LLC, or “LAM,” in New York, San Francisco, London, Milan, Frankfurt, Hamburg, Tokyo, Sydney and Seoul (aggregating $76.5 billion in total AUM as of December 31, 2004), and Lazard Frères Gestion, or “LFG,” in Paris (aggregating $9.4 billion in total AUM as of December 31, 2004). These operations provide our business with a global presence and a local identity. We also manage $0.5 billion of merchant banking funds.

 

In 2004, Asset Management net revenue was $417 million, accounting for 38% of our net revenue from continuing operations. Fifty-nine percent of this net revenue was generated in North America, 33% in Europe and 8% in the rest of the world.

 

Our strategic plan in our Asset Management business is to focus on delivering superior investment performance and client service and broadening our product offerings and distribution in selected areas in order to continue to drive business results. In March 2004, we undertook a senior

 

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management transition at LAM to put in place the next generation of leadership and to better position the business to execute our strategic plan. Over the past several years, in an effort to improve LAM’s operations and expand our business, we have:

 

  Ÿ   focused on enhancing our investment performance,

 

  Ÿ   improved our investment management platform by hiring ten senior equity analysts and filling the newly established position of Head of Risk Management,

 

  Ÿ   strengthened our marketing capabilities by establishing a global consultant relations effort aimed at improving our relations with the independent consultants who advise many of our clients on the selection of investment managers,

 

  Ÿ   expanded our product platform by “lifting-out” experienced portfolio managers to establish new products in the hedge fund area and in thematic investing, and

 

  Ÿ   launched new products such as “Lazard European Explorer,” a European long/short strategy, and “Lazard Global Total Return and Income Fund, Inc.,” a closed-end fund.

 

We believe that LAM has long maintained an outstanding team of portfolio managers and global research analysts. We intend to maintain and supplement our intellectual capital to achieve our goals. We also believe that LAM’s specific investment strategies, global reach, unique brand identity and access to multiple distribution channels will allow it to leverage into new investment products, strategies and geographic locations. In addition, we plan to expand our participation in merchant banking activities through investments in new and successor funds.

 

Competitive Advantages

 

We attribute our success and distinctiveness to a combination of long-standing advantages from which we and our predecessor partnerships have benefited, including:

 

  Ÿ   Experienced People.    Our professionals concentrate on solving complex financial problems and executing specialized investment strategies. We strive to maintain and enhance our base of highly talented professionals and pride ourselves on being able to offer clients more senior-level attention than may be available from many of our competitors.

 

  Ÿ   Independence.    We are an independent firm, free of many of the conflicts that can arise at larger financial institutions as a result of their varied sales, trading, underwriting, research and lending activities. We believe that recent instances of perceived or actual conflicts of interest, and a desire to avoid any potential future conflicts, have increased the demand by managements and boards of directors for trusted, unbiased advice from professionals whose main product is advice.

 

  Ÿ   Reputation.    Our firm has a brand name with over 150 years of history. We are focused on providing world-class professional advice in complex strategic and financial assignments, utilizing both our global capabilities and deeply rooted, local know-how.

 

  Ÿ   Focus.    We are focused on two primary businesses—Financial Advisory and Asset Management—rather than on a broad range of financial services. We believe this focus has helped, and will continue to help, us attract clients and recruit professionals who want to work in a firm where these activities are the central focus.

 

  Ÿ  

Global Presence with Local Relationships.    We believe that linking our talented indigenous professionals, deep local roots and industry expertise across offices enables us to be a global firm while maintaining a local identity. We believe this approach enables us to build close, local

 

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relationships with our clients and to develop insight into both local and international commercial, economic and political issues affecting their businesses. We do not regard any single jurisdiction as our home country.

 

  Ÿ   Balance.    Our Financial Advisory business includes both our Mergers and Acquisitions practice and our Financial Restructuring practice, which historically have been countercyclical to each other, thus helping to stabilize our revenue stream. Our Asset Management business helps provide further stability, principally because we generate significant recurring client business from year to year. Our revenue is also geographically diversified: in 2004 we derived 50% of our net revenue from continuing operations from offices in North America, 47% from offices in Europe and 3% from offices in the rest of the world.

 

  Ÿ   Strong Culture.    We believe that our people are united by a desire to be a part of an independent firm in which their activities are at the core and by a commitment to excellence and integrity in their activities. This is reinforced by the significant economic stake our managing directors have in our success. In our opinion, the strength of our many long-term client relationships is a testament to our distinctive culture and approach to providing superior advice to our clients.

 

Notwithstanding these competitive strengths, we face a number of competitive challenges and potential risks. See “Risk Factors” for a discussion of the factors you should consider before buying shares of our common stock.

 

Our Initial Public Offering

 

We decided to become a public company in order to:

 

  Ÿ   incentivize our key employees, who also will be our primary owners, to grow the profitability of our business and enhance our ability to retain and recruit talented professionals,

 

  Ÿ   better align the interests of all of our owners by using the net proceeds from this offering, and the net proceeds from the additional financing transactions, primarily to redeem membership interests in our firm held by the historical partners, and

 

  Ÿ   provide us with publicly traded securities, which we could use to finance strategic acquisitions in the future.

 

This offering is a public offering of Class A common stock of Lazard Ltd, which will be the holding company for the public’s common equity interests in Lazard Group. Lazard Group holds our Financial Advisory and Asset Management businesses.

 

This offering is one of a series of concurrent securities offerings that Lazard Ltd, Lazard Group and one or more of their subsidiaries intend to complete, which other offerings we refer to in this prospectus as the “additional financing transactions.” The additional financing transactions consist of an offering, by means of a separate prospectus, of equity security units, which we refer to in this prospectus as the “ESU offering,” a private placement of senior unsecured notes of Lazard Group, by means of a separate offering memorandum, which we refer to in this prospectus as the “debt offering,” and an investment agreement with IXIS—Corporate & Investment Bank, which we refer to in this prospectus as the “IXIS investment agreement.” This prospectus shall not be deemed to be an offer to sell or a solicitation of an offer to buy any securities offered in the ESU offering or the debt offering or any securities to be acquired pursuant to the IXIS investment agreement. See “Description of Capital Stock—IXIS Investment in Our Common Stock,” “Description of Indebtedness—IXIS Investment in Exchangeable Debt Securities” and “Description of Indebtedness—Lazard Group Senior Notes.”

 

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Our History

 

Our origins date back to 1848 when our founders, the Lazard brothers, formed Lazard Frères & Co. as a dry goods business in New Orleans, Louisiana, with a combined contribution of $9,000. Shortly thereafter, the Lazard brothers moved to the gold rush town of San Francisco, California, where they opened a business selling imported goods and exporting gold bullion. The business progressively became involved in financial transactions, first with its retail clients and then increasingly with commercial clients. Over time, the business expanded into the banking and foreign exchange businesses.

 

Seeking to expand operations to Europe, the Lazard brothers opened offices in Paris and London in 1858 and 1870, respectively. By 1876, Lazard’s businesses had become solely focused on providing financial services. In 1880, Alexander Weill, the founding brothers’ cousin, assumed control of Lazard.

 

Through the early and mid-twentieth century, the three Lazard Houses in London, Paris and New York continued to grow their respective operations independently of each other, with the New York House coming under the leadership of André Meyer in 1944. Under Mr. Meyer and continuing with Felix Rohatyn, the New York House further developed its reputation as a preeminent mergers and acquisitions advisory firm. Michel David-Weill, a descendant of the founding families, joined Lazard Frères et Cie. in Paris in 1956, ascended to a leadership role within the French operations and later moved to the New York House, where he became senior partner in 1977.

 

Lazard has conducted an asset management business in Paris since 1969, establishing a separate subsidiary, LFG, for those operations in 1995. In 1970, the New York House entered the institutional asset management business by establishing LAM to complement its financial advisory business.

 

Throughout the twentieth century, Lazard’s Paris and New York Houses were owned by the Houses’ individual partners and by relations of their founders. For much of that period, the London House was majority-owned by Pearson plc, until the sale in 2000 by Pearson of its interests to a predecessor of Eurazeo S.A.

 

The unification of the Houses of Lazard under a single global firm was completed as of January 3, 2000, with their merger to form Lazard LLC. We believe that this combination has enabled us to offer our clients the benefits of a more unified global firm while preserving the advantages of our century-old, local roots. Bruce Wasserstein joined Lazard in early 2002 as Head of Lazard. Under Mr. Wasserstein’s direction, Lazard has pursued a strategy of growing its Financial Advisory and Asset Management businesses by attracting senior investment bankers and investment advisory professionals to our firm.

 

Lazard’s history as a preeminent financial advisor has contributed to its ability to secure key advisory roles in some of the most important, complex and recognizable mergers and acquisitions of the last 75 years. Since 1999, we have advised on nearly 1,000 completed mergers and acquisitions, having a cumulative value in excess of $1 trillion. During this period, we have participated in many prominent transactions, advising:

 

  Ÿ   MCI, Inc. in evaluating its strategic alternatives, including its announced agreement to engage in a merger,

 

  Ÿ   Nextel Communications in its pending merger-of-equals with Sprint Corporation (to create a company with a combined equity market value of approximately $70 billion),

 

  Ÿ   Telecom Italia Mobile in its pending €21 billion sale of the remaining public interests to Telecom Italia (integrating Italy’s largest phone carrier and leading mobile operator),

 

 

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  Ÿ   Mitsubishi Tokyo Financial Group in its $41 billion acquisition of UFJ Holdings (the first contested transaction among Japanese banks, creating the world’s largest financial institution as measured by assets as of the date of this prospectus),

 

  Ÿ   Hollinger International Inc. in its £730 million sale of the Telegraph Group Limited to Press Holdings International (owned by the Barclay brothers) in 2004 (the largest single title newspaper transaction as of the date of this prospectus),

 

  Ÿ   Fisher Scientific International Inc. in its $3.7 billion acquisition of Apogent Technologies Inc. in 2004 (creating a leading life sciences business),

 

  Ÿ   Bank One Corporation in its $59 billion sale to JPMorgan Chase & Co. in 2004 (creating the second largest bank in the U.S. as of the date of this prospectus),

 

  Ÿ   Canary Wharf Group PLC in its £5 billion sale of a majority interest to an investment consortium in 2004 (the largest ever public-to-private transaction for a listed real estate company as of the date of this prospectus),

 

  Ÿ   Alcan Inc. in its $7 billion acquisition of Pechiney in 2004 (creating the world’s largest aluminum company based on revenue as of the date of this prospectus),

 

  Ÿ   Telecom Italia in its €25 billion sale of minority stockholder interests to Olivetti in 2003 (simplifying the ownership structure of one of Europe’s largest telecommunications firms),

 

  Ÿ   Caisse des Dépôts et Consignations in its €16 billion partnership with Group Caisse d’Epargne in 2003 (completing the restructuring of the French public finance sector and creating a major universal bank), and

 

  Ÿ   Pfizer Inc. in its $89 billion acquisition of Warner-Lambert Company in 2000 (the largest unsolicited acquisition at the time) and in its $61 billion acquisition of Pharmacia (the largest announced acquisition in 2002).

 

In recent years, we have been an advisor in most of the largest and highest profile corporate restructurings around the world. Since 1999, we have advised on over 100 in and out-of-court restructurings comprising in excess of $300 billion of debt restructured. Our restructuring assignments have included, in the U.S., WorldCom Inc. ($38 billion of debt) and Reliant Resources ($9 billion of debt), in Italy, Parmalat ($27 billion of debt), in the U.K., Marconi Corporation plc ($8 billion of debt), in France and the U.K., Eurotunnel plc ($12 billion of debt) and in Korea, Daewoo ($50 billion of debt).

 

We were incorporated in Bermuda on October 25, 2004. Our registered office in Bermuda is located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda, with a general telephone number of (441) 295-1422. Our principal executive offices are located in the U.S. at 30 Rockefeller Plaza, New York, New York 10020, with a general telephone number of (212) 632-6000, in France at 121 Boulevard Haussmann, 75382 Paris Cedex 08, with a general telephone number of 33-1-44-13-01-11, in the U.K. at 50 Stratton Street, London W1J 8LL, with a general telephone number of 44-207-187-2000 and in Italy at via Dell’Orso 2, 20121 Milan, with a general telephone number of 39-02-723121. In total, we maintain offices in 27 cities worldwide. We maintain an Internet site at www.lazard.com. Our website and the information contained on that site, or connected to that site, are not incorporated into this prospectus, and you should not rely on any such information in making your decision whether to purchase our securities.

 

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Lazard’s Organizational Structure

 

Lazard Ltd is a Bermuda holding company. After completion of this offering, Lazard Ltd will have no material assets other than ownership of approximately          % of the common membership interests of Lazard Group, the Delaware limited liability company that holds our business. The remaining          % of Lazard Group’s common membership interests will be held by LAZ-MD Holdings, a holding company that will be owned by current and former managing directors of Lazard Group. The Lazard Group common membership interests held by LAZ-MD Holdings will be effectively exchangeable over time on a one-for-one basis for shares of our common stock, as described in “The Separation and Recapitalization Transactions and the Lazard Organizational Structure.”

 

Lazard Ltd will hold a controlling interest in, and consolidate the financial statements of, Lazard Group. LAZ-MD Holdings’ ownership interests in Lazard Group will be accounted for as a minority interest in our consolidated financial results after this offering.

 

Lazard Group distributions will be allocated to holders of Lazard Group common membership interests on a pro rata basis. As we will hold approximately          % of the outstanding Lazard Group common membership interests immediately after this offering, we will receive approximately          % of the aggregate distributions in respect of the Lazard Group common membership interests.

 

We will use the net proceeds of this offering and the additional financing transactions primarily to recapitalize Lazard Group, which transaction we refer to in this prospectus as the “recapitalization.” As part of the recapitalization, Lazard Group will redeem outstanding membership interests of its historical partners.

 

Prior to completing the recapitalization, Lazard Group will transfer its capital markets business, which is comprised of equity, fixed income and convertibles sales and trading, broking, research and underwriting services, its merchant banking fund management activities other than its existing merchant banking business in France and specified non-operating assets and liabilities, to LFCM Holdings. We refer to these businesses, assets and liabilities as the “separated businesses” and these transfers collectively as the “separation.” For a more detailed description of the separation and the separated businesses, see “The Separation and Recapitalization Transactions and the Lazard Organizational Structure,” “Certain Relationships and Related Transactions—Relationship with LAZ-MD Holdings and LFCM Holdings—Master Separation Agreement” and “Risk Factors—Risks Related to the Separation.”

 

Except as otherwise expressly noted, this prospectus describes Lazard Group’s business as if the separation were complete for all purposes and for all periods described. The historical consolidated financial data of Lazard Group included in this prospectus, however, reflect the historical results of operations and financial position of Lazard Group, including the separated businesses. In addition to other adjustments, the pro forma financial data included in this prospectus reflect financial data for Lazard Group and Lazard Ltd giving effect to the separation, as well as other adjustments made as a result of this offering and the additional financing transactions.

 

Each share of our common stock will entitle its holder to one vote per share. The share of our Class B common stock is intended to allow our managing directors to individually vote in proportion to their indirect economic interests in us. This will be effected by LAZ-MD Holdings, which holds our Class B common stock, entering into a stockholders’ agreement with its members pursuant to which the members individually will be entitled to direct LAZ-MD Holdings how to vote their proportionate interest in our Class B common stock on an as-if-exchanged basis. This means that if a member held a

 

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LAZ-MD Holdings exchangeable interest that was effectively exchangeable for 1,000 shares of our common stock, that member would be entitled to direct LAZ-MD Holdings how to vote 1,000 votes represented by our Class B common stock. Our Class B common stock will be entitled, on all matters submitted to a vote of the stockholders of Lazard Ltd, to the number of votes equal to the number of shares of our common stock that would be issuable if all of the then outstanding Lazard Group common membership interests issued to LAZ-MD Holdings were exchanged for shares of our common stock. We refer to this stockholders’ agreement as the “LAZ-MD Holdings Stockholders’ Agreement.” Immediately after this offering, our Class B common stock will have         % of the voting power of our company, which percentage will decrease proportionately as Lazard Group common membership interests are exchanged for shares of our common stock. In order to seek to avoid the possibility that LAZ-MD Holdings would be deemed to be an “investment company” for purposes of the U.S. Investment Company Act of 1940, as amended, or the “Investment Company Act,” the voting power of our outstanding Class B common stock will, however, represent no less than 50.1% of the voting power of our company until December 31, 2007. In addition, the board of directors of LAZ-MD Holdings will have the ability to vote the entire voting interest represented by our Class B common stock in its discretion if the LAZ-MD Holdings board of directors determines that it is in the best interests of LAZ-MD Holdings.

 

Our public stockholders initially will hold all                shares of our common stock, representing approximately         % of the voting power in Lazard Ltd and 100% of Lazard Ltd’s capital stock on an economic basis. The Class B common stock will not have any economic rights in Lazard Ltd. As noted above, Lazard Ltd will hold approximately           % of the Lazard Group common membership interests immediately after this offering, entitling our company to an equivalent percentage of any distributions made by Lazard Group in respect of its common membership interests. The remaining approximately           % of Lazard Group common membership interests outstanding immediately after this offering will be held by LAZ-MD Holdings, entitling LAZ-MD Holdings to an equivalent percentage of any distributions made by Lazard Group in respect of its common membership interests.

 

The graphic below illustrates our expected pro forma ownership structure immediately following completion of this offering, assuming no exercise of the underwriters’ over-allotment option. The graphic below does not display all of the subsidiaries of Lazard Ltd, Lazard Group and LAZ-MD Holdings (including those through which Lazard Ltd holds its interests in Lazard Group), all of the minority interests in Lazard Group (including the participatory interests to be granted to managing directors) or other securities we expect to issue or grant in connection with the additional financing transactions. The “Public Stockholders” caption on the following chart includes shares of common stock that will be issued to IXIS pursuant to the IXIS investment agreement and to working members who hold historical partner interests and who have elected to exchange those interests for shares of our common stock. For a more detailed graphic, we refer you to “The Separation and Recapitalization Transactions and the Lazard Organizational Structure” and, for a further discussion of minority interests, to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Measures and Indicators—Minority Interest.”

 

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LOGO

 

The working members will receive, in exchange for their interests in Lazard Group, membership interests in LAZ-MD Holdings, including LAZ-MD Holdings exchangeable interests, in connection with the separation and recapitalization transactions. These LAZ-MD Holdings exchangeable interests are effectively exchangeable for shares of our common stock on the eighth anniversary of this offering. In addition, the LAZ-MD Holdings exchangeable interests held by our working members who continue to provide services to us or LFCM Holdings will, subject to certain conditions, generally be effectively exchangeable for shares of our common stock in equal increments on and after each of the third, fourth and fifth anniversaries of this offering. LAZ-MD Holdings and certain subsidiaries of Lazard Ltd (which will effect the exchanges), with the consent of the Lazard Ltd board, also have the right to cause the holders of LAZ-MD Holdings exchangeable interests to exchange all such remaining interests during the 30-day period following the ninth anniversary of this offering. Upon full exchange of the LAZ-MD Holdings exchangeable interests for shares of our common stock, the Class B common stock would cease to be outstanding, and all of the Lazard Group common membership interests formerly owned by LAZ-MD Holdings would be owned indirectly by Lazard Ltd. Pursuant to a master separation agreement that we will enter into with Lazard Group, LAZ-MD Holdings and LFCM Holdings, Lazard Group will have the ability to accelerate the exchangeability of these LAZ-MD Holdings exchangeable interests. See “Certain Relationships and Related Transactions—Relationship with LAZ-MD Holdings and LFCM Holdings—Master Separation Agreement—LAZ-MD Holdings Exchangeable Interests.”

 

In connection with the separation and recapitalization transactions, our managing directors who are managing directors of LAM will retain their equity interests and phantom equity rights in LAM, which we refer to in this prospectus as “LAM equity units,” and, accordingly, will not hold any membership interests in LAZ-MD Holdings. For a discussion of the LAM equity units, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Key Financial Measures and Indicators—Minority Interest.”

 

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Lazard Ltd will be structured as a partnership for U.S. federal income tax purposes, although Lazard Ltd will be organized as a company under Bermuda law. We intend to operate our business in a manner that does not result in the allocation of any income or deductible expenses to our stockholders, other than amounts that we distribute to our stockholders.

 

We intend to undertake several transactions concurrently with this offering, including the additional financing transactions, in order to establish this organizational structure and effect the recapitalization of Lazard Group. For more information about these transactions, see “The Separation and Recapitalization Transactions and the Lazard Organizational Structure.” Under the terms of the master separation agreement that we intend to enter into regarding the separation, we may withdraw the proposed transactions, including this offering, without liability at any time prior to the time that this offering is effected. See “Certain Relationships and Related Transactions—Relationship with LAZ-MD Holdings and LFCM Holdings—Master Separation Agreement” and “Risk Factors—Risks Related to the Separation.”

 

Material U.S. Federal Income Tax and Bermuda Tax Considerations

 

Lazard Ltd is not subject to any Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax. In addition, under current Bermuda law, there is no Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by our stockholders in respect of our common stock.

 

We intend to operate our business so that, with respect to our common shares, each stockholder will generally be required to report on its U.S. federal income tax return only the amount of cash actually distributed to such stockholder. Lazard Ltd, our parent holding company, made an election to be treated as a partnership for U.S. federal income tax purposes. As a result, each stockholder will be required to report on its income tax return its allocable share of Lazard Ltd’s income, gains, losses and deductions.

 

Because Lazard Ltd is a partnership for U.S. federal income tax purposes, Lazard Ltd itself will not pay any U.S. federal income tax, although Lazard Ltd’s U.S. subsidiaries generally will be subject to U.S. federal income tax on a net income basis on their share of the income of Lazard Group and its subsidiaries, and Lazard Ltd’s non-U.S. subsidiaries generally will be subject to U.S. federal income tax on a net income basis on the income of Lazard Group and its subsidiaries that is “effectively connected” with their conduct of a trade or business in the U.S.

 

For additional information concerning the material tax consequences of investing in our common shares, see “Material U.S. Federal Income Tax and Bermuda Tax Considerations.”

 

Relationship with LAZ-MD Holdings and LFCM Holdings

 

In addition to LAZ-MD Holdings’ equity and voting interests in Lazard Ltd and Lazard Group as described above in “—Lazard’s Organizational Structure,” we will have ongoing relationships with LAZ-MD Holdings and LFCM Holdings and its subsidiaries after the separation and this offering, including several agreements with LAZ-MD Holdings and LFCM Holdings that are intended to define and regulate Lazard’s ongoing relationship with LAZ-MD Holdings and LFCM Holdings after the separation and this offering. For a further discussion, see “Certain Relationships and Related Transactions—Relationship with LAZ-MD Holdings and LFCM Holdings.”

 

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Bermuda Law

 

The Companies Act 1981 of Bermuda, as amended, which we refer to in this prospectus as the “Companies Act,” which applies to Lazard Ltd, differs in certain material respects from laws generally applicable to U.S. corporations and their stockholders. These differences include:

 

  Ÿ   Voting rights of stockholders.    Under Bermuda law, voting rights of stockholders are regulated by the company’s bye-laws and, in certain circumstances, the Companies Act. While we have generally sought to provide for voting rights that are similar to those of a Delaware corporation, our bye-laws and Bermuda law contain selected provisions that differ from what would require stockholder vote in a Delaware corporation. For example, at any annual or general meeting of our stockholders, two or more persons present in person and generally representing greater than 50% of the votes are required to form a quorum for the transaction of business. Generally, except as otherwise provided in the bye-laws, any action or resolution requiring approval of the stockholders may be passed by a simple majority of votes cast. Delaware law provides that a majority of the shares entitled to vote constitutes a quorum at a meeting of stockholders. For a Delaware corporation, in matters other than the election of directors, with the exception of special voting requirements related to extraordinary transactions, the affirmative vote of the majority is required for stockholder action, and the affirmative vote of a plurality is required for the election of directors.

 

In Bermuda, generally mergers and amalgamations (other than between certain affiliated companies) require the approval of a company’s board of directors and, unless the company’s bye-laws provide otherwise, the approval of 75% of the stockholders. Our bye-laws provide that a merger or an amalgamation (other than with a wholly owned subsidiary) approved by our board of directors must be approved by a majority of the combined voting power of all of the shares voting together as a single class. In Delaware, with certain exceptions, a merger, consolidation or sale of all or substantially all the assets of a corporation must be approved by the board of directors and a majority of the outstanding shares entitled to vote thereon.

 

  Ÿ   The ability of a company to pay dividends.    Under the Companies Act, we may declare or pay a dividend or make a distribution out of distributable reserves only if we have reasonable grounds for believing that we are, or would after the payment be, able to pay our liabilities as they become due and if the realizable value of our assets would thereby not be less than the aggregate of our liabilities and issued share capital and share premium accounts. A Delaware company, subject to any restrictions contained in the company’s certificate of incorporation, may pay dividends out of surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and for the preceding fiscal year, but the company may not pay dividends out of net profits if, after the payment of the dividend, capital is less than the capital represented by the outstanding stock of all classes having a preference upon the distribution of assets.

 

  Ÿ   Stockholders’ ability to call meetings.    Bermuda law provides that a special general meeting must be called upon the request of stockholders holding not less than 10% of the paid-up share capital of the company carrying the right to vote. Delaware law permits the certificate of incorporation of a Delaware corporation to bar stockholder ability to call a special meeting.

 

  Ÿ   Access to books and records by the general public and stockholders.    Members of the general public have the right to inspect the public documents of a Bermuda company available at the office of the Registrar of Companies in Bermuda. Delaware law permits any stockholder to inspect or obtain copies of a corporation’s stockholder list and its other books and records for any purpose reasonably related to such person’s interest as a stockholder.

 

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  Ÿ   Duties of directors.    Under Bermuda law, the duties of directors and officers of a company are generally owed to the company only. In exercising their powers, directors of a Delaware corporation are charged with a fiduciary duty of care to protect the interests of the corporation and a fiduciary duty of loyalty to act in the best interests of its stockholders.

 

  Ÿ   The scope of indemnification available to directors and officers.    The Companies Act provides that a Bermuda company may indemnify its directors and officers in respect of any loss arising or liability attaching to them as a result of any negligence, default or breach of trust of which they may be guilty in relation to the company in question, but any provision indemnifying a director or officer (other than in an action by or in the right of the corporation) against any liability which would attach to him in respect of his fraud or dishonesty will be void. Under Delaware law, a corporation may indemnify its director or officer against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in defense of an action, suit or proceeding by reason of such position if such director or officer (i) acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation and (ii) with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

 

The Bermuda Monetary Authority has classified us as a non-resident of Bermuda for exchange control purposes. Accordingly, the Bermuda Monetary Authority does not restrict our ability to engage in transactions in currencies other than Bermuda dollars, to transfer funds in and out of Bermuda or to pay dividends to non-Bermuda residents who are stockholders, other than in Bermuda dollars. We have received consent under the Exchange Control Act 1972 from the Bermuda Monetary Authority for the issue and transfer of the common stock to and between non-residents of Bermuda for exchange control purposes, provided that our shares remain listed on an appointed stock exchange, which includes the New York Stock Exchange, or the “NYSE.” This prospectus will be filed with the Registrar of Companies in Bermuda in accordance with Bermuda law. In granting such consent and in accepting this prospectus for filing, neither the Bermuda Monetary Authority nor the Registrar of Companies in Bermuda accepts any responsibility for our financial soundness or the correctness of any of the statements made or opinions expressed in this prospectus.

 

For more information on the rights under the Companies Act, including where relevant, information on Lazard Ltd’s bye-laws, and a comparison to Delaware corporate law, see “Description of Capital Stock—Delaware Law” and “Certain Relationships and Related Transactions—Certain Relationships with Our Directors, Executive Officers and Employees—Director and Officer Indemnification.”

 

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The Offering

 

Common stock offered by Lazard Ltd(a)

                 shares

 

Capital stock to be outstanding immediately following this offering:

 

Class A common stock(b)

                 shares

 

Class B common stock

             1 share

 

Lazard Group common membership interests to be outstanding immediately after the offering:

 

Owned by Lazard Ltd

                 interests

 

Owned by LAZ-MD Holdings(c)

                 interests

 

Total

                 interests

 

Additional Financing Transactions

Concurrently with this offering, Lazard Ltd, Lazard Group or one or more of their subsidiaries intend to sell additional securities in the ESU offering, the debt offering and pursuant to the IXIS investment agreement to raise estimated net proceeds of approximately $             . The completion of the additional financing transactions and this offering will be conditioned upon the completion of each of the other financings. None of this offering, the ESU offering or the debt offering, however, is conditioned upon the completion of the transactions contemplated by the IXIS investment agreement.

 

(a) Excludes all of the                  shares of common stock that may be purchased by the underwriters pursuant to the exercise of the underwriters’ over-allotment option. Unless specifically noted, information in this prospectus does not give effect to the possible exercise, in whole or in part, of the underwriters’ over-allotment option.
(b) Includes (1) the                  shares of common stock to be sold pursuant to this offering, (2) the                  shares of common stock to be sold to IXIS as part of the additional financing transactions and (3) the                  shares of common stock to be issued to working members who hold historical partner interests and have elected to exchange those interests for shares of common stock, but excludes                  shares of our common stock that will be issuable in connection with future exchanges of common membership interests in Lazard Group held by LAZ-MD Holdings, which Lazard Group common membership interests will be effectively exchangeable for shares of our common stock on a one-for-one basis, up to                  shares of our common stock issuable in connection with the equity security units that we expect to issue in the ESU offering and pursuant to the IXIS investment agreement and                  shares of our common stock reserved for issuance, none of which will have been granted or be subject to awards immediately following this offering, in connection with our equity incentive plans. If, immediately following this offering, LAZ-MD Holdings exchanged all of its Lazard Group common membership interests, LAZ-MD Holdings would own                  shares of our common stock, representing approximately           % of our outstanding common stock (approximately           % if the underwriters’ over-allotment option is exercised in full). See “Description of Capital Stock.”
(c) The Lazard Group common membership interests held by LAZ-MD Holdings will be effectively exchangeable over time, on a one-for-one basis, for shares of our common stock, as described in “The Separation and Recapitalization Transactions and the Lazard Organizational Structure.” In connection with this offering, the number of Lazard Group common membership interests owned by LAZ-MD Holdings will be set to equal the difference between (1)                      and (2) the number of Lazard Group common membership interests owned by Lazard Ltd (which will equal the number of shares of Lazard Ltd common stock outstanding following this offering) before giving effect to the possible exercise of the underwriters’ over-allotment option, the exercise of which would have no additional effect on the number of Lazard Group common membership interests to be owned by LAZ-MD Holdings.

 

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        IXIS Investment Agreement

Under the IXIS investment agreement, IXIS—Corporate & Investment Bank, which we refer to in this prospectus as “IXIS” and which is a subsidiary of Caisse Nationale des Caisses d’Epargne, has agreed to purchase an aggregate of $200,000,000 of our securities concurrently with this offering, $150,000,000 of which will be debt securities of Lazard Group (or a separate financing subsidiary) that will be effectively exchangeable into shares of our common stock and $50,000,000 of which will be shares of our common stock. The exchangeable securities will be the same as the equity security units issued in the ESU offering. The price per security to be paid by IXIS will be equal, in the case of shares of our common stock, to the price per share in this offering, and in the case of equity security units in the equity security unit, the price per unit. See “Description of Capital Stock—IXIS Investment in Our Common Stock” and “Description of Indebtedness—IXIS Investment in Exchangeable Debt Securities.”

 

        ESU Offering

Concurrently with this offering, we will offer, by means of a separate prospectus, equity security units for an aggregate offering amount of $           million, plus an additional $           million if the underwriters’ option to purchase additional equity security units is exercised in full. Each unit will consist of (a) a contract which will obligate holders to purchase, and Lazard Ltd to sell, on                 , 2008, a number of newly issued shares of our common stock equal to a settlement rate based on the trading price of our common stock during a period preceding that date and (b) a 1/40, or 2.5%, ownership interest in a senior note of Lazard Group Finance LLC, which we refer to in this prospectus as “Lazard Group Finance,” with a principal amount of $1,000.

 

 

We will make quarterly contract adjustment payments on the purchase contracts, subject to our right to defer these payments. In general, during any period in which we defer contract adjustment payments, we cannot declare or pay dividends on, make distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of our capital stock.

 

 

The senior notes of Lazard Group Finance will be senior obligations of Lazard Group Finance. The notes will mature on                 , 2035, or on such earlier date as we may elect in connection with the remarketing. In no event, however, will we reset the maturity date to be prior to                 , 2010. Lazard Group Finance will use the net proceeds from the ESU offering to purchase the senior notes from Lazard Group. The Lazard Group notes will be pledged to secure the obligations of Lazard Group Finance under the senior notes. The ability of Lazard Group

 

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Finance to pay its obligations under the senior notes depends on its ability to obtain interest and principal payments on the Lazard Group notes.

 

 

Upon a remarketing of the senior notes, in which the applicable interest rate, payment dates and maturity date on the notes will be reset and the notes remarketed, the interest rate, payment dates and maturity date on the Lazard Group notes also will be reset on the same terms such that the interest rate, payment dates and maturity date on the Lazard Group notes are the same as those for the senior notes. See “Description of the Equity Security Units.”

 

        Debt Offering

Concurrently with this offering, we are privately placing senior notes to be issued by Lazard Group, which we refer to in this prospectus as the “Lazard Group senior notes,” for an aggregate offering amount of $           million. The Lazard Group senior notes are being offered only to qualified institutional buyers in an offering exempt from the registration requirements of the Securities Act. See “Description of Indebtedness—Lazard Group Senior Notes.”

 

Use of Proceeds

We will use the net proceeds from this offering, as well as the net proceeds from the additional financing transactions, primarily to redeem membership interests held by the historical partners, through the transactions described below.

 

        By Lazard Ltd

Based upon an initial public offering price of $                 per share (the midpoint of the range of initial public offering prices set forth on the cover page of this prospectus), we expect to receive net proceeds from our sale of common stock in this offering of approximately $                 after deducting underwriting discounts and commissions and estimated expenses. We will contribute all of the net proceeds of this offering to Lazard Group in exchange for the issuance of                  common membership interests in Lazard Group, representing           % of the outstanding Lazard Group common membership interests, and for our controlling interest in Lazard Group. The price of each of the Lazard Group common membership interests that we acquire will equal the amount of net proceeds per share that we receive from this offering.

 

        By Lazard Group

Lazard Group will use the net proceeds from the sale of the common membership interests to Lazard, along with the net proceeds of the additional financing transactions, primarily to redeem all of the classes of membership interests held by the historical partners for an aggregate redemption price of approximately $1.6 billion. In addition, an estimated $150 million of additional net proceeds will be transferred to LAZ-MD Holdings and LFCM Holdings. These funds will be available to

 

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fund the operating requirements of the separated businesses, LAZ-MD Holdings’ obligation to redeem its capital interests over time pursuant to the terms of the retention agreements with our managing directors and the managing directors of LFCM Holdings and for general corporate purposes. The remaining amounts of net proceeds will be retained by Lazard Group for its general corporate purposes, including the repayment of $50 million in aggregate principal amount of 7.53% Senior Notes due 2011 issued by a wholly-owned subsidiary of Lazard Group.

 

Voting Rights

Each share of our common stock will entitle its holder to one vote per share. The share of our Class B common stock is intended to allow our managing directors to individually vote in proportion to their indirect economic interests in us. Pursuant to the LAZ-MD Holdings stockholders’ agreement, the members of LAZ-MD Holdings will individually be entitled to direct LAZ-MD Holdings how to vote their proportionate interest in our Class B common stock on an as-if-exchanged basis. The single share of Class B common stock held by LAZ-MD Holdings will be entitled to                 votes (representing approximately           % of the voting power in our company), which is the number of Lazard Group common membership interests held by LAZ-MD Holdings immediately after the separation and recapitalization transactions. Specifically, on all matters submitted to a vote of our stockholders, the single share of Class B common stock held by LAZ-MD Holdings will entitle LAZ-MD Holdings to the number of votes equal to the number of shares of our common stock that would be issuable if all of the then outstanding Lazard Group common membership

 

interests issued to LAZ-MD Holdings were exchanged for shares of our common stock on the applicable record date. The voting power of the Class B share will decrease proportionately as Lazard Group common membership interests are exchanged for shares of our common stock. In order to seek to avoid the possibility that LAZ-MD Holdings would be deemed to be an “investment company” for purposes of the Investment Company Act, the voting power of our outstanding Class B common stock will, however, represent no less than 50.1% of the voting power of our company until December 31, 2007. See “The Separation and Recapitalization Transactions and the Lazard Organizational Structure” and “Description of Capital Stock.” For a description of the LAZ-MD Holdings stockholders’ agreement addressing how LAZ-MD Holdings will vote its share of Class B common stock, see “Certain Relationships and Related Transactions—LAZ-MD Holdings Stockholders’ Agreement.”

 

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Economic Rights

Pursuant to our bye-laws, each share of our common stock is entitled to equal economic rights. However, the Class B common stock will have no rights to dividends or any liquidation preference.

 

Dividend Policy

We currently intend to declare quarterly dividends on all outstanding shares of our common stock and expect our initial quarterly dividend to be approximately $           per share, payable in respect of the            quarter of 2005. We expect that the initial dividend will be prorated for the portion of that quarter following the closing of this offering.

 

 

The declaration of this and any other dividends and, if declared, the amount of any such dividend, will be subject to our actual future earnings, cash flow and capital requirements, the amount of distributions to us from Lazard Group and the discretion of our board of directors. For a discussion of the factors that will affect the determination by our board of directors to declare dividends, see “Dividend Policy.”

 

Risk Factors

For a discussion of factors you should consider before buying shares of common stock, see “Risk Factors.”

 

Proposed NYSE Symbol

LAZ

 

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Summary Consolidated Financial Data

 

The following table sets forth the historical summary consolidated income statement data for Lazard Group, including the separated businesses, for all periods presented. The table also presents certain pro forma consolidated financial data for Lazard Group and Lazard Ltd.

 

The historical financial statements do not reflect what our results of operations and financial position would have been had we been a stand-alone, public company for the periods presented. Specifically, our historical results of operations do not give effect to the matters set forth below.

 

  Ÿ   The separation, which is described in more detail in “The Separation and Recapitalization Transactions and the Lazard Organizational Structure” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

  Ÿ   Payment for services rendered by Lazard Group’s managing directors, which, as a result of Lazard Group operating as a limited liability company, historically has been accounted for as distributions from members’ capital, or in some cases as minority interest, rather than as employee compensation and benefits expense. As a result, Lazard Group’s operating income historically has not reflected payments for services rendered by its managing directors. After this offering, we will include all payments for services rendered by our managing directors to us in employee compensation and benefits expense.

 

  Ÿ   U.S. corporate federal income taxes, since Lazard Group has operated in the U.S. as a limited liability company that was treated as a partnership for U.S. federal income tax purposes. As a result, Lazard Group’s income has not been subject to U.S. federal income taxes. Taxes related to income earned by partnerships represent obligations of the individual partners. Outside the U.S., Lazard Group historically has operated principally through subsidiary corporations and has been subject to local income taxes. Income taxes shown on Lazard Group’s historical consolidated statements of income are attributable to taxes incurred in non-U.S. entities and to the New York City Unincorporated Business Tax, or “UBT,” attributable to Lazard Group’s operations apportioned to New York City.

 

  Ÿ   Minority interest expense reflecting LAZ-MD Holdings’ ownership of approximately           % of the Lazard Group common membership interests outstanding immediately after this offering and the separation and recapitalization transactions.

 

  Ÿ   The use of proceeds from this offering and the additional financing transactions.

 

  Ÿ   The net incremental expense related to the additional financing transactions.

 

The unaudited pro forma data set forth below are derived from the unaudited pro forma condensed financial statements included elsewhere in this prospectus. The data reflect the separation and recapitalization transactions and the completion of this offering and the additional financing transactions as if they had occurred as of January 1, 2004, and are included for informational purposes only and do not purport to represent what our results of operations would actually have been had we operated as a separate, independent company during the period presented, nor does the pro forma data give effect to any events other than those discussed above and in the related notes. As a result, the pro forma operating results are not necessarily indicative of the operating results for any future period. See “Unaudited Pro Forma Financial Information” included elsewhere in this prospectus.

 

The historical consolidated statement of income data for the years ended December 31, 2000, 2001, 2002, 2003 and 2004 have been derived from Lazard Group’s consolidated financial statements audited by Deloitte & Touche LLP, an independent registered public accounting firm. The audited

 

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consolidated financial statements for the years ended December 31, 2002, 2003 and 2004 are included elsewhere in this prospectus. The audited consolidated financial statements for the years ended December 31, 2000 and 2001 are not included in this prospectus. Historical results are not necessarily indicative of results for any future period.

 

The summary consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Financial Information” and Lazard Group’s historical consolidated financial statements and related notes included elsewhere in this prospectus. See also “The Separation and Recapitalization Transactions and the Lazard Organizational Structure.”

 

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Summary Consolidated Financial Data

 

    For the Year Ended December 31,
    

For the Year Ended

December 31, 2004,

Pro Forma

  
    2000
   2001
     2002
   2003
   2004
     Lazard Group
     Lazard Ltd
  
    ($ in thousands, except per share data)  

Historical and Pro Forma

Consolidated Statement of Income Data

                                                  

Net Revenue:

                                                  

Financial Advisory (a)

   $ 766,856   $ 551,356     $ 532,896   $ 690,967   $ 655,200     $ 655,200     $ 655,200  

Asset Management (b)

     457,124     410,237       454,683     350,348     417,166       417,166       417,166  

Corporate (c)

     32,817     (14,291 )     4,391     6,535     13,839                  

Capital Markets and Other

     296,003     224,753       174,309     135,534     188,100                  
   
 
 
 
 
 
 

Net Revenue (d)

     1,552,800     1,172,055       1,166,279     1,183,384     1,274,305                   (f )                 (f )

Employee Compensation and Benefits

     570,064     524,417       469,037     481,212     573,779                  

Other Operating Expenses

     306,339     288,676       321,197     312,818     342,764                  
   
 
 
 
 
 
 

Total Operating Expenses

     876,403     813,093       790,234     794,030     916,543                  
   
 
 
 
 
 
 

Operating Income

     676,397     358,962       376,045     389,354     357,762                   (g )                 (g )

Income Allocable to Members Before Extraordinary Item

     558,708     305,777       297,447     250,383     241,467                  

Net Income Allocable to Members

     558,708     305,777       297,447     250,383     246,974 (e)                 (h )        
                                                   

Net Income

                                                           (i )
                                                   

Pro Forma Basic Net Income Per Share (j)

                                                  

Pro Forma Diluted Net Income Per Share (j)

                                                  

Pro Forma Basic Weighted Average Common Shares (j)

                                                  

Pro Forma Diluted Weighted Average Common Shares (j)

                                                  
                                                   

Other Lazard Group Historical Data

                                                  

Dollar Value of Mergers and Acquisitions
(“M&A”) Deals Completed ($ in millions) (k)

   $ 383,061   $ 154,848     $ 86,512   $ 187,426   $ 187,144                  

Number of M&A Deals Completed Greater than $1 Billion (l)

     47     29       21     29     30                  

Assets Under Management ($ in millions):

                                                  

Ending

   $ 79,510   $ 73,108     $ 63,685   $ 78,371   $ 86,435                  

Average (m)

     81,147     75,705       68,356     66,321     80,261                  

Managing Director Headcount
(as of the end of each period):

                                                  

Financial Advisory

     100     88       103     118     131                  

Asset Management

     15     19       19     24     35                  

Corporate

     12     18       18     18     19                  

Capital Markets and Other

     20     20       20     22     22                  
   
 
 
 
 
               

        Total

     147     145       160     182     207                  
   
 
 
 
 
               

Notes ($ in thousands):

 

(a) Financial Advisory net revenue consists of the following:

 

     For the Year Ended December 31,
   

For the Year Ended
December 31, 2004

Pro Forma

     2000
    2001
    2002
    2003
    2004
    Lazard Group
    Lazard Ltd

M&A

    $ 724,550    $ 492,083    $ 393,082    $ 419,967    $ 481,726    $ 481,726    $ 481,726

Financial Restructuring

      34,100      55,200      124,800      244,600      96,100      96,100      96,100

Other Financial Advisory

      8,206      4,073      15,014      26,400      77,374      77,374      77,374
    
  
  
  
  
  
  

Financial Advisory Net Revenue

    $ 766,856    $ 551,356    $ 532,896    $ 690,967    $ 655,200    $ 655,200    $ 655,200
    
  
  
  
  
  
  
(b) Asset Management net revenue consists of the following:

 

     For the Year Ended December 31,
   

For the Year Ended
December 31, 2004

Pro Forma

     2000
    2001
    2002
    2003
    2004
    Lazard Group
    Lazard Ltd

Management and Other Fees

    $ 405,124    $ 386,237    $ 381,256    $ 312,123    $ 389,812    $ 389,812    $ 389,812

Incentive Fees

      52,000      24,000      73,427      38,225      27,354      27,354      27,354
    
  
  
  
  
  
  

Asset Management Net Revenue

    $ 457,124    $ 410,237    $ 454,683    $ 350,348    $ 417,166    $ 417,166    $ 417,166
    
  
  
  
  
  
  

 

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(c) “Corporate” includes interest income (net of interest expense), investment income from certain long-term investments and net money market revenue earned by Lazard Frères Banque SA, which we refer to in this prospectus as “LFB.”
(d) Net revenue is presented after reductions for dividends relating to Lazard Group’s mandatorily redeemable preferred stock issued in March 2001. Preferred dividends are reflected in corporate net revenue and amounted to $6,312, $8,000, $8,000, and $8,000 in the years ended December 31, 2001, 2002, 2003 and 2004, respectively. With respect to the pro forma data for the year ended December 31, 2004, preferred dividends have been eliminated as the mandatorily redeemable preferred stock will be redeemed with the net proceeds from this offering and the additional financing transactions.
(e) Net income allocable to members for the year ended December 31, 2004 is shown after an extraordinary gain of approximately $5,507 related to the January 2004 acquisition of the assets of Panmure Gordon.
(f) Represents net revenue after giving effect to the separation and recapitalization and the net incremental interest expense related to the additional financing transactions.
(g) Represents operating income after giving effect to the separation and recapitalization, including the pro forma adjustments related to this offering and the additional financing transactions and to employee compensation and benefits expense. See “Unaudited Pro Forma Financial Information.”
(h) Represents Lazard Group net income after giving effect to the adjustments described in notes (f) and (g) above and a provision for estimated income taxes related thereto at the estimated effective tax rate for the applicable period. Lazard Group operates in the U.S. as a limited liability company that is treated as a partnership for U.S. federal income tax purposes. As a result, Lazard Group’s income has not been subject to U.S. federal income taxes. Taxes related to income earned by partnerships represent obligations of the individual partners. Outside the U.S., Lazard Group historically has operated principally through subsidiary corporations and has been subject to local income taxes. Income taxes shown on Lazard Group’s historical consolidated statements of income are attributable to taxes incurred in non-U.S. entities and to UBT attributable to Lazard Group’s operations apportioned to New York City.
(i) Represents Lazard’s consolidated net income after giving effect to the adjustments described in notes (f), (g) and (h) above and after minority interest expense, which will be recorded to reflect LAZ-MD Holdings’ ownership of Lazard Group common membership interests. Lazard’s consolidated net income also includes an adjustment to income taxes based on an estimated pro forma effective tax rate. See “Risk Factors—Risks Related to Our Business—In the event of a change or adverse interpretation of relevant income tax law, regulation or treaty, or a failure to qualify for treaty benefits, our overall tax rate may be substantially higher than the rate used for purposes of our pro forma financial statements.”
(j) Calculated after giving effect to the adjustments as described in note (i) above. For purposes of presentation of basic net income per share, the weighted average shares outstanding reflects         million shares of our common stock that will be outstanding immediately following this offering and excludes      million shares issuable upon exercise of the underwriters’ over-allotment option. For purposes of presentation of diluted net income per share, LAZ-MD Holdings’ exchangeable interests are included on an as-if-exchanged basis. Shares issuable with respect to the exercise of the purchase contracts associated with the equity security units offered in the ESU offering and pursuant to the IXIS investment agreement are not included because, under the treasury stock method of accounting, such securities currently are not dilutive.
(k) Source: Thomson Financial. Represents the U.S. dollar value of completed transactions globally in which Lazard Group acted as an advisor to a party to the transaction. The types of transactions included by Thomson are global M&A, partial company sales, asset sales, joint ventures, spin-offs and restructuring assignments in which a change in control occurs. The value of a completed transaction is equal to the consideration paid for the equity of the target plus net debt assumed (net debt equals the liabilities assumed less cash held by the target).
(l) Source: Thomson Financial. Represents the number of completed M&A transactions globally in which Lazard Group acted as an advisor to a party to the transaction and in which the value of the transaction was greater than $1 billion.
(m) Calculated using the average of quarter-end AUM balances during the respective period.

 

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Glossary

 

Unless the context otherwise requires, the terms:

 

  Ÿ   “historical partners” refers to two general classes of members of Lazard Group, which consist of Eurazeo S.A., descendants and relations of our founders, several historical partners of our predecessor entities, several current and former managing directors and the other members of these classes,

 

  Ÿ   “LAZ-MD Holdings” refers to LAZ-MD Holdings LLC, a newly-formed Delaware limited liability company that after the completion of the transactions described in this prospectus will hold equity interests in Lazard Group and the Class B common stock of Lazard Ltd,

 

  Ÿ   “LFCM Holdings” refers to LFCM Holdings LLC, a newly-formed Delaware limited liability company that will hold the businesses to be separated from Lazard Group in connection with this offering as described in this prospectus,

 

  Ÿ   “managing directors” refers to our managing directors and the managing directors of the businesses to be separated from Lazard Group in connection with this offering as described in this prospectus,

 

  Ÿ   “net revenue from continuing operations” means our historical net revenue excluding the net revenue of the businesses to be separated from Lazard Group in connection with this offering as described in this prospectus,

 

  Ÿ   “operating revenue” means our consolidated total revenue less (1) total revenue attributable to the separated businesses and (2) interest expense related to Lazard Frères Banque, SA, our Paris-based banking affiliate,

 

  Ÿ   “our business” refers to all of the businesses, subsidiaries, assets and liabilities of Lazard Group after giving effect to the completion of the transactions described in this prospectus, and

 

  Ÿ   “working members” refers to the two classes of members of Lazard Group that consists of current and former managing directors.

 

We report our financial statements in U.S. dollars and prepare our financial statements, including all of the financial statements included in this prospectus, in conformity with accounting principles generally accepted in the U.S., or “U.S. GAAP.” We have adopted a fiscal year end of December 31. In this prospectus, except where otherwise indicated, references to “$” or “dollars” are to the lawful currency of the U.S.

 

The Lazard logo and the other trademarks, trade names and service marks of Lazard mentioned in this prospectus, including Lazard®, are the property of, and are used with the permission of, Lazard Group and its subsidiaries.

 

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RISK FACTORS

 

You should carefully consider the following risks and all of the other information set forth in this prospectus, including our consolidated financial statements and related notes, before deciding to purchase shares of our common stock offered by this prospectus. The risk factors set forth below primarily relate to the business of Lazard Group. These risks also affect Lazard because, after the completion of this offering, Lazard will have no material assets other than direct and indirect ownership of approximately         % of the common membership interests in Lazard Group and its controlling interest in Lazard Group. The following risks comprise material risks of which we are aware. If any of the events or developments described below actually occurred, our business, financial condition or results of operations would likely suffer. In that case, the trading price of our common stock would likely decline, and you could lose part or all of your investment in our common stock.

 

Risks Related to Our Business

 

Our ability to retain our managing directors and other key professional employees is critical to the success of our business, including maintaining compensation levels at an appropriate level of costs, and failure to do so may materially adversely affect our results of operations and financial position.

 

Our people are our most important resource. We must retain the services of our managing directors and other key professional employees, and strategically recruit and hire new talented employees, to obtain and successfully execute the advisory and asset management engagements that generate substantially all our revenue.

 

Lazard Group has experienced several significant events in recent years, including our unification under one global firm, the transition to new senior management and our pending transformation from a private to a public company, and our industry in general continues to experience change and competitive pressures for retaining top talent, each of which makes it more difficult for us to retain professionals. If any of our managing directors and other key professional employees were to join an existing competitor or form a competing company or otherwise leave us, some of our clients could choose to use the services of that competitor or some other competitor instead of our services. The employment arrangements, non-competition agreements and retention agreements we have entered into or intend to enter into with our managing directors and other key professional employees and restrictive covenants applicable to our LAM managing directors may not prevent our managing directors and other key professional employees from resigning from practice or competing against us. See “Management—Arrangements with Our Managing Directors.” As part of our transformation to a public company, we may face additional retention pressures as a result of reductions in payments for services rendered by our managing directors. As a result, we may not be able to retain these employees and, even if we can, we may not be able to retain them at compensation levels that will allow us to achieve our target ratio of compensation expense-to-operating revenue. In addition, any such arrangements and agreements will have a limited duration and will expire after a certain period of time.

 

Difficult market conditions can adversely affect our business in many ways, including by reducing the volume of the transactions involving our Financial Advisory business and reducing the value or performance of the assets we manage in our Asset Management business, which, in each case, could materially reduce our revenue or income and adversely affect our financial position.

 

As a financial services firm, our businesses are materially affected by conditions in the global financial markets and economic conditions throughout the world. For example, revenue generated by our Financial Advisory business is directly related to the volume and value of the transactions in which

 

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we are involved. During periods of unfavorable market or economic conditions, the volume and value of mergers and acquisitions transactions may decrease, thereby reducing the demand for our Financial Advisory services and increasing price competition among financial services companies seeking such engagements. Our results of operations would be adversely affected by any such reduction in the volume or value of mergers and acquisitions transactions. In addition, our profitability would be adversely affected by our fixed costs and the possibility that we would be unable to scale back other costs within a time frame sufficient to match any decreases in revenue relating to changes in market and economic conditions. The future market and economic climate may deteriorate because of many factors, including rising interest rates or inflation, terrorism or political uncertainty.

 

Within our Financial Advisory business, we have typically seen that, during periods of economic strength and growth, our Mergers and Acquisitions practice historically has been more active and our Financial Restructuring practice has been less active. Conversely, during periods of economic weakness and slowdown, we typically have seen that our Financial Restructuring practice has been more active and our Mergers and Acquisitions practice has been less active. As a result, our revenue from our Financial Restructuring practice has tended to correlate negatively to our revenue from our Mergers and Acquisitions practice over the course of business cycles. These trends are cyclical in nature and subject to periodic reversal. For example, for the year ended December 31, 2004, Financial Restructuring net revenue was down 61% versus 2003, while Mergers and Acquisitions net revenue was up 15% versus 2003. However, these trends do not cancel out the impact of economic conditions in our Financial Advisory business, which may be adversely affected by a downturn in economic conditions leading to decreased Mergers and Acquisitions practice activity, notwithstanding improvements in our Financial Restructuring practice. Moreover, revenue improvements in our Financial Advisory practice in strong economic conditions could be offset in whole or in part by any related revenue declines in our Financial Restructuring practice. While we generally have experienced a countercyclical relationship between our Mergers and Acquisitions practice and our Financial Restructuring practice, this relationship may not continue in the future.

 

Our Asset Management business also would be expected to generate lower revenue in a market or general economic downturn. Under our Asset Management business’ arrangements, investment advisory fees we receive typically are based on the market value of AUM. Accordingly, a decline in the prices of securities would be expected to cause our revenue and income to decline by:

 

  Ÿ   causing the value of our AUM to decrease, which would result in lower investment advisory fees,

 

  Ÿ   causing negative absolute performance returns for some accounts which have performance-based incentive fees, resulting in a reduction of revenue from such fees, or

 

  Ÿ   causing some of our clients to withdraw funds from our Asset Management business in favor of investments they perceive as offering greater opportunity or lower risk, which also would result in lower investment advisory fees.

 

If our Asset Management revenue declines without a commensurate reduction in our expenses, our net income will be reduced. In addition, in the event of a market downturn, our merchant banking practice also may be impacted by reduced exit opportunities in which to realize the value of its investments.

 

A majority of our revenue is derived from Financial Advisory fees, which are not long-term contracted sources of revenue and are subject to intense competition, and declines in our Financial Advisory engagements could have a material adverse effect on our financial condition and results of operations.

 

We historically have earned a substantial portion of our revenue from advisory fees paid to us by our Financial Advisory clients, which fees usually are payable upon the successful completion of a

 

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particular transaction or restructuring. In 2004, Financial Advisory services accounted for 60% of our net revenue from continuing operations. We expect that we will continue to rely on Financial Advisory fees for a substantial portion of our revenue for the foreseeable future, and a decline in our advisory engagements or the market for advisory services would adversely affect our business, financial condition and results of operations.

 

In addition, we operate in a highly competitive environment where typically there are no long-term contracted sources of revenue. Each revenue-generating engagement typically is separately awarded and negotiated. In addition, many businesses do not routinely engage in transactions requiring our services, and, as a consequence, our fee paying engagements with many clients are not likely to be predictable. We also lose clients each year as a result of the sale or merger of a client, a change in a client’s senior management, competition from other financial advisors and financial institutions and other causes. As a result, our engagements with clients are constantly changing, and our Financial Advisory fees could decline quickly due to the factors discussed above.

 

There will not be a consistent pattern in our financial results from period to period, which may make it difficult for us to achieve steady earnings growth on a quarterly basis and may cause the price of our common stock to decline.

 

We experience significant fluctuations in revenue and profits. These fluctuations generally can be attributed to the fact that we earn a significant portion of our Financial Advisory revenue upon the successful completion of a merger or acquisition transaction or a restructuring, the timing of which is uncertain and is not subject to our control. In addition, our Asset Management revenue is particularly sensitive to fluctuations in our AUM. Asset Management fees are often based on AUM as of the end of a quarter or month. As a result, a reduction in assets at the end of a quarter or month (as a result of market depreciation, withdrawals or otherwise) will result in a decrease in management fees. As a result of quarterly fluctuations, it may be difficult for us to achieve steady earnings growth on a quarterly basis, which could, in turn, lead to large adverse movements in the price of our common stock or increased volatility in our stock price generally.

 

In many cases, we are paid for advisory engagements only upon the successful consummation of the underlying merger or acquisition transaction or restructuring. As a result, our Financial Advisory business is highly dependent on market conditions and the decisions and actions of our clients, interested third parties and governmental authorities. For example, a client could delay or terminate an acquisition transaction because of a failure to agree upon final terms with the counterparty, failure to obtain necessary regulatory consents or board or stockholder approvals, failure to secure necessary financing, adverse market conditions or because the target’s business is experiencing unexpected operating or financial problems. Anticipated bidders for assets of a client during a restructuring transaction may not materialize or our client may not be able to restructure its operations or indebtedness due to a failure to reach agreement with its principal creditors. In these circumstances, we often do not receive any advisory fees other than the reimbursement of certain out-of-pocket expenses despite the fact that we devote resources to these transactions. Accordingly, the failure of one or more transactions to close either as anticipated or at all could materially adversely affect our business, financial condition or results of operations. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

If the number of debt defaults, bankruptcies or other factors affecting demand for our Financial Restructuring services declines, or we lose business to certain new entrants to the financial restructuring advisory practice who are no longer precluded from offering such services due to anticipated changes to the U.S. Bankruptcy Code, our Financial Restructuring practice’s revenue could suffer.

 

We provide various financial restructuring and restructuring-related advice to companies in financial distress or to their creditors or other stakeholders. During 2002 and 2003, we generated a

 

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significant part of our Financial Advisory revenue from fees from financial restructuring-related services. A number of factors affect demand for these advisory services, including general economic conditions, the availability and cost of debt and equity financing and changes to laws, rules and regulations, including deregulation or privatization of particular industries and those that protect creditors.

 

We expect that the requirement of Section 327 of the U.S. Bankruptcy Code requiring that one be a “disinterested person” to be employed in a restructuring will be modified in the near future. While the “disinterested person” definition of the U.S. Bankruptcy Code, as currently in effect, disqualifies certain of our competitors, it historically has not often disqualified us from obtaining a role in a restructuring because we have not been a significant underwriter of securities. A change to the “disinterested person” definition causing a person not to be disqualified by means of its status as an underwriter of securities could allow for more financial services firms to compete for restructuring engagements as well as with respect to the recruitment and retention of professionals. If our competitors succeed in being retained in new restructuring engagements, our Financial Restructuring practice, and thereby our results of operations, could be materially adversely affected.

 

We could lose clients and suffer a decline in our Asset Management revenue and earnings if the investments we choose in our Asset Management business perform poorly or if we lose key employees, regardless of overall trends in the prices of securities.

 

Investment performance affects our AUM relating to existing clients and is one of the most important factors in retaining clients and competing for new Asset Management business. Poor investment performance could impair our revenue and growth because:

 

  Ÿ   existing clients might withdraw funds from our Asset Management business in favor of better performing products, which would result in lower investment advisory fees,

 

  Ÿ   our incentive fees, which provide us with a set percentage of returns on some alternative investment and merchant banking funds and other accounts, would decline,

 

  Ÿ   third-party financial intermediaries, advisors or consultants may rate our products poorly, which may result in client withdrawals and reduced asset flows from these third parties or their clients, or

 

  Ÿ   firms with which we have strategic alliances may terminate such relationships with us, and future strategic alliances may be unavailable.

 

If key employees were to leave our Asset Management business, whether to join a competitor or otherwise, we may suffer a decline in revenue or earnings and suffer an adverse affect on our financial position. For example, in 2003, we experienced a net outflow in alternative investments AUM of approximately $2.7 billion, mostly due to the departure of a fund manager and related team members in our hedge fund products group. This also resulted in a significant reduction in both management and performance fees. Loss of key employees may occur due to perceived opportunity for promotion, increased compensation, work environment or other individual reasons, some of which may be beyond our control.

 

Our investment style in our Asset Management business may underperform other investment approaches, which may result in significant client or asset departures or a reduction in AUM.

 

Even when securities prices are rising generally, performance can be affected by investment style. Many of the equity investment strategies in our Asset Management business share a common investment orientation towards fundamental security selection. We believe this style tends to outperform the market in some market environments and underperform it in others. In particular, a prolonged growth environment may cause our investment strategy to go out of favor with some clients, consultants or third-party intermediaries. In combination with poor performance relative to peers, changes in personnel, extensive periods in particular market environments or other difficulties, this may result in significant client or asset departures or a reduction in AUM.

 

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Because our clients can remove the assets we manage on short notice, we may experience unexpected declines in revenue and profitability.

 

Our investment advisory contracts are generally terminable upon very short notice. Institutional and individual clients, and firms with which we have strategic alliances, can terminate their relationship with us, reduce the aggregate amount of AUM or shift their funds to other types of accounts with different rate structures for a number of reasons, including investment performance, changes in prevailing interest rates and financial market performance. Poor performance relative to other investment management firms tends to result in decreased investments in our investment products, increased redemptions of our investment products, and the loss of institutional or individual accounts or strategic alliances. In addition, the ability to terminate relationships may allow clients to renegotiate for lower fees paid for asset management services.

 

In addition, in the U.S., as required by the Investment Company Act, each of our investment advisory contracts with the mutual funds we advise or subadvise automatically terminates upon its “assignment.” Each of our other investment advisory contracts subject to the provisions of the Investment Advisers Act of 1940, as amended, as required by this act, provides that the contract may not be “assigned” without the consent of the customer. A sale of a sufficiently large block of shares of our voting securities or other transactions could be deemed an “assignment” in certain circumstances. An assignment, actual or constructive, will trigger these termination provisions and could adversely affect our ability to continue managing client accounts.

 

To the extent that the separation and recapitalization may be deemed a technical “assignment” of investment advisory contracts, we will take the necessary steps to provide clients an opportunity to consent to the continuation of their advisory agreements after the completion of this offering. In addition, in this case, we will look to enter into new advisory or subadvisory agreements with the mutual funds that we advise or subadvise. A portion of these new mutual funds may need approval by the stockholders of the respective funds. In the event that any of these clients do not consent to a continuation of their agreement, we will lose AUM, which will result in a loss of revenue.

 

Access to clients through intermediaries is important to our Asset Management business, and reductions in referrals from such intermediaries or poor reviews of our products or our organization by such intermediaries could materially reduce our revenue and impair our ability to attract new clients.

 

Our ability to market our Asset Management services relies in part on receiving mandates from the client base of national and regional securities firms, banks, insurance companies, defined contribution plan administrators, investment consultants and other intermediaries. To an increasing extent, our Asset Management business uses referrals from accountants, lawyers, financial planners and other professional advisors. The inability to have this access could materially adversely affect our Asset Management business. In addition, many of these intermediaries review and evaluate our products and our organization. Poor reviews or evaluations of either the particular product or of us may result in client withdrawals or an inability to attract new assets through such intermediaries.

 

Our historical merchant banking activities involve increased levels of investments in relatively high-risk, illiquid assets, and we may lose some or all of the principal amount that we invest in these activities or fail to realize any profits from these activities for a considerable period of time.

 

We intend to expand our participation in merchant banking activities through investments in new and successor funds, and we may exercise our option under the business alliance agreement between Lazard Group and LFCM Holdings to acquire the merchant banking business and related principal investments from LFCM Holdings. For further information with respect to our option, see “Certain Relationships and Related Transactions—Relationship with LAZ-MD Holdings and LFCM Holdings—Business Alliance Agreement.”

 

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The revenue from this business is derived primarily from management fees calculated as a percentage of AUM and incentive fees, which are earned if investments are profitable over a specified threshold. Our ability to form new merchant banking funds is subject to a number of uncertainties, including past performance of our funds, market or economic conditions, competition from other fund managers and the ability to negotiate terms with major investors. In addition, the payments we are entitled to receive from LFCM Holdings under the terms of the business alliance agreement in respect of our continued involvement with LFCM Holdings will be based on the carried interests received in connection with LFCM Holdings-managed funds.

 

In addition, we expect to make principal investments in new merchant banking funds that may be established by us or by LFCM Holdings, and to continue to hold principal investments in several merchant banking funds managed by LFCM Holdings. The kinds of investments made by these funds are generally in relatively high-risk, illiquid assets. Contributing capital to these funds is risky, and we may lose some or all of the principal amount of our investments. Because it may take several years before attractive investment opportunities are identified, some or all of the capital committed by us to these funds is likely to be invested in government securities, other short-term, highly rated debt securities and money market funds that traditionally have offered investors relatively lower returns. In addition, the investments in these funds are adjusted for accounting purposes to fair market value at the end of each quarter, and our allocable share of these gains or losses will affect our revenue, even though such market fluctuations may have no cash impact, which could increase the volatility of our earnings. It takes a substantial period of time to identify attractive merchant banking opportunities, to raise all the funds needed to make an investment and then to realize the cash value of an investment through resale. Even if a merchant banking investment proves to be profitable, it may be several years or longer before any profits can be realized in cash or other proceeds.

 

We face strong competition from financial services firms, many of whom have the ability to offer clients a wider range of products and services than we can offer, which could lead to pricing pressures that could materially adversely affect our revenue and profitability.

 

The financial services industry is intensely competitive, and we expect it to remain so. We compete on the basis of a number of factors, including the quality of our employees, transaction execution, our products and services, innovation, reputation and price. We have experienced intense fee competition in some of our businesses in recent years, and we believe that we will experience pricing pressures in these and other areas in the future as some of our competitors seek to obtain increased market share by reducing fees.

 

We face increased competition due to a trend toward consolidation. In recent years, there has been substantial consolidation and convergence among companies in the financial services industry. In particular, a number of large commercial banks, insurance companies and other broad-based financial services firms have established or acquired broker-dealers or have merged with other financial institutions. Many of these firms have the ability to offer a wide range of products, from loans, deposit-taking and insurance to brokerage, asset management and investment banking services, which may enhance their competitive position. They also have the ability to support investment banking, including financial advisory services, with commercial banking, insurance and other financial services revenue in an effort to gain market share, which could result in pricing pressure in our businesses.

 

An inability to access the debt and equity capital markets as a result of our debt and equity security obligations, credit ratings or other factors could impair our liquidity, increase our borrowing costs or otherwise adversely affect our competitive position or results of operations.

 

After completion of this offering and the additional financing transactions, Lazard Group and its subsidiaries expect to have approximately $               million in debt outstanding. This debt will have certain mandated payment obligations, which may constrain our ability to operate our business or to

 

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pay dividends. In addition, in the future we may need to incur debt or issue equity in order to fund our working capital requirements or refinance existing indebtedness, as well as to make acquisitions and other investments. The amount of our debt obligations may impair our ability to raise debt or issue equity for financing purposes. Our access to funds also may be impaired if regulatory authorities take significant action against us, or if we discover that any of our employees had engaged in serious unauthorized or illegal activity. In addition, our borrowing costs and our access to the debt capital markets depend significantly on our credit ratings. These ratings are assigned by rating agencies, which may reduce or withdraw their ratings or place us on “credit watch” with negative implications at any time. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

We may pursue acquisitions or joint ventures that could present unforeseen integration obstacles or costs and could dilute the stock ownership of our stockholders.

 

We have in the past pursued joint ventures and other transactions aimed at expanding the geography and scope of our operations. In 2002 we entered into a business alliance in Italy with Banca Intesa S.p.A., or “Intesa,” and we recently established a joint venture in Brazil with Signatura Advisors Ltda. We also have entered into a cooperation arrangement with IXIS to promote mutually beneficial revenue production and sharing relating to cooperation activities. See “Business—Principal Business Lines—Financial Advisory—Relationship with IXIS.” We expect to continue to explore partnership opportunities that we believe to be attractive. In addition, with publicly traded securities to potentially use to finance acquisitions, we believe that we will have greater opportunities and flexibility to pursue acquisitions and other similar transactions. While we are not currently in negotiations with respect to material acquisitions or material joint ventures, we routinely assess our strategic position and may in the future seek acquisitions or other transactions to further enhance our competitive position.

 

Acquisitions and joint ventures involve a number of risks and present financial, managerial and operational challenges, including potential disruption of our ongoing business and distraction of management, difficulty with integrating personnel and financial and other systems, hiring additional management and other critical personnel and increasing the scope, geographic diversity and complexity of our operations. Our clients may react unfavorably to our acquisition and joint venture strategy, we may not realize any anticipated benefits from acquisitions, and we may be exposed to additional liabilities of any acquired business or joint venture, any of which could materially adversely affect our revenue and results of operations. In addition, future acquisitions or joint ventures may involve the issuance of additional shares of our common stock, which may dilute your ownership of us.

 

Employee misconduct could harm us by impairing our ability to attract and retain clients and subjecting us to significant legal liability and reputational harm, and this type of misconduct is difficult to detect and deter.

 

Recently, there have been a number of highly publicized cases involving fraud or other misconduct by employees in the financial services industry generally, and we run the risk that employee misconduct could occur in our business as well. For example, misconduct by employees could involve the improper use or disclosure of confidential information, which could result in regulatory sanctions and serious reputational or financial harm. Our Financial Advisory business often requires that we deal with client confidences of great significance to our clients, improper use of which may harm our clients or our relationships with our clients. Any breach of our clients’ confidences as a result of employee misconduct may impair our ability to attract and retain Financial Advisory clients and may subject us to liability. Similarly, in our Asset Management business, we have authority over client assets, and we may, from time to time, have custody of such assets. In addition, we often have discretion to trade client assets on the client’s behalf and must do so acting in the best interest of the

 

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client. As a result, we are subject to a number of obligations and standards, and the violation of those obligations or standards may adversely affect our clients and us. It is not always possible to deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in all cases.

 

The financial services industry faces substantial litigation and regulatory risks, and we may face damage to our professional reputation and legal liability if our services are not regarded as satisfactory or for other reasons.

 

As a financial services firm, we depend to a large extent on our relationships with our clients and our reputation for integrity and high-caliber professional services to attract and retain clients. As a result, if a client is not satisfied with our services, such dissatisfaction may be more damaging to our business than to other types of businesses. Moreover, our role as advisor to our clients on important mergers and acquisitions or restructuring transactions involves complex analysis and the exercise of professional judgment, including, if appropriate, rendering “fairness opinions” in connection with mergers and other transactions.

 

In recent years, the volume of claims and amount of damages claimed in litigation and regulatory proceedings against financial advisors has been increasing. Our Financial Advisory activities may subject us to the risk of significant legal liabilities to our clients and third parties, including our clients’ stockholders, under securities or other laws for materially false or misleading statements made in connection with securities and other transactions and potential liability for the fairness opinions and other advice provided to participants in corporate transactions. In our Asset Management business, we make investment decisions on behalf of our clients which could result in substantial losses. This also may subject us to the risk of legal liabilities or actions alleging negligent misconduct, breach of fiduciary duty or breach of contract. These risks often may be difficult to assess or quantify and their existence and magnitude often remain unknown for substantial periods of time. Our engagements typically include broad indemnities from our clients and provisions designed to limit our exposure to legal claims relating to our services, but these provisions may not protect us or may not be adhered to in all cases. We also are subject to claims arising from disputes with employees for alleged discrimination or harassment, among other things. These risks often may be difficult to assess or quantify, and their existence and magnitude often remain unknown for substantial periods of time. As a result, we may incur significant legal expenses in defending against litigation. Substantial legal liability or significant regulatory action against us could materially adversely affect our business, financial condition or results of operations or cause significant reputational harm to us, which could seriously harm our business.

 

Other operational risks may disrupt our businesses, result in regulatory action against us or limit our growth.

 

Our business is dependent on communications and information systems, including those of our vendors. Any failure or interruption of these systems, whether caused by fire, other natural disaster, power or telecommunications failure, act of terrorism or war or otherwise, could materially adversely affect our operating results. Although we have back-up systems in place, our back-up procedures and capabilities in the event of a failure or interruption may not be adequate.

 

Particularly in our Asset Management business, we rely heavily on our financial, accounting, trading, compliance and other data processing systems. If any of these systems do not operate properly or are disabled, we could suffer financial loss, a disruption of our businesses, liability to clients, regulatory intervention or reputational damage. The inability of our systems to accommodate an increasing volume of transactions also could constrain our ability to expand our businesses. In recent years, we have substantially upgraded and expanded the capabilities of our data processing systems and other operating technology, and we expect that we will need to continue to upgrade and expand these capabilities in the future to avoid disruption of, or constraints on, our operations.

 

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Extensive regulation of our businesses limits our activities and results in ongoing exposure to the potential for significant penalties, including fines or limitations on our ability to conduct our businesses.

 

The financial services industry is subject to extensive regulation. We are subject to regulation by governmental and self-regulatory organizations in the jurisdictions in which we operate around the world. Many of these regulators, including U.S. and non-U.S. government agencies and self-regulatory organizations, as well as state securities commissions in the U.S., are empowered to conduct administrative proceedings that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer. The requirements imposed by our regulators are designed to ensure the integrity of the financial markets and to protect customers and other third parties who deal with us and are not designed to protect our stockholders. Consequently, these regulations often serve to limit our activities, including through net capital, customer protection and market conduct requirements.

 

We face the risk of significant intervention by regulatory authorities, including extended investigation and surveillance activity, adoption of costly or restrictive new regulations and judicial or administrative proceedings that may result in substantial penalties. Among other things, we could be fined or be prohibited from engaging in some of our business activities. In addition, the regulatory environment in which we operate is subject to modifications and further regulation. New laws or regulations or changes in the enforcement of existing laws or regulations applicable to us and our clients also may adversely affect our business, and our ability to function in this environment will depend on our ability to constantly monitor and react to these changes. For example, the European Union Financial Conglomerates Directive requires that we, along with a number of our competitors, be subject to consolidated supervision by a primary regulatory authority. As a result, we are in discussions with regulatory authorities regarding establishing consolidated supervision of our business, and we may be required to increase our regulatory capital. This requirement may adversely affect our profitability and result in other increased costs. In addition, the regulatory environment in which our clients operate may impact our business. For example, changes in antitrust laws or the enforcement of antitrust laws could affect the level of mergers and acquisitions activity and changes in state laws may limit investment activities of state pension plans. See “Business—Regulation” for a further discussion of the regulatory environment in which we conduct our businesses.

 

In particular, for asset management businesses in general, there have been a number of highly publicized regulatory inquiries that focus on the mutual funds industry. These inquiries already have resulted in increased scrutiny in the industry and new rules and regulations for mutual funds and their investment managers. This regulatory scrutiny and rulemaking initiatives may result in an increase in operational and compliance costs or the assessment of significant fines or penalties against our Asset Management business, and may otherwise limit our ability to engage in certain activities.

 

In addition, financial services firms are subject to numerous conflicts of interests or perceived conflicts. We have adopted various policies, controls and procedures to address or limit actual or perceived conflicts and regularly seek to review and update our policies, controls and procedures. However, these policies and procedures may result in increased costs, additional operational personnel and increased regulatory risk. Failure to adhere to these policies and procedures may result in regulatory sanctions or client litigation.

 

Specific regulatory changes also may have a direct impact on the revenue of our Asset Management business. In addition to regulatory scrutiny and potential fines and sanctions, regulators continue to examine different aspects of the asset management industry. For example, the use of “soft dollars,” where a portion of commissions paid to broker-dealers in connection with the execution of trades also pays for research and other services provided to advisors, may in the future be limited or prohibited. Although a substantial portion of the research relied on by our Asset Management business

 

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in the investment decision-making process is generated internally by our investment analysts, external research, including external research paid for with soft dollars, is important to the process. This external research generally is used for information gathering or verification purposes, and includes broker-provided research, as well as third-party provided databases and research services. For the year ended December 31, 2004, our Asset Management business obtained research and other services through soft dollar arrangements, the total cost of which we estimate to be approximately $8.5 million. If the use of soft dollars is limited or prohibited, we may have to bear these costs. In addition, new regulation regarding the annual approval process for mutual fund advisory agreements may result in the reduction of fees or possible terminations of these agreements. Other proposed rules that are currently under consideration include potential limitations on investment activities in which an advisor may engage, such as hedge funds and mutual funds, increased disclosure of advisor and fund activities and changes in compensation for mutual fund sales. These regulatory changes and other proposed or potential changes may result in a reduction of revenue associated with these activities.

 

Fluctuations in foreign currency exchange rates could lower our net income or negatively impact the portfolios of our Asset Management clients and may affect the levels of our AUM.

 

Because our financial statements are denominated in U.S. dollars and we receive approximately 40% of our revenue in other currencies, predominantly in euros and British pounds, we are exposed to fluctuations in foreign currencies. In addition, we pay a significant amount of our expenses in such currencies. The exchange rates of these currencies versus the U.S. dollar may affect our net income. We do not generally hedge such non-dollar foreign exchange rate exposure arising in our subsidiaries outside of the U.S. Fluctuations in foreign currencies may also make period to period comparisons of our results of operations difficult.

 

Foreign currency fluctuations also can impact the portfolios of our Asset Management clients. Client portfolios are invested in securities across the globe, although most portfolios are in a single base currency. Foreign currency fluctuations can adversely impact investment performance for a client’s portfolio. In addition, foreign currency fluctuations may affect the levels of our AUM. As our AUM include significant assets that are denominated in currencies other than U.S. dollars, an increase in the value of the U.S. dollar relative to non-U.S. currencies may result in a decrease in the dollar value of our AUM, which, in turn, would result in lower U.S. dollar denominated revenue in our Asset Management business. While this risk may be limited by foreign currency hedging, some risks cannot be hedged and there is no guarantee that our hedging activity will be successful. Poor performance may result in decreased AUM, including as a result of withdrawal of client assets or a decrease in new assets being raised in the relevant product.

 

Earnings of Lazard Group allocable to LAZ-MD Holdings may be taxed at higher tax rates than earnings allocable to Lazard Ltd, which may result in less cash being available to Lazard Group than would otherwise be available to it.

 

We estimate that our share of the earnings of Lazard Group will be taxed at an effective rate of approximately           % as discussed in Note (g) in the “Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income” included elsewhere in this prospectus. As a result of their indirect interests in Lazard Group prior to exchange of those interests, however, we estimate that the managing directors of Lazard Group and other owners of LAZ-MD Holdings are likely to pay tax at a higher rate on their allocable share of Lazard Group’s earnings than we will. Lazard Group will make tax-related distributions based on the higher of the effective income and franchise tax rate applicable to Lazard Ltd subsidiaries that hold the Lazard Group common membership interests and the weighted average income tax rate (based on income allocated) applicable to LAZ-MD Holdings’ members, determined in accordance with LAZ-MD Holdings’ operating agreement. Therefore, because distributions by Lazard Group to its members will be made on a pro rata basis, tax-related distributions

 

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to our subsidiaries are expected to exceed the taxes our subsidiaries actually pay. This may result in less cash being available to Lazard Group than would otherwise be available to it, and in excess cash being held by Lazard Ltd or some of our subsidiaries. Prior to the third anniversary of the consummation of this offering and thereafter, we expect to issue a dividend to our stockholders of any such excess cash. In the event that tax rates applicable to members of LAZ-MD Holdings increase, the pro rata distributions from Lazard Group to its members, including our subsidiaries, may increase correspondingly.

 

We may become subject to taxes in Bermuda after March 28, 2016, which may have a material adverse effect on our results of operations and your investment.

 

The Bermuda Minister of Finance, under the Exempted Undertakings Tax Protection Act 1966 of Bermuda, as amended, has given us an assurance that if any legislation is enacted in Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax will not be applicable to us or any of our operations, shares, debentures or other obligations until March 28, 2016, except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by us in respect of real property owned or leased by us in Bermuda. See “Material U.S. Federal Income Tax and Bermuda Tax Considerations.” Given the limited duration of the Bermuda Minister of Finance’s assurance, we may be subject to Bermuda tax after March 28, 2016.

 

In the event of a change or adverse interpretation of relevant income tax law, regulation or treaty, or a failure to qualify for treaty benefits, our overall tax rate may be substantially higher than the rate used for purposes of our pro forma financial statements.

 

Our estimated effective tax rate of             % is based upon the application of currently applicable income tax laws, regulations and treaties and current judicial and administrative authorities interpreting those income tax laws, regulations and treaties and upon our non-U.S. subsidiaries’ ability to qualify for benefits under those treaties. Moreover, those income tax laws, regulations and treaties, and the administrative and judicial authorities interpreting them, are subject to change at any time, and any such change may be retroactive.

 

On October 22, 2004, the American Jobs Creation Act of 2004, or the “AJCA,” was enacted. Under the AJCA, non-U.S. corporations meeting certain ownership, operational and other tests are treated as U.S. corporations for U.S. federal income tax purposes. We do not believe that the AJCA should apply to Lazard or any of its non-U.S. subsidiaries. However, the AJCA grants broad regulatory authority to the Secretary of the Treasury to provide such regulations as may be appropriate to determine whether a non-U.S. corporation is treated as a U.S. corporation or as are necessary to carry out the provision, including adjusting its application as necessary to prevent the avoidance of its purposes. It is uncertain whether, or in what form, regulations will be issued under this provision, but, based on the advice of our counsel, we do not believe this provision or any regulation promulgated within the scope of its regulatory authority should apply to Lazard Ltd or its non-U.S. subsidiaries. A successful challenge of this position by the Internal Revenue Service, or the “IRS,” could result in Lazard Ltd or its non-U.S. subsidiaries being treated as U.S. corporations for U.S. federal income tax purposes, which would result in an overall tax rate substantially higher than the rate reflected in our pro forma financial statements.

 

Our estimated effective tax rate is also based upon our non-U.S. subsidiaries qualifying for treaty benefits. The eligibility of our non-U.S. subsidiaries for treaty benefits generally depends upon, among other things, at least 50% of the principal class of shares in such subsidiaries being “ultimately owned” by U.S. citizens and persons that are “qualified residents” for purposes of the treaty. This requirement may not be met and even if it is met, we may not be able to document that fact to the satisfaction of the

 

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IRS. If our non-U.S. subsidiaries are not treated as eligible for treaty benefits, such subsidiaries will be subject to U.S. “branch profits tax” on their “effectively connected earnings and profits” (as determined for U.S. federal income tax purposes) at a rate of 30% rather than a treaty rate of 5%. See “Material U.S. Federal Income Tax and Bermuda Tax Considerations—Taxation of Lazard and its Subsidiaries—U.S. Subsidiaries and Effectively Connected Income of Non-U.S. Subsidiaries.”

 

The inability, for any reason, to achieve and maintain an overall income tax rate approximately equal to the rate used in preparing our pro forma financial statements could materially adversely affect our business and our results of operations and would materially adversely alter our pro forma financial information.

 

A number of our managing directors and other professional employees own rights to participate in the equity value, but not the earnings, in one of the principal operating subsidiaries of our Asset Management business, which could result in those persons receiving additional payments due to future actions with respect to that business.

 

The managing directors of LAM and other LAM employees hold LAM equity units. These LAM equity units entitle their holders to payments in connection with selected fundamental transactions affecting Lazard Group or LAM, including a dissolution or a sale of all or substantially all of the assets of Lazard Group or LAM, a merger of, or sale of all of the interests in, LAM whereby Lazard Group ceases to own a majority of or have the right to appoint a majority of the board of LAM, or a non-ordinary course sale of assets by LAM that exceeds $50 million in value. These persons will not receive LAZ-MD Holdings exchangeable interests in connection with the separation and recapitalization transactions, but will retain their existing LAM equity units.

 

As a general matter, in connection with a fundamental transaction that triggers the LAM equity units, the holders of the LAM equity units would be entitled in the aggregate to 21.75% of the net proceeds or imputed valuation of LAM in such transaction after deductions for payment of creditors of LAM and the return of capital in LAM. Holders of LAM equity units may not necessarily be employed by us at the time of such event, and to the extent that their units were vested, they would remain entitled to any such payment. As of December 31, 2004, LAM’s capital for these purposes totaled approximately $70 million, of which approximately $18 million was owned by the managing directors and employee members of LAM, with the remainder owned by us through our subsidiaries. On and after January 1, 2006, the board of directors of LAM, a majority of which is appointed by us, may in its discretion, grant, subject to specified vesting conditions, LAM equity interests that include profit rights to managing directors of, and other persons providing services to, LAM, as a portion of their ongoing compensation. The provisions of the LAM limited liability company agreement that govern the LAM equity units may impair our ability to sell assets or securities of LAM in the future or otherwise limit our operational flexibility and could result in a substantial amount of consideration being payable to key employees of our Asset Management business, impairing our ability to retain these persons and adversely affecting our business, results of operations or financial condition.

 

Risks Related to the Separation

 

Reorganizing our business from a privately held firm to a publicly traded company may adversely affect our ability to recruit, retain and motivate key employees.

 

In connection with this offering, the working members will receive LAZ-MD Holdings exchangeable interests that will in the future be effectively exchangeable for shares of our common stock. Our managing directors who are working members will receive these LAZ-MD Holdings exchangeable interests, other than the managing directors of LAM, who will continue to hold their LAM equity units. The ownership of, and the ability to realize equity value from, these LAZ-MD Holdings

 

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exchangeable interests and underlying shares of our common stock will not be dependent upon a managing director’s continued employment with our company, and our managing directors will no longer be restricted from leaving Lazard by the potential loss of the value of these membership interests. In addition, assuming these LAZ-MD Holdings exchangeable interests were exchangeable at the time of this offering and were all so exchanged, our managing directors would collectively hold shares of common stock representing approximately           % of the outstanding shares of our common stock immediately after this offering (or approximately           % assuming the underwriters’ over-allotment option is exercised in full). These shares of common stock, upon full exchange, will ultimately be a more liquid security than their current membership interests in Lazard Group.

 

The LAZ-MD Holdings exchangeable interests will be subject to restrictions on transfer and the timing of exchange. Most of these restrictions on the timing of exchange will survive for only a limited period and will permit our managing directors to leave Lazard without losing any of their LAZ-MD Holdings exchangeable interests or underlying shares of common stock. In addition, we have agreed that working members, including our non-LAM managing directors, who had capital interests at Lazard Group that are exchanged in the separation for capital interests in LAZ-MD Holdings will have those LAZ-MD Holdings capital interests redeemed in four equal installments on each of the first four anniversaries of this offering. We expect that, after the separation, our managing directors will hold approximately $             million of the LAZ-MD Holdings redeemable capital interests. For a description of the terms of these exchangeable interests, see “Management—Arrangements with Our Managing Directors—The Retention Agreements.” Consequently, the steps we have taken to encourage the continued service of these individuals after this offering may not be effective.

 

In addition, after this offering, our policy will be to set our total compensation and benefits expense, including amounts payable to our managing directors, at a level not to exceed 57.5% of our operating revenue, such that after considering other operating costs we may realize our operating profit margin goals. Prior to this offering, compensation and benefits expense (calculated excluding amounts related to the separated businesses but including payments for minority interest for services rendered by LAM managing directors and employee members of LAM and services rendered by other managing directors) was approximately 74% of operating revenue for the year ended December 31, 2004. As a result, our managing directors may receive less income than they otherwise would have received prior to this offering, and such reduction (and the belief that a reduction may occur) could make it more difficult to retain them. While we believe this offering should promote retention and recruitment, some managing directors and other employees may be more attracted to the benefits of working at a private, controlled partnership and the prospects of becoming a partner. The impact of the separation on our managing directors and other employee retention and recruitment is uncertain. For a description of the compensation plan for our senior professionals to be implemented after this offering, see “Management.”

 

Our financial performance depends on our ability to achieve our target compensation expense level, and the failure to achieve this target level may materially adversely affect our results of operations and financial position.

 

A key driver of our profitability is our ability to generate revenue while achieving our compensation expense levels. During 2002, 2003 and 2004, following the hiring of new senior management, we invested significant amounts in the recruitment and retention of senior professionals in an effort to reinvest in the intellectual capital of our business. We made distributions to our managing directors that exceeded our net income allocable to members in respect of 2002, 2003 and 2004.

 

Following the completion of this offering, we intend to operate at our target level of employee compensation and benefits expense, which may entail reducing payments to our managing directors. Prior to this offering, compensation and benefits expense (calculated excluding amounts related to the separated businesses but including payments for minority interest for services rendered by LAM

 

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managing directors and employee members of LAM and services rendered by other managing directors) was approximately 74% of operating revenue for the year ended December 31, 2004. Following the completion of this offering, our policy will be that our employee compensation and benefits expense will not exceed 57.5% of operating revenue each year. Increased competition for senior professionals, changes in the financial markets generally or other factors could prevent us from reaching this objective. Failure to achieve this target ratio may materially adversely affect our results of operations and financial position. For more information on our compensation and benefits expense, see “Unaudited Pro Forma Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Measures and Indicators—Net Income Allocable to Members.”

 

Lazard will be controlled by LAZ-MD Holdings and, through the LAZ-MD stockholders’ agreement, by the working members, whose interests may differ from those of other stockholders.

 

Upon the completion of this offering, LAZ-MD Holdings will hold our Class B common stock. Pursuant to the LAZ-MD Holdings stockholders’ agreement, the members of LAZ-MD Holdings will individually be entitled to direct LAZ-MD Holdings how to vote their proportionate interest in our Class B common stock on an as-if-exchanged basis. The voting power associated with the Class B common stock is intended to mirror the working members’ indirect economic interest in Lazard Group. After this offering, through the LAZ-MD Holdings stockholders’ agreement, the working members will be effectively able to exercise control over all matters requiring stockholder approval, including the election of all directors and approval of significant corporate transactions, and other matters affecting the working members. This voting power may have the effect of delaying or preventing a change in control of Lazard. See “—We may have potential business conflicts of interest with LAZ-MD Holdings and LFCM Holdings with respect to our past and ongoing relationships that could harm our business operations,” “The Separation and Recapitalization Transactions and the Lazard Organizational Structure,” “Management,” “Principal Stockholders,” “Certain Relationships and Related Transactions” and “Description of Capital Stock.”

 

The historical financial information of Lazard Group contained in this prospectus may not be representative of our results as a separate, independent public company.

 

Because Lazard Group has operated as a limited liability company that is treated as a partnership for U.S. federal income tax purposes, payments for services rendered by Lazard Group’s managing directors have been accounted for as distributions from members’ capital, or in some cases as minority interest expense. Because Lazard Group historically has operated as an entity treated as a partnership in the U.S., Lazard Group paid little or no taxes on profits in the U.S., other than New York City UBT. As a result, Lazard Group’s operating income has not reflected most payments for services rendered by its managing directors and provision for income taxes has not reflected U.S. corporate federal income taxes.

 

Reorganizing our business from a privately held firm to a publicly traded company may result in increased administrative and regulatory costs and burdens that are not reflected in the historical financial statements of Lazard Group, which could adversely affect our results of operations. Before 2000, our business was operated under separate and independent firms or private limited companies organized on a country-by-country basis. Starting with the unification of our various Houses under Lazard Group in 2000 and continuing with our transition to a publicly traded company, we have sought and are continuing to implement improvements to our administrative functions, including our compliance and control systems. In addition, as we will be a publicly traded company, we will be implementing additional regulatory and administrative procedures and processes for the purpose of addressing the standards and requirements applicable to public companies, including under the Sarbanes-Oxley Act of 2002 and related regulatory initiatives. The costs of implementing these steps may be significant.

 

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Lazard Group’s businesses, including the separated businesses, also have been able to rely, to some degree, on the earnings, assets and cash flow of each other for capital and cash flow requirements. Accordingly, Lazard Group’s historical results of operations and financial position are not necessarily indicative of the consolidated results of operations and financial position of Lazard Group after completion of the separation. For additional information about the past financial performance and the basis of presentation of the historical financial statements, see “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Financial Information” and the Lazard Group historical financial statements and related notes included elsewhere in this prospectus.

 

The pro forma financial information in this prospectus may not permit you to predict our costs of operations, and the estimates and assumptions used in preparing our pro forma financial information may be materially different from our actual experience as a separate, independent company.

 

In preparing the pro forma financial information in this prospectus, we have made adjustments to the historical financial information of Lazard Group based upon currently available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the transactions contemplated by the separation and recapitalization. Some of these adjustments include, among other items, a deduction and charge to earnings of estimated income taxes based on an estimated tax rate, estimated salaries, payroll taxes and benefits for our managing directors. These and other estimates and assumptions used in the calculation of the pro forma financial information in this prospectus may be materially different from our actual experience as a separate, independent company. The pro forma financial information in this prospectus does not purport to represent what Lazard’s or Lazard Group’s results of operations would actually have been had Lazard or Lazard Group operated as a separate, independent company during the periods presented, nor do the pro forma data give effect to any events other than those discussed in the unaudited pro forma financial information and related notes. See “Unaudited Pro Forma Financial Information.”

 

Lazard Group and its predecessors have undergone significant transformations in recent years, and we will continue our efforts to transform our business and operations going forward, which may disrupt the regular operations of our business.

 

Since the unification of the Houses of Lazard in 2000, Lazard Group has experienced a succession of transformative events, including the hiring of Mr. Wasserstein, the retention of new senior management and the hiring or promotion of a large number of new managing directors, as well as this offering and the separation and recapitalization transactions. Lazard Group’s efforts to transform our businesses are expected to continue following the completion of this offering, including by seeking to implement standards and procedures required of public companies such as certifications and compliance with the internal controls requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act.” The continued evolution of Lazard Group may have resulted, and in the future may result, in disruption to the regular operations of our business, including our ability to attract and complete current and future engagement opportunities with clients, increased difficulty in retaining senior professionals and managing and growing our businesses, the occurrence of any of which could materially adversely affect our business, financial condition and results of operations.

 

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

 

We are in the process of documenting and testing our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent auditors addressing these assessments within a specified time period

 

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following the completion of this offering. During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, if we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business and on our stock price.

 

LAZ-MD Holdings, Lazard Group, LFCM Holdings and we will enter into various arrangements, including the master separation agreement, which will contain cross-indemnification obligations of LAZ-MD Holdings, Lazard Group, LFCM Holdings and us, that any party may be unable to satisfy.

 

The master separation agreement that we intend to enter into with Lazard Group, LAZ-MD Holdings and LFCM Holdings will provide, among other things, that LFCM Holdings generally will indemnify us, Lazard Group and LAZ-MD Holdings for losses that we incur arising out of, or relating to, the separated businesses and the businesses conducted by LFCM Holdings and losses that we, Lazard Group or LAZ-MD Holdings incur arising out of, or relating to, LFCM Holdings’ breach of the master separation agreement. In addition, LAZ-MD Holdings generally will indemnify us, Lazard Group and LFCM Holdings for losses that we incur arising out of, or relating to, LAZ-MD Holdings’ breach of the master separation agreement. Our ability to collect under the indemnities from LAZ-MD Holdings or LFCM Holdings depends on their financial position. For example, persons may seek to hold us responsible for liabilities assumed by LAZ-MD Holdings or LFCM Holdings. If these liabilities are significant and we are held liable for them, we may not be able to recover any or all of the amount of those losses from LAZ-MD Holdings or LFCM Holdings should either be financially unable to perform under their indemnification obligations.

 

We currently have a number of ongoing obligations that, pursuant to the master separation agreement, LFCM Holdings is assuming. For example, we intend to sublease excess office space to LFCM Holdings. LFCM Holdings will make payments under the sublease up to a maximum of $             in the aggregate under these sublease arrangements. In addition, as reflected in the notes to our consolidated financial statements, as of December 31, 2004, our principal U.K. pension plan had a deficit of approximately $95 million under current actuarial assumptions. This deficit would ordinarily be funded over time. We are in discussions with the trustees of that pension plan aimed at reaching agreement regarding a deficit reduction plan as well as asset allocation. We anticipate that LFCM Holdings will make payments of up to a maximum of $             in the aggregate to Lazard Group to reduce the pension plan deficit. See “Certain Relationships and Related Transactions.” In the event that LFCM Holdings is unable to perform under such arrangements for any reason, we would remain fully liable.

 

In addition, Lazard Group generally will indemnify LFCM Holdings and LAZ-MD Holdings for liabilities related to Lazard Group’s businesses and Lazard Group will indemnify LFCM Holdings and LAZ-MD Holdings for losses that they incur to the extent arising out of, or relating to, Lazard Group’s or our breach of the master separation agreement. Several of the ancillary agreements that Lazard Group will enter into together with the master separation agreement also provide for separate indemnification arrangements. For example, under the administrative services agreement, Lazard Group will provide a range of services to LFCM Holdings after the separation and recapitalization, including information technology, general office and building services and financing and accounting services, and LFCM Holdings will generally indemnify Lazard Group for liabilities that Lazard Group incurs arising from the provision of these services absent Lazard Group’s intentional misconduct. Lazard Group may face claims for indemnification from LFCM Holdings and LAZ-MD Holdings under these provisions regarding matters for which Lazard Group has agreed to indemnify them. If these liabilities are

 

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significant, Lazard Group may be required to make substantial payments, which could materially adversely affect our results of operations.

 

We will have potential conflicts of interest with LAZ-MD Holdings and LFCM Holdings, and LAZ-MD Holdings and LFCM Holdings could each act in a way that favors its interests to our detriment.

 

Immediately following this offering, LAZ-MD Holdings will hold approximately           % of our voting power through our single share of Class B common stock and           % of the outstanding Lazard Group common membership interests. In addition, LAZ-MD Holdings’ board of directors will be composed of four individuals, all of whom are managing directors or officers of our company, including our Vice Chairman and our President. The voting and equity ownership of LAZ-MD Holdings and its members, and the service of officers and managing directors of our company as directors of LAZ-MD Holdings, could create conflicts of interest when LAZ-MD Holdings and those directors and officers are faced with decisions that could have different implications for LAZ-MD Holdings and us, including potential acquisitions of businesses, the issuance or disposition of securities by us, the election of new or additional directors of Lazard Ltd, the payment of dividends by Lazard Ltd and Lazard Group, our relationship with LFCM Holdings and other matters. We also expect that LAZ-MD Holdings will manage its ownership of us so that it will not be deemed to be an investment company under the Investment Company Act, including by maintaining its voting power in Lazard Ltd above a majority absent an applicable exemption from the Act. This may result in conflicts with us, including those relating to acquisitions or offerings by us involving issuances of our common stock or securities convertible or exchangeable into shares of our common stock that would dilute LAZ-MD Holdings’ voting power in Lazard.

 

Since the members of LAZ-MD Holdings will be entitled to individually direct the vote of our Class B common stock on an as-if-exchanged basis and will also own and control LFCM Holdings, their control of LAZ-MD Holdings and the vote of the share of our Class B common stock gives rise to potential conflicts between LFCM Holdings and LAZ-MD Holdings, on the one hand, and our company, on the other hand, as discussed below.

 

In addition, Mr. Wasserstein, our Chairman and Chief Executive Officer, serves as the Chairman and is the majority owner of Wasserstein Holdings, LLC, the ultimate general partner of Wasserstein & Co., LP, a separate merchant banking firm that may compete with LFCM Holdings’ or our merchant banking fund management activities. See “Certain Relationships and Related Transactions—Certain Relationships with Our Directors, Executive Officers and Employees—Relationships Involving Employee Directors and Executive Officers.”

 

We may have potential business conflicts of interest with LAZ-MD Holdings and LFCM Holdings with respect to our past and ongoing relationships that could harm our business operations.

 

Pursuant to the LAZ-MD Holdings stockholders’ agreement, LAZ-MD Holdings will vote the single share of Class B common stock, which immediately following this offering will represent approximately           % of our voting power, as directed by its individual members, all of whom are working members, including managing directors of our business. These same persons will own and control LFCM Holdings, which will hold the separated businesses. In addition, our President will be the Chairman of LFCM Holdings, and several employees of Lazard will provide services to LFCM Holdings. Conflicts of interest may arise between LFCM Holdings and us in a number of areas relating to our past and ongoing relationships, including:

 

  Ÿ   labor, tax, employee benefits, indemnification and other matters arising from the separation,

 

  Ÿ   intellectual property matters,

 

  Ÿ   business combinations involving us,

 

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  Ÿ   business operations or business opportunities of LFCM Holdings or us that would compete with the other party’s business opportunities, including investment banking by us and the management of merchant banking funds by LFCM Holdings, particularly as some of the managing directors will provide services to LFCM Holdings,

 

  Ÿ   the terms of the master separation agreement and related ancillary agreements, including the operation of the merchant banking fund management business and Lazard Group’s option to purchase the business,

 

  Ÿ   the nature, quality and pricing of administrative services to be provided by us, and

 

  Ÿ   the provision of services by two of our managing directors to LFCM Holdings.

 

In addition, the administrative services agreement commits us to provide a range of services to LFCM Holdings and LAZ-MD Holdings, which could require the expenditure of significant amounts of time by our management. Our agreements with LAZ-MD Holdings and LFCM Holdings may be amended upon agreement of the parties to those agreements. During the time that we are controlled by LAZ-MD Holdings, LAZ-MD Holdings may be able to require us to agree to amendments to these agreements. We may not be able to resolve any potential conflicts and, even if we do, the resolution may be less favorable to us than if we were dealing with an unaffiliated party.

 

The use of the “Lazard” brand name by subsidiaries of LFCM Holdings may expose us to reputational harm that could affect our operations and adversely affect our financial position should these subsidiaries take actions that damage the brand name.

 

The “Lazard” brand name has over 150 years of heritage, connoting, we believe, world-class professional advice, independence and global capabilities with deeply rooted, local know-how. After the separation, LFCM Holdings will operate as a separate legal entity, and Lazard Group will license to subsidiaries of LFCM Holdings that operate the separated businesses the use of the “Lazard” brand name for certain specified purposes, including in connection with merchant banking fund management and capital markets activities. As these subsidiaries of LFCM Holdings historically have and will continue to use the “Lazard” brand name, and because after the separation we will no longer control these entities, there is a risk of reputational harm to us if these subsidiaries have, or in the future, were to, among other things, engage in poor business practices, experience adverse results or otherwise damage the reputational value of the “Lazard” brand name. These risks could expose us to liability and also may adversely affect our revenue and our business prospects.

 

Our subsidiaries will be required to pay LAZ-MD Holdings for most of the benefit relating to any additional tax depreciation or amortization deductions our subsidiaries may claim as a result of the tax basis step-up our subsidiaries receive in connection with this offering and related transactions.

 

Prior to, and in connection with, this offering, historical partner interests and preferred interests generally will be redeemed for cash. In addition, LAZ-MD Holdings exchangeable interests may, in effect, be exchanged in the future for shares of our common stock. The redemption will, and the exchanges may, result in increases in the tax basis of the tangible and intangible assets of Lazard Group attributable to our subsidiaries’ interest in Lazard Group that otherwise would not have been available. These increases in tax basis may reduce the amount of tax that our subsidiaries would otherwise be required to pay in the future, although the IRS may challenge all or part of that tax basis increase, and a court could sustain such a challenge.

 

Our subsidiaries intend to enter into a tax receivable agreement with LAZ-MD Holdings that will provide for the payment by our subsidiaries to LAZ-MD Holdings of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that our subsidiaries

 

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actually realize as a result of these increases in tax basis and of certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. We expect to benefit from the remaining 15% of cash savings, if any, in income or franchise tax that our subsidiaries realize. Our subsidiaries will have the right to terminate the tax receivable agreement at any time for an amount based on an agreed value of certain payments remaining to be made under the tax receivable agreement at such time. While the actual amount and timing of any payments under this agreement will vary depending upon a number of factors, including the timing of exchanges, the extent to which such exchanges are taxable and the amount and timing of our income, we expect that, as a result of the size of the increases in the tax basis of the tangible and intangible assets of Lazard Group attributable to our subsidiaries’ interest in Lazard Group, during the expected 24-year term of the tax receivable agreement, the payments that our subsidiaries may make to LAZ-MD Holdings could be substantial. If the LAZ-MD Holdings exchangeable interests had been effectively exchanged in a taxable transaction for common stock at the time of the closing of this offering, the increase in the tax basis attributable to our subsidiaries’ interest in Lazard Group would have been approximately $         million, assuming an initial offering price of $     per share of common stock (the midpoint of the range of initial public offering prices set forth on the cover of this prospectus), including the increase in tax basis associated with the redemption and recapitalization. The cash savings that our subsidiaries would actually realize as a result of this increase in tax basis likely would be less than this amount multiplied by our effective tax rate due to a number of factors, including the allocation of the increase in tax basis to foreign assets, the impact of the increase in the tax basis on our ability to use foreign tax credits and the rules relating to the amortization of intangible assets. The tax receivable agreement will require approximately 85% of such cash savings, if any, to be paid to LAZ-MD. The actual increase in tax basis will depend, among other factors, upon the price of shares of our common stock at the time of the exchange and the extent to which such exchanges are taxable and, as a result, could differ materially from this amount. Any amount paid by our subsidiaries to LAZ-MD Holdings will generally be distributed to the working members in proportion to their goodwill interests underlying the working member interests held by or allocated to such persons immediately prior to the separation. Our ability to achieve benefits from any such increase, and the payments to be made under this agreement, will depend upon a number of factors, as discussed above, including the timing and amount of our future income.

 

In addition, if the IRS successfully challenges the tax basis increase, under certain circumstances, our subsidiaries could make payments to LAZ-MD Holdings under the tax receivable agreement in excess of our subsidiaries’ cash tax savings. See “The Separation and Recapitalization Transactions and the Lazard Organizational Structure—The Separation and Recapitalization Transactions—The Recapitalization of LAZ-MD Holdings and Lazard Group—The Redemption of the Historical Partners’ Interests” and “Certain Relationships and Related Transactions—Relationship with LAZ-MD Holdings and LFCM Holdings—Master Separation Agreement—LAZ-MD Holdings Exchangeable Interests.”

 

The separation and recapitalization transactions may be challenged by creditors as a fraudulent transfer or conveyance, and, should a court agree with such a challenge, equityholders and creditors of the entity held liable could be adversely affected.

 

While we do not believe that any of the separation and recapitalization transactions will result in a fraudulent conveyance or transfer, if a court in a suit by an unpaid creditor or representative of creditors of Lazard Group, Lazard Ltd, LAZ-MD Holdings or LFCM Holdings, such as a trustee in bankruptcy, or Lazard Group, Lazard Ltd, LAZ-MD Holdings or LFCM Holdings itself, as debtor-in-possession in a reorganization case under Title 11 of the U.S. Bankruptcy Code, were to find that:

 

  Ÿ   any of the separation and recapitalization transactions (or any related transactions) were undertaken for the purpose of hindering, delaying or defrauding creditors of Lazard Group, Lazard Ltd, LAZ-MD Holdings or LFCM Holdings (as applicable), or

 

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  Ÿ   Lazard Group, Lazard Ltd, LAZ-MD Holdings or LFCM Holdings (as applicable) received less than reasonably equivalent value or fair consideration in connection with any of the separation and recapitalization transactions and (i) Lazard Group, Lazard Ltd, LAZ-MD Holdings or LFCM Holdings (as applicable) was insolvent immediately prior to, or was rendered insolvent by, the separation or recapitalization transactions, (ii) Lazard Group, Lazard Ltd, LAZ-MD Holdings or LFCM Holdings (as applicable) immediately prior to, or as of the effective time of, the completion of any of the separation and recapitalization transactions, and after giving effect thereto, intended or believed that it would be unable to pay its debts as they became due, or (iii) the capital of Lazard Group, Lazard Ltd, LAZ-MD Holdings or LFCM Holdings (as applicable) immediately prior to or, at the effective time of, the completion of any of the separation and recapitalization transactions, and after giving effect thereto, was inadequate to conduct its business,

 

then that court could determine that any of the separation and recapitalization transactions violated applicable provisions of the U.S. Bankruptcy Code or applicable state fraudulent transfer or conveyance laws. This determination would permit the bankruptcy trustee, debtor-in-possession or unpaid creditors to rescind the separation or recapitalization transactions, to subordinate or render unenforceable the debt incurred in furtherance thereof, or to require Lazard Group, Lazard Ltd, LAZ-MD Holdings or LFCM Holdings or the historical partners, as the case may be, to fund liabilities for the benefit of creditors. Equityholders and creditors of the entity held liable as a result of such determination would be adversely affected to the extent such entity is required to surrender value to satisfy its liability.

 

The measure of insolvency for purposes of the foregoing considerations will vary depending upon the law of the jurisdiction that is being applied. Generally, however, an entity would be considered insolvent if:

 

  Ÿ   the sum of its liabilities, including contingent liabilities, is greater than its assets, at a fair valuation,

 

  Ÿ   the present fair saleable value of its assets is less than the amount required to pay the probable liability on its total existing debts and liabilities, including contingent liabilities, as they become absolute and matured, or

 

  Ÿ   it is generally not paying its debts as they become due.

 

Similar provisions would also apply in any other jurisdiction in which the separation and recapitalization transactions take effect.

 

If we were deemed an “investment company” under the Investment Company Act as a result of our ownership of Lazard Group, applicable restrictions could make it impractical for us to continue our business as contemplated and could materially adversely affect our business, financial condition and results of operation.

 

We do not believe that Lazard Ltd will be an “investment company” under the Investment Company Act after completion of the separation and recapitalization, because Lazard Ltd will have the power to appoint and remove the Lazard Group managing member. If Lazard Ltd were to cease participation in the management of Lazard Group or not be deemed to have a majority of the voting power of Lazard Group, its interest in Lazard Group could be deemed an “investment security” for purposes of the Investment Company Act. Similarly, we do not believe that LAZ-MD Holdings will be an “investment company” under the Investment Company Act after completion of the separation and recapitalization, because LAZ-MD Holdings will initially hold a majority of Lazard Ltd’s voting power through our Class B common stock, and Lazard Ltd owns a majority of the voting power of Lazard Group. If LAZ-MD Holdings ceases to hold a majority of the voting power of Lazard Ltd, or Lazard Ltd

 

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ceases to hold a majority of the voting power of Lazard Group, LAZ-MD Holdings’ interests in Lazard Group could be deemed an “investment security” for purposes of the Investment Company Act. Generally, a person is an “investment company” if it owns investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items), absent an applicable exemption. Following this offering, Lazard Ltd will have no material assets other than direct and indirect ownership of Lazard Group common membership interests and its controlling interest in Lazard Group. A determination that this investment was an investment security could result in Lazard Ltd being an investment company under the Investment Company Act and becoming subject to the registration and other requirements of the Investment Company Act. Similarly, LAZ-MD Holdings will have no material assets other than its ownership of Lazard Group common membership interests, our Class B common stock and cash. A reduction of LAZ-MD Holdings’ voting power in Lazard Ltd to less than a majority or a determination that the Lazard Group common membership interests is an investment security could result in LAZ-MD Holdings being an investment company under the Investment Company Act, unless an exemption is available, and becoming subject to the registration and other requirements of the Investment Company Act.

 

The Investment Company Act and the rules thereunder contain detailed prescriptions for the organization and operations of investment companies. Among other things, the Investment Company Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, prohibit the issuance of stock options, and impose certain governance requirements. We intend to conduct our operations, and expect that LAZ-MD Holdings will conduct its operations, so that neither Lazard Ltd nor LAZ-MD Holdings, respectively, will be deemed to be an investment company under the Investment Company Act. However, if anything were to happen which would cause Lazard Ltd or LAZ-MD Holdings to be deemed to be an investment company under the Investment Company Act, requirements imposed by the Investment Company Act, including limitations on its or our capital structure, ability to transact business with affiliates (including LAZ-MD Holdings or us, as the case may be) and ability to compensate key employees, could make it impractical for us to continue our business as currently conducted, impair the agreements and arrangements, including the master separation agreement and related agreements and the transactions contemplated by those agreements, between and among Lazard Ltd, LAZ-MD Holdings, Lazard Group and LFCM Holdings or any combination thereof and materially adversely affect our business, financial condition and results of operations.

 

Risks Related to the Offering

 

Because there has not been any public market for securities of Lazard Ltd, the market price and trading volume of our common stock may be volatile, and you may not be able to resell your shares at or above the initial public offering price.

 

Prior to this offering, there has been no public market for our securities, including our common stock, or those of Lazard Group. Although we intend to file an application to have our common stock listed on the NYSE, an active public market for our common stock may not develop. The price of our common stock in this offering will be determined through negotiations between us and the underwriters. The negotiated price of this offering may not be indicative of the market price of the common stock after this offering. The market price of the common stock could be subject to significant fluctuations due to factors such as:

 

  Ÿ   actual or anticipated fluctuations in our financial condition or results of operations,

 

  Ÿ   success of operating strategies, and our perceived prospects and the financial services industry in general,

 

  Ÿ   realization of any of the risks described in this section,

 

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  Ÿ   failure to be covered by securities analysts or failure to meet securities analysts’ expectations, and

 

  Ÿ   decline in the stock prices of peer companies.

 

As a result, shares of our common stock may trade at prices significantly below the price of this offering. Declines in the price of our stock may adversely affect our ability to recruit and retain key employees, including our managing directors and other key professional employees.

 

You will experience immediate and substantial dilution in the book value of your common stock, and, should we be liquidated at our book value, investors would not receive the full amount of their investment.

 

Purchasers of our common stock offered pursuant to this prospectus (assuming the exchange of all outstanding Lazard Group common membership interests and related issuance of shares of common stock) will experience an immediate dilution in net tangible book value of $           per share of common stock purchased. Accordingly, should we be liquidated at our book value, investors would not receive the full amount of their investment. See “Dilution.”

 

Our share price may decline due to the large number of shares eligible for future sale and for exchange.

 

Sales of substantial amounts of our common stock by our managing directors and others, or the possibility of such sales, may adversely affect the price of our common stock and impede our ability to raise capital through the issuance of equity securities. See “Shares Eligible for Future Sale.” Upon consummation of this offering, there will be                  shares of common stock outstanding (or                  shares of common stock if the underwriters exercise their over-allotment option in full). Of these shares of common stock,                  shares of common stock sold in this offering (or                  shares of common stock if the underwriters exercise their over-allotment option in full) will be freely transferable without restriction or further registration under the Securities Act of 1933, as amended, or the “Securities Act,” unless such shares are held by an affiliate. The remaining                  shares of common stock generally will be available for future sale upon the expiration or waiver of transfer restrictions applicable to such restricted shares or registration of those shares. In addition,                  shares of our common stock will, after this offering, be issuable upon the full exchange of the LAZ-MD Holdings exchangeable interests, which will be entitled to registration rights under the terms of the LAZ-MD Holdings stockholders’ agreement. In light of the number of shares of our common stock issuable in connection with the full exchange of the LAZ-MD Holdings exchangeable interests and the securities to be issued in the additional financing transactions, the price of our common stock may decrease and our ability to raise capital through the issuance of equity securities may be adversely impacted as these exchanges occur and transfer restrictions lapse.

 

As reflected in the table below, LAZ-MD Holdings exchangeable interests will be effectively exchangeable into common stock, and thereafter that common stock will become available for sale in significant numbers. In addition, LAZ-MD Holdings and certain of our subsidiaries have the right to cause the holders of LAZ-MD Holdings exchangeable interests to exchange all such remaining interests during the 30-day period following the ninth anniversary of this offering. Lazard Group will have the ability to accelerate the exchangeability of these LAZ-MD Holdings exchangeable interests in some circumstances and may waive the transfer restrictions. For a discussion of these exchange and transfer restrictions, see “Certain Relationships and Related Transactions—Relationship with LAZ-MD Holdings and LFCM Holdings—Master Separation Agreement—LAZ-MD Holdings Exchangeable Interests.” We expect to register the shares received by the working members pursuant to the exchange for resale by such persons from time to time as well. Persons exchanging their LAZ-MD Holdings exchangeable interests are likely to sell all or a portion of their common stock promptly after

 

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exchange to provide liquidity to cover any taxes that may be payable upon such exchange or in response to the reduction in their income in connection with our transition to a public company or to diversify their portfolios.

 

The following table reflects the timetable for exchangeability of the LAZ-MD Holdings exchangeable interests assuming continued employment of the current managing directors, although exchangeability may be accelerated under certain circumstances as described in “Management—Arrangements with Our Managing Directors—The Retention Agreements—LAZ-MD Holdings Exchangeable Interests” and “Certain Relationships and Related Transactions—Relationship with LAZ- MD Holdings and LFCM Holdings —Master Separation Agreement—LAZ-MD Holdings Exchangeable Interests.”

 

Anniversary of offering

    Number of additional shares of common stock that
are expected to become available for exchange
under LAZ-MD Holdings exchangeable interests
First     
Second     
Third     
Fourth     
Fifth     
Sixth     
Seventh     
Eighth     

 

See “Shares Eligible for Future Sale.”

 

In addition, the additional financing transactions will include securities that effectively are exchangeable into              shares of our common stock on the third anniversary of the consummation of this offering. The shares of our common stock that IXIS will acquire as part of the additional financing transactions generally may not be transferred for a period of 545 days from the date of purchase, but thereafter may be transferred or sold under certain circumstances. See “Description of Capital Stock—IXIS Investment in Our Common Stock.” Under limited, agreed upon circumstances, a few of our European managing directors will have the right to cause an early exchange of a portion of their exchangeable interests. In addition, between the first and third anniversaries of this offering, a limited number of our managing directors will be entitled to exchange a portion of their LAZ-MD Holdings exchangeable interests in connection with their anticipated future retirement from us. Our working partners who hold historical partner interests and elect to exchange those interests for shares of our common stock in lieu of the cash consideration in the redemption will hold shares of our common stock after this offering that will be available for resale upon expiration of the underwriters’ lock-up arrangements, subject to compliance with the Securities Act. See “The Separation and Recapitalization Transactions and the Lazard Organizational Structure—The Separation and Recapitalization Transactions—The Recapitalization of LAZ-MD Holdings and Lazard Group” and “The Separation and Recapitalization Transactions and the Lazard Organizational Structure—The Separation and Recapitalization Transactions—Exchange of Working Member Interests for LAZ-MD Holdings Interests.”

 

Our only material asset after completion of this offering will be our indirect interests in Lazard Group, and we are accordingly dependent upon distributions from Lazard Group to pay dividends and taxes and other expenses.

 

Lazard Ltd will be a holding company and will have no material assets other than the indirect ownership of approximately         % of the common membership interests in Lazard Group that Lazard Ltd will acquire in connection with this offering and Lazard Ltd’s holding of a controlling interest in

 

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Lazard Group through its managing member position in an entity that is the managing member of Lazard Group. We have no independent means of generating revenue. Our wholly-owned subsidiaries will incur income taxes on their proportionate share of any net taxable income of Lazard Group in their respective tax jurisdictions. We intend to cause Lazard Group to make distributions to its members, including our wholly-owned subsidiaries, in an amount sufficient to cover all applicable taxes payable and dividends, if any, declared by us. To the extent that our subsidiaries need funds to pay taxes on their share of Lazard Group’s net taxable income, or if Lazard Ltd needs funds for any other purpose, and Lazard Group is restricted from making such distributions under applicable law or regulation, or is otherwise unable to provide such funds, it could materially adversely affect our business, financial condition or results of operations. See “Dividend Policy.”

 

We may issue preference shares and our bye-laws and Bermuda law may discourage takeovers, which could affect the rights of holders of our common stock.

 

Following this offering, the ownership of the Class B common stock will give LAZ-MD Holdings and, through the LAZ-MD Holdings stockholders’ agreement, the members of LAZ-MD Holdings, voting control of us and will have the effect, among other things, of preventing a change in control of us without LAZ-MD Holdings’ consent. Additionally, following this offering, our board of directors will have the authority to issue up to 15,000,000 preference shares without any further vote or action by the stockholders, in accordance with the provisions of our bye-laws. Since the preference shares could be issued with liquidation, dividend and other rights superior to those of the common stock, the rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any such preference shares. The issuance of preference shares could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. Further, the provisions of our bye-laws including our classified board and the ability of stockholders to remove directors only for cause, and of Bermuda law, could have the effect of delaying or preventing a change in control of us. See “Description of Capital Stock.”

 

We are incorporated in Bermuda, and a significant portion of our assets are located outside the U.S. As a result, it may not be possible for stockholders to enforce civil liability provisions of the U.S. federal or state securities laws.

 

We are incorporated under the laws of Bermuda, and a significant portion of our assets are located outside the U.S. It may not be possible to enforce court judgments obtained in the U.S. against us in Bermuda, or in countries other than the U.S. where we have assets, based on the civil liability provisions of the federal or state securities laws of the U.S. In addition, there is some doubt as to whether the courts of Bermuda and other countries would recognize or enforce judgments of U.S. courts obtained against us or our directors or officers based on the civil liabilities provisions of the federal or state securities laws of the U.S. or would hear actions against us or those persons based on those laws. We have been advised by our legal advisors in Bermuda that the U.S. and Bermuda do not currently have a treaty providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the U.S. based on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically be enforceable in Bermuda. Similarly, those judgments may not be enforceable in countries other than the U.S. where we have assets.

 

Bermuda law differs from the laws in effect in the U.S. and may afford less protection to stockholders.

 

Our stockholders may have more difficulty protecting their interests than would stockholders of a corporation incorporated in a jurisdiction of the U.S. As a Bermuda company, we are governed by the Companies Act. The Companies Act differs in some material respects from laws generally applicable to U.S. corporations and stockholders, including the provisions relating to interested directors, mergers,

 

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amalgamations and acquisitions, takeovers, stockholder lawsuits and indemnification of directors. See “Description of Capital Stock—Delaware Law” and “Certain Relationships and Related Transactions—Certain Relationships with Our Directors, Executive Officers and Employees—Director and Officer Indemnification.”

 

Under Bermuda law, the duties of directors and officers of a company are generally owed to the company only. Stockholders of Bermuda companies generally do not have rights to take action against directors or officers of the company, and may only do so in limited circumstances. Officers of a Bermuda company must, in exercising their powers and performing their duties, act honestly and in good faith with a view to the best interests of the company and must exercise the care and skill that a reasonably prudent person would exercise in comparable circumstances. Directors have a duty not to put themselves in a position in which their duties to the company and their personal interests may conflict and also are under a duty to disclose any personal interest in any contract or arrangement with the company or any of its subsidiaries. If a director or officer of a Bermuda company is found to have breached his duties to that company, he may be held personally liable to the company in respect of that breach of duty. A director may be liable jointly and severally with other directors if it is shown that the director knowingly engaged in fraud or dishonesty. In cases not involving fraud or dishonesty, the liability of the director will be determined by the Bermuda courts on the basis of their estimation of the percentage of responsibility of the director for the matter in question, in light of the nature of the conduct of the director and the extent of the causal relationship between his conduct and the loss suffered.

 

In addition, our bye-laws provide that no director shall be liable to the company, any of our stockholders or any other person for the acts, neglects or defaults of any other director, or for any loss or expense happening to the company through the insufficiency or deficiency of title to any property acquired by order of the directors for or on behalf of the company, or for the insufficiency or deficiency of any security in or upon which any of the moneys of the company shall be invested, or for any loss or damage arising from the bankruptcy, insolvency, or tortuous act of any person with whom any moneys, securities or effects shall be deposited, or for any loss occasioned by any error of judgment, omission, default, or oversight on his part, or for any other loss, damage, or misfortune whatever which shall happen in relation to the execution of the duties of his office, provided that such provisions shall not extend to any matter which would render any of them void under the Companies Act.

 

There are provisions in our bye-laws that may require certain of our stockholders to sell their shares to us or to a third party.

 

Our bye-laws provide that if our board of directors determines that we or any of our subsidiaries do not meet, or in the absence of repurchases of shares will fail to meet, the ownership requirements of a limitation on benefits article of any bilateral income tax treaty with the U.S. applicable to us, and that such tax treaty would provide material benefits to us or any of our subsidiaries, we generally have the right, but not the obligation, to repurchase at fair market value (as determined in the good faith discretion of our board) shares of our common stock from any stockholder who beneficially owns more than 0.25% of the outstanding shares of our common stock and who fails to demonstrate to our satisfaction that such stockholder is either (a) a U.S. citizen or (b) a qualified resident of the U.S. or the other contracting state of the applicable tax treaty (as determined for purposes of the relevant provision of the limitation on benefits article of such treaty). IXIS is not subject to this repurchase right with respect to the aggregate number of shares it will acquire pursuant to the IXIS investment agreement.

 

The number of shares that may be repurchased from any such stockholder will equal the product of the total number of shares that we reasonably determine to purchase to ensure ongoing satisfaction of the limitation on benefits article of the applicable tax treaty, multiplied by a fraction, the numerator of

 

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which is the number of shares beneficially owned by such stockholder (other than the aggregate number of shares IXIS will acquire pursuant to the IXIS investment agreement), and the denominator of which is the total number of shares (reduced by the aggregate number of shares IXIS acquires pursuant to the IXIS investment agreement) beneficially owned by such stockholders subject to this repurchase right.

 

Instead of exercising the repurchase right described above, we will have the right, but not the obligation, to cause the transfer to, and procure the purchase by, any U.S. citizen or a qualified resident of the U.S. or the other contracting state of the applicable tax treaty (as determined for purposes of the relevant provision of the limitation on benefits article of such treaty) of the number of outstanding shares beneficially owned by any shareholder that are otherwise subject to repurchase under our bye-laws as described above, at fair market value (as determined in the good faith discretion of our board of directors). See “Description of Share Capital—Acquisition of Shares by Us.”

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

We have made statements under the captions “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and in other sections of this prospectus that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” and the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. In particular, you should consider the numerous risks and uncertainties outlined in “Risk Factors.”

 

These risks and uncertainties are not exhaustive. Other sections of this prospectus may include additional factors which could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations and we do not intend to do so.

 

Forward-looking statements include, but are not limited to, statements about:

 

  Ÿ   our business’ possible or assumed future results of operations and operating cash flows,

 

  Ÿ   our business’ strategies and investment policies,

 

  Ÿ   our business’ financing plans and the availability of short-term borrowing,

 

  Ÿ   our business’ competitive position,

 

  Ÿ   potential growth opportunities available to our business,

 

  Ÿ   the recruitment and retention of our managing directors and employees,

 

  Ÿ   our expected levels of compensation,

 

  Ÿ   our business’ potential operating performance, achievements, productivity improvements, efficiency and cost reduction efforts,

 

  Ÿ   the likelihood of success and impact of litigation,

 

  Ÿ   our expected tax rate,

 

  Ÿ   changes in interest and tax rates,

 

  Ÿ   our expectation with respect to the economy, securities markets, the market for mergers and acquisitions activity, the market for asset management activity and other industry trends,

 

  Ÿ   the benefits to our business resulting from the effects of the separation and recapitalization transactions, including this offering and the additional financing transactions,

 

  Ÿ   the effects of competition on our business, and

 

  Ÿ   the impact of future legislation and regulation on our business.

 

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THE SEPARATION AND RECAPITALIZATION TRANSACTIONS AND

THE LAZARD ORGANIZATIONAL STRUCTURE

 

Pursuant to the series of transactions to be undertaken in connection with the separation and recapitalization, Lazard Ltd will acquire control over the operations and management of Lazard Group, including our business. These transactions, as well as the organizational structure of Lazard giving effect to these transactions and this offering, are described below.

 

Because one of the primary purposes of this offering, the additional financing transactions and the proposed restructuring of Lazard’s operations is to facilitate the redemption of the interests of the historical partners, the representatives of the historical partners on the Lazard Group board of directors do not intend to and will not take any action with respect to these matters. Accordingly, we expect to obtain Lazard Group board approval of these matters on the closing date of this offering after representatives of the historical partners on the Lazard Group board of directors have resigned from the board of directors. The completion of this offering will not occur unless a Lazard Group board approval is obtained.

 

We expect that the directors of Lazard Group that are not resigning will agree, subject to their fiduciary duties, to support and approve the separation and recapitalization transactions, including this offering, prior to or simultaneously with the execution of the underwriting agreement relating to this offering. The final determination as to the completion, timing, structure and terms of these transactions and this offering will be based on financial and business considerations and prevailing market conditions. Pursuant to the master separation agreement that we intend to enter into regarding the separation and recapitalization transactions, Lazard Group has the sole discretion to determine whether or not to complete these transactions and this offering and, if it decides to complete these transactions, the timing of this offering.

 

The Separation and Recapitalization Transactions

 

The Separation

 

Lazard Group currently conducts our business and the separated businesses through its subsidiaries. Prior to the closing of this offering, Lazard Group will transfer the separated businesses from Lazard Group to LFCM Holdings. The separated businesses consist of:

 

  Ÿ   all of Lazard Group’s capital markets business, comprised of its equity, fixed income and convertibles sales and trading, broking, research and underwriting services,

 

  Ÿ   Lazard Group’s merchant banking fund management activities other than its existing merchant banking business in France, and

 

  Ÿ   specified non-operating assets and liabilities.

 

It is our intention that, immediately after the separation, LFCM Holdings will have $         million of members’ equity. After the separation, Lazard Group will prepare a balance sheet setting forth the members’ equity of LFCM Holdings as of the separation. If that amount of members’ equity exceeds the target of $         million of members’ equity, LFCM Holdings will pay to Lazard Group an amount of cash equal to the excess, and if that amount is less than the target, Lazard Group will pay to LFCM Holdings an amount of cash equal to the shortfall.

 

This separation will be effected by, among other things, forming LAZ-MD Holdings as the new holding company for Lazard Group, placing the separated businesses into LFCM Holdings and distributing all of the interests in LFCM Holdings to LAZ-MD Holdings. Lazard Group will retain all of our businesses, consisting primarily of our Financial Advisory and Asset Management businesses. In addition, Lazard Group will be granted options to acquire the North American and European merchant banking businesses of LFCM Holdings pursuant to the business alliance agreement. See “Certain Relationships and Related Transactions—Relationship with LAZ-MD Holdings and LFCM Holdings—

 

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Business Alliance Agreement.” Immediately after the separation, all of the persons who were members of Lazard Group prior to the formation will be members of LAZ-MD Holdings and will cease to hold any membership interests in Lazard Group, all of which will be held by LAZ-MD Holdings. After the recapitalization is completed, LAZ-MD Holdings will then distribute all of the LFCM Holdings interests to its members, such that after this distribution, LFCM Holdings will be wholly-owned by the working members, including our managing directors who are members of LAZ-MD Holdings.

 

The Recapitalization of LAZ-MD Holdings and Lazard Group

 

In connection with the separation, LAZ-MD Holdings and Lazard Group will effect a recapitalization of their companies. The recapitalization has three principal parts—this offering and the additional financing transactions, the redemption of the historical partner interests and redeemable preferred stock and the issuance of the LAZ-MD Holdings exchangeable interests.

 

This Offering and the Additional Financing Transactions

 

This offering is part of the recapitalization. We will use the net proceeds from this offering to acquire our controlling interest in Lazard Group and             % of the common membership interests in Lazard Group. Lazard Group will use the proceeds from our acquisition of Lazard Group common membership interests as described below in “—The Redemption of the Historical Partners’ Interests” and “Use of Proceeds.”

 

In addition to this offering, we intend to complete the additional financing transactions, which consist of the ESU offering, the debt offering and the investments pursuant to the IXIS investment agreement, and we expect such additional financing transactions to result in estimated net proceeds of approximately $             million. The completion of the additional financing transactions and this offering will be conditioned upon the completion of each of the other financings. None of this offering, the ESU offering or the debt offering, however, is conditioned upon the completion of the transactions contemplated by the IXIS investment agreement.

 

Concurrently with this offering, we will offer, by means of a separate prospectus, equity security units for an aggregate offering amount of $           million, plus an additional $             million if the underwriters’ option to purchase additional equity security units is exercised in full. Each unit will consist of (a) a contract which will obligate holders to purchase, and Lazard Ltd to sell, on                 , 2008, a number of newly issued shares of our common stock equal to a settlement rate based on the trading price of our common stock during a period preceding that date and (b) a 1/40, or 2.5%, ownership interest in a senior note of Lazard Group Finance with a principal amount of $1,000. See “Description of the Equity Security Units.”

 

Also concurrently with this offering, we are privately placing senior notes to be issued by Lazard Group for an aggregate offering amount of $           million. The Lazard Group senior notes are being offered only to qualified institutional buyers in an offering exempt from the registration requirements of the Securities Act. See “Description of Indebtedness—Lazard Group Senior Notes.”

 

We have entered into an investment agreement with IXIS as part of the additional financing transactions. Under the investment agreement, IXIS has agreed to purchase an aggregate of $200,000,000 of securities concurrently with this offering, $150,000,000 of which will be debt securities of Lazard Group (or a separate financing subsidiary) that are exchangeable into shares of our common stock and $50,000,000 of which will be shares of our common stock. See “Business—Principal Business Lines—Financial Advisory—Relationship with IXIS.”

 

The Redemption of the Historical Partners’ Interests

 

Lazard Group currently has three general classes of membership interests:

 

  Ÿ   the working member interests, which are owned by working members and consist of capital and the right to participate in profit and goodwill of Lazard Group,

 

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  Ÿ   the historical partner interests, which are owned by the historical partners and consist of capital and the right to participate in profit and goodwill of Lazard Group, and

 

  Ÿ   the mandatorily redeemable preferred interests, which are owned by certain of the historical partners and consist of the right to a preferred dividend of 8% per annum and a fixed liquidation amount.

 

In general, “capital” represents amounts invested in Lazard Group by its members and is subject to repayment at a fixed amount equal to its par value upon the occurrence of fundamental corporate events involving Lazard Group, such as a sale of all or substantially all of the assets of Lazard Group, and under selected other circumstances. The right to participate in goodwill represents the right to share in the net proceeds of fundamental corporate events, after payment of creditors, repayment of the liquidation amount of the preferred interest and the return of capital. The right to participate in profit represents the right to share generally in Lazard Group’s profits and losses, other than in connection with these fundamental corporate events.

 

The historical partner interests generally are entitled to approximately 36.1% of the profits and 44.4% of the goodwill, with the working member interests entitled to the remaining profit and goodwill. The historical partner interests are entitled to approximately $585 million of capital and the working member interests generally are entitled to approximately $             million of capital, in each case as of December 31, 2004. The amount of capital associated with a historical partner interest or a working member interest primarily reflects the total cash and other property contributed by the member to Lazard Group in respect of that interest, less any return of capital, and as adjusted to reflect the allocation of any gains or losses of Lazard Group in respect of that interest and as further positively adjusted from time to time to reflect the revaluation of our business for internal capital account measurement purposes only. Such revaluation is not reflected in our consolidated statement of financial condition. The preferred interests have an aggregate liquidation amount of $100 million.

 

In recent years, in connection with the retention of our new management team and in an effort to reinvest in the intellectual capital of our business, Lazard Group invested significant amounts in the recruitment and retention of senior professionals. This investment resulted in less short-term cash being distributed in respect of the historical partner interests. This led to a divergence of interests concerning the management and future direction of the business. In order to better align the interests of all owners of Lazard and to better position it to capitalize on its long-term strategic goals, the proceeds of this offering and the additional financings will be used primarily to redeem the historical partner interests and preferred interests.

 

As part of the recapitalization transactions, historical partner interests and preferred interests generally will be redeemed for cash. The following table illustrates the redemption price to be paid in respect of the historical partner interests and preferred interests upon the consummation of the offering:

 

     Redemption Price by Class of Interests Held
     Historical Partner Interests
     

Historical Partner Group

    Capital
    Profit/Good-
will Rights
    Preferred
Interests
    Aggregate
Redemption Price
     ($ in millions)

Founding families, including former chairman Michel David-Weill, and Eurazeo S.A.

                    

Other former working members

                    

Bruce Wasserstein (1)

                    

Other current working members

                    

Total

                    
(1) Mr. Wasserstein, who owns substantially all of the historical partner interests held by current working members, has elected to exchange his historical partner interest for shares of our common stock.

 

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As indicated above, some of the working members also hold historical partner interests. This means that in addition to their working member interests,                      of Lazard Group’s current managing directors, including our Chairman and Chief Executive Officer, and                      of our former managing directors, also hold historical partner interests. Our Chairman and Chief Executive Officer purchased his historical partner interest from an affiliate of Michel David-Weill in connection with his retention as the Head of Lazard and Chairman of the Executive Committee in January 2002.

 

The working members who hold historical partner interests will, at their option, either be redeemed for cash in the redemption or will exchange their historical partner interests for shares of our common stock. Mr. Wasserstein, who owns substantially all of the historical partner interests held by current working members, has elected to exchange his historical partner interest for shares of our common stock. Any working member who elects to exchange his or her historical partner interests for shares of our common stock will be entitled to receive the number of shares of our common stock (valued at the price per share in this offering) equal in value to the aggregate price that such working member would have been able to receive in cash in the redemption. The exchange of these historical partner interests for shares of our common stock will be effected by the working members contributing their historical partner interests to a newly formed corporation, and then exchanging the shares of that corporation with Lazard Ltd for shares of our common stock.

 

Immediately after the redemption and the completion of this offering, Lazard Group common membership interests will be held only by LAZ-MD Holdings and by us, and LAZ-MD Holdings will be owned by working members.

 

Exchange of Working Member Interests for LAZ-MD Holdings Interests

 

In connection with the formation of LAZ-MD Holdings, the working member interests will be exchanged with LAZ-MD Holdings for limited liability company interests in LAZ-MD Holdings. Each holder of a working member interest at the time of the separation and recapitalization transactions will receive, in exchange for his or her working member interest, a redeemable capital interest in LAZ-MD Holdings consisting of an equivalent amount of capital of LAZ-MD Holdings, an exchangeable interest in LAZ-MD Holdings and, if applicable, a right to receive distributions from LAZ-MD Holdings, as described below. After the separation and recapitalization transactions, the former holders of working member interests will hold all of the limited liability company interests in LAZ-MD Holdings.

 

LAZ-MD Holdings Exchangeable Interests

 

In exchange for the portion of the working member interest representing the right to participate in goodwill, LAZ-MD Holdings will issue to the holder exchangeable limited liability company interests in LAZ-MD Holdings.

 

The LAZ-MD Holdings exchangeable interests will be effectively exchangeable on a one-for-one basis for a share of our common stock. These LAZ-MD Holdings exchangeable interests are, at the working member’s election, effectively exchangeable for shares of our common stock on the eighth anniversary of this offering. Under limited, agreed upon circumstances, a few of our European managing directors will have the right to cause an early exchange of a portion of their exchangeable interests. In addition, the LAZ-MD Holdings exchangeable interests held by our working members who continue to provide services to us or LFCM Holdings pursuant to the retention agreements will, subject to certain conditions, generally be effectively exchangeable for shares of our common stock in equal increments on and after each of the third, fourth and fifth anniversaries of this offering. In addition, between the first and third anniversaries of this offering, a limited number of our managing directors will be entitled to exchange a portion of their LAZ-MD exchangeable interests in connection with their anticipated future retirement from us. LAZ-MD Holdings and certain of Lazard Ltd’s subsidiaries (through which the exchanges will be effected), with the approval of our board of directors, also have the right to cause the

 

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holders of LAZ-MD Holdings exchangeable interests to exchange all such remaining interests during the 30-day period following the ninth anniversary of this offering. Pursuant to the master separation agreement, each of LAZ-MD and our subsidiaries that hold Lazard Ltd’s Lazard Group common membership interest directly, upon the approval of our board of directors, will have the ability to accelerate the exchangeability of these LAZ-MD Holdings exchangeable interests. See “Certain Relationships and Related Transactions—Relationship with LAZ-MD Holdings and LFCM Holdings—Master Separation Agreement—LAZ-MD Holdings Exchangeable Interests.” As these exchanges are effected, Lazard Ltd’s subsidiaries generally will receive directly from the former holders of the LAZ-MD Holdings exchangeable interests the Lazard Group common membership interests underlying the exchanged LAZ-MD Holdings exchangeable interests formerly held by LAZ-MD Holdings, and the voting power of LAZ-MD Holdings’ Class B common stock will adjust on a proportionate basis so as to maintain LAZ-MD Holdings’ voting power in Lazard Ltd at the level of its interest in Lazard Group common membership interests, subject to the minimum vote requirements for the Class B common stock set forth in our bye-laws. Upon full exchange of all LAZ-MD Holdings exchangeable interests for shares of our common stock, LAZ-MD Holdings’ Class B common stock would cease to be outstanding, and all of the Lazard Group common membership interests formerly owned by LAZ-MD Holdings would be owned indirectly by Lazard.

 

Each of LAZ-MD Holdings and Lazard Group has the right to cause the exchange of the LAZ-MD Holdings exchangeable interests held by a member into the underlying Lazard Group common membership interests, in which case the former LAZ-MD Holdings member would hold the Lazard Group common membership interest directly. If LAZ-MD Holdings or Lazard Group exercises that right, the Lazard Group common membership interest received in the exchange would continue to be exchangeable for shares of our common stock at the same time, and on the same terms and conditions, as the exchanged LAZ-MD Holdings exchangeable interest, the voting power of the Class B common stock would not be reduced to reflect the exchange until that Lazard Group common membership interest is further exchanged for shares of our common stock, and the person holding the Lazard Group common membership interests would retain the right to instruct LAZ-MD Holdings how to vote the portion of the Class B common stock’s voting power that is associated with that Lazard Group common membership interest on an as-if-exchanged basis. On or prior to the third anniversary of this offering, LAZ-MD Holdings intends to cause the exchange to Lazard Group common membership interests of all LAZ-MD Holdings exchangeable interests held by members of LAZ-MD Holdings for whom the exchange into Lazard Group common membership interests will not give rise to significant tax consequences in order to address potential Investment Company Act concerns raised by LAZ-MD Holdings’ holdings of Lazard Group common membership interests. The Lazard Group common membership interests would continue to be exchangeable into shares of our common stock as described above.

 

Right to Receive Distributions

 

The former holders of working member interests who were managing directors of our business or the business of LFCM Holdings at the time of the separation and whose working member interests included the right to receive profits will receive a right to receive distributions in LAZ-MD Holdings. They will retain this right generally so long as they continue to be current managing directors of our business or the business of LFCM Holdings. Assuming they still retain this right, pursuant to this distribution right, the holder may receive distributions from LAZ-MD Holdings in respect of income taxes that the holder incurs as a result of LAZ-MD Holdings holding Lazard Group common membership interests. In addition, so long as they continue to be managing directors of our business or the business of LFCM Holdings, the holder may receive distributions after the third anniversary of the offering that are intended to give the holder an amount equal to the dividend that the holder would have received if the holder had exchanged his or her entire LAZ-MD Holdings exchangeable interest for shares of our common stock at that time, unless the holder has surrendered this LAZ-MD Holdings

 

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distribution right. For a further discussion of these distributions, see “—Lazard Ownership Structure after the Separation and Recapitalization Transactions—Distribution by Lazard Group with respect to Lazard Group Common Membership Interests” below.

 

LAZ-MD Holdings Redeemable Capital

 

In addition, working members who had capital underlying their working member interests at Lazard Group prior to the separation will hold equivalent amounts of redeemable capital at LAZ-MD Holdings. The aggregate amount of LAZ-MD Holdings redeemable capital will be equal to the aggregate amount of working member capital interest at the time of the separation and will not increase after the separation. As of December 31, 2004, the total amount of capital interests in respect of working member interests was $             million, substantially all of which related to the interest of ongoing managing directors of Lazard Group. Pursuant to the terms of the retention agreements with our managing directors and the managing directors of LFCM Holdings, LAZ-MD Holdings has agreed to redeem the signing persons’ capital interests in four equal installments on each of the first four anniversaries of this offering. Accordingly, the operating agreement provides for the redemption of all of the LAZ-MD Holdings redeemable capital in equal amounts on each of these dates. In addition, Lazard Group has the right to accelerate the fourth and final redemption payment by up to 12 months, such that the fourth payment could be made at any time between the third and fourth anniversaries of this offering. The redemption of these capital interests will be funded by cash available to LAZ-MD Holdings, which may include a portion of the net proceeds of this offering and the additional financing transactions and from distributions to LAZ-MD Holdings in respect of its Lazard Group common membership interests.

 

General

 

We expect that, immediately following the recapitalization, our managing directors who are members of LAZ-MD Holdings will collectively hold             % of the outstanding LAZ-MD Holdings exchangeable interests and $                     of the redeemable capital interests, with the balance of the LAZ-MD Holdings exchangeable interests held by other Lazard Group working members who are former managing directors of Lazard Group or managing directors who will become managing directors of LFCM Holdings and the remaining $                     of redeemable capital interests held by managing directors of LFCM Holdings. Assuming that all such LAZ-MD Holdings exchangeable interests were exchangeable and were fully exchanged, immediately following this offering, our managing directors would hold                      shares of our common stock, representing approximately             % of our outstanding common stock.

 

Lazard Ownership Structure After the Separation and Recapitalization Transactions

 

Immediately after this offering and the recapitalization, we will hold                      Lazard Group common membership interests, representing approximately             % of the outstanding Lazard Group common membership interests. We will hold our Lazard Group common membership interests through two or more direct or indirect wholly-owned subsidiaries. One of those subsidiaries will be a Delaware corporation that will own a majority of our Lazard Group common membership interests. Following this offering, our only material business will be to hold these interests and to act indirectly as the managing member of Lazard Group. As a result of our controlling interest in Lazard Group, we will consolidate Lazard Group’s financial results.

 

Immediately after this offering, LAZ-MD Holdings will hold the Class B common stock, representing approximately             % of the voting power of our company. On matters submitted to a vote of our stockholders, the Class B common stock generally will vote together with our common stock. Pursuant to the LAZ-MD Holdings stockholders’ agreement, LAZ-MD Holdings will agree to vote

 

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its Class B common stock on any matter involving the vote or consent of our stockholders in accordance with the instructions of its members, with each member that is party to the agreement entitled to instruct LAZ-MD Holdings how to vote the portion of the Class B common stock’s voting power that is associated with his or her then-outstanding LAZ-MD Holdings exchangeable interests on an as-if-exchanged basis, subject to the ability of the LAZ-MD Holdings board of directors to vote the voting interest represented by the Class B common stock in its discretion if the LAZ-MD Holdings’ board of directors determines that it is in the best interest of LAZ-MD Holdings. For example, if a working member’s LAZ-MD Holdings exchangeable interests were exchangeable for 1,000 shares of our common stock, that working member would be able to instruct LAZ-MD Holdings how to vote 1,000 of the votes represented by the Class B common stock. In order to seek to avoid the possibility that LAZ-MD Holdings would be deemed to be an “investment company” for purposes of the Investment Company Act, the voting power of our outstanding Class B common stock will, however, represent no less than 50.1% of the voting power of our company until December 31, 2007. The votes under the Class B common stock that are associated with any working member who does not sign the LAZ-MD Holdings stockholders’ agreement, or with any working member who signs but does not direct LAZ-MD Holdings how to vote on a particular matter, will be abstained from voting. Accordingly, only working members that are party to the LAZ-MD Holdings stockholders’ agreement who direct LAZ-MD Holdings how to vote will determine how LAZ-MD Holdings votes the Class B common stock on a particular matter. As a result, the working members, together with LAZ-MD Holdings, will be able to initially control the election of Lazard Ltd’s directors. For a further discussion, see “Certain Relationships and Related Transactions—LAZ-MD Holdings Stockholders’ Agreement.” LAZ-MD Holdings will be managed by a board of directors selected from our current managing directors. The holders of LAZ-MD Holdings’ exchangeable interests will generally have the power to remove directors and appoint replacement directors of LAZ-MD Holdings. Any member of the LAZ-MD board of directors must be a current managing director of our company in order to serve in such director position.

 

Immediately after this offering, LAZ-MD Holdings also will hold approximately             % of the Lazard Group common membership interests, with the remaining Lazard Group common membership interests held by Lazard Ltd through direct or indirect wholly-owned subsidiaries. Following this offering, LAZ-MD Holdings’ membership interests in Lazard Group will be accounted for as a minority interest in our financial statements. LAZ-MD Holdings will not have any voting rights in respect of its Lazard Group common membership interests, other than limited consent rights concerning amendments to the terms of its Lazard Group common membership interests.

 

We also intend to grant participatory interests in Lazard Group to certain of our current and future managing directors in connection with the separation and recapitalization transactions, which are described under “Management—Arrangements with Our Managing Directors—The Retention Agreements.”

 

Lazard Ltd will be structured as a partnership for U.S. federal income tax purposes, although Lazard Ltd will be organized as a company under Bermuda law. We intend to operate our business in a manner that does not result in the allocation of any income or deductible expenses to our stockholders, other than amounts that we distribute to our stockholders.

 

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The graphic below illustrates the expected ownership structure of Lazard Ltd and Lazard Group after completion of the separation and recapitalization transactions. It does not reflect the various minority interests of, or subsidiaries held by, Lazard Group and LAZ-MD Holdings, the exercise of the underwriters’ over-allotment option or the results of any exchange of Lazard Group common membership interests for our common stock. As a result, the LAM equity units granted by LAM to its managing directors and employees are not reflected. In addition, it does not include the separated businesses, which will be separated from Lazard Group in the separation. After the completion of the separation, LFCM Holdings will be wholly-owned by the working members, including our managing directors.

 

The “Public Stockholders” captions on the following charts include shares of common stock that will be issued to IXIS pursuant to the IXIS investment agreement and the shares of our common stock to be issued to working members in respect of their historical partner interests pursuant to the redemption.

 

Expected Ownership Structure Immediately After Completion

of the Separation and Recapitalization Transactions

 

LOGO

* Lazard Ltd will hold its common membership interests in Lazard Group through direct or indirect wholly-owned subsidiaries and will hold its controlling interest in Lazard Group through a managing member position in an entity that is the managing member of Lazard Group.

 

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Lazard Group common membership interests issued to LAZ-MD Holdings will be effectively exchangeable from time to time after this offering for shares of our common stock on a one-for-one basis pursuant to an exchange of the LAZ-MD Holdings exchangeable interests for shares of our common stock. As these exchanges for shares of our common stock are effected, the voting power of LAZ-MD Holdings’ Class B common stock will be reduced on a proportionate basis so as to maintain LAZ-MD Holdings’ voting power in Lazard Ltd at the level of its interest in Lazard Group common membership interests. The voting power of our outstanding Class B common stock will, however, represent no less than 50.1% of the voting power of our company until December 31, 2007. Assuming full exchange of the Lazard Group common membership interests that LAZ-MD Holdings holds immediately after the closing of this offering, all of our outstanding common stock would be held by persons who acquire such shares in this offering and our working members. LAZ-MD Holdings and certain of our subsidiaries through which the exchanges will be effected, with the consent of the Lazard Ltd board of directors, have the right to cause the holders of LAZ-MD Holdings exchangeable interests, and holders of Lazard Group common membership interests formerly held by LAZ-MD Holdings, to exchange all such remaining interests during the 30-day period following the ninth anniversary of this offering.

 

We expect that Lazard Ltd will be operated as a holding company for Lazard Group common membership interests on behalf of our stockholders. In order to maintain Lazard Ltd’s economic interest in Lazard Group, any net proceeds received by us from any subsequent issuances of shares of our common stock generally will be contributed to Lazard Group in exchange for Lazard Group common membership interests in equal number to such number of shares of our common stock.

 

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The graphic below illustrates the expected pro forma ownership structure of Lazard Ltd and Lazard Group immediately after this offering assuming the exchange of all LAZ-MD Holdings exchangeable interests occurred.

 

Expected Ownership Structure After Full Exchange

 

LOGO

* Lazard Ltd will hold its common membership interests in Lazard Group through direct or indirect wholly-owned subsidiaries and will hold its controlling interest in Lazard Group through a managing member position in an entity that is the managing member of Lazard Group.

 

As discussed above, after completion of the separation and recapitalization transactions, LFCM Holdings will be a separate company that is owned by the working members and will hold the separated businesses.

 

Distributions by Lazard Group with respect to Lazard Group Common Membership Interests

 

Lazard Group distributions in respect of Lazard Group common membership interests will be allocated to holders of Lazard Group common membership interests on a pro rata basis. As we will hold             % of the outstanding Lazard Group common membership interests immediately after this offering, we will receive approximately             % of the aggregate distributions in respect of the Lazard Group common membership interests.

 

After this offering, Lazard Group intends to make pro rata distributions to holders of Lazard Group common membership interests in order to fund any dividends we may declare on our common stock. Accordingly, LAZ-MD Holdings also will receive equivalent amounts pro rata based on its Lazard Group ownership interests. LAZ-MD Holdings initially expects to use its share of these distributions,

 

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along with other cash resources, to fund LAZ-MD Holdings’ obligation to redeem its capital interests over time pursuant to the terms of the retention agreements with our managing directors and the managing directors of LFCM Holdings and for general corporate purposes. However, after the third anniversary of this offering, pursuant to the terms of the retention agreements with our managing directors and the managing directors of LFCM Holdings, LAZ-MD Holdings will, subject to the terms of LAZ-MD Holdings’ operating agreement and the determination of its board, distribute an allocable share of these distributions to then-current managing directors of our and LAZ-MD Holdings’ businesses who were managing directors at the time of this offering. These distributions by LAZ-MD Holdings are intended to give those managing directors an amount equal to the dividend they would have received had they exchanged their entire LAZ-MD Holdings exchangeable interests for shares of our common stock at that time.

In addition, Lazard Group intends to make pro rata distributions to us (or our subsidiaries) and LAZ-MD Holdings in respect of income taxes Lazard Ltd (or our subsidiaries) and the members of LAZ-MD Holdings incur as a result of holding Lazard Group common membership interests based on an effective tax rate that Lazard Group will calculate. This effective tax rate will be the higher of the effective income and franchise tax rate applicable to Lazard Ltd subsidiaries that hold the Lazard Group common membership interests and the weighted average income tax rate (based on income allocated) applicable to LAZ-MD Holdings’ members, determined in accordance with LAZ-MD Holdings’ operating agreement. LAZ-MD Holdings will use these distributions to make distributions to its members in respect of income taxes that those members incur as a result of LAZ-MD Holdings holding Lazard Group common membership interests. As we anticipate that the weighted average tax rate applicable to LAZ-MD Holdings’ members will exceed the rate applicable to Lazard Ltd’s subsidiaries, we expect that distributions to Lazard Ltd’s subsidiaries will exceed taxes actually payable by those subsidiaries. Immediately prior to the third anniversary of the consummation of this offering, and for each period during which such excess cash is outstanding thereafter, we expect to issue dividends to our stockholders of this excess amount.

 

In the event that LAZ-MD Holdings shall cause the exchange of LAZ-MD Holdings exchangeable interests for Lazard Group common membership interests, the terms of the Lazard Group common membership interests held by any former member of LAZ-MD Holdings who was so forced to exchange will mirror the distribution rights that such person would have received had he or she continued to hold the LAZ-MD Holdings exchangeable interests.

 

Except as described above, we do not expect that Lazard Group will make any distributions in respect of Lazard Group common membership interests after this offering. However, this policy is subject to change as described in “Dividend Policy.”

 

You should read “Risk Factors—Risks Related to the Separation,” “Certain Relationships and Related Transactions” and “Description of Capital Stock” for additional information about our corporate structure and the risks posed by the structure.

 

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USE OF PROCEEDS

 

The net proceeds from this offering and the additional financing transactions will ultimately be used by Lazard Group primarily to redeem membership interests held by the historical partners for an aggregate redemption price of approximately $1.6 billion, as described in “The Separation and Recapitalization Transactions and the Lazard Organizational Structure.” In addition, an estimated $150 million of additional net proceeds will be transferred to LAZ-MD Holdings and LFCM Holdings. These funds will be available to fund the operating requirements of the separated businesses, as well as LAZ-MD Holdings’ obligation to redeem its capital interests over time pursuant to the terms of the retention agreements with our managing directors and the managing directors of LFCM Holdings and for general corporate purposes. The remaining amount of net proceeds, including any net proceeds that may be received as a result of the exercise of the underwriters’ over-allotment option, will be retained by Lazard Group for its general corporate purposes, including the repayment of $50 million in aggregate principal amount of 7.53% Senior Notes due 2011 issued by a wholly-owned subsidiary of Lazard Group.

 

Based upon an initial public offering price of $             per share of common stock (the midpoint of the range of initial public offering prices set forth on the cover page of this prospectus), we estimate that we will receive net proceeds from this offering of $             (or $             if the underwriters’ over-allotment option is exercised in full), after deducting underwriting discounts and commissions and estimated expenses payable in connection with this offering and the related transactions. See “Underwriting.”

 

Lazard Ltd will contribute, indirectly through our wholly-owned subsidiaries, all of the net proceeds of this offering to Lazard Group in exchange for the issuance of                      Lazard Group common membership interests, representing             % of the outstanding Lazard Group common membership interests (or a total of                      Lazard Group common membership interests, representing             % of the outstanding Lazard Group common membership interests, assuming that the underwriters’ over-allotment option is exercised in full), and for our controlling interest in Lazard Group. The price of each of the Lazard Group common membership interests that we acquire will equal the amount of net proceeds per share that we receive from this offering. Lazard Group will, in turn, use the net proceeds as described above.

 

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DIVIDEND POLICY

 

Lazard Ltd has not declared or paid any cash dividends on our common equity since our inception. Subject to compliance with applicable law, we currently intend to declare quarterly dividends on all outstanding shares of our common stock and expect our initial quarterly dividend to be approximately $             per share, payable in respect of the              quarter of 2005. We expect that the initial dividend will be prorated for the portion of that quarter following the closing of this offering. The Class B common stock will not be entitled to dividend rights.

 

The declaration of this and any other dividends and, if declared, the amount of any such dividend, will be subject to the actual future earnings, cash flow and capital requirements of our company, the amount of distributions to us from Lazard Group and the discretion of our board of directors. Our board of directors will take into account:

 

  Ÿ   general economic and business conditions,

 

  Ÿ   the financial results of our company and Lazard Group,

 

  Ÿ   capital requirements of our company and our subsidiaries (including Lazard Group),

 

  Ÿ   contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries (including Lazard Group) to us, and

 

  Ÿ   such other factors as our board of directors may deem relevant.

 

We are a holding company and have no direct operations. As a result, we will depend upon distributions from Lazard Group to pay any dividends. We expect to cause Lazard Group to pay distributions to us in order to fund any such dividends, subject to applicable law and the other considerations discussed above. In addition, as managing directors and other members of LAZ-MD Holdings convert their interests into shares of our common stock, they also will have a proportionate interest in the excess cash held by us to the extent that we retain excess cash balances or acquire additional assets with excess cash balances. For a discussion of Lazard Group’s intended distribution policy, see “The Separation and Recapitalization Transactions and the Lazard Organizational Structure.” Further, except under specific circumstances, the declaration and payment of dividends will be prohibited if certain contract adjustment payments in respect of the equity security units are deferred. See “Description of the Equity Security Units—The Purchase Contracts.”

 

Additionally, we are subject to Bermuda legal constraints that may affect our ability to pay dividends on our common stock and make other payments. Under the Companies Act, we may declare or pay a dividend out of distributable reserves only if we have reasonable grounds for believing that we are, or would after the payment be, able to pay our liabilities as they become due and if the realizable value of our assets would thereby not be less than the aggregate of our liabilities and issued share capital and share premium accounts.

 

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DILUTION

 

As of December 31, 2004, our pro forma net tangible book value was approximately $                     million, or approximately $             per share of common stock. Net tangible book value per share of common stock represents total consolidated tangible assets less total consolidated liabilities, divided by the aggregate number of shares of common stock outstanding (excluding shares of common stock to be issued as a result of this offering), assuming the exchange of all Lazard Group common membership interests to be issued to LAZ-MD Holdings for                      shares of our common stock on a one-for-one basis. Shares of common stock outstanding do not include approximately                      shares of restricted common stock to be awarded to employees and our directors and shares of common stock that may be awarded in the future under our equity incentive plan. Except as described below, shares of common stock outstanding also do not include shares issuable upon settlement of the purchase contracts issued in connection with the ESU offering or the IXIS investment agreement. After giving effect to our sale of                      shares of common stock in this offering, and assuming an estimated initial public offering price of $             per share (the midpoint of the range of initial public offering prices set forth on the cover page of this prospectus), and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of December 31, 2004 would have been approximately $            , or $             per share of common stock. This represents an immediate dilution to new investors in our common stock of approximately $             per share.

 

The following table illustrates this per share dilution (assuming that the underwriters do not exercise their over-allotment option, in whole or in part):

 

Initial public offering price per share

           $         

Pro forma net tangible book value per share as of December 31, 2004

    $                

Increase in pro forma net tangible book value per share attributable to the sale of shares in this offering and the additional financing transactions

              
           

Pro forma net tangible book value per share after this offering and the additional financing transactions

           $  

Pro forma dilution per share to new investors assuming full exchange of all Lazard Group common membership interests held by LAZ-MD Holdings into shares of our common stock

           $  
           

 

If the underwriters’ over-allotment option is exercised in full, the pro forma net tangible book value per share of common stock would be approximately $             per share and the dilution in pro forma net tangible book value per share of common stock to new investors would be $             per share.

 

If the shares of common stock issuable upon settlement of the purchase contracts issued in connection with the ESU offering and the IXIS investment agreement had been issued upon closing of this offering, we estimate that our pro forma net tangible book value per share as of December 31, 2004, after giving effect to this offering and such issuance of shares, would have been between $             and $             per share (or $             and $             per share if the underwriters’ over-allotment options for both this offering and the ESU offering had been exercised in full). This range is based on the average minimum ($            ) and maximum ($            ) price per share of common stock that holders of the purchase contracts will pay upon settlement of the purchase contracts, assuming no adjustments are made to the applicable settlement rate as a result of anti-dilution provisions or otherwise.

 

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The following table summarizes, on a pro forma basis as of December 31, 2004, the difference between the total cash consideration paid and the average price per share paid by existing stockholders and the purchasers of common stock in this offering with respect to the number of shares of common stock purchased from us, before deducting estimated underwriting discounts, commissions and offering expenses payable by us.

 

     Shares Purchased
    Total
Consideration
    Average
Price
per Share
     Number
    Percent
    Amount
    Percent
   

Existing stockholders(a)

                         

Purchasers of common stock in this offering(b)

                         
    
  
  
  
    

Total

                         
    
  
  
  
    
(a) Represents LAZ-MD Holdings’ common membership interests in Lazard Ltd on an as-if-exchanged basis.
(b) Includes          shares to be issued to working members who hold historical partner interests and who have elected to exchange those interests for shares of our common stock valued at the initial public offering price and                      shares issued to IXIS pursuant to the IXIS investment agreement.

 

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CAPITALIZATION

 

The following table sets forth our capitalization as of December 31, 2004, reflecting:

 

  Ÿ   the historical actual consolidated capitalization of Lazard Group,

 

  Ÿ   the pro forma consolidated capitalization of Lazard Group prior to this offering, the additional financing transactions and the recapitalization, but after giving effect to the separation, the reclassification to accrued compensation of amounts due for services rendered by managing directors and employee members of LAM and other managing directors from minority interests and members’ equity, respectively,

 

  Ÿ   the pro forma consolidated capitalization of Lazard Group, as adjusted, after giving effect to this offering (at an estimated initial public offering price of $             per share (the midpoint of the range of initial public offering prices set forth on the cover page of this prospectus)), the additional financing transactions and the recapitalization, after deducting underwriting discounts and commissions and estimated expenses payable in connection with this offering, and the additional financing transactions and after giving effect to the separation, the reclassification to accrued compensation of amounts due for services rendered by managing directors and employee members of LAM and other managing directors from minority interests and members’ equity, respectively, and the repayment of $50 million in aggregate principal amount of 7.53% Senior Notes due 2011 issued by a wholly owned subsidiary of Lazard Group, and

 

  Ÿ   the pro forma consolidated capitalization of Lazard, as adjusted, to reflect the transactions referred to above, including the minority interest attributable to LAZ-MD Holdings ownership of Lazard Group’s common membership interests, which is included within Lazard’s additional paid-in capital.

 

This table should be read in conjunction with the consolidated financial statements and related notes and our unaudited pro forma financial information and related notes, in each case included elsewhere in this prospectus. The data assumes that there has been no exercise, in whole or in part, of the underwriters’ over-allotment options to purchase additional shares of our common stock in this offering or equity security units in the ESU offering.

 

     As of December 31, 2004
     Lazard Group
    Lazard
     Historical
    Pro
Forma
     Pro Forma,
as Adjusted
    Pro Forma,
as Adjusted
     ($ in thousands)
                              

Notes payable

    $ 70,777    $ 67,497     $                  $              

Capital lease obligations

      51,546      51,546               

Lazard Group senior notes

                             

Lazard Group Finance senior notes

                             

Lazard Group IXIS senior notes

                             

Subordinated loans

      200,000      200,000               

Mandatorily redeemable preferred stock

      100,000      100,000               

Minority interest

      174,720      117,019               

Members’ equity (deficit)

      384,798      (30,579 )             

Stockholders’ equity:

                             

Common stock, $0.01 par value per share,                      shares authorized,                      shares issued and outstanding on a pro forma basis as adjusted for this offering

                             

Additional paid-in capital

                             

Accumulated deficit

                             
    
  
 
  

Total minority interest, members’ equity and stockholders’ equity

      559,518      86,440               
    
  
 
  

Total capitalization

    $ 981,841    $ 505,483     $      $  
    
  
 
  

 

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SELECTED CONSOLIDATED FINANCIAL DATA

 

The following table sets forth the historical selected consolidated financial data for Lazard Group, including the separated businesses, for all periods presented.

 

The historical financial statements do not reflect what our results of operations and financial position would have been had we been a stand-alone, public company for the periods presented. Specifically, our historical results of operations do not give effect to the matters set forth below.

 

  Ÿ   The separation, which is described in more detail in “The Separation and Recapitalization Transactions and the Lazard Organizational Structure” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

  Ÿ   Payment for services rendered by Lazard Group’s managing directors, which, as a result of Lazard Group operating as a limited liability company, historically has been accounted for as distributions from members’ capital, or in some cases as minority interest, rather than as compensation and benefits expense. As a result, Lazard Group’s operating income historically has not reflected payments for services rendered by its managing directors. After this offering, we will include all payments for services rendered by our managing directors to us in employee compensation and benefits expense.

 

  Ÿ   U.S. corporate federal income taxes, since Lazard Group has operated in the U.S. as a limited liability company that was treated as a partnership for U.S. federal income tax purposes. As a result, Lazard Group’s income has not been subject to U.S. federal income taxes. Taxes related to income earned by partnerships represent obligations of the individual partners. Outside the U.S., Lazard Group historically has operated principally through subsidiary corporations and has been subject to local income taxes. Income taxes shown on Lazard Group’s historical consolidated statements of income are attributable to taxes incurred in non-U.S. entities and to New York City UBT attributable to Lazard Group’s operations apportioned to New York City.

 

  Ÿ   Minority interest expense reflecting LAZ-MD Holdings’ ownership of approximately             % of the Lazard Group common membership interests outstanding immediately after this offering and the separation and recapitalization transactions.

 

  Ÿ   The use of proceeds from this offering and the additional financing transactions.

 

  Ÿ   The net incremental expense related to the additional financing transactions.

 

The historical consolidated statements of income and financial condition data as of and for the years ended December 31, 2000, 2001, 2002, 2003 and 2004 have been derived from Lazard Group’s consolidated financial statements audited by Deloitte & Touche LLP, an independent registered public accounting firm. The audited consolidated statements of financial condition as of December 31, 2003 and 2004 and consolidated statements of income for the years ended December 31, 2002, 2003 and 2004 are included elsewhere in this prospectus. The audited consolidated statements of financial condition as of December 31, 2000, 2001 and 2002 and consolidated statements of income for the years ended December 31, 2000 and 2001 are not included in this prospectus. Historical results are not necessarily indicative of results for any future period.

 

The selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Financial Information” and Lazard Group’s historical consolidated financial statements and related notes included elsewhere in this prospectus. See also “The Separation and Recapitalization Transactions and the Lazard Organizational Structure.”

 

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Selected Consolidated Financial Data

 

    As of or for the Year Ended December 31,
  
    2000
    2001
     2002
    2003
    2004
  
    ($ in thousands, except for per share data)  

Lazard Group—Historical Financial Data

                                     

Consolidated Statement of Income Data

                                     

Net Revenue:

                                     

Financial Advisory (a)

   $ 766,856    $ 551,356     $ 532,896    $ 690,967    $ 655,200  

Asset Management (b)

     457,124      410,237       454,683      350,348      417,166  

Corporate (c)

     32,817      (14,291 )     4,391      6,535      13,839  

Capital Markets and Other (f)

     296,003      224,753       174,309      135,534      188,100  
   
  
 
  
  

Net Revenue (d)

     1,552,800      1,172,055       1,166,279      1,183,384      1,274,305  

Employee Compensation and Benefits

     570,064      524,417       469,037      481,212      573,779  

Other Operating Expenses

     306,339      288,676       321,197      312,818      342,764  
   
  
 
  
  

Total Operating Expenses

     876,403      813,093       790,234      794,030      916,543  
   
  
 
  
  

Operating Income

     676,397      358,962       376,045      389,354      357,762  

Income Allocable to Members Before Extraordinary Item

     558,708      305,777       297,447      250,383      241,467  

Net Income Allocable to Members

     558,708      305,777       297,447      250,383      246,974 (e)

Consolidated Statement of Financial Condition Data

                                     

Total Assets

   $ 16,123,794    $ 3,569,362 (f)   $ 2,460,725    $ 3,257,229    $ 3,499,224  

Total Debt (g)

   $ 85,246    $ 134,048     $ 144,134    $ 320,078    $ 322,323  

Mandatorily Redeemable Preferred Stock

     —      $ 100,000     $ 100,000    $ 100,000    $ 100,000  

Members’ Equity

   $ 888,782    $ 704,697     $ 648,911    $ 535,725    $ 384,798  

Notes ($ in thousands):

 

(a) Financial Advisory net revenue consists of the following:

 

    For the Year Ended December 31,
    2000
   2001
   2002
   2003
   2004

M&A

   $ 724,550   $ 492,083   $ 393,082   $ 419,967   $ 481,726

Financial Restructuring

     34,100     55,200     124,800     244,600     96,100

Other Financial Advisory

     8,206     4,073     15,014     26,400     77,374
   
 
 
 
 

Financial Advisory Net Revenue

   $ 766,856   $ 551,356   $ 532,896   $ 690,967   $ 655,200
   
 
 
 
 

 

(b) Asset Management net revenue consists of the following:

 

    For the Year Ended December 31,
    2000
   2001
   2002
   2003
   2004

Management and Other Fees

   $ 405,124   $ 386,237   $ 381,256   $ 312,123   $ 389,812

Incentive Fees

     52,000     24,000     73,427     38,225     27,354
   
 
 
 
 

Asset Management Net Revenue

   $ 457,124   $ 410,237   $ 454,683   $ 350,348   $ 417,166
   
 
 
 
 

 

(c) “Corporate” includes interest income (net of interest expense), investment income from certain long-term investments and net money market revenue earned by LFB.
(d) Net revenue is presented after reductions for dividends relating to Lazard Group’s mandatorily redeemable preferred stock issued in March 2001. Preferred dividends are reflected in corporate net revenue and amounted to $6,312, $8,000, $8,000 and $8,000 in the years ended December 31, 2001, 2002, 2003 and 2004, respectively.
(e) Net income allocable to members for the year ended December 31, 2004 is shown after an extraordinary gain of approximately $5,507 related to the January 2004 acquisition of the assets of Panmure Gordon.
(f) The decline in total assets from December 31, 2000 to December 31, 2001 is primarily due to Lazard Group’s exiting its London money markets business in 2001. Total assets of the London money markets business at December 31, 2000 were $12,225,241. The net revenue related to the London money markets business in the years ended December 31, 2000 and 2001 were $28,962 and $37,393, respectively, and was included in the Capital Markets and Other segment.
(g) Total debt represents the aggregate amount reflected in Lazard Group’s historical consolidated statement of financial condition relating to notes payable, capital lease obligations and subordinated loans.

 

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

 

The following unaudited pro forma condensed consolidated statement of income for the year ended December 31, 2004 and the unaudited pro forma condensed consolidated statement of financial condition at December 31, 2004 present the consolidated results of operations and financial position of Lazard and Lazard Group assuming that the separation and recapitalization transactions, including this offering and the additional financing transactions, had been completed as of January 1, 2004 with respect to the unaudited pro forma condensed consolidated statement of income data, and at December 31, 2004 with respect to the unaudited pro forma condensed consolidated statement of financial condition data. The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the separation and recapitalization transactions, including this offering and the additional financing transactions, on the historical financial information of Lazard Group. The adjustments are described in the notes to unaudited pro forma condensed consolidated statement of income and the unaudited pro forma condensed consolidated statement of financial condition, and principally include the matters set forth below.

 

  Ÿ   The separation, which is described in more detail in “The Separation and Recapitalization Transactions and the Lazard Organizational Structure” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

  Ÿ   Payment for services rendered by Lazard Group’s managing directors, which, as a result of Lazard Group operating as a limited liability company, historically has been accounted for as distributions from members’ capital, or in some cases as minority interest, rather than as employee compensation and benefits expense. As a result, Lazard Group’s operating income historically has not reflected payments for services rendered by its managing directors. After this offering, we will include all payments for services rendered by our managing directors in employee compensation and benefits expense.

 

  Ÿ   U.S. corporate federal income taxes, since Lazard Group has operated in the U.S. as a limited liability company that was treated as a partnership for U.S. federal income tax purposes. As a result, Lazard Group’s income has not been subject to U.S. federal income taxes. Taxes related to income earned by partnerships represent obligations of the individual partners. Outside the U.S., Lazard Group historically has operated principally through subsidiary corporations and has been subject to local income taxes. Income taxes shown on Lazard Group’s historical consolidated statements of income are attributable to taxes incurred in non-U.S. entities and to New York City UBT attributable to Lazard Group’s operations apportioned to New York City.

 

  Ÿ   Minority interest expense reflecting LAZ-MD Holdings’ ownership of approximately             % of the Lazard Group common membership interests outstanding immediately after this offering and the separation and recapitalization transactions.

 

  Ÿ   The use of proceeds from this offering and the additional financing transactions.

 

  Ÿ   The net incremental expense related to the additional financing transactions.

 

The unaudited pro forma financial information of Lazard should be read together with “The Separation and Recapitalization Transactions and the Lazard Organizational Structure,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Lazard Group’s historical consolidated financial statements and the related notes included elsewhere in this prospectus. The historical consolidated financial data reflected in the accompanying unaudited pro forma financial information represent historical consolidated financial data of Lazard Group. Such historical consolidated financial data of Lazard Group reflects the historical results of operations and financial position of Lazard Group, including the separated businesses.

 

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The pro forma consolidated financial information are included for informational purposes only and do not purport to reflect the results of operations or financial position of Lazard Group or Lazard that would have occurred had they operated as separate, independent companies during the periods presented. Actual results might have differed from pro forma results if Lazard Group or Lazard had operated independently. The pro forma consolidated financial information should not be relied upon as being indicative of Lazard Group or Lazard’s results of operations or financial condition had the transactions contemplated in connection with the separation and recapitalization transactions, including this offering and the additional financing transactions, been completed on the dates assumed. The pro forma consolidated financial information also does not project the results of operations or financial position for any future period or date.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME

 

    Year Ended December 31, 2004
  
          Pro Forma Adjustments
     Total
     Pro Forma
Adjustments
for the
Additional
Financing
Transactions
     Lazard
Group Pro
Forma, as
Adjusted
   Pro Forma
Adjustments
for this
Offering
     Lazard
Consolidated
Pro Forma,
as Adjusted
  
    Historical
     Separation(a)
     Subtotal
     Other
            
    ($ in thousands, except per share data)  

Total revenue

   $ 1,328,180     $ (202,424 )   $ 1,125,756             $ 1,125,756     $                    $                  $                    $                 

Interest expense

     (53,875 )(b)     14,324       (39,551 )             (39,551 )       (e)                      
   
 
 
         
 
 
 
 

Net revenue

     1,274,305       (188,100 )     1,086,205               1,086,205                                

Operating expenses:

                                                                      

Employee compensation
and benefits

     573,779       (109,030 )     464,749     $ 172,301 (c)     637,050                                

Premises and occupancy costs

     96,668       (22,967 )     73,701               73,701                                

Professional fees

     73,547       (24,902 )     48,645               48,645                                

Travel and entertainment

     50,822       (5,626 )     45,196               45,196                                

Other

     121,727       (29,946 )     91,781               91,781                                
   
 
 
 
 
 
 
 
 

Total Operating Expenses

     916,543       (192,471 )     724,072       172,301       896,373                                
   
 
 
 
 
 
 
 
 

Operating income

     357,762       4,371       362,133       (172,301 )     189,832                                

Provision for income taxes

     28,375       (103 )     28,272       1,852  (d)     30,124         (f)             (g)        
   
 
 
 
 
 
 
 
 

Income allocable to members before minority interests and extraordinary item

     329,387       4,474       333,861       (174,153 )     159,708                                

Minority interests

     87,920       (367 )     87,553       (73,311 )(c)     14,242                       (h)        
   
 
 
 
 
 
 
 
 

Income allocable to members before extraordinary item

   $ 241,467     $ 4,841     $ 246,308     $ (100,842 )   $ 145,466     $                    $                  $                    $                 
   
 
 
 
 
 
 
 
 

Weighted average shares outstanding:

                                                                      

Basic

                                                                     (i)

Diluted

                                                                     (i)

Net income per share:

                                                                      

Basic

                                                                 $   (j)

Diluted

                                                                 $   (j)

Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income ($ in thousands):

 

(a) Reflects adjustments necessary to remove the historical results of operations of Lazard Group’s separated businesses.

 

(b) Interest expense includes dividends relating to Lazard Group’s mandatorily redeemable preferred stock issued in March 2001, which amounted to $8,000 for the year ended December 31, 2004.

 

(c) Historically, payments for services rendered by our managing directors have been accounted for as distributions from members’ capital, or as minority interest expense in the case of payments to LAM managing directors and certain key LAM employee members during 2004, rather than as compensation and benefits expense. As a result, our employee compensation and benefits expense and net income allocable to members have not reflected most payments for services rendered by our managing directors. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Measures and Indicators—Net Income Allocable to Members.”

 

   The adjustment reflects the classification of these payments for services rendered as employee compensation and benefits expense and has been determined as if the new compensation policy described below had been in place during 2004. Accordingly, the pro forma condensed consolidated statement of income data reflect compensation and benefits expense based on new retention agreements that will be effective upon the completion of this offering.

 

  

Following the completion of this offering, our policy will be that our employee compensation and benefits expense, including that payable to our managing directors, will not exceed 57.5% of operating revenue each year (although we retain the ability to change this policy in the future). Our managing directors have been informed of this new policy. The new retention agreements with our managing directors

 

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generally provide for a fixed salary and discretionary bonus, which may include an equity-based compensation component. We define “operating revenue” for these purposes as consolidated total revenue less (i) total revenue attributable to the separated businesses and (ii) interest expense related to LFB.

 

Reconciliation of historical compensation and benefits

expense to pro forma employee compensation and benefits expense

 

    

Year Ended

December 31, 2004

  
     ($ in thousands)  

Historical

            $ 573,779  

Add (deduct):

                 

Amount related to separated businesses

              (109,030 )

Portion of distributions representing payments for services rendered by
managing directors and employee members of LAM

    $ 354,282          

Reductions

      (181,981 )        
    
       

Sub-total

              172,301  
            

Targeted compensation and benefits

            $ 637,050  
            

 

   The overall net adjustment to increase historical employee compensation and benefits expense (after eliminating the expenses related to the separated businesses) is $172,301 for the year ended December 31, 2004. The net adjustment is the result of (i) aggregating the distributions representing payments for services rendered by managing directors and employee members of LAM and (ii) reducing the adjusted employee compensation and benefits expense to reflect the new compensation arrangements with our managing directors, which generally provide for a fixed salary and discretionary bonus, to a target compensation expense-to-operating revenue ratio of 57.5%.

 

   While the adjustments described above constitute all adjustments management believes are applicable to the pro forma presentation set forth in this prospectus, we believe that other considerations will assist us in minimizing the degree of compensation reductions required to achieve our employee compensation and benefits expense target, which have not been reflected in the pro forma presentation. For example, significant payments to managing directors for services rendered in 2004 relating to guarantees that have expired will not be repeated and the contractual payouts to the founders of LAM have also expired and will not be repeated. We also expect reductions associated with the restructuring of the Lazard Group pension plans (reflecting a change from defined benefit plans to defined contribution plans) and post-retirement medical plans and cost savings resulting from a reassessment of our staffing needs. Our reassessment of staffing needs was substantially completed during 2004, and, as a result, headcount was reduced. As part of our periodic performance reviews, we expect to continue to reassess needs in the future, but no material reassessment plans are currently in place. No material costs were incurred in connection with our prior reassessment of staffing needs.

 

   These and other measures may not allow us to reach or maintain our target compensation expense-to-operating revenue ratio in the future. Increased competition for senior professionals, changes in the financial markets generally or other factors could prevent us from reaching this objective.

 

(d) Reflects a net adjustment of $1,852 for the year ended December 31, 2004. The net adjustment includes (i) tax expense of $3,552 in the year ended December 31, 2004, which reflects the application of the respective historical effective Lazard Group income tax rates against the applicable pro forma adjustments, and (ii) a tax benefit of $1,700 reclassified from LAM minority interest in the year ended December 31, 2004.

 

(e) Reflects net incremental interest expense related to the separation and recapitalization transactions, including the additional financing transactions and the amortization of capitalized costs associated with the additional financings. See also “Use of Proceeds” and “Description of the Equity Security Units—Accounting Treatment.”

 

(f) Reflects the net income tax impact of the separation and recapitalization transactions.

 

(g) Reflects an adjustment such that Lazard’s pro forma income taxes will reflect (i) consolidation of Lazard Group pro forma taxes of $                     for the year ended December 31, 2004 that are payable in respect of income earned by non-U.S. entities and to UBT attributable to Lazard Group operations apportioned to New York City, plus (ii) entity-level taxes of $                     for the year ended December 31, 2004. Lazard’s entity-level taxes are computed based on an estimated overall effective tax rate of             % applicable to its pro rata share of Lazard Group’s consolidated pro forma operating income (after reduction for $         million of minority interests that effectively reduce pre-tax income). Based on taxation of Lazard Group’s consolidated operating income, as described, at an estimated effective tax rate of             % for the year ended December 31, 2004, Lazard’s entity-level taxes would total an additional             % of its pro rata share of Lazard Group consolidated pro forma operating income for the year ended December 31, 2004.

 

(h) Minority interest expense includes an adjustment for LAZ-MD Holdings’ ownership of approximately         % of the Lazard Group common membership interests outstanding immediately after this offering.

 

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(i) For purposes of presentation of basic net income per share, the weighted average shares outstanding reflects                  million shares of our common stock that will be outstanding immediately following this offering and excludes                  million shares issuable upon exercise of the underwriters’ over-allotment option. For purposes of presentation of diluted net income per share, LAZ-MD Holdings exchangeable interests are included on an as-if-exchanged basis. Shares issuable with respect to the exercise of the purchase contracts associated with the equity security units offered in the ESU offering and pursuant to the IXIS investment agreement are not included because, under the treasury stock method of accounting, such securities currently are not dilutive.

 

(j) Calculated after considering the impact of the pro forma adjustments described above and based on the weighted average basic and diluted shares outstanding, as applicable, as described in note (i) above.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT

OF FINANCIAL CONDITION

 

    As of December 31, 2004
                   

Pro Forma
Adjustments

for the

Capital
Contribution

Relating to
the Offering

                
        Pro Forma Adjustments
     Total
     and the
Additional
Financing
Transactions
     Lazard
Group Pro
Forma, as
Adjusted
  

Pro Forma
Adjustments

for this
Offering

     Lazard
Consolidated
Pro Forma,
as Adjusted
    Historical
   Separation(a)
     Subtotal
   Other
            
    ($ in thousands, except per share amounts)

Assets:

                                                                

Cash and cash equivalents

   $ 273,668   $ (8,185 )   $ 265,483   $       $ 265,483 (d)   $             (e )   $                $                  $                 

Cash and securities segregated for regulatory purposes

     82,631     (27,200 )     55,431             55,431                              

Marketable investments

     112,467             112,467             112,467 (d)                            

Securities owned

     597,229     (210,280 )     386,949             386,949                              

Securities borrowed

     852,266     (852,266 )                                                  

Receivables

     891,524     (164,157 )     727,367             727,367                              

Other assets

     689,439     (226,588 )     462,851             462,851                   (e )                       (f )      
   
 
 
 
 
 
 
 
 

Total assets

   $ 3,499,224   $ (1,488,676 )   $ 2,010,548   $       $ 2,010,548     $              $            $              $         
   
 
 
 
 
 
 
 
 

Liabilities, Members’ Equity and Stockholders’ Equity:

                                                                

Notes payable

   $ 70,777   $ (3,280 )   $ 67,497           $ 67,497     $             (e )   $     $       $  

Securities loaned

     624,918     (624,918 )                                                  

Payables

     601,582     (90,836 )     510,746             510,746                              

Accrued employee compensation

     204,898     (52,247 )     152,651   $ 40,891  (b)                                    
                          149,121  (c)     342,663 (d)                            

Miscellaneous other liabilities

     1,137,531     (434,329 )     703,202             703,202                   (g )                       (f )      

Lazard Group senior notes

                                                     (e )                    

Lazard Group Finance senior notes

                                                     (e )                    

Lazard Group IXIS senior notes

                                                                

Subordinated loans

     200,000             200,000             200,000                              

Mandatorily redeemable preferred stock

     100,000             100,000             100,000                   (e )                    

Minority interest

     174,720     (16,810 )     157,910     (40,891 )(b)     117,019                       (h)      

Members’ equity

     384,798     (266,256 )     118,542     (149,121 )(c)     (30,579 )                  (e)(g)             (h)      
                                                                 
                                                                 

Common stock, par value $.01 per share

                                                         (i)      

Additional paid-in capital

                                                         (f)(i)      

Accumulated deficit

                                                         (h)      
   
 
 
 
 
 
 
 
 

Total members’ equity and stockholders’ equity (deficiency)

     384,798     (266,256 )     118,542     (149,121 )     (30,579 )                            
   
 
 
 
 
 
 
 
 

Total liabilities, members’ equity and stockholders’ equity (deficiency)

   $ 3,499,224   $ (1,488,676 )   $ 2,010,548   $                      $ 2,010,548     $                      $                    $                      $                     
   
 
 
 
 
 
 
 
 

 

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Notes to Unaudited Pro Forma Condensed Consolidated Statement of Financial Condition ($ in thousands):

 

(a) Reflects adjustments necessary to remove the historical balances relating to Lazard Group’s separated businesses.
(b) Reclassifies minority interest relating to services rendered by managing directors and employee members associated with Lazard Group’s controlled affiliate, LAM, to accrued compensation.
(c) Historically, payment for services rendered by managing directors has been accounted for as distributions to members’ capital (and subsequent to January 1, 2003, minority interest for LAM) rather than as compensation expense. As a result, the accrued compensation liability account has not reflected a liability for most services rendered by managing directors. Following the closing of the separation and recapitalization transactions, we will include all payments for services rendered by our managing directors in compensation and benefits expense. The pro forma adjustment reflects the compensation payable to managing directors (excluding LAM and the separated businesses).
(d) Historically, employee bonuses have generally been paid in the January following the end of each fiscal year. Payments to managing directors for services rendered have generally been made in three monthly installments, as soon as practicable, after the end of each fiscal year. Such payments usually begin in February. Accordingly, the cash and marketable investments balances shown will be reduced by amounts to be paid for employee bonuses and payments to managing directors for services rendered.
(e) Reflects the net impact of this offering, the additional financing transactions and the recapitalization, representing (1) the issuance of $             of common stock, which includes $             related to the cashless exchange of certain working members’ historical partner interests for shares of our common stock at the initial public offering price, (2) the issuance of $             principal amount of Lazard Group senior notes, (3) pursuant to the IXIS investment agreement, the issuance of $50,000 of common stock and $150,000 of securities that will be effectively exchangeable into shares of our common stock, and (4) the issuance of $             of the equity security units. Such aggregate proceeds of $            , net of transaction costs, combined with $             in Lazard Group long-term investments, will be utilized to (a) redeem $1,616,000 in historical partner interests, which includes $100,000 in Mandatorily Redeemable Preferred Stock and $             in the cashless exchange of certain working members’ historical partner interests for shares of our common stock, (b) repay $50,000 in principal amount of 7.53% Senior Notes due 2011, and (c) distribute an aggregate of $150,000 to LAZ-MD Holdings and LFCM Holdings. We estimate that net proceeds from this offering and additional financings will exceed the identified use of proceeds described above by $            , which will result in an equivalent increase in cash and cash equivalents.
(f) Reflects the recognition of a deferred tax asset of $             in accordance with Statement of Financial Accounting Standards No. 109, with a related offsetting valuation allowance of $             and a corresponding increase to additional paid-in capital of $            . The valuation allowance has been recorded because it is more likely than not that such portion of this deferred tax asset will not be realized. The realization of this deferred tax asset depends, among other factors, on the future geographic mix of the earnings of Lazard Group and on Lazard Group meeting certain statutory limitations on amortization deductions. This net deferred tax asset is related to the consolidation of Lazard Group into Lazard Ltd. In addition, in connection with the redemption of the historical partner interests and preferred interests, we have recorded a deferred tax asset of $            , with such amount fully offset by a valuation allowance. While, pursuant to the tax receivable agreement, we have agreed to pay LAZ-MD Holdings 85% of the amount of any tax benefit we actually realize as a result of tax deductions attributable to increases in tax basis relating to the redemption of the historical partner interests and preferred interests described above, we have not recorded any liability for our obligation to pay to LAZ-MD Holdings under the tax receivable agreement as we have recorded a full valuation allowance against this deferred tax asset.
(g) Reflects an adjustment to record a liability for the present value of the quarterly contract adjustment payments related to the purchase contracts associated with the equity security units being offered and securities that will be effectively exchangeable into shares of our common stock pursuant to the IXIS investment agreement, with a corresponding charge to additional paid-in-capital.
(h) Reflects LAZ-MD Holdings’ approximate             % ownership of Lazard Group’s common membership interests as of December 31, 2004 and the elimination of Lazard Ltd’s investment in Lazard Group.
(i) Reflects the issuance of Lazard common shares pursuant to this offering, net of applicable costs with respect thereto, and the net effect of the consolidation by Lazard Ltd of Lazard Group.

 

 

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The unaudited pro forma condensed consolidated statements of income for the years ended December 31, 2002 and 2003 are also presented below to give effect to the separation, as though such separation had occurred as of January 1, 2002. The unaudited pro forma condensed consolidated financial statements shown below are presented as additional information since, if the offering is successfully consummated, any subsequent presentation of the historical financial statements will reflect the separated businesses as discontinued operations in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. These unaudited pro forma condensed consolidated financial statements, however, exclude any pro forma adjustments related to payment for services rendered by Lazard Group’s managing directors, incremental expense related to the additional financing transactions, minority interest expense and the income tax effect relating to such items.

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

     Year Ended December 31, 2002
     Year Ended December 31, 2003
  
     Historical
     Separation(a)
    

Pro Forma

for

Separation

     Historical
     Separation(a)
    

Pro Forma

for
Separation

  
     ($ in thousands)  

Total revenue

    $ 1,229,662     $ (207,726 )   $ 1,021,936     $ 1,233,545     $ (150,728 )   $ 1,082,817  

Interest expense(b)

      (63,383 )     33,417       (29,966 )     (50,161 )     15,194       (34,967 )
    
 
 
 
 
 

Net revenue

      1,166,279       (174,309 )     991,970       1,183,384       (135,534 )     1,047,850  

Operating expenses:

                                                 

Employee compensation and benefits

      469,037       (79,023 )     390,014       481,212       (93,976 )     387,236  

Premises and occupancy costs

      82,121       (35,675 )     46,446       98,412       (36,758 )     61,654  

Professional fees

      67,862       (19,185 )     48,677       56,121       (8,190 )     47,931  

Travel and entertainment

      41,225       (7,297 )     33,928       45,774       (7,984 )     37,790  

Other

      129,989       (17,231 )     112,758       112,511       (35,287 )     77,224  
    
 
 
 
 
 

Total Operating Expenses

      790,234       (158,411 )     631,823       794,030       182,195       611,835  
    
 
 
 
 
 

Operating income

      376,045       (15,898 )     360,147       389,354       46,661       436,015  

Provision for income taxes

      38,583       2,496       41,079       44,421       (7,469 )     36,952  
    
 
 
 
 
 

Income allocable to members before minority interests

      337,462       (18,394 )     319,068       344,933       54,130       399,063  

Minority interests

      40,015       (384 )     39,631       94,550       15       94,565  
    
 
 
 
 
 

Net income allocable to members

    $ 297,447     $ (18,010 )   $ 279,437     $ 250,383     $ 54,115     $ 304,498  
    
 
 
 
 
 

Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income ($ in thousands):

 

(a) Reflects adjustments necessary to remove the historical results of operations of Lazard Group’s separated businesses.
(b) Interest expense includes dividends relating to Lazard Group’s mandatorily redeemable preferred stock issued in March 2001, which amounted to $8,000 and $8,000 in the years ended December 31, 2002 and 2003, respectively.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with Lazard Group’s historical consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors, including those set forth in the section entitled “Risk Factors” and elsewhere in this prospectus.

 

The historical consolidated financial data of Lazard Group discussed below reflect the historical results of operations and financial position of Lazard Group, including the separated businesses that will not be retained by Lazard Group following this offering. Accordingly, the historical consolidated financial data do not give effect to the separation and recapitalization transactions, including the completion of this offering and the additional financing transactions. See “The Separation and Recapitalization Transactions and the Lazard Organizational Structure” and “Unaudited Pro Forma Financial Information” included elsewhere in this prospectus.

 

Business Summary

 

Lazard Group’s principal sources of revenue are derived from activities in the following business segments:

 

  Ÿ   Financial Advisory, which includes providing advice on mergers, acquisitions, restructurings and other financial matters,

 

  Ÿ   Asset Management, which includes the management of equity and fixed income securities and merchant banking funds, and

 

  Ÿ   Capital Markets and Other, which consists of equity, fixed income and convertibles sales and trading, broking, research and underwriting services, merchant banking fund management activities outside of France and specified non-operating assets and liabilities. In connection with the separation, Lazard Group will transfer its Capital Markets and Other segment to LFCM Holdings.

 

In addition, we record selected other activities in Corporate, including cash and marketable investments, certain long-term investments and our Paris-based LFB. LFB is a registered bank regulated by the Banque de France. LFB’s primary operations include commercial banking, the management of the treasury positions of Lazard’s Paris House through its money market desk and, to a lesser extent, credit activities relating to securing loans granted to clients of LFG and custodial oversight over assets of various clients. In addition, LFB also operates many support functions of the Paris House. We also allocate outstanding indebtedness to Corporate. Following this offering, the indebtedness and interest expense related to the additional financing transactions will be accounted for as part of Corporate as well.

 

For the year ended December 31, 2004, Financial Advisory, Asset Management, Capital Markets and Other and Corporate contributed approximately 51%, 33%, 15% and 1% of Lazard Group’s net revenue, respectively.

 

Business Environment

 

Economic and market conditions, particularly global M&A activity, can significantly affect our financial performance.

 

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The respective source for the data contained herein relating to (i) the volume of global and trans-Atlantic completed and announced merger and acquisition transactions is Thomson Financial, (ii) the amount of corporate debt defaults is Moody’s Investors Service, Inc., cited with permission, all rights reserved, (iii) the amount of hedge fund assets from Van Hedge Fund Advisors, and (iv) funds raised for global private capital, including private equity and venture capital investment funds, is Thomson Venture Economics/National Venture Capital, March 2005.

 

Financial Advisory

 

From the early 1990s through 2000, there was relatively consistent and substantial growth in global M&A activity. The volume of global completed M&A transactions grew from $359 billion in 1993 to $3,720 billion in 2000. Of the total market, the volume of trans-Atlantic completed M&A transactions (involving either a U.S. or Canadian party transacting with a European counterparty) grew from $22 billion in 1993 to $386 billion in 2000.

 

Beginning in 2001, the volume of global completed M&A transactions began to decline significantly, falling 67% from $3,720 billion in 2000 to $1,220 billion in 2003, with the volume of trans-Atlantic completed M&A transactions down 74% from $386 billion to $102 billion in the same period. At the same time, corporate debt defaults increased significantly, reaching a peak of $164 billion in 2002, up 466% from $29 billion in 2000. In 2003, corporate debt defaults decreased to $34 billion, down 79% from $164 billion in 2002, reflecting improved global economic conditions.

 

In 2004, global M&A volume increased while restructuring activity continued to decline significantly. For the year ended December 31, 2004, the volume of global completed M&A transactions increased 29% versus the year ended December 31, 2003, increasing to $1,574 billion from $1,220 billion, respectively, with the volume of trans-Atlantic completed M&A transactions experiencing a 2% increase. Over the same period, the volume of global announced M&A transactions increased by 39% in 2004, from $1,398 billion to $1,937 billion, and the volume of trans-Atlantic announced M&A transactions increased by 13% from $99 billion to $112 billion, reflecting growing industry-wide activity. Over the same time frame, financial restructuring activity continued to decline, with the amount of corporate debt defaults falling from $34 billion to $16 billion, or by 53%. We believe that our Financial Advisory business will benefit from any sustained increase in M&A volume. Any such improvement will most likely be accompanied, at least in part, by counter cyclical weakness in restructuring activity.

 

We believe that this counter-cyclical relationship can be seen in Lazard Group’s results. Between 2000 and 2003, Lazard Group’s Mergers and Acquisitions net revenue declined from $725 million to $420 million as the volume of global completed M&A transactions across the industry declined amidst challenging economic and capital markets conditions. Conversely, over the same time period, the net revenue of Lazard Group’s Financial Restructuring practice, the first full operating year of which commenced in 2000, increased from $34 million to $245 million, driven primarily by increased restructuring transaction volume stemming from higher levels of global corporate debt defaults. Similarly, for the year ended December 31, 2004, Lazard Group’s Mergers and Acquisitions net revenue increased to $482 million from $420 million in 2003 as M&A activity rebounded, while Financial Restructuring net revenue declined to $96 million from $245 million over the same time period, reflecting diminished restructuring activity due to declining levels of global corporate debt defaults.

 

Asset Management

 

From 1994 to 2004, global stock markets appreciated substantially. The MSCI World Index rose by 7% on a compounded annual basis during this period. European markets experienced similar improvement, with the FTSE 100, CAC 40 and DAX indices up 5%, 7% and 7%, respectively, on a

 

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compounded annual basis. In the U.S., the Dow Jones Industrial, S&P 500 and NASDAQ indices rose by 11%, 10% and 11%, respectively, on a compounded annual basis. According to Pensions & Investments, an industry publication, worldwide assets managed by the top 100 asset managers grew by 21%, on a compounded annual basis, from 1994 to 2003. We believe that this growth in excess of market appreciation reflects a shift towards assets being concentrated among leading asset managers and consolidation within the asset management industry. During the same period, assets managed in hedge funds and merchant banking funds also experienced significant growth. Hedge fund assets, for example, grew 18%, on a compounded annual basis, to $950 billion at year end 2004, and funds raised for global private capital, which includes private equity and venture capital investment funds, increased by 11% on a compounded annual basis.

 

While global stock markets experienced substantial appreciation from 1994 to 2004, markets have experienced considerable volatility since 1999, with various market indices reaching record highs in 1999 and the first quarter of 2000, and then declining steadily through December 31, 2002. From 1999 to 2002, the MSCI World Index declined by 18%, on a compounded annual basis, while in Europe, the FTSE 100, CAC 40 and DAX indices declined 17%, 20% and 25%, respectively, on a compounded annual basis. In the U.S., the Dow Jones Industrial, S&P 500 and NASDAQ indices declined by 10%, 16% and 31%, respectively, on a compounded annual basis, in the same time frame. These declines were followed by considerable improvements in the global markets in 2003 and 2004. From January 1, 2003 until December 31, 2004, the MSCI World Index rose by 22%, on a compounded annual basis, with the FTSE 100, CAC 40 and DAX indices gaining 11%, 12% and 21%, respectively, on a compounded annual basis. In the U.S., the Dow Jones Industrial, S&P 500 and NASDAQ indices gained 14%, 17% and 28%, respectively, on a compounded annual basis for the same period. The changes in global market indices correspond with Lazard Group’s market-related changes in its AUM.

 

Key Financial Measures and Indicators

 

Net Revenue

 

The majority of our Financial Advisory net revenue is earned from the successful completion of mergers, acquisitions, restructurings or similar transactions. In some client engagements, often those involving financially distressed companies, revenue is earned in the form of retainers and similar fees that are contractually agreed upon with each client for each assignment and are not necessarily linked to the completion of a transaction. In addition, we also earn fees from providing strategic advice to a client, with such fees not being dependent on a specific transaction. Our Financial Advisory segment also earns revenue from public and private securities offerings in conjunction with activities of the Capital Markets and Other segment. In general, such fees are shared equally between our Financial Advisory and Capital Markets and Other segments. Following this offering, we intend to have an arrangement with LFCM Holdings under which the separated Capital Markets business will continue to distribute securities in public offerings originated by our Financial Advisory business in a manner intended to be similar to our practice prior to this offering. The main driver of Financial Advisory net revenue is overall M&A and restructuring volume, particularly in the industries and geographic markets in which we focus.

 

Our Asset Management segment includes our LAM, LFG and merchant banking operations. Asset Management net revenue is derived from fees for investment management and advisory services provided to institutional and private clients. The main driver of Asset Management net revenue is the level of AUM, which is influenced in large part by our investment performance and by our ability to successfully attract and retain assets, as well as the broader performance of the global equity markets and, to a lesser extent, fixed income markets. As a result, fluctuations in financial markets and client asset inflows and outflows have a direct effect on Asset Management net revenue and operating income. Fees vary with the type of assets managed, with higher fees earned on actively managed equity assets, alternative investments (such as hedge funds) and merchant banking products, and

 

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lower fees earned on fixed income and cash management products. We also earn performance-based incentive fees on some investment products, such as hedge funds, merchant banking funds and other investment products. Incentive fees on hedge funds are typically calculated based on a specified percentage of a fund’s net appreciation during a fiscal period and can be subject to loss carry-forward provisions in which losses incurred in the current period are applied against future period net appreciation. Incentive fees on merchant banking funds also may be earned in the form of a carried interest when profits from merchant banking investments exceed a specified threshold. Lazard Group’s Asset Management net revenue during the years ended December 31, 2002 through 2004 demonstrate the volatility that incentive fees have on total net revenue. See “—Business Segments—Asset Management—Asset Management Results of Operations.”

 

Capital Markets and Other net revenue largely consists of primary revenue earned from underwriting fees from securities offerings and secondary revenue earned in the form of commissions and trading profits from principal transactions in Lazard Group’s equity, fixed income and convertibles businesses. Since Lazard Group’s January 7, 2004 acquisition of the assets of Panmure Gordon, Lazard Group also has earned underwriting and other fee revenue from corporate broking in the U.K. Lazard Group also earns fund management fees and, if applicable, carried interest incentive fees related to merchant banking funds managed as part of this segment. Such carried interest incentive fees are earned when profits from merchant banking investments exceed a specified threshold. In addition, Lazard Group generates investment income and net interest income principally from long- term investments, cash balances and securities financing transactions. In connection with the separation, Lazard Group will transfer the Capital Markets and Other segment to LFCM Holdings.

 

Corporate net revenue consists primarily of investment income generated from long-term investments, including principal investments that Lazard Group has made in merchant banking and alternative investment funds managed by our Asset Management segment, net interest income generated by LFB, interest income related to cash and marketable investments and interest expense related to outstanding borrowings. Following this offering, interest expense related to the additional financing transactions will be accounted for as part of Corporate as well. Corporate net revenue can fluctuate due to mark-to-market adjustments on long-term and marketable investments, changes in interest rate spreads earned by LFB and changes in the levels of our cash, marketable investments, long-term investments and indebtedness. Although Corporate net revenue represented 1% or less of Lazard Group’s net revenue in each of the years 2002, 2003 and 2004, total assets in this segment represented 40% of Lazard Group’s consolidated total assets as of December 31, 2004 (or 69% excluding the Capital Markets and Other segment), principally attributable to the relatively significant amounts of assets associated with LFB, and, to a lesser extent, cash, marketable investments and long-term investment balances.

 

We expect to experience significant fluctuations in net revenue and operating income during the course of any given year. These fluctuations arise because a significant portion of our Financial Advisory net revenue is earned upon the successful completion of a transaction or financial restructuring, the timing of which is uncertain and is not subject to our control. Our Asset Management net revenue is also subject to periodic fluctuations. Asset Management fees are generally based on AUM measured as of the end of a quarter or month, and an increase or reduction in AUM at such dates, due to market price fluctuations, currency fluctuations, net client asset flows or otherwise, will result in a corresponding increase or decrease in management fees. In addition, incentive fees earned on AUM are generally not recorded until the fourth quarter of our fiscal year, when potential uncertainties regarding the ultimate realizable amounts have been determined.

 

Operating Expenses

 

The majority of our operating expenses relate to employee compensation and benefits. As a limited liability company, payments for services rendered by the majority of Lazard Group’s managing

 

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directors are accounted for as distributions of members’ capital. In addition, subsequent to January 1, 2003, payments for services rendered by managing directors of LAM (and employee members of LAM) have been accounted for as minority interest expense. See “—Minority Interest.” As a result, our employee compensation and benefits expense and operating income have not reflected most payments for services rendered by our managing directors. Following this offering, we will include all payments for services rendered by our managing directors, including the managing directors of LAM, in employee compensation and benefits expense.

 

The balance of our operating expenses is referred to below as “non-compensation expense,” which includes costs for premises and occupancy, professional fees, travel and entertainment, communications and information services, equipment, depreciation and amortization and other expenses.

 

The historical levels of operating expenses set forth in “—Consolidated Results of Operations” do not reflect the added costs we expect to incur as a result of this offering. We expect that we will incur additional expenses for, among other things, directors fees, SEC reporting and compliance, investor relations, legal, accounting and other costs associated with being a public company.

 

Provision for Income Taxes

 

Lazard Group has historically operated in the U.S. as a limited liability company that was treated as a partnership for U.S. federal income tax purposes. As a result, Lazard Group’s income has not been subject to U.S. federal income taxes. Taxes related to income earned by partnerships represent obligations of the individual partners. Outside the U.S., Lazard Group historically has operated principally through corporations and has been subject to local income taxes. Income taxes shown on Lazard Group’s historical consolidated statements of income are attributable to taxes incurred in non-U.S. entities and to UBT attributable to Lazard Group’s operations apportioned to New York City.

 

Following this offering Lazard Group will continue to operate in the U.S. as a limited liability company treated as a partnership for U.S. federal income tax purposes and remain subject to local income taxes outside the U.S. and to UBT. In addition, Lazard will be subject to additional income taxes which will be reflected in our consolidated financial statements as described in Note (f) in the “Unaudited Pro Forma Financial Information—Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income.”

 

Minority Interest

 

Minority interest consists of a number of components.

 

On January 1, 2003, Lazard Group contributed net assets relating to the majority of its asset management business to form LAM, a subsidiary of Lazard Group. Upon formation of LAM, certain members of Lazard Group (including all the managing directors of LAM) who provide services to LAM contributed capital to LAM and ceased being members of Lazard Group. Following the formation of LAM, these capital interests have been included in minority interest on Lazard Group’s consolidated statement of financial condition. In connection with this contribution, the LAM managing directors and other key LAM employees were granted equity units in LAM. Commencing in 2003, payments for services rendered by these individuals were accounted for as minority interest expense in Lazard Group’s consolidated statement of income. The substantial majority of such payments related to services rendered by LAM managing directors, which, in prior years, had been accounted for as distributions to members, therefore, was not reported in prior years’ consolidated statements of income. The remainder of such payments, which related to compensation of employee members of LAM, was recorded as compensation and benefits expense in prior years’ consolidated statements of

 

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income. Following this offering, we will include all payments for services rendered by our managing directors, including our LAM managing directors, as well as employee members of LAM, in employee compensation and benefits expense.

 

The LAM equity units entitle holders to payments in connection with selected fundamental transactions affecting Lazard Group or LAM, including a dissolution or sale of all or substantially all of the assets of Lazard Group or LAM, a merger of or sale of all of the interests in LAM whereby Lazard Group ceases to own a majority of LAM or have the right to appoint a majority of the board of LAM, or a non-ordinary course sale of assets by LAM that exceeds $50 million in value. These persons will not receive LAZ-MD Holdings exchangeable interests in connection with the separation and recapitalization transactions, but will retain their existing equity units in LAM. As a general matter, in connection with a fundamental transaction that triggers the LAM equity units, the holders of the LAM equity units would be entitled in the aggregate to 21.75% of the net proceeds or imputed valuation of LAM in such transaction after deductions for payment of creditors of LAM and the return of LAM capital. As of December 31, 2004, LAM’s capital for these purposes totaled approximately $70 million, of which approximately $18 million was owned by LAM managing directors and employee members, with the remainder owned by Lazard Group. These LAM equity units are not entitled to share in the operating results of LAM. A separate class of interests in LAM, which we refer to in this prospectus as “LAM profit units,” is entitled to the ordinary profit and losses of LAM, all of which are owned by Lazard Group. Accordingly, in the absence of a fundamental transaction that triggers the LAM equity units, all of LAM’s net income is allocable to Lazard Group. We have no current intention to cause or otherwise trigger a fundamental transaction that would give rise to payment obligations to the holders of interests in LAM.

 

On and after January 1, 2006, the board of directors of LAM (a majority of which is appointed by Lazard Group) may, in its discretion, grant LAM equity interests that include profit rights to managing directors of, and other persons providing services to, LAM, as a portion of their ongoing compensation. If granted, these equity interests would be subject to specified vesting conditions, with 50% of the equity interests vesting on the second anniversary of the date of issuance and the remaining 50% of the equity interests vesting on the third anniversary of the date of issuance.

 

Also included in minority interest in our consolidated financial statements are minority interests in various LAM-related general partnership interests. Certain of these LAM-related general partnerships compensate LAM professionals directly. As such, incentive fees that would have otherwise been paid to Lazard Group are retained by the general partnerships for the purpose of compensating the LAM professionals. In Lazard Group’s consolidation of the general partnerships, the LAM professionals’ compensation is reflected in minority interest, with an equivalent amount in Lazard Group’s net revenue. Following this offering we will include such LAM professionals’ share of the incentive fees in employee compensation and benefits expense.

 

In September 2002, Lazard Group and Intesa announced their agreement to form a strategic alliance. Under the terms of this alliance, Intesa became a 40% partner in Lazard Group’s business interests in Italy in January 2003. As a result, commencing in 2003, Lazard Group has recorded minority interest to reflect Intesa’s economic interest in the Italian alliance.

 

As of December 31, 2004, in accordance with the adoption of Financial Interpretation No. 46R for Consolidation of Certain Variable Interest Entities (“FIN 46R”), referred to as “VIEs,” Lazard Group consolidated certain VIEs in which it holds a variable interest and where Lazard Group is the primary beneficiary. Those VIEs include Lazard Group sponsored venture capital investment vehicles established in connection with our compensation plans. Accordingly, Lazard Group’s consolidated financial statements at December 31, 2004 reflect minority interests associated with these VIEs. These VIEs will be included with the separated businesses and, as such, will not be reflected in our

 

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consolidated financial statements following this offering. To the extent that we expand our merchant banking activities in the future, we expect that we may be required to consolidate additional VIEs related to such activities.

 

The table below summarizes our minority interest expense and liability in Lazard Group’s consolidated financial statements:

 

     Minority Interest Expense
     Year Ended December 31,
     2002
    2003
     2004
     ($ in thousands)

LAM Members

    $ —      $ 61,757     $ 73,311

LAM General Partnerships

      38,891      16,975       8,971

Italian Strategic Alliance

      —        15,914       3,741

Merchant Banking General Partnership Interests

      —        —         367

Other

      1,124      (96 )     1,530
    
  
 

Total

    $ 40,015    $ 94,550     $ 87,920
    
  
 

 

     Minority Interest Liability
     As of December 31,
     2003
    2004
     ($ in thousands)

LAM Members

    $ 66,599    $ 57,351

LAM General Partnerships

      35,634      43,186

Italian Strategic Alliance

      65,889      51,902

Merchant Banking General Partnership Interests

      —        20,655

Other

      956      1,626
    
  

Total

    $ 169,078    $ 174,720
    
  

 

Net Income Allocable to Members

 

Historically, payments for services rendered by our managing directors have been accounted for as distributions from members’ capital, or as minority interest expense in the case of payments to LAM managing directors and certain key LAM employee members during 2003 and 2004, rather than as compensation and benefits expense. As a result, our compensation and benefits expense and net income allocable to members have not reflected most payments for services rendered by our managing directors.

 

During 2002, 2003 and 2004, following the hiring of new senior management, Lazard Group invested significant amounts in the recruitment and retention of senior professionals in an effort to reinvest in the intellectual capital of Lazard Group’s business. As a result, while payments for services rendered by our managing directors generally did not historically exceed net income allocable to members in any given year, in 2002, 2003 and 2004, we made distributions to our managing directors that exceeded our net income allocable to members.

 

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The table below illustrates what our compensation and benefits expense would have been on an adjusted basis during 2004, had the portion of distributions to members which represent payments for services rendered and our minority interest expense related to LAM been accounted for as compensation and benefits expense, as adjusted to exclude the impact of the separated businesses. The table further illustrates the relationship between our adjusted compensation and benefits expense and our operating revenue. We define operating revenue to equal consolidated total gross revenue less (i) total gross revenue attributable to the separated businesses and (ii) interest expense related to LFB, our Paris-based banking affiliate. We deduct the interest expense incurred by LFB from our definition of operating revenue because LFB is a financing business and we consider its interest expense to be a cost directly related to the conduct of its business. The remaining interest expense, however, relates to our decisions regarding the capital structure of Lazard Group as a whole.

 

    

Year Ended
December 31, 2004

  
    
     ($ in thousands)  

Adjusted employee compensation and benefits

         

Historical

    $ 573,779  

Add (deduct):

         

Amount related to separated businesses

      (109,030 )

Portion of distributions representing payments for services rendered by managing directors (excluding LAM managing directors)

      280,317  

Portion of distributions representing payments included in minority interest for services rendered by LAM managing directors and employee members of LAM

      73,965  
    

Adjusted employee compensation and benefits

    $ 819,031  
    

Operating revenue

         

Historical total revenue

    $ 1,328,180  

Add (deduct):

         

Amount related to separated businesses

      (202,424 )

LFB Interest expense

      (17,843 )
    

Operating revenue

    $ 1,107,913  
    

Adjusted compensation-to-operating revenue ratio

      73.9 %
    

 

Following the completion of this offering, our policy will be that our employee compensation and benefits expense, including that payable to our managing directors, will not exceed 57.5% of operating revenue each year (although we retain the ability to change this policy in the future). Our managing directors have been informed of this new policy. The new retention agreements with our managing directors generally provide for a fixed salary and discretionary bonus, which may include an equity-based compensation component. The following table summarizes the reductions required to achieve the target ratio:

 

     Year Ended
December 31, 2004
  
    
     ($ in thousands)  

Target employee compensation and benefits

         

Adjusted employee compensation and benefits, as above

    $ 819,031  

Reductions

      (181,981 )
    

Target compensation and benefits

    $ 637,050  
    

Target compensation-to-operating revenue ratio

      57.5 %
    

 

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We intend to achieve this target primarily by reducing payments for services rendered by our managing directors, while continuing to maintain financial packages for our managing directors that we believe are competitive in the market place. All of the expense reductions required to achieve this target ratio could be achieved through compensation reductions under our new retention agreements that generally provide for salary and discretionary bonuses, which agreements were effective upon execution. However, we believe that other considerations will assist us in minimizing the degree of compensation reductions required to achieve our employment compensation and benefit expense target, including expense reductions of approximately $100 million over the next year related to the following—the expiration of guaranteed payments and other contractual agreements with our managing directors; the expiration of contractual payouts to the founders of LAM; planned reductions associated with the restructuring of the Lazard Group pension plans (reflecting a change from defined benefit plans to defined contribution plans) and post-retirement medical plans and cost savings resulting from a reassessment of our staffing needs. The expiration of contractual agreements requiring payments to our managing directors for services performed and to the founders of LAM will reduce expenses by approximately $55 million. The planned expense reductions associated with the restructuring of the Lazard Group pension and post-retirement medical plans and the cost savings from a reassessment of our staffing needs are expected to be approximately $45 million. To the extent required, any reductions, over and above these approximately $100 million of reductions, necessary to achieve our target employee compensation expense-to-operating revenue ratio of 57.5% will be accomplished by reducing other compensation expenses, including the discretionary bonuses of our managing directors, as generally permitted by the new retention agreements.

 

While we are implementing steps that we believe will reduce our compensation expense-to-operating revenue ratio to 57.5%, there can be no guarantee that this will be achieved or that our policy will not change in the future. Increased competition for senior professionals, changes in the financial markets generally or other factors could prevent us from reaching this objective.

 

Results of Operations

 

Our consolidated financial statements are presented in U.S. dollars. Many of our non-U.S. subsidiaries have a functional currency (i.e., the currency in which operational activities are primarily conducted) that is other than the U.S. dollar, generally the currency of the country in which the subsidiaries are domiciled. Such subsidiaries’ assets and liabilities are translated into U.S. dollars at year end exchange rates, while revenue and expenses are translated at average exchange rates during the year. Adjustments that result from translating amounts from a subsidiary’s functional currency are reported as a component of members’ equity. Foreign currency remeasurement gains and losses on transactions in non-functional currencies are included in the consolidated statements of income.

 

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The consolidated results of operations for the years ended December 31, 2002 through December 31, 2004 are set forth below:

 

     Year Ended December 31,
     2002
    2003
    2004
     ($ in thousands)

Net Revenue:

                     

Financial Advisory

    $ 532,896    $ 690,967    $ 655,200

Asset Management

      454,683      350,348      417,166

Capital Markets and Other(a)

      174,309      135,534      188,100

Corporate

      4,391      6,535      13,839
    
  
  

Net revenue

      1,166,279      1,183,384      1,274,305
    
  
  

Operating Expenses:

                     

Employee compensation and benefits

      469,037      481,212      573,779

Non-compensation expense

      321,197      312,818      342,764
    
  
  

Total operating expenses

      790,234      794,030      916,543
    
  
  

Operating Income

      376,045      389,354      357,762

Provision for income taxes

      38,583      44,421      28,375
    
  
  

Income Allocable to Members Before Minority Interest and Extraordinary Gain

      337,462      344,933      329,387

Minority Interest

      40,015      94,550      87,920
    
  
  

Income Allocable to Members Before Extraordinary Gain

      297,447      250,383      241,467

Extraordinary gain

      —        —        5,507
    
  
  

Net Income Allocable to Members

    $ 297,447    $ 250,383    $ 246,974
    
  
  
(a) As described above, Lazard Group will separate its Capital Markets and Other business segment in connection with the separation and recapitalization.

 

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The key ratios, statistics and headcount information for the years ended December 31, 2002 through December 31, 2004 are set forth below:

 

     Year Ended December 31,
  
     2002
     2003
     2004
  
     ($ in thousands)  

As a % of Net Revenue:

                   

Financial Advisory

    46 %   58 %   51 %

Asset Management

    39 %   30 %   33 %

Capital Markets and Other(a)

    15 %   11 %   15 %

Corporate

    0 %   1 %   1 %
    
 
 

Net Revenue

    100 %   100 %   100 %
    
 
 

As a % of Net Revenue:

                   

Operating Income

    32 %   33 %   28 %
    
 
 

Headcount, as of the end of each period, prior to the separation:

                   

Managing Directors:

                   

Financial Advisory

    103     118     131  

Asset Management

    19     24     35  

Capital Markets and Other(a)

    20     22     22  

Corporate

    18     18     19  

All Other Employees

    2,499     2,374     2,377  
    
 
 

Total

    2,659     2,556     2,584  
    
 
 

Headcount, as of the end of each period, after the separation:

                   

Managing Directors:

                   

Financial Advisory

    103     118     131  

Asset Management

    19     24     35  

Corporate

    18     18     19  

All Other Employees

    2,323     2,206     2,154  
    
 
 

Total

    2,463     2,366     2,339  
    
 
 
(a) As described above, Lazard Group will separate its Capital Markets and Other business segment in connection with the separation and recapitalization.

 

Consolidated Results of Operations

 

A discussion of our consolidated results of operations is set forth below, followed by a more detailed discussion of business segment results.

 

2004 versus 2003.    Net revenue was $1,274 million in 2004, up $91 million, or 8%, versus net revenue of $1,183 million for 2003. During 2004, M&A net revenue increased by 15%, offset by a reduction in Financial Restructuring net revenue of 61%, while Asset Management net revenue increased by 19% and Capital Markets and Other net revenue increased by 39%.

 

Employee compensation and benefits expense was $574 million for 2004, an increase of $93 million, or 19%, versus expense of $481 million in 2003. The expense increase was primarily due to increases in performance-based bonus accruals, new service groups operating for the full year in 2004, and increased pension costs in the U.S. and Europe. Employee headcount as of December 31, 2004 was at approximately the same level as of December 31, 2003, however, the composition changed with decreases in headcount in the Financial Advisory and Corporate segments being offset by increased headcount in the Asset Management and Capital Markets and Other segments. For further information with respect to employee compensation and benefits expense after this offering, see “Unaudited Pro Forma Condensed Consolidated Statement of Financial Condition—Notes to Unaudited Pro Forma Condensed Consolidated Statement of Financial Condition.”

 

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Non-compensation expense was $343 million for 2004, an increase of $30 million, or 10%, versus expense of $313 million for 2003. Premises and occupancy expenses were $97 million, a decrease of $2 million, or 2%, due to lower costs associated with abandoned space and duplicate rent in London, almost entirely offset by higher occupancy costs in the U.S. and Europe for offices that were not operating for the full year in 2003. Professional fees were $74 million, an increase of $18 million, or 31%, versus $56 million for 2003 primarily due to costs incurred in connection with this offering, payments to former employees as a result of carried interest-based incentive fees on real estate-related merchant banking funds, consulting fees relating to our recently initiated merchant banking activities in the U.K. and integration costs associated with the acquisition of the assets of Panmure Gordon. Travel and entertainment expenses were $51 million, an increase of $5 million, or 11%, versus $46 million for 2003, due to increased business development efforts. Communication and information services and equipment costs, in the aggregate, were $65 million, an increase of $9 million, or 17%, versus $56 million for 2003 due to increased software maintenance expense and additional technology related spending in certain offices in the U.S. and Europe. Other expenses were $57 million, essentially flat versus 2003.

 

Operating income was $358 million for 2004, a decrease of $31 million, or 8%, versus operating income of $389 million for 2003. Operating income as a percentage of net revenue was 28% for 2004 versus 33% for 2003.

 

Provision for income taxes was $28 million for 2004, a decrease of $16 million versus $44 million for 2003, due to decreased profitability in locations that are subject to corporate income taxes.

 

Minority interest was $88 million for 2004, a decrease of $7 million versus $95 million for 2003, principally due to a decrease in minority interest associated with the Italian strategic alliance, offset by an increase in performance-based compensation for LAM members. See “—Minority Interest.”

 

Income allocable to members before extraordinary gain was $241 million for 2004, a decrease of $9 million, or 4%, versus $250 million in 2003.

 

An extraordinary gain of approximately $6 million was recorded in January 2004 related to the acquisition of the assets of Panmure Gordon and represented the excess of the fair value of the net assets acquired over the purchase price.

 

2003 versus 2002.    Net revenue was $1,183 million in 2003, an increase of $17 million, or 1%, versus net revenue of $1,166 million in 2002. During 2003, M&A net revenue increased by 7% and Financial Restructuring net revenue increased by 96%, with these increases principally offset by decreases in Asset Management net revenue of 23% and Capital Markets and Other net revenue of 22%.

 

Employee compensation and benefits expense was $481 million in 2003, an increase of $12 million or 3% versus expense of $469 million during 2002. The increase in expense in 2003 was principally due to investments made in our Financial Advisory segment, including new service groups and increases in U.K. pension costs. These increases were partially offset by savings related to headcount reductions in Asset Management, and by the reclassification to minority interest expense of compensation for employee members of LAM whose compensation, prior to 2003, had previously been reported in employee compensation and benefits expense. Employee headcount (excluding managing directors) at December 31, 2003 was 2,374, a net reduction of 125 versus December 31, 2002.

 

Non-compensation expense was $313 million in 2003, a decrease of $8 million, or 3%, versus expense of $321 million in 2002. Premises and occupancy expenses were $98 million, an increase of $16 million, or 20%, versus $82 million in 2002, primarily due to increases in rent in London and

 

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occupancy cost for our Paris facilities. Professional fees were $56 million, a decrease of $12 million, or 17%, versus $68 million in 2002 due to higher professional fees in 2002 relating to (i) dissolving an Asset Management partnership arrangement, (ii) unwinding of an investment in a derivatives business venture and (iii) reorganizing the LAM capital structure. Travel and entertainment expenses were $46 million, an increase of $5 million, or 11%, versus $41 million in 2002 due to increased business development efforts. Communication and information services and equipment costs in the aggregate were $56 million, an increase of $5 million, or 10%, versus $51 million in 2002 with no one business activity accounting for a significant piece of the increase. Other expenses were $57 million, a decrease of $22 million, or 28%, versus $79 million in 2002, primarily due to one-time costs incurred in 2002 relating to dissolving the aforementioned Asset Management partnership arrangement.

 

Operating income was $389 million in 2003, an increase of $13 million, or 4%, versus operating income of $376 million in 2002. Operating income as a percentage of net revenue was 33% in 2003 versus 32% in 2002.

 

Provision for income taxes was $44 million in 2003, an increase of $5 million versus $39 million in 2002, due to increased profitability in locations that are subject to corporate income taxes.

 

Minority interest was $95 million in 2003, an increase of $55 million versus $40 million in 2002. Beginning in 2003, compensation for services rendered by LAM managing directors and employee members of LAM was recorded in minority interest. In addition, Lazard Group’s strategic alliance in Italy with Intesa also commenced in 2003. These two items, in the aggregate, accounted for a $78 million increase in minority interest expense. Partially offsetting these increases was a $22 million decline in minority interest expense associated with the consolidation of LAM-related general partnerships consistent with the decline in related incentive fee revenue. See “—Minority Interest.”

 

Net income allocable to members was $250 million in 2003, a decrease of $47 million, or 16%, versus net income allocable to members of $297 million in 2002.

 

Business Segments

 

The following data discusses net revenue and operating income by business segment. The operating results exclude a discussion of Corporate, due to its relatively minor contribution to operating results. Each segment’s operating expenses include (i) employee compensation and benefits expenses that are incurred directly in support of the businesses and (ii) other operating expenses, which include directly incurred expenses for premises and occupancy, professional fees, travel and entertainment, communications and information services, equipment, and indirect support costs (including compensation and other operating expenses related thereto) for administrative services. Such administrative services include, but are not limited to, accounting, tax, legal, facilities management and senior management activities. Such support costs are allocated to the relevant segments based on various statistical drivers such as, among other items, headcount, square footage and transactional volume.

 

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Financial Advisory

 

The following table summarizes the operating results of the Financial Advisory segment:

 

     Year Ended December 31,
  
     2002
     2003
     2004
  
     ($ in thousands)  

M&A

    $ 393,082     $ 419,967     $ 481,726  

Financial Restructuring

      124,800       244,600       96,100  

Corporate Finance and Other

      15,014       26,400       77,374  
    
 
 

Net Revenue

      532,896       690,967       655,200  
    
 
 

Direct Employee Compensation and Benefits

      171,270       189,823       230,340  

Other Operating Expenses(a)

      159,532       190,427       213,342  
    
 
 

Total Operating Expenses

      330,802       380,250       443,682  
    
 
 

Operating Income

    $ 202,094     $ 310,717     $ 211,518  
    
 
 

Operating Income as a Percentage of Net Revenue

      38 %     45 %     32 %
    
 
 

Headcount(b):

                         

Managing Directors

      103       118       131  

Other Employees

      820       848       832  
    
 
 

Total

      923       966       963  
    
 
 
(a) Includes indirect support costs (including compensation and other operating expenses related thereto).
(b) Excludes headcount related to support functions. Such headcount is included in the Corporate headcount.

 

Net revenue trends in Financial Advisory for M&A and Financial Restructuring generally are correlated to the volume of completed industry-wide mergers and acquisitions activity and restructurings occurring subsequent to corporate debt defaults, respectively. However, deviations from this relationship can occur in any given year for a number of reasons. For instance, material variances in the level of mergers and acquisitions activity in a particular geography where we have significant market share or the number of our advisory engagements with respect to larger-sized transactions can cause our results to diverge from industry-wide activity. Lazard Group client statistics and global industry statistics are set forth below:

 

     Year Ended December 31,
  
     2002
     2003
     2004
  

Lazard Statistics:

                         

Number of Clients:

                         

Total

      383       370       435  

With Fees Greater than $1 million

      136       137       136  
                          

Percentage of Total Fees from Top 10 Clients

      26 %     30 %     25 %
                          

Number of M&A Transactions Completed Greater than $1 billion

      21       29       30  

Industry Statistics ($ in billions):

                         

Volume of Completed M&A Transactions:

                         

Global

    $ 1,352     $ 1,220     $ 1,574  

Trans-Atlantic

      102       102       104  

Global Corporate Debt Defaults

      164       34       16  
                          

 

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The geographical distribution of Financial Advisory net revenue is set forth below in percentage terms. The offices that generate our Financial Advisory net revenue are located in North America, Europe (principally in the U.K., France, Italy and Germany) and the rest of the world (principally in Asia).

 

     Year Ended December 31,
  
     2002
     2003
     2004
  

North America

    41 %   49 %   45 %

Europe

    57 %   50 %   54 %

Rest of World

    2 %   1 %   1 %
    
 
 

Total

    100 %   100 %   100 %
    
 
 

 

Lazard Group’s managing directors and many of its professionals have significant experience, and many of them are able to use this experience to advise on both mergers and acquisitions and restructuring transactions, depending on our clients’ needs. This flexibility allows Lazard Group to better match its professional staff with the counter-cyclical business cycles of mergers and acquisitions and financial restructurings. While Lazard Group measures revenue by practice area, Lazard Group does not separately measure the separate costs or profitability of mergers and acquisitions services as compared to financial restructuring services. Accordingly, Lazard Group measures performance in its Financial Advisory segment based on overall segment net revenue and operating income margins.

 

Financial Advisory Results of Operations

 

2004 versus 2003.    In 2004, M&A net revenue increased by $62 million, or 15%, driven by the improved environment for mergers and acquisitions activity. The increase in M&A net revenue was offset by a $149 million, or 61%, decrease in Financial Restructuring net revenue versus 2003, consistent with the decline in global corporate debt defaults that began in 2003. Other Financial Advisory net revenue increased by $51 million primarily due to net revenue generated from a new service that raises capital for private equity funds that commenced operations in 2003, as well as increased underwriting net revenue in corporate finance activities.

 

Clients with whom Lazard Group transacted significant business in 2004 included Air Liquide, Bank One, Fisher Scientific, Intesa, Interbrew, MG Technologies, National Energy & Gas, Pfizer, Pirelli, Resolution Life, UCB and Veolia Environment.

 

Financial Advisory net revenue in 2004 was earned from 435 clients, compared to 370 in 2003. Advisory fees of $1 million or more were earned from 136 of our clients for 2004, compared to 137 in 2003. In 2004, the ten largest fee-paying clients constituted 25% of Financial Advisory segment net revenue. There were no clients in 2004 that individually constituted more than 10% of Financial Advisory segment net revenue.

 

Operating expenses were $444 million for 2004, an increase of $64 million, or 17%, versus operating expenses of $380 million in 2003. Direct employee compensation and benefits expense increased by $41 million, or 21%. While changes in employee compensation are generally correlated to changes in employee headcount, the timing and composition of such headcount changes may have a direct impact on the level of any given year’s compensation and benefit expense. More specifically, in 2004, while total employee headcount in the Financial Advisory segment decreased, employee compensation and benefits expense increased primarily due to an increase in headcount in certain of our offices and in new offices or new service groups that were partially or not operational in 2003, and increased pension costs in the U.S. and Europe, partially offset by a $4 million decrease related to the

 

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termination of a post-retirement medical plan in Europe. Other operating expenses increased by $23 million, or 12%, due to increases in premises and occupancy expense of $7 million, travel and entertainment expense of $4 million, communications, information services and equipment of $2 million and all other expenses, which in the aggregate increased by $10 million. Premises and occupancy expense increased due to higher occupancy costs in Europe as well as in the U.S. for offices that were not operating for the full year in 2003. Travel and entertainment expense increased due to business development efforts. Communications, information services and equipment expense increased due to additional technology and equipment expense in certain offices in the U.S. and Europe and technology upgrades in the U.S.

 

Financial Advisory operating income was $212 million for 2004, a decrease of $99 million, or 32%, versus operating income of $311 million for 2003. Operating income as a percentage of segment net revenue was 32% for 2004 versus 45% in 2003.

 

2003 versus 2002.    In 2003, Financial Restructuring net revenue increased by $120 million, or 96% versus 2002, as restructuring activity peaked following the rise in corporate debt defaults during the preceding three years. In addition, the growth in net revenue was driven by fees earned on a number of unusually large restructuring transactions that were completed in 2003. During the same period, M&A net revenue increased by $27 million, or 7%, versus 2002, despite an industry-wide decline in global completed M&A activity. The improvement in our M&A net revenue was driven by our increased involvement globally in mergers and acquisitions transactions valued in excess of $1 billion. Such transactions generally earn higher fees per transaction, which is reflected in the higher proportion in 2003 of our net revenue attributable to our ten largest clients. In addition, net revenue generated by our operations in Italy, which held a leading market position, grew substantially on improved mergers and acquisitions activity in the region. Other Financial Advisory net revenue increased by $11 million due to revenue generated from new service groups that commenced operations in 2003, increased underwriting activity and increases in other miscellaneous income.

 

Clients with whom Lazard Group transacted significant business in 2003 included Canary Wharf Group, Charter Communications, Conseco, Corus Group, Edison International, Fiat, Intesa, Microsoft, Pfizer, Pirelli Group, Sierra Pacific Resources, Vivendi Universal, WorldCom and Xcel Energy.

 

Financial Advisory net revenue in 2003 was earned from 370 clients, compared to 383 in 2002. Advisory fees of $1 million or more were earned from 137 of our clients in 2003, compared to 136 in 2002. In 2003, the ten largest fee-paying clients constituted 30% of Financial Advisory segment net revenue. There were no clients in 2003 that individually constituted more than 10% of Financial Advisory segment net revenue.

 

Operating expenses were $380 million for 2003, an increase of $49 million, or 15%, versus operating expenses of $331 million in 2002. Direct employee compensation and benefits expense increased by $19 million, or 11%, primarily due to increased revenue and increased headcount in select offices and new service groups. Other operating expenses increased by $31 million, or 19%, due to increases in premises and occupancy expense of $9 million, or 49%, travel and entertainment expense of $4 million, or 26%, and support costs of $18 million, or 28%. Premises and occupancy expense increased principally due to higher occupancy cost in London and Paris, and new offices in Houston and Los Angeles. Travel and entertainment expense increased across all offices primarily due to increased business development efforts and an increase in managing director headcount compared to 2002.

 

Financial Advisory operating income was $311 million in 2003, an increase of $109 million, or 54%, versus operating income of $202 million in 2002. Operating income as a percentage of segment net revenue was 45% in 2003 versus 38% in 2002.

 

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Asset Management

 

The following table shows the composition of AUM mandates for our Asset Management segment:

 

     As of December 31,
     2002
      2003
      2004
     ($ in millions)

AUM

                         

International Equities

    $ 23,141      $ 34,389      $ 39,267

Global Equities

      12,806        15,922        17,762

U.S. Equities

      9,878        12,236        12,716
    
    
    

Total Equities

      45,825        62,547        69,745
    
    
    

International Fixed Income

      4,164        5,174        6,226

Global Fixed Income

      1,723        1,932        2,008

U.S. Fixed Income

      4,850        4,393        2,970
    
    
    

Total Fixed Income

      10,737        11,499        11,204
    
    
    

Alternative Investments

      4,094        1,370        2,800

Merchant Banking

      272        411        551

Cash Management

      2,757        2,544        2,135
    
    
    

Total AUM

    $ 63,685      $ 78,371      $ 86,435
    
    
    

 

The following is a summary of changes in Asset Management’s AUM and average AUM during the years ended December 31, 2002, 2003 and 2004. Average AUM is based on an average of quarterly ending balances for the respective periods.

 

     Year Ended December 31,
  
     2002
     2003
     2004
  
     ($ in millions)  

AUM—Beginning of Year

    $ 73,108     $ 63,685     $ 78,371  

Net Flows

      (3,573 )     (1,111 )     (3,489 )

Market Appreciation (Depreciation)

      (7,215 )     14,457       10,793  

Foreign Currency Adjustments

      1,365       1,340       760  
    
 
 

AUM—End of Year

    $ 63,685     $ 78,371     $ 86,435  
    
 
 

Average AUM

    $ 68,356     $ 66,321     $ 80,261  
    
 
 

 

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The following table summarizes the operating results of the Asset Management segment:

 

     Year Ended December 31,
     2002
    2003
    2004
     ($ in thousands)

Management and Other Fees

    $ 381,256    $ 312,123    $ 389,812

Incentive Fees

      73,427      38,225      27,354
    
  
  

Net Revenue

      454,683      350,348      417,166
    
  
  

Direct Employee Compensation and Benefits

      131,601      108,701      134,097

Other Operating Expenses(a)

      167,016      131,187      147,932
    
  
  

Total Operating Expenses

      298,617      239,888      282,029
    
  
  

Operating Income

    $ 156,066    $ 110,460    $ 135,137
    
  
  

Headcount(b):

                     

Managing Directors

      19      24      35

Other Employees

      661      571      581
    
  
  

Total

      680      595      616
    
  
  
(a) Includes indirect support costs (including compensation and other operating expenses related thereto).
(b) Excludes headcount related to support functions. Such headcount is included in the Corporate headcount.

 

The geographical distribution of Asset Management net revenue is set forth below in percentage terms:

 

     Year Ended December 31,
     2002
    2003
    2004

North America

    72%    63%    59%

Europe

    22%    30%    33%

Rest of World

    6%    7%    8%
    
  
  

Total

    100%    100%    100%
    
  
  

 

Asset Management Results of Operations

 

2004 versus 2003.    Asset Management net revenue was $417 million in 2004, an increase of $67 million, or 19%, versus net revenue of $350 million in 2003. Management and Other Fees in 2004 were $390 million, up $78 million, or 25%, versus 2003. Incentive fees earned in 2004 were $27 million, a decrease of $11 million versus $38 million in 2003, due to lower performance in certain investment funds.

 

For 2004, average AUM increased by approximately $13.9 billion, or 21%, versus 2003. Management and Other Fees grew at a faster rate than average AUM primarily due to a greater percentage of AUM concentrated in equity and alternative investments versus fixed income products (84% of total AUM in 2004 as compared to 82% in 2003), which generally earn higher management fees.

 

AUM as of December 31, 2004 was $86.4 billion, an increase of $8 billion, or 10%, versus AUM of $78.4 billion as of December 31, 2003. During 2004, the increase in AUM was primarily due to market appreciation of $10.8 billion that more than offset net outflows of $3.5 billion. Net outflows were principally related to performance related withdrawals, asset allocation decisions and corporate restructurings.

 

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Operating expenses were $282 million in 2004, an increase of $42 million, or 18%, versus operating expenses of $240 million in 2003. Direct employee compensation and benefits expense increased by $25 million, or 23%, versus 2003, primarily due to increases in performance-based bonuses relating to the increased operating results and to a lesser extent, increases in headcount to support global growth. Other operating expenses increased by $17 million, or 13%, versus 2003 principally due to increases in premises and occupancy expense of $3 million, or 14%, and travel and entertainment expense of $2 million, or 20%, equipment expense of $2 million, or 72%, and all other expenses which, in the aggregate, increased $10 million or 10%.

 

Asset Management operating income was $135 million in 2004, an increase of $25 million, or 22%, versus operating income of $110 million for 2003. Operating income as a percentage of segment net revenue was 32% for the 2004 versus 32% for 2003.

 

2003 versus 2002.    Asset Management net revenue was $350 million in 2003, a decrease of $105 million, or 23%, from net revenue of $455 million in 2002. Management and Other fees for 2003 were $312 million, down $69 million, or 18%, versus the corresponding period in 2002. Incentive fees earned in 2003 were $38 million, $35 million lower than in 2002. Lower average AUM, significant net outflows in alternative investments and the decline in incentive fees, resulted in a decrease in net revenue in 2003.

 

In 2003, average AUM decreased by $2.0 billion, or 3%, versus 2002, primarily due to net asset outflows that occurred in early 2003. The majority of the net asset outflow occurred in the alternative investment product area due to the departure in early 2003 of a hedge fund manager and team. This outflow resulted in both reduced management fees and incentive fees in 2003. As the mix of AUM in 2003 shifted away from higher margin alternative investments, the average fees earned on AUM were lower in 2003 than in 2002. By the end of 2003, the downward trend in AUM was reversed due to significant market appreciation and an increase in net inflows of assets beginning in the second quarter, which offset the market depreciation and net outflows experienced in the first quarter.

 

AUM at December 31, 2003 was $78.4 billion, up approximately $15 billion from December 31, 2002 due almost entirely to market appreciation.

 

Operating expenses were $240 million for 2003, a decrease of $59 million, or 20%, versus operating expenses of $299 million in 2002. Direct employee compensation and benefits expense decreased by $23 million, or 17%, $10 million of which related to the reporting of compensation for non-managing directors who are members of LAM. In prior years, such compensation was reported in employee compensation and benefits expense. Also contributing to the decrease was lower headcount and performance-based bonuses as a result of lower operating results in 2003. Other operating expenses decreased $36 million, or 21%, in 2003 compared to 2002. Professional fees were $6 million lower than in 2002 when additional expense was incurred relating to the dissolving of an Asset Management partnership arrangement and the reorganization of the LAM capital structure. Other expenses were $30 million lower than in 2002 principally due to additional costs incurred in 2002 relating to dissolving the aforementioned Asset Management partnership arrangement and, to a lesser extent, lower support costs and equipment expenses.

 

Asset Management operating income was $110 million in 2003, a decrease of $46 million, or 29%, versus operating income of $156 million in 2002. Operating income as a percentage of segment net revenue was 32% in 2003 versus 34% in 2002.

 

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Capital Markets and Other

 

The following table summarizes the operating results of the Capital Markets and Other segment:

 

     Year Ended December 31,
  
     2002
     2003
     2004
  
     ($ in thousands)  

Revenue:

                         

Capital Markets advisory fees

    $ 3,335     $ 1,568     $ 10,153  

Money management fees

      25,753       23,272       44,951  

Commissions

      48,724       43,184       51,871  

Trading Gains and losses-net

      60,768       39,124       30,841  

Underwriting

      11,268       17,496       34,278  

Investment gains (losses), non-trading-net

      21,145       7,911       10,087  

Interest Income

      39,432       21,988       19,705  

Other

      (2,699 )     (3,815 )     538  
    
 
 

Total revenue

      207,726       150,728       202,424  

Interest expense

      (33,417 )     (15,194 )     (14,324 )
    
 
 

Net Revenue

      174,309       135,534       188,100  
    
 
 

Direct Employee Compensation and Benefits

      68,748       83,909       96,544  

Other Operating Expenses(a)

      89,663       98,286       95,927  
    
 
 

Total Operating Expenses

      158,411       182,195       192,471  
    
 
 

Operating Income (Loss)

    $ 15,898     $ (46,661 )   $ (4,371 )
    
 
 

Headcount(b):

                         

Managing Directors

      20       22       22  

Other Employees

      176       168       223  
    
 
 

Total

      196       190       245  
    
 
 
(a) Includes indirect support costs (including compensation and other operating expenses related thereto).
(b) Excludes headcount related to support functions. Such headcount is included in the Corporate headcount.

 

Capital Markets and Other Results of Operations

 

The net revenue included in the Capital Markets and Other segment is related primarily to revenue earned from underwriting fees from securities offerings and secondary trading revenue earned in the form of commissions and trading profits from principal transactions in equity, fixed income and convertibles businesses. In addition, this segment earned underwriting and other fee revenue from corporate broking in the U.K. related to the January 2004 acquisition of the assets of Panmure Gordon. Also included in this segment are fund management fees and, if applicable, carried interest incentive fees related to merchant banking funds managed as part of this segment. Carried interest fees are earned when profits from merchant banking investments exceed a certain threshold. In addition, investment income and net interest income from long-term investments, cash balances and securities financing transactions also are included in the Capital Markets and Other segment. These capital market activities will be part of the businesses separated from the operations of Lazard Group in connection with the separation. The results of the operations of the Capital Markets and Other segment are included in Lazard Group’s historical financial statements, however, after the completion of the separation, Lazard Group will no longer own the Capital Markets and Other segment and will report the segment as a discontinued operation. However, Lazard Group has an option under the business alliance agreement to acquire the merchant banking business from LFCM Holdings. See “Certain Relationships and Related Transactions—Relationship with LAZ-MD Holdings and LFCM Holdings—Business Alliance Agreement.”

 

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2004 versus 2003.    Capital Markets and Other net revenue was $188 million in 2004, an increase of $52 million, or 39%, versus net revenue of $136 million in 2003. Higher net revenue in sales and trading was the principal contributor to the increase, including net revenue of $18 million generated from certain product areas not previously offered by Lazard Group, due to the acquisition of the assets of Panmure Gordon in January 2004. Increases in primary revenue in corporate broking, corporate bonds, convertibles and secondary revenue in equities were offset by a decrease in secondary trading in fixed income. In addition, incentive fees earned on the realization of carried interest on real estate-related merchant banking funds were $23 million in 2004, versus $3 million recorded in 2003.

 

Operating expenses were $192 million for 2004, an increase of $10 million, or 6%, versus operating expenses of $182 million in 2003. Direct employee compensation and benefits expense in 2004 increased by $13 million, or 15%, primarily due to increases in headcount associated with the acquisition of the assets of Panmure Gordon in 2004 and bonuses related to the carried interest incentive fees, partially offset by decreases in bonus accruals in certain areas that experienced declines in revenue in the 2004 period. Other operating expenses decreased by $3 million, or 2%. Premises and occupancy costs decreased by $15 million in 2004, principally due to reductions of $10 million related to abandoned space in our London facilities as well as a reduction of approximately $6 million of duplicate rent paid in 2003 that did not recur in 2004. Professional fees increased by $16 million in 2004, primarily due to integration costs associated with the acquisition of the assets of Panmure Gordon, payments to former employees as a result of carried interest incentive fees recorded in merchant banking and consulting fees relating to our recently initiated merchant banking activities in the U.K. All other expenses in the aggregate decreased by $4 million, principally due to lower expenses associated with the 2003 settlement of a dispute relating to a merchant banking fund as well as lower travel and entertainment expenses. In connection with the acquisition of the assets of Panmure Gordon during 2004, new service groups were added that did not exist in 2003 and which added an aggregate of $5 million across all other expense categories.

 

Capital Markets and Other operating loss was $4 million in 2004, versus a loss of $47 million in 2003. Operating loss as a percentage of segment net revenue was 2% for 2004, versus a loss of 34% in 2003.

 

2003 versus 2002.    Capital Markets and Other net revenue was $135 million in 2003, a decrease of $39 million, or 22%, from net revenue of $174 million in 2002. The decrease in net revenue in 2003 was principally due to a gain in 2002 of $27 million on the sale of a portion of a long-term investment that did not recur in 2003. Also contributing to the decrease was lower secondary trading revenue of $12 million.

 

Operating expenses were $182 million for 2003, an increase of $24 million, or 15%, versus operating expenses of $158 million in 2002. Direct employee compensation and benefits expense in 2003 increased by $15 million, or 22%, primarily due to the establishment of a new convertible bond desk, the addition of a new equity team in London and an increase in employee bonuses in the corporate bond area. Offsetting these increases were decreases in headcount and performance-based bonuses in other product areas. Other operating expenses increased by $9 million, or 10%, primarily related to expenses associated with the aforementioned settlement of a dispute relating to a merchant banking fund.

 

Capital Markets and Other operating loss was $47 million in 2003 versus operating income of $16 million in 2002. Operating loss as a percentage of net revenue was 34% in 2003 versus operating income as a percentage of net revenue of 9% in 2002.

 

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Geographic Data

 

For a summary of the consolidated net revenue and identifiable assets of Lazard Group as of and for the years ended December 31, 2002, 2003 and 2004 by geographic region, see Note 15 of notes to our historical consolidated financial statements.

 

Cash Flows

 

Historically, Lazard Group’s cash flows have been influenced primarily by the timing of receipt of Financial Advisory and Asset Management fees, the timing of distributions to members and payment of bonuses to employees. In general, we collect our accounts receivable within 60 days. In restructuring transactions, particularly restructurings involving bankruptcies, receivables sometimes take longer to collect than 60 days due to issues such as court-ordered holdbacks.

 

Cash and cash equivalents were $274 million at December 31, 2004, a decrease of $42 million versus cash and cash equivalents of $316 million at December 31, 2003. During 2004, cash of $426 million was provided by operating activities, including $247 million from net income allocable to members, $105 million of noncash charges, principally consisting of depreciation and amortization of $17 million and minority interest of $88 million and $74 million being provided by net changes in other operating assets and operating liabilities. Cash of $10 million was used for investing activities principally related to net additions to property. Financing activities during this period used $470 million of cash, primarily for distributions to members and minority interest holders of $469 million. Lazard Group traditionally makes payments for employee bonuses and distributions to members and minority interest holders in the first quarter with respect to the prior year’s results.

 

Cash and cash equivalents were $316 million at December 31, 2003, a decrease of $17 million versus cash and cash equivalents of $333 million at December 31, 2002. During the year ended December 31, 2003, cash of $207 million was provided by operating activities, including $250 million from net income allocable to members, and $109 million of noncash charges principally consisting of depreciation and amortization of $14 million and minority interest of $95 million, with these items partially offset by net changes in other operating assets and operating liabilities of $152 million. Cash of $54 million was provided by investing activities, principally as a result of proceeds of $100 million from the formation of the strategic alliance in Italy, offset by net additions in property relating to leasehold improvements, principally in London and Paris, of $46 million. Financing activities used $287 million of cash, primarily relating to distributions to members and minority interest holders of $452 million, partially offset by $200 million invested by Intesa in connection with the formation of the strategic alliance in Italy.

 

Liquidity and Capital Resources

 

Historically, Lazard Group’s source of liquidity has been cash provided by operations, with a traditional seasonal pattern of cash flow. While employee salaries are paid throughout the year, annual discretionary bonuses have historically been paid to employees in January relating to the prior year. Our managing directors are paid a salary during the year, but a majority of their annual cash distributions with respect to the prior year have historically been paid to them in three monthly installments in February, March and April. In addition, and to a lesser extent, during the year we pay certain tax advances on behalf of our managing directors, and these advances serve to reduce the amounts due to the managing directors in the three installments described above. As a consequence, our level of cash on hand decreases significantly during the first quarter of the year and gradually builds up over the remaining three quarters of the year. We expect this seasonal pattern of cash flow to continue.

 

Lazard Group’s consolidated financial statements are presented in U.S. dollars. Many of Lazard Group’s non-U.S. subsidiaries have a functional currency, i.e., the currency in which operational activities are primarily conducted, that is other than the U.S. dollar, generally the currency of the

 

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country in which such subsidiaries are domiciled. Such subsidiaries’ assets and liabilities are translated into U.S. dollars at year end exchange rates, while revenue and expenses are translated at average exchange rates during the year. Adjustments that result from translating amounts from a subsidiary’s functional currency are reported as a component of members’ equity. Such currency translation adjustments served to increase members’ equity by approximately $47 million, $51 million and $30 million in the years ended December 31, 2002, 2003 and 2004, respectively. Foreign currency remeasurement gains and losses on transactions in non-functional currencies are included on the consolidated statements of income.

 

During 2002, 2003 and 2004, following the hiring of new senior management, Lazard Group invested significant amounts in the recruitment and retention of senior professionals in an effort to reinvest in the intellectual capital of Lazard Group’s business. As a result, while payments for services rendered by our managing directors prior to 2002 generally did not exceed net income allocable to members, in 2002, 2003 and 2004, distributions to its managing directors exceeded its net income allocable to members. The amounts of the distributions that exceeded net income allocable to members were the primary cause for a decrease in members’ equity during these periods. On a pro forma basis, Lazard Group will realize a further reduction of members’ equity as a result of the separation. See “Unaudited Pro Forma Condensed Consolidated Statement of Financial Condition.”

 

We regularly monitor our liquidity position, including cash levels, credit lines, principal investment commitments, interest and principal payments on debt, capital expenditures and matters relating to liquidity and to compliance with regulatory net capital requirements. We maintain senior and subordinated lines of credit in excess of anticipated liquidity requirements. As of December 31, 2004, Lazard Group had $212 million in unused lines of credit available to it. These facilities provide us with the ability to meet short-term cash flow needs resulting from our various business activities. If these facilities prove to be insufficient, we would seek additional financing in the credit or capital markets, although we may be unsuccessful in obtaining such additional financing on acceptable terms or at all. A significant portion of these capital lines support the capital markets and other separated businesses.

 

Lazard Group’s cash flow generated from operations historically has been sufficient to enable it to meet its obligations, including interest on $350 million of financings obtained since 2001. We believe that our cash flows from operating activities, after giving effect to the separation, should be sufficient for us to fund our current obligations for the next 12 months and beyond. In addition, we intend to maintain lines of credit that can be utilized should the need arise. Following the completion of this offering, we expect to enter into new credit facilities that will provide approximately $                 million of borrowing capacity. We may, to the extent required, use other financing sources in addition to these new credit facilities.

 

Over the past several years, Lazard Group has entered into several financing agreements designed to strengthen both its capital base and liquidity, the most significant of which are described below. Each of these agreements is discussed in more detail in our historical consolidated financial statements and related notes included elsewhere in this prospectus.

 

In March 2001, Lazard Group issued $100 million of Mandatorily Redeemable Preferred Stock (“Class C Preferred Interests”). The Class C Preferred Interests are subject to mandatory redemption by Lazard Group in March 2011 and, prior to such date, are redeemable in whole or in part, at Lazard Group’s option. The Class C Preferred Interests are entitled to receive distributions out of the profits of Lazard Group at a rate of 8% per annum, which distributions must be paid prior to any distributions of profits to holders of any other existing class of interests in Lazard Group. Unpaid distributions on the Class C Preferred Interests accrue but are not compounded. Upon liquidation of Lazard Group, the Class C Preferred Interests rank senior to members’ equity. The Class C Preferred Interests will be redeemed in connection with the separation and recapitalization transactions.

 

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In May 2001, a wholly-owned subsidiary of Lazard Group issued $50 million of Senior Notes due 2011. These notes, which are unsecured obligations and guaranteed by Lazard Group, currently bear interest at an annual rate of 7.53%.

 

In September 2002, Lazard Group and Intesa announced their agreement to form a strategic alliance wherein effective January 2003, Intesa effectively became a 40% partner in Lazard Group’s business in Italy. Pursuant to the terms of this strategic alliance, Intesa made a $100 million investment in Lazard Group’s business in Italy, and purchased a $50 million subordinated promissory note issued by Lazard Group’s business in Italy. The subordinated promissory note has a scheduled maturity in 2078 (subject to extension), with interest payable annually at the rate of 3.0% per annum.

 

In addition to its direct investment in Lazard Group’s business in Italy, Intesa also purchased a $150 million subordinated convertible promissory note from a wholly-owned subsidiary of Lazard Group. The subordinated convertible promissory note, which is guaranteed by Lazard Group, is convertible into a contractual right that entitles the holder to receive a payment that would be equal to a 3% equity goodwill interest in certain fundamental transactions. This subordinated convertible promissory note has a scheduled maturity in 2018 and has interest payable annually at a variable interest rate between 3.0% and 3.25% per annum. The annual interest rate is 3.0% for the 12 months ending March 2005.

 

From time to time, we have considered appropriate modifications to our relationship with Intesa. In connection with the separation and recapitalization transactions, we are currently in discussions with Intesa regarding whether any changes are appropriate in the terms of their investment in our company and regarding the possible extension of the current term of our joint venture relationship, which, if not renewed, expires on December 31, 2007.

 

As of December 31, 2004, Lazard Group was in compliance with all of its obligations under its various borrowing arrangements.

 

We actively monitor our regulatory capital base. Our principal subsidiaries are subject to regulatory requirements in their respective jurisdictions to ensure their general financial soundness and liquidity, which requires, among other things, that we comply with certain minimum capital requirements, record-keeping, reporting procedures, relationships with customers, experience and training requirements for employees and certain other requirements and procedures. These regulatory requirements may restrict the flow of funds to affiliates. Regulatory approval is generally required for paying dividends in excess of certain established levels. See Note 13 of Notes to Consolidated Financial Statements for further information. These regulations differ in the U.S., the U.K., France, and other countries that we operate in. Our capital structure is designed to provide each of our subsidiaries with capital and liquidity consistent with its business and regulatory requirements. For a discussion of regulations relating to us, see “Business—Regulation” included elsewhere in this prospectus.

 

Substantially all of the net proceeds to be received from this offering and the additional financing transactions will be utilized in connection with the recapitalization, and, to a lesser extent, to capitalize LFCM Holdings. See “Use of Proceeds” and “Capitalization.” We expect that the net incremental interest cost related to the additional financing transactions will be approximately $         per year. We expect to service the resultant incremental debt with operating cash flow and the utilization of credit facilities and, to the extent required, other financing sources.

 

In connection with the separation, we expect that Lazard Group will have the right to purchase the separated merchant banking activities from LFCM Holdings after this offering as described in “Certain Relationships and Related Transactions—Relationship with LAZ-MD Holdings and LFCM Holdings—Business Alliance Agreement.”

 

We expect that, as a result of this offering and related transactions, and future exchanges of LAZ-MD Holdings exchangeable interests for shares of our common stock, the tax basis of Lazard

 

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Group’s tangible and intangible assets attributable to our subsidiaries’ interest in Lazard Group will be increased. These increases in the tax basis of Lazard Group’s tangible and intangible assets attributable to our subsidiaries’ interest in Lazard Group would not have been available to our subsidiaries but for the redemption of the historical partner interests and the future exchanges of LAZ-MD Holdings exchangeable interests for shares of our common stock. We further expect that any such increases in tax basis may reduce the amount of tax that our subsidiaries might otherwise be required to pay in the future.

 

Our subsidiaries intend to enter into a tax receivable agreement with LAZ-MD Holdings that will provide for the payment by our subsidiaries to LAZ-MD Holdings of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that our subsidiaries actually realize as a result of these increases in tax basis and of certain other tax benefits related to our subsidiaries’ entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. Any amount paid by our subsidiaries to LAZ-MD Holdings will generally be distributed to the working members in proportion to their goodwill interests underlying the working member interests held by or allocated to such persons immediately prior to the formation of the new holding company pursuant to the separation. While the actual amount and timing of payments under the tax receivable agreement will vary depending upon a number of factors, including the timing of exchanges, the extent to which such exchanges are taxable and the amount and timing of our subsidiaries’ income, we expect that, as a result of the size of the increase in the tax basis of Lazard Group’s tangible and intangible assets attributable to our subsidiaries’ interest in Lazard Group, during the expected 24-year term of the tax receivable agreement, the payments that may be made to LAZ-MD Holdings could be substantial. If the LAZ-MD Holdings exchangeable interests had been effectively exchanged in a taxable transaction for common stock at the time of the closing of this offering, the increase in the tax basis attributable to our subsidiaries’ interest in Lazard Group would have been approximately $             million, assuming an initial offering price of $             per share of common stock (the midpoint of the range of initial public offering prices set forth on the cover of this prospectus), including the increase in tax basis associated with the redemption and recapitalization. The cash savings that our subsidiaries would actually realize as a result of this increase in tax basis likely would be less than this amount multiplied by our effective tax rate due to a number of factors, including the allocation of the increase in tax basis to foreign assets, the impact of the increase in the tax basis on our ability to use foreign tax credits and the rules relating to the amortization of intangible assets. The tax receivable agreement will require approximately 85% of such cash savings, if any, to be paid to LAZ-MD Holdings. The actual increase in tax basis will depend, among other factors, upon the price of shares of our common stock at the time of the exchange and the extent to which such exchanges are taxable and, as a result, could differ materially from this amount. Our ability to achieve benefits from any such increase, and the payments to be made under this agreement, will depend upon a number of factors, as discussed above, including the timing and amount of our future income. In addition, if the IRS successfully challenges the tax basis increase, under certain circumstances, our subsidiaries could make payments to LAZ-MD Holdings under the tax receivable agreement in excess of our subsidiaries’ cash tax savings. See “Certain Relationships and Related Transactions—Relationship with LAZ-MD Holdings and LFCM Holdings—Tax Receivable Agreement.”

 

Lazard has not declared or paid any cash dividends on its common equity since its inception. Subject to compliance with applicable law, Lazard currently intends to declare quarterly dividends on all outstanding shares of common stock and expects its initial quarterly dividend to be approximately $             per share, payable in respect of the              quarter of 2005. The initial dividend will be prorated for the portion of that quarter following the closing of this offering. The Class B common stock will not be entitled to dividend rights. The declaration of this and any other dividends and, if declared, the amount of any such dividend, will be subject to the actual future earnings, cash flow and capital requirements of our company, the amount of distributions to us from Lazard Group and the discretion of our board of directors. See “Dividend Policy” included elsewhere in this prospectus.

 

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Summary of Quarterly Performance

 

The following tables present unaudited condensed quarterly consolidated financial information on a historical basis for each of Lazard Group’s eight trailing quarters consisting of the first, second, third and fourth quarters of 2003 and 2004, respectively. The operating results for any quarter are not necessarily indicative of the results for any future period.

 

   

Quarterly Performance

Three Months Ended

    March 31,
2003
    June 30,
2003
   September 30,
2003
   December 31,
2003
    ($ in thousands)

Net Revenue

   $ 228,791    $ 271,008   $ 306,270   $ 377,315

Operating Expenses

     179,591      183,706     189,400     241,333
   
  
 
 

Operating Income

   $ 49,200    $ 87,302   $ 116,870   $ 135,982
   
  
 
 

Income Allocable to Members Before Extraordinary Gain

   $ 36,990    $ 64,983   $ 69,951   $ 78,459
   
  
 
 

Net Income Allocable to Members

   $ 36,990    $ 64,983   $ 69,951   $ 78,459
   
  
 
 
   

Quarterly Performance

Three Months Ended

    March 31,
2004
    June 30,
2004
   September 30,
2004
   December 31,
2004
    ($ in thousands)

Net Revenue

   $ 245,589    $ 327,585   $ 261,754   $ 439,377

Operating Expenses

     217,692      211,587     210,083     277,181
   
  
 
 

Operating Income

   $ 27,897    $ 115,998   $ 51,671   $ 162,196
   
  
 
 

Income Allocable to Members Before Extraordinary Gain

   $ 15,053    $ 73,839   $ 39,917   $ 112,658
   
  
 
 

Net Income Allocable to Members

   $ 15,053    $ 79,363   $ 39,900   $ 112,658
   
  
 
 

 

Net revenue and operating income historically have fluctuated significantly between quarters. This variability arises from the fact that transaction completion fees comprise the majority of our net revenue, with the billing and recognition of such fees being dependent upon the successful completion of client transactions, the occurrence and timing of which is irregular and not subject to our control. In addition, incentive fees earned on AUM and compensation related thereto are generally not recorded until the fourth quarter of our fiscal year, when potential uncertainties regarding the ultimate realizable amounts have been determined.

 

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Contractual Obligations

 

The following table sets forth information relating to our contractual obligations as of December 31, 2004:

 

     Contractual Obligations Payment Due by Period
     Total
    Less than 1
Year
    1 - 3 Years
    3 - 5 Years
    More than 5
Years
     ($ in thousands)

Operating Leases

    $ 542,124    $ 50,145    $ 94,356    $ 88,414    $ 309,209

Capital Leases

      66,554      26,558      5,770      5,770      28,456

Notes Payable and Subordinated Loans (a)

      270,777      20,777      —        —        250,000

Mandatorily Redeemable Preferred Stock (a)

      100,000      —        —        —        100,000

Merchant Banking Commitments (b)

      14,031      2,436      11,505      —        90

Contractual Commitments to Managing Directors, Senior Advisors and Employees (c)

      72,573      38,008      33,583      982      —  
    
  
  
  
  

Total (d)

    $ 1,066,059    $ 137,924    $ 145,214    $ 95,166    $ 687,755
    
  
  
  
  
(a) The $50 million in aggregate principal amount of 7.53% Senior Notes due 2011 will be repaid and the Class C Preferred Interests will be redeemed in connection with the separation and recapitalization transactions.
(b) We may be required to fund our merchant banking commitments at any time through 2006, depending on the timing and level of investments by our merchant banking funds.
(c) During 2002, 2003 and 2004, following the hiring of new senior management, Lazard Group invested significant amounts in the recruitment and retention of senior professionals in an effort to reinvest in the intellectual capital of Lazard Group’s business. The majority of these commitments expired on December 31, 2004. The nature of the commitments to managing directors and employees, which represent most of the future commitments, is related primarily to guaranteed payments for services of managing directors and guaranteed compensation for employees. These payments and compensation were guaranteed to recruit and retain the professional talent needed to promote growth in our business. As a result, while payments for services rendered by our managing directors prior to 2002 generally did not exceed net income allocable to members, in 2002, 2003 and 2004 distributions to our managing directors exceeded our net income allocable to members.
(d) The table above does not include any potential obligations relating to the LAM equity rights or amounts repayable in the event the Intesa strategic alliance is not renewed.

 

The contractual obligations table above does not include the following developments since December 31, 2004: (1) obligations related to Corporate Partners II Limited, a new private equity fund formed on February 25, 2005, with $1 billion of institutional capital commitments and a $100 million capital commitment from us, which may require funding at any time through 2010, and (2) any potential payment related to the IXIS cooperation arrangement. The level of this potential payment to IXIS would depend, among other things, on the level of revenue generated by the cooperation activities. The potential payment is limited to a maximum of approximately €16.5 million (subject to reduction in certain circumstances) which would only occur if the cooperation activities generate no revenue over the course of the three-year initial period of such activities, the cooperation agreement is not renewed and our stock price fails to sustain certain price levels.

 

Exchange/Clearinghouse Member Guarantees

 

Lazard Group is a member of various U.S. and non-U.S. exchanges and clearinghouses that trade and clear securities or futures contracts. Associated with its membership, Lazard Group may be required to pay a proportionate share of the financial obligations of another member who may default on its obligations to the exchange or the clearinghouse. To mitigate these performance risks, the exchanges and clearinghouses often require members to post collateral as well as meet minimum financial standards. While the rules governing different exchange or clearinghouse memberships vary, Lazard Group’s guarantee obligations generally would arise only if the exchange or clearinghouse had previously exhausted its resources. In addition, any such guarantee obligation would be apportioned

 

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among the other non-defaulting members of the exchange or clearinghouse. Any potential contingent liability under these membership agreements cannot be estimated. Lazard Group has not recorded any contingent liability in the consolidated financial statements for these agreements and believes that any potential requirement to make payments under these agreements is remote.

 

Effect of Inflation

 

Lazard does not believe inflation will significantly affect its compensation costs as they are substantially variable in nature. However, the rate of inflation may affect Lazard Group expenses such as information technology and occupancy costs. To the extent inflation results in rising interest rates and has other effects upon the securities markets, it may adversely affect our financial position and results of operations by reducing AUM, net revenue or otherwise. See “Risk Factors—Risks Related to Our Business—Difficult market conditions can adversely affect our business in many ways, including by reducing the volume and value of the transactions involving our Financial Advisory business and reducing the value or performance of the assets we manage in our Asset Management business which, in each case, could materially reduce our revenue or income.”

 

Critical Accounting Policies and Estimates

 

Management’s discussion and analysis of our consolidated financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, compensation liabilities, income taxes, investing activities and goodwill. We base these estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates.

 

We believe that the critical accounting policies set forth below comprise the most significant estimates and judgments used in the preparation of our consolidated financial statements.

 

Revenue Recognition

 

We generate substantially all of our net revenue from providing financial advisory, asset management and capital markets services to clients. We recognize revenue when the following criteria are met:

 

  Ÿ   there is persuasive evidence of an arrangement with a client,

 

  Ÿ   we have provided the agreed-upon services,

 

  Ÿ   fees are fixed or determinable, and

 

  Ÿ   collection is probable.

 

Our clients generally enter into agreements with us that vary in duration depending on the nature of the service provided. We typically bill clients for the full amounts due under the applicable agreements on or after the dates on which the specified service has been provided. Generally, payments are due within 60 days of billing. We assess whether collection is probable based on a number of factors, including past transaction history with the client and an assessment of the client’s current creditworthiness. If, in our judgment, collection of a fee is not probable, we will not recognize revenue until the uncertainty is removed. In rare cases, an allowance for doubtful collection may be established, for example, if a fee is in dispute or litigation has commenced.

 

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Income Taxes

 

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process requires us to estimate our actual current tax liability and to assess temporary differences resulting from differing book versus tax treatment of items, such as deferred revenue, compensation and benefits expense, unrealized gains on long-term investments and depreciation. These temporary differences result in deferred tax assets and liabilities, which are included within our consolidated statements of financial condition. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. Lazard Group has recorded a gross deferred tax assets of $60 million and $88 million as of December 31, 2003 and 2004, respectively, which are fully offset by a valuation allowance due to uncertainties related to its ability to utilize such deferred tax assets, which principally consist of certain foreign net operating loss carryforwards, before they expire. Our determination of the need for a valuation allowance is based on our estimates of future taxable income by jurisdiction, and the period over which our corresponding deferred tax assets will be recoverable. If actual results differ from these estimates or we adjust these estimates in future periods, we may need to adjust our valuation allowance, which could materially impact our consolidated financial position and results of operations.

 

In addition, in order to determine our quarterly tax rate we are required to estimate full year pre-tax income and the related annual income tax expense in each jurisdiction. Tax exposures can involve complex issues and may require an extended period of time to resolve. Changes in the geographic mix or estimated level of annual pre-tax income can affect our overall effective tax rate. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. Furthermore, our interpretation of complex tax laws may impact our measurement of current and deferred income taxes.

 

Valuation of Investments

 

“Marketable investments” and “long-term investments” consist principally of investments in exchange traded funds, merchant banking and alternative investment funds, and other privately managed investments. Gains and losses on marketable investments and long-term investments, which arise from changes in the fair value of the investments, are not predictable and can cause periodic fluctuations in net income allocable to members.

 

In determining fair value, we separate our investments into two categories. The first category consists of those investments that are publicly-traded, which, as of December 31, 2004, were approximately 49% of our marketable investments and long-term investments. For these investments, we determine value by quoted market prices. The second category consists of those that are not publicly-traded. For these investments, we determine value based upon our best estimate of fair value. As of December 31, 2004, this second category of investments comprises the remaining 51% of our marketable investments and long-term investments.

 

The fair value of those investments that are not publicly traded is based upon an analysis of the investee’s financial results, condition, cash flows and prospects. Adjustments to the carrying value of such investments are made if there are third-party transactions evidencing a change in value. Adjustments also are made, in the absence of third-party transactions, if we determine that the expected realizable value of the investment differs from its carrying value. In reaching that determination, we consider many factors, including, but not limited to, the operating cash flows and financial performance of the investee, expected exit timing and strategy, and any specific rights or terms associated with the investment, such as conversion features and liquidation preferences.

 

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Partnership interests, including general partnership and limited partnership interests in real estate funds, are recorded at fair value based on changes in the fair value of the partnerships’ underlying net assets.

 

Because of the inherent uncertainty in the valuation of investments that are not readily marketable, estimated values may differ significantly from the values that would have been reported had a ready market for such investments existed. We seek to maintain the necessary resources, with the appropriate experience and training, to ensure that control and independent price verification functions are adequately performed.

 

Goodwill

 

In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, goodwill is tested for impairment annually or more frequently if circumstances indicate impairment may have occurred. In this process, we make estimates and assumptions in order to determine the fair value of our assets and liabilities and to project future earnings using valuation techniques, including a discounted cash flow model. We use our best judgment and information available to us at the time to perform this review. Because our assumptions and estimates are used in projecting future earnings as part of the valuation, actual results could differ.

 

Consolidation of VIEs

 

The consolidated financial statements include the accounts of Lazard Group and all other entities in which we are the primary beneficiary or control. Lazard Group determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (“VIE”) under U.S. GAAP.

 

  Ÿ   Voting Interest Entities.    Voting interest entities are entities in which (i) the total equity investment at risk is sufficient to enable the entity to finance itself independently and (ii) the equity holders have the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity’s activities. Voting interest entities are consolidated in accordance with Accounting Research Bulletin (“ARB”) No. 51, “Consolidated Financial Statements,” as amended. ARB No. 51 states that the usual condition for a controlling financial interest in an entity is ownership of a majority voting interest. Accordingly, Lazard Group consolidates voting interest entities in which it has the majority of the voting interest.

 

  Ÿ   Variable Interest Entities.    VIEs are entities that lack one or more of the characteristics of a voting interest entity. A controlling financial interest in a VIE is present when an enterprise has a variable interest, or a combination of variable interests, that will absorb a majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual returns, or both.

 

The enterprise with a controlling financial interest, known as the primary beneficiary, consolidates the VIE.

 

Lazard Group determines whether it is the primary beneficiary of a VIE by first performing a qualitative analysis of the VIE that includes, among other factors, its capital structure, contractual terms, and related party relationships. Where qualitative analysis is not conclusive, Lazard Group performs a quantitative analysis. For purposes of allocating a VIE’s expected losses and expected residual returns to the VIE’s variable interest holders, Lazard Group calculates its share of the VIE’s expected losses and expected residual returns using a cash flows model that allocates those expected losses and residual returns to it, based on contractual arrangements and/or Lazard Group’s position in the capital structure of the VIE under various scenarios. Lazard Group would reconsider its assessment of whether it is the primary beneficiary if there are changes to any of the variables used in determining the primary beneficiary. Those variables may include changes to financial arrangements, contractual terms, capital structure and related party relationships.

 

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In accordance with FASB Interpretation No. 46R the assets, liabilities and results of operations of the VIE are included in the consolidated financial statements of Lazard Group if it is determined that we are the primary beneficiary. Any third party interest in these consolidated entities is reflected as minority interest in our consolidated financial statements.

 

Risk Management

 

Risk management is an important part of our business, but is focused primarily on the activities of the Capital Markets and Other segment, which will be part of the separated businesses and not be retained by us following this offering. As a result, we have separately summarized the discussion of risk management for our Financial Advisory and Asset Management, Corporate and Capital Markets and Other segments.

 

Financial Advisory and Asset Management

 

We believe that, due to the nature of the businesses and the manner in which we conduct our operations, the Financial Advisory and Asset Management segments are not subject to material market risks such as equity price risk, but are subject to foreign currency exchange rate risks which are summarized below.

 

Foreign Currency Exchange Rate Risk

 

Foreign currency exchange rate risk arises from the possibility that our revenue and expenses may be affected by movements in the rate of exchange between non-U.S. dollar denominated balances (primarily euros and British pounds) and the U.S. dollar, the currency in which our financial statements are presented. In 2004, approximately 27% of Lazard Group’s operating income was generated in non-U.S. dollar currencies.

 

Lazard Group generally does not hedge non-dollar foreign exchange exposure, as described above, arising in its operations outside the U.S. These foreign operations manage their individual foreign currency exposures with reference to their own base currency. However, Lazard Group does track and control the foreign currency exchange rate risks arising in each principal operation and has established limits for such exposures. In certain cases, Lazard Group may take open foreign exchange positions with a view to profit within internally defined limits, but Lazard Group does not utilize foreign exchange options in this context.

 

Based on the levels of operating income in 2004 denominated in euros and in British pounds, we estimate that operating income would increase or decrease by approximately $1.2 million in the event of a 1% change in the exchange rate of the euro versus the U.S. dollar and approximately $0.1 million in the event of a 1% change in the exchange rate of the British pound versus the U.S. dollar.

 

For more information, see “Risk Factors—Risks Related to Our Business—Fluctuations in foreign currency exchange rates could lower our net income or negatively impact the portfolios of our Asset Management clients and may affect the levels of our AUM.”

 

Corporate

 

Our Corporate activities are exposed to risks arising from transactions in trading and non-trading derivatives and to interest rate risk arising from short-term assets and third party loans.

 

Trading and Non-Trading Derivatives

 

We enter into forward foreign exchange contracts, interest rate swaps and other contracts for trading purposes, and non-trading derivative contracts, including forward foreign exchange contracts, interest rate swaps, cross-currency interest rate swaps and other derivative contracts to hedge

 

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exposures to interest rate and currency fluctuations. These trading and non-trading contracts are recorded at their fair values on our statements of financial condition and the related gains and losses on trading contracts are included in “trading gains and losses—net” on our consolidated statements of income. Lazard Group’s hedging strategy is an integral part of its trading strategy and therefore the related gains and losses on Lazard Group’s hedging activities also are recorded in “trading gains and losses-net” on the consolidated statements of income.

 

The table below presents the fair values of Lazard Group’s trading and non-trading derivatives as of December 31, 2003 and 2004:

 

     December 31,
     2003
    2004
     ($ in thousands)

Assets:

              

Trading Derivatives:

              

Interest rate swap contracts

    $ 695    $ 377

Exchange rate contracts

      5      289
    
  

Total

    $ 700      666
    
  

Liabilities:

              

Trading Derivatives:

              

Interest rate swap contracts

    $ —      $ 1,124

Exchange rate contracts

      —        291
    
  

Total trading derivatives

      —        1,415
    
  

Non-Trading Derivatives:

              

Interest rate swap contracts

      3,222      3,204
    
  

Total

    $ 3,222    $ 4,619
    
  

 

Interest Rate and Foreign Currency Risk—Trading, Non-Trading and Securities Owned

 

The risk management strategies that we employ use various stress tests to measure the risks of trading, non-trading and securities owned activities. Based on balances of securities owned, our interest rate risk as measured by a 0.25% +/- movement in interest rates totaled $50 thousand as of December 31, 2003 and $175 thousand as of December 31, 2004. Foreign currency risk, on those same balances, measured by a 2% +/- movement against the U.S. dollar totaled $98 thousand as of December 31, 2003 and $23 thousand as of December 31, 2004.

 

Interest Rate Risk—Short Term Investments and Corporate Indebtedness

 

A significant portion of our liabilities have fixed interest rates or maximum interest rates, while our cash and short-term investments generally have floating interest rates. We estimate that operating income relating to cash and short-term investments and corporate indebtedness would increase by approximately $4 million, on an annual basis, in the event of a 1% increase in interest rates, and would decrease by $4.4 million, on an annual basis, in the event of a 1% decrease in interest rates.

 

Capital Markets and Other

 

Risk management is an important part of the operation of the Capital Markets and Other segment since the business is exposed to a variety of risks including market, credit, settlement and other risks that are material and require comprehensive controls and ongoing management. Lazard Group utilizes a Global Capital Markets Risk Committee to assess risk management practices, particularly as these practices relate to regulatory requirements. In addition, Lazard Group utilizes an independent Risk

 

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Management Group, which reports to Lazard Group’s chief financial officer and is responsible for analyzing risks and for coordinating and monitoring the risk management process. Further, the Risk Management Group supports the Global Capital Markets Risk Committee by providing risk profiles and analyses to the committee.

 

The Global Capital Markets Risk Committee and the Risk Management Group are responsible for the maintenance of a comprehensive risk management practice and process including:

 

  Ÿ   a formal risk governance organization that defines the oversight process and its components,

 

  Ÿ   clearly defined risk management policies and procedures supported by a specific framework,

 

  Ÿ   communication and coordination among the business executives and risk functions, while maintaining strict segregation of responsibilities, controls, and oversight, and

 

  Ÿ   clearly defined risk tolerance levels, which are regularly reviewed to ensure that our risk-taking is consistent with our business strategy, capital structure, and current and anticipated market conditions.

 

Risks inherent in the Capital Markets business are summarized below.

 

Market Risk

 

Market risk is the potential change in a financial instrument’s value caused by fluctuations in interest and currency exchange rates, equity prices or other risks. The level of market risk is influenced by the volatility and the liquidity in the markets in which financial instruments are traded.

 

Historically, Lazard Group has sought to mitigate market risk associated with trading inventories by employing hedging strategies that correlate rate, price, and spread movements of trading inventories and related financing and hedging activities. Lazard Group has employed a combination of cash instruments and derivatives to hedge market exposure. The following discussion describes the types of market risk faced in the Capital Markets and Other segment.

 

Interest Rate Risk.    Interest rate risk arises from the possibility that changes in interest rates will affect the value of financial instruments, primarily securities owned and securities sold but not yet purchased. Lazard Group typically uses U.S. Treasury securities in the Capital Markets and Other segment to manage interest rate risk relating to interest bearing deposits of non-U.S. banking operations as well as certain non-U.S. securities owned. Lazard Group historically hedged its interest rate risk by using interest rate swaps and forward rate agreements. Interest rate swaps generally involve the exchange of fixed and floating interest payment obligations without the exchange of the underlying principal amounts. Forward rate agreements are contracts under which two counterparties agree on the interest to be paid on a notional deposit of a specified maturity at a specific future settlement date with no exchange of principal.

 

Currency Risk.    Currency risk arises from the possibility that fluctuations in foreign exchange rates will impact the value of financial instruments. Lazard Group has used currency forwards and options in the Capital Markets and Other segment to manage currency risk. Exchange rate contracts include cross-currency swaps and foreign exchange forwards. Currency swaps are agreements to exchange future payments in one currency for payments in another currency. These agreements are used to transform the assets or liabilities denominated in different currencies. Foreign exchange forwards are contracts for delayed delivery of currency at a specified future date.

 

Equity Price Risk.    Equity price risk arises from the possibility that equity security prices will fluctuate, affecting the value of equity securities. The Capital Markets and Other segment is subject to equity price risk primarily in securities owned and securities sold but not yet purchased as well as for equity swap contracts entered into for trading purposes.

 

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Credit Risk

 

The Capital Markets and Other segment is exposed to the risk of loss if an issuer or counterparty fails to perform its obligations under contractual terms and the collateral held, if any, is insufficient or worthless. Both cash instruments and derivatives expose the business to this type of credit risk. Lazard Group has established policies and procedures for mitigating credit risk on principal transactions, including reviewing and establishing limits for credit exposure, maintaining collateral and continually assessing the creditworthiness of counterparties.

 

In the normal course of business, the Capital Markets and Other segment executes, settles and finances various customer securities transactions. Execution of securities transactions includes the purchase and sale of securities that expose us to default risk arising from the potential that customers or counterparties may fail to satisfy their obligations. In these situations, the Capital Markets and Other segment may be required to purchase or sell financial instruments at unfavorable market prices to satisfy obligations to other customers or counterparties. Lazard Group has historically sought to control the risks associated with customer margin activities by requiring customers to maintain collateral in compliance with regulatory and internal guidelines.

 

Liabilities to other brokers and dealers related to unsettled transactions (i.e., securities failed-to-receive) are recorded at the amount for which the securities were acquired and are paid upon receipt of the securities from other brokers or dealers. In the case of aged securities failed-to-receive, Lazard Group may purchase the underlying security in the market and seek reimbursement for losses from the counterparty.

 

Concentrations of Credit Risk

 

The exposure to credit risk associated with the Capital Markets and Other trading and other activities is measured on an individual counterparty basis, as well as by groups of counterparties that share similar attributes. To reduce the potential for risk concentration, credit limits are established and monitored in light of changing counterparty and market conditions.

 

At December 31, 2004, Lazard Group’s most significant concentration of credit risk was with the U.S. Government and its agencies. This concentration consists of both direct and indirect exposures. Direct exposure primarily results from securities owned that are issued by the U.S. Government and its agencies. Indirect exposure results from maintaining U.S. Government and agency securities as collateral for resale agreements and securities borrowed transactions. The direct exposure on these transactions is with the counterparty; thus, the Capital Markets and Other segment has credit exposure to the U.S. Government and its agencies only in the event of the counterparty’s default.

 

Off-Balance Sheet Risks

 

The Capital Markets and Other segment may be exposed to a risk of loss not reflected on the consolidated financial statements for securities sold but not yet purchased, should the value of such securities rise.

 

For transactions in which credit is extended to others, the Capital Markets and Other segment seeks to control the risks associated with these activities by requiring the counterparty to maintain margin collateral in compliance with various regulatory and internal guidelines. Counterparties include customers who are generally institutional investors and brokers and dealers that are members of major exchanges. Required margin levels are monitored daily and, pursuant to such guidelines, counterparties are required to deposit additional collateral or reduce securities positions when necessary.

 

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It is the policy of the Capital Markets and Other segment to take possession of securities purchased under agreements to resell. The market value of the assets acquired are monitored to ensure their adequacy as compared to the amount at which the securities will be subsequently resold, as specified in the respective agreements. The agreements provide that, where appropriate, the delivery of additional collateral may be required.

 

In connection with securities sold under agreements to repurchase, the Capital Markets and Other segment monitors the market value of assets delivered to ensure that the collateral value is not excessive as compared to the amount at which the securities will be subsequently repurchased.

 

Operational Risk

 

Operational risk is the exposure to loss resulting from inadequate or failed internal processes, people, systems or external events excluding credit, liquidity, market and insurance risk. It arises from various sources such as organization, compliance, operational risk assessment and control, employees and agents, process and systems, external events and outsourcing. Lazard Group has developed a risk management framework to ensure compliance with applicable regulatory requirements. The securities operations area prepares various daily, weekly and monthly reports to monitor these risks.

 

Risk Management Framework

 

The risk management framework utilized in addressing the risks associated with the Capital Markets and Other segment of Lazard Group’s business is described below.

 

Market Risk

 

Based on the balances of securities owned, at the applicable dates, we quantify the sensitivities of our current portfolios to changes in market variables. These sensitivities are then utilized in the context of historical data to estimate earnings and loss distributions that current portfolios could have incurred throughout the historical period. From these distributions, we derive a number of useful risk statistics, including a statistic we refer to as Value at Risk, or “VaR.” The disclosed VaR is an estimate of the maximum amount current portfolios could lose with 99% confidence, over a given time interval. The VaR for our overall portfolios is less than the sum of the VaRs for individual risk categories because movements in different risk categories occur at different times and, historically, extreme movements have not occurred in all risk categories simultaneously. The difference between the sum of the VaRs for individual risk categories and the VaR calculated for all risk categories is shown in the following tables and may be viewed as a measure of the diversification within our portfolios.

 

In our VaR system, we use a historical simulation for two years to estimate VaR using a 99% confidence level and a one-day holding period for trading instruments.

 

In addition to the VaR risk measurement, the risk framework applies various stress tests to test the portfolios under stressful situations as follows:

 

Interest Rate Risk:

    Parallel moves of treasury yield curves of +/- 0.25%.

Curve Risk:

    Non-parallel moves of treasury yield curves within +/- 0.25%.

Spread Risk:

    For corporate bonds only, +/- 0.50% moves in yield curve.

Equity Price Risk:

    +/- 10% move in equity prices.

Currency Risk:

    +/- 2% move in foreign exchange rates against U.S. dollars.

 

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The following table summarizes our risk exposure according to the categories described above as of December 31, 2003 and December 31, 2004.

 

     Risk Measures
     As of December 31,
    Average(1)
     2003
    2004
   
     ($ in thousands)

Interest Rate Risk

    $ 551    $ 206    $ 584

Curve Risk

      1,026      127      1,062

Spread Risk

      651      927      846

Equity Price Risk

      964      539      1,540

Currency Risk

      —        29      134

VaR

      364      547      949
(1) Average is based on an average of monthly ending amounts from January 1, 2004 through December 31, 2004.

 

Credit Risk

 

We actively monitor our credit risk and exposure that originates from our business. Credit risk against each issuer is measured by calculating the risk-adjusted exposure. The risk adjustment is based on rating of the issuer, and this risk is netted for all positions with the same issuer.

 

The credit risk framework determines two types of credit risks:

 

Credit Risk of the Issuer.    The framework analyzes current positions in each issuer to determine the risk adjusted exposure, which is the estimated maximum potential exposure to the issuer in the future. Each issuer has a limit based on its rating. The portfolio’s aggregate risk-adjusted exposure is monitored on a daily basis. The levels of risk-adjusted exposures in the U.S. bond and convertible desks are set forth below:

 

     Credit Risk of the Issuer
     As of December 31,
  

Average(1)

     2003
    2004
   
     ($ in thousands)

Risk Adjusted Exposure

    $ 17,430    $ 8,998    $ 27,833
(1) Average is based on an average of monthly ending amounts from January 1, 2004 through December 31, 2004.

 

Credit Risk of the Trading Counterparty.    We utilize a report indicating the gross counterparty exposure and settlement risk. The settlement risk indicates the risk if the counterparty reneges on a trade. In that case, we may have to buy or sell the security at additional cost. The framework has established limits for counterparties based on ratings.

 

Limit Monitoring Process

 

Lazard Group has established policies and procedures for mitigating credit risk on principal transactions, including reviewing and establishing limits for credit exposure, maintaining collateral and continually assessing the creditworthiness of counterparties.

 

The risk framework has developed a portfolio approach for risk measurements. This helps senior management assign limits at various levels such as location, trading desks and issuers. Senior management establishes policy limits representing the maximum risk it is willing to take on a normal day.

 

Credit risk limits take into account measures of both current and potential exposures and are set and monitored by broad risk type, product type and tenor to maturity. Credit risk mitigation techniques include, where appropriate, the right to require initial collateral or margin, the right to terminate transactions or to obtain collateral should unfavorable events occur, the right to call for collateral when certain exposure thresholds are exceeded, and the purchase of credit default protection.

 

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Recently Issued Accounting Standards

 

Effective January 1, 2003, Lazard Group adopted FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others—an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34. FIN 45 requires certain disclosures to be made by a guarantor about its obligations under certain guarantees issued. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The adoption of FIN 45 did not have a material impact on Lazard Group’s consolidated financial position or results of operations.

 

In December 2003, the Financial Accounting Standards Board (“FASB”) issued FIN 46R, Consolidation of Certain Variable Interest Entities—an interpretation of ARB No. 51, which further clarifies FIN 46, which was issued on January 17, 2003. FIN 46R clarifies when an entity should consolidate a VIE, more commonly referred to as a special purpose entity, or “SPE.” A VIE is an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties, and may include many types of SPEs. FIN 46R requires that an entity shall consolidate a VIE if that entity has a variable interest that will absorb a majority of the VIE’s expected losses if they occur, receive a majority of the VIE’s expected residual returns if they occur, or both. FIN 46R does not apply to certain qualifying SPEs (“QSPEs”), the accounting for which is governed by Statement of Financial Accounting Standards (“SFAS”) No. 140, Accounting for Transfers and Servicing of Financing Assets and Extinguishments of Liabilities. FIN 46R is effective for newly created VIEs beginning January 1, 2004 and for existing VIEs as of the first reporting period beginning after March 15, 2004.

 

Effective January 1, 2004, Lazard Group adopted FIN 46R for VIEs created after December 31, 2003 and for VIEs in which Lazard Group obtained an interest after December 31, 2003. Lazard Group adopted FIN 46R in the second quarter of 2004 for VIEs in which it holds a variable interest that it acquired on or before December 31, 2003.

 

Lazard Group is involved with various entities in the normal course of business that are VIEs and hold variable interests in such VIEs. Transactions associated with these entities primarily include investment management, real estate and private equity investments. Those VIEs for which Lazard Group is the primary beneficiary were consolidated in the second quarter of 2004 in accordance with FIN 46R. Those VIEs include company sponsored venture capital investment vehicles established in connection with our compensation plans.

 

Lazard Group’s merchant banking activities consist of making private equity, venture capital and real estate investments on behalf of customers. At December 31, 2003 and 2004, in connection with its merchant banking activities, the net assets of entities for which Lazard Group has a significant variable interest was approximately $148 million and $97 million, respectively. Lazard Group’s variable interests associated with these entities, consisting of investments, carried interest and management fees, were approximately $24 million at each of such dates which represent the maximum exposure to loss, only if total assets declined 100% at December 31, 2003 and 2004. At December 31, 2004, the consolidated statement of financial condition included $21 million of incremental assets relating to the consolidation of VIEs for such merchant banking activities in which Lazard Group was deemed to be the primary beneficiary.

 

In connection with its Capital Markets and Other segment activities, Lazard Group holds a significant variable interest in an entity with assets of $4 million and liabilities of $16 million at December 31, 2003 and with assets of approximately $2 million and liabilities of approximately $15 million at December 31, 2004. Lazard Group’s variable interests associated with this entity, primarily paid-in-kind notes, were approximately $16 million and $15 million at December 31, 2003 and 2004,

 

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respectively. As the note holders have sole recourse only to the underlying assets, Lazard Group has no exposure to loss at December 31, 2003 and 2004. Also, as Lazard Group is not the primary beneficiary, the entity has not been consolidated.

 

In connection with its Asset Management business, Lazard Group was the asset manager and held a significant variable interest in a hedge fund, where the aggregate net assets at December 31, 2003 was approximately $8 million. Lazard Group’s maximum exposure to loss at December 31, 2003 was approximately $7 million. As of December 31, 2004, this fund no longer existed.

 

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 clarifies the circumstances under which a contract with an initial investment meets the characteristics of a derivative under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149 also amended other existing pronouncements to result in more consistent reporting of derivative contracts. This pronouncement is effective for all contracts entered into or modified after June 30, 2003. Lazard Group adopted SFAS No. 149 as required, with no material impact on Lazard Group’s consolidated financial statements.

 

In May 2003, the FASB issued the SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 requires that the issuer classify a financial instrument that is within its scope as a liability. The initial recognition of SFAS No. 150 applies to financial instruments entered into or modified after May 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. Lazard Group’s classification of mandatorily redeemable preferred stock is in accordance with SFAS No. 150.

 

In December 2003, Lazard Group adopted the provisions of SFAS No. 132R, Employers’ Disclosure about Pensions and Other Post-Retirement Benefits. The Statement requires additional disclosures to those in the original SFAS 132 about assets, obligations, cash flows and net periodic benefit costs of defined benefit pension plans and other defined benefit post-retirement plans.

 

In March 2004, the FASB Emerging Issues Task Force (“EITF”) reached a final consensus on Issue 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. EITF 03-1 requires that when the fair value of an investment security is less than its carrying value, an impairment exists for which the determination must be made as to whether the impairment is other-than-temporary. The EITF 03-1 impairment model applies to all investment securities accounted for under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities and to investment securities accounted for under the cost method to the extent an impairment indicator exists. Under the guidance, the determination of whether an impairment is other-than-temporary and therefore would result in a recognized loss depends on market conditions and management’s intent and ability to hold the securities with unrealized losses. Subsequent to its issuance, the FASB deferred certain provisions of EITF 03-1; however, the disclosure requirements remain effective. The adoption of EITF 03-1 did not have an impact on Lazard Group’s consolidated financial position or results of operations since Lazard Group does not have any securities accounted for under SFAS No. 115.

 

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BUSINESS

 

Overview

 

We are a preeminent international financial advisory and asset management firm that has long specialized in crafting solutions to the complex financial and strategic challenges of our clients. We serve a diverse set of clients around the world, including corporations, partnerships, institutions, governments and high-net worth individuals. The first Lazard partnership was established in 1848. Over time we have extended our activities beyond our roots in New York, Paris and London. We operate today from 27 cities in key business and financial centers across 15 countries throughout Europe, North America, Asia and Australia. We focus primarily on two businesses, Financial Advisory and Asset Management. We believe that the mix of our activities across business segments, geographic regions, industries and investment strategies helps to diversify and stabilize our revenue stream.

 

Industry Trends and Strategic Focus

 

Industry Trends

 

We believe that a combination of long-term trends engender a favorable climate for revenue and profit growth in the financial services industry segments in which we compete. Longer-term trends that benefit our Financial Advisory business include:

 

  Ÿ   Globalization.    Companies around the world are continuing to globalize their operations, including through merger and acquisition activity.

 

  Ÿ   Focus on Stockholder Value.    Companies around the world are strongly focused on stockholder value, which drives continual portfolio rebalancing, including mergers, acquisitions, divestitures, restructurings, joint ventures, company sales and related transactions.

 

  Ÿ   Consolidation.    Intense and often increasing commercial competition is fueling the need for companies to realize economies of scale and scope and to optimize strategic positioning, which in turn drives the market for mergers and acquisitions. In addition, ongoing cycles in various international economies of deregulation and sometimes re-regulation add to the impetus of companies to either consolidate or restructure their portfolios.

 

  Ÿ   Expansion of Leverage Markets.    Long-term increases in investor demand for debt of non-investment grade issuers have driven growth in acquisitions by financial sponsors, as well as in the number of highly leveraged companies, a portion of which may become candidates for financial restructuring advisory services, particularly in less favorable economic environments.

 

Some of the trends influencing long-term growth in the markets served by our Asset Management business include:

 

  Ÿ   Demographics.    Aging populations in both developed and emerging economies around the world have increased the pools of savings available and the need for retirement investment services by institutions and individuals.

 

  Ÿ   Internationalization.    Investors around the world are internationalizing their investment portfolios, which plays to our strengths in managing international and global portfolios of equity and fixed income securities.

 

  Ÿ   Acceptance of Alternative Investments.    Many institutional and high-net worth investors are increasing their allocations to alternative investments to diversify risk while maintaining high targeted absolute returns. Growing acceptance of these strategies fuels the market for products such as the hedge funds and merchant banking funds that we manage.

 

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The markets in which we compete have begun to experience greater than normal growth in comparison to recent fiscal periods. Recovery in global equity markets during 2003, increases in corporate profits and consumer income following the recent recession, and increasing availability of financing are driving increased demand for mergers and acquisitions and asset management services. However, these trends are cyclical in nature and subject to periodic reversal. Due to the mix of our businesses, some of our businesses experienced performance declines during the recent recessionary period, while others, such as our Financial Restructuring practice, were growing. At present, our Financial Restructuring practice is trending down on a cyclical basis, while our Mergers and Acquisitions practice and Asset Management business are trending up.

 

The following table sets forth selected key industry indicators:

 

Key Industry Indicators

($ in billions, except as otherwise indicated)

 

   

As of or for the Year

Ended
December 31,

  

CAGR(a)

’84-’04

    

CAGR(a)

’94-’04

  
    1984
   1994
   2004
    

General Economic & Market Activity:

                              

Worldwide GDP ($ in trillions) (b)

   $ 11.9   $ 26.2   $ 40.2   6 %   4 %

Dow Jones Industrial Average

     1,212     3,834     10,783   12     11  

MSCI World Index (c)

     187     619     1,169   10     7  

Advisory Activities:

                              

Worldwide M&A (d)

   $ 180   $ 497   $ 1,574   11 %   12 %

U.S. M&A (d)

     178     293     762   8     10  

Europe M&A (d)

     1     138     505   35     14  

Transatlantic M&A (d)

     4     47     104   18     8  

Worldwide M&A > $1 billion (d)

     59     202     927   15     16  

Global Corporate Debt Defaults (e)

     1     2     16   17     23  

Asset Management Activities:

                              

U.S. Assets in U.S. & Global Corporate Equities (f)

   $ 1,682   $ 5,920   $ 15,298   12     10  

Worldwide Assets Managed by Top 100 Managers (g)

     1,188     3,741     21,406   16     21  

Foreign Equities & ADRs Held by U.S. Residents (f)

     26     628     2,424   25     14  

Global Hedge Fund Assets Under Management (h)

     *     189     950   *     18  
(a)   Calculated compound annual growth rate.
(b)   Source: The Economist Intelligence Unit, December 2004.
(c)   Source: Morgan Stanley Capital International, Inc.
(d)   Source: Thomson Financial, March 15, 2005. Transaction geographies reported based on location of target. Figures based on completed transactions.
(e)   Source: Moody’s Investors Service Inc.© Cited with permission. All rights reserved.
(f)   Source: The Federal Reserve.
(g)   Source: Pensions & Investments (Data not available for 2004; 2003 value shown).
(h)   Source: Van Hedge Fund Advisors International.
 *   Indicates data not available.

 

Competitive Advantages

 

We attribute our success and distinctiveness to a combination of long-standing advantages from which we and our predecessor partnerships have benefited, including:

 

  Ÿ   Experienced People.    Our professionals concentrate on solving complex strategic and financial problems and executing specialized investment strategies. We strive to maintain and enhance our base of highly talented professionals and pride ourselves on being able to offer clients more senior-level attention than may be available from many of our competitors.

 

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  Ÿ   Independence.    We are an independent firm, free of many of the conflicts that can arise at larger financial institutions as a result of their varied sales, trading, underwriting, research and lending activities. We believe that recent instances of perceived or actual conflicts of interest, and the desire to avoid any potential future conflicts, have increased the demand by managements and boards of directors for trusted, unbiased advice from professionals whose main product is advice.

 

  Ÿ   Reputation.    Our firm has a brand name with over 150 years of history. We believe this brand name connotes superior service, integrity and creative solutions. Throughout our history, we have been focused on providing world-class professional advice in complex strategic and financial assignments, utilizing both our global capabilities and deeply rooted, local know-how.

 

  Ÿ   Focus.    We are focused on two primary businesses—Financial Advisory and Asset Management—rather than on a broad range of financial services. We believe this focus has helped, and will continue to help, us attract clients and recruit professionals who want to work in a firm where these activities are the central focus.

 

  Ÿ   Global Presence with Local Relationships.    We have been pioneers in offering financial advisory services on an international basis and in investing in international markets through our Asset Management business. We do not regard any single jurisdiction as our home country. Instead, we believe that linking our talented, indigenous professionals, deep local roots and industry expertise across offices enables us to be a global firm while maintaining a local identity. We believe this approach allows us to build close local relationships with our clients and to develop insight into both local and international commercial, economic and political issues affecting their businesses. Our ability to put clients in contact with our skilled professionals around the world is central to our specialized skill in performing cross-border transactions and worldwide investment mandates. In Asset Management, this is reflected through LAM’s global research platform of analysts as well as the provision of local investment solutions and services to clients.

 

  Ÿ   Balance.    We seek to balance the sources of our earnings among multiple geographic regions, industries, advisory practice areas and investment sectors in order to provide greater diversification and stability to our revenue stream. For example, our Financial Advisory business includes both our Mergers and Acquisitions practice and Financial Restructuring practices, which historically have been countercyclical to each other, thus helping to stabilize our revenue stream. In addition, our relationships in one of these practice areas often lead to future engagements for the other. Our Asset Management business complements the Financial Advisory business by helping to provide further stability, principally because we generate significant recurring client business from year to year. Our revenue also is geographically diversified: in 2004, we derived 50% of our net revenue from continuing operations from our offices in North America, 47% from our offices in Europe and 3% from offices in the rest of the world.

 

  Ÿ   Strong Culture.    We believe that our people are united by a desire to be a part of an independent firm in which their activities are at the core and by a commitment to excellence and integrity in their activities. This is reinforced by the significant economic stake our managing directors have in our success. When hiring new employees, we identify candidates that have traits consistent with our values in order to further maintain our culture. In our opinion, the strength of our many long-term client relationships is a testament to our distinctive culture and approach to providing superior advice to our clients.

 

Principal Business Lines

 

Our business is organized around two segments: Financial Advisory and Asset Management.

 

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Financial Advisory

 

We offer corporate, partnership, institutional, government and individual clients across the globe a wide array of financial advisory services regarding mergers and acquisitions, restructurings and various other corporate finance matters. We focus on solving our clients’ most complex problems, providing advice to senior management, boards of directors and business owners of prominent companies and institutions in transactions that typically are of significant strategic and financial importance to them.

 

Our goal is to continue to grow our Financial Advisory business by fostering long-term, senior-level relationships with existing and new clients as their independent advisor on strategic transactions. We seek to build and sustain long-term relationships with our clients rather than focusing on individual transactions, a practice that we believe enhances our access to senior management of major corporations and institutions around the world. We emphasize providing clients with senior level attention during all phases of transaction execution.

 

While we strive to earn repeat business from our clients, we operate in a highly competitive environment in which there are no long-term contracted sources of revenue. Each revenue-generating engagement is separately negotiated and awarded. To develop new client relationships, and to develop new engagements from historical client relationships, we maintain an active dialogue with a large number of clients and potential clients, as well as with their financial and legal advisors, on an ongoing basis. We have gained a significant number of new clients each year through our business development initiatives, through recruiting additional senior investment banking professionals who bring with them client relationships and through referrals from directors, attorneys and other third parties with whom we have relationships. At the same time, we lose clients each year as a result of the sale or merger of a client, a change in a client’s senior management, competition from other investment banks and other causes.

 

In 2004, Financial Advisory net revenue totaled $655 million, accounting for 60% of our net revenue from continuing operations. We earned advisory revenue from 435 clients in 2004. We earned $1 million or more from 136 clients in 2004, and in that year the ten largest fee paying clients constituted 25% of our segment net revenue, and no client individually constituted more than 10% of segment net revenue.

 

We believe that we have been pioneers in offering financial advisory services on an international basis, with the establishment of our New York, Paris and London offices dating back to the nineteenth century. We maintain major local presences in the U.S., the U.K., France and Italy, including a network of regional branch offices in the U.S. and France, as well as presences in Australia, Canada, Germany, Hong Kong, India, Japan, the U.K., the Netherlands, Sweden, Singapore, South Korea and Spain. Our Italian office is operated as a strategic alliance with Intesa. Pursuant to the strategic alliance, Intesa holds 40% of the equity of, and a $50 million subordinated promissory note from, the entity that operates our Italian business and has representation on its board of directors, and a $150 million note issued by a financing subsidiary of Lazard Group, and both notes are guaranteed by Lazard Group. We also have recently entered into a joint venture with Signatura Advisory called Signatura Lazard, which will provide local and cross-border financial services in Brazil, and a strategic alliance with MBA Banco de Inversiones regarding the provision of cross-border advisory services to institutions investing in companies in Argentina and to Argentine companies investing abroad.

 

In addition to seeking business centered in these locations, we historically have focused in particular on advising clients with respect to cross-border transactions. We believe that we are particularly well known for our legacy of offering broad teams of professionals who are indigenous to their respective regions and who have long-term client relationships, capabilities and know-how in their respective regions. We also believe that this positioning affords us insight around the globe into key industry, economic, government and regulatory issues and developments, which we can bring to bear on behalf of our clients.

 

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Services Offered

 

We advise clients on a wide range of strategic and financial issues. When we advise companies in the potential acquisition of another company or certain assets, our services include evaluating potential acquisition targets, providing valuation analyses, evaluating and proposing financial and strategic alternatives and rendering, if appropriate, fairness opinions. We also may advise as to the timing, structure, financing and pricing of a proposed acquisition and assist in negotiating and closing the acquisition. In addition, we may assist in implementing an acquisition by acting as a dealer-manager if the acquisition is structured as a tender or exchange offer.

 

When we advise clients that are contemplating the sale of certain businesses, assets or their entire company, our services include evaluating and recommending financial and strategic alternatives with respect to a sale, advising on the appropriate sales process for the situation, valuation issues, assisting in preparing an offering memorandum or other appropriate sales materials and rendering, if appropriate, fairness opinions. We also identify and contact selected qualified acquirors and assist in negotiating and closing the proposed sale.

 

For companies in financial distress, our services may include reviewing and analyzing the business, operations, properties, financial condition and prospects of the company, evaluating debt capacity, assisting in the determination of an appropriate capital structure and evaluating and recommending financial and strategic alternatives. If appropriate, we may provide financial advice and assistance in developing and seeking approval of a restructuring or reorganization plan, which may include a plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code or other similar court administered process in non-U.S. jurisdictions. In such cases, we may assist in all aspects of the implementation of such a plan, including advising and assisting in structuring and effecting the financial aspects of a sale or recapitalization, structuring any new securities, exchange offers, other consideration or other inducements to be offered or issued and assisting and participating in negotiations with affected entities or groups.

 

When we assist clients in raising private or public market financing, our services include originating and executing private placements of equity, debt and related securities, assisting clients in connection with securing, refinancing or restructuring bank loans, originating public underwritings of equity, debt and convertible securities and originating and executing private placements of partnership and similar interests in alternative investment funds such as leveraged buyout, mezzanine or real estate focused funds. In addition, we may advise on capital structure and assist in long-range capital planning and rating agency relationships.

 

Following this offering, we intend to enter into an arrangement with LFCM Holdings under which Lazard Group’s separated Capital Markets and Other business segment will continue to underwrite and distribute U.S. and U.K. securities offerings originated by our Financial Advisory business in a manner intended to be similar to our practice prior to this offering, with revenue from such offerings generally continuing to be divided evenly between Lazard Group and LFCM Holdings.

 

Staffing

 

We staff our assignments with a team of quality professionals with appropriate product and industry expertise. We pride ourselves on, and we believe we are differentiated from our competitors by, being able to offer a relatively high level of attention from senior personnel to our clients and organizing ourselves in such a way that managing directors who are responsible for securing and maintaining client relationships also actively participate in providing related transaction execution services. Our managing directors have significant experience, and many of them are able to use this experience to advise on both mergers and acquisitions and restructuring transactions, depending on

 

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our clients’ needs. Many of our managing directors and senior advisors come from diverse backgrounds, such as senior executive positions at corporations, government, law and strategic consulting, which we believe enhances our ability to offer sophisticated advice and custom solutions to our clients.

 

Industries Served

 

We seek to offer our services across most major industry groups, including, in many cases, sub-industry specialties. Our Mergers and Acquisitions managing directors and professionals are organized to provide advice in the following major industry practice areas:

 

  Ÿ   consumer,

 

  Ÿ   financial institutions,

 

  Ÿ   financial sponsors,

 

  Ÿ   healthcare and life sciences,

 

  Ÿ   industrial,

 

  Ÿ   power and energy,

 

  Ÿ   real estate, and

 

  Ÿ   technology, media and telecommunications.

 

These groups are managed locally in each relevant geographic region and coordinated on a global basis, which allows us to bring local industry-specific knowledge to bear on behalf of our clients on a global basis. We believe that this enhances the quality of advice that we can offer, which improves our ability to market our capabilities to clients.

 

In addition to our Mergers and Acquisitions and Financial Restructuring practices, we also maintain specialties in the following distinct practice areas:

 

  Ÿ   government advisory,

 

  Ÿ   fund raising for alternative investment funds, and

 

  Ÿ   corporate finance.

 

We endeavor to coordinate the activities of the professionals in these areas with our mergers and acquisitions industry specialists in order to offer clients customized teams of cross-functional expertise spanning both industry and practice area know-how.

 

Strategy

 

Since January 2002, when new senior management joined our firm, our focus in our Financial Advisory business has been on:

 

  Ÿ   making a significant investment in our intellectual capital with the addition of many senior professionals who we believe have strong client relationships and industry expertise. We have recruited or promoted 68 new managing directors from January 2002 through December 2004, contributing to a 48% increase, net of departures, in Financial Advisory managing director headcount over that period, with the result that approximately 50% of our managing directors have joined our firm or been promoted since January 2002,

 

  Ÿ   increasing our contacts with existing clients to further enhance our long-term relationships and our efforts in developing new client relationships,

 

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  Ÿ   expanding the breadth and depth of our industry expertise in areas such as media and general industrials and adding new practice areas such as power and energy and fund-raising for alternative investment funds,

 

  Ÿ   coordinating our industry specialty activities on a global basis and increasing the integration of our industry experts with our Financial Restructuring professionals, and

 

  Ÿ   broadening our geographic presence by adding new offices in the Netherlands (Amsterdam), Canada (Toronto) and Australia (Sydney), as well as three new regional offices in the U.S. (Atlanta, Houston and Los Angeles) and entering into new strategic alliances in two new geographies (Argentina and Brazil).

 

We made these investments during a period of financial market weakness, when many of our competitors were reducing senior staffing, to position ourselves to capitalize more fully on any financial services industry recovery.

 

In addition to the recent expansion of our Financial Advisory team, we believe that the following external market factors may enable our Financial Advisory practice to benefit from future growth in the global mergers and acquisitions advisory business:

 

  Ÿ   increasing demand for independent, unbiased financial advice, and

 

  Ÿ   a potential increase in cross-border mergers and acquisitions and large capitalization mergers and acquisitions, two of our areas of historical specialization, which experienced greater than average declines in recent years.

 

Going forward, our strategic emphasis in our Financial Advisory business is to leverage the investments we have made in recent years to grow our business and drive our productivity. While we will continue opportunistically to attract outstanding individuals to this practice, we anticipate that our recent managing director expansion program is now substantially complete.

 

Relationship with IXIS

 

In April 2004, Lazard Group and IXIS entered into a cooperation arrangement to place and underwrite securities on the French equity primary capital markets under a common brand, “Lazard-Ixis,” and cooperate in their respective origination, syndication and placement activities. This cooperation covers French listed companies exceeding a market capitalization of €500 million. On March 15, 2005, Lazard Group and IXIS entered into a binding term sheet to expand this arrangement into an exclusive arrangement within France, conditioned upon, among other things, the completion of this offering and the additional financing transactions involving IXIS. The cooperation arrangement also provides for an alliance in real estate advisory work with the objective of establishing a common brand for advisory and financing operations within France. It also adds an exclusive mutual referral cooperation arrangement, subject to the fiduciary duties of each firm, with the goal of referring clients from Lazard Group to IXIS for services relating to corporate banking, lending, securitizations and derivatives within France and from IXIS to Lazard Group for mergers and acquisitions advisory services within France. This expanded cooperation arrangement will have a term of three years from the date of completion of this offering.

 

In connection with the cooperation arrangement, Lazard Group and IXIS will develop a business plan to promote mutual revenue production and sharing relating to the cooperation activities. As part of that plan, revenue from the various activities subject to the cooperation arrangement will be credited towards a target revenue number (which the parties may agree to reduce if aspects of the cooperation do not take place) at varying percentages depending on the source of the revenue along with the underwriting commission received by IXIS for the exchangeable debt securities. If at the end of the

 

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initial term of the cooperation arrangement, (a) the sum of that calculation is less than the target revenue number, (b) the cooperation arrangement is not renewed and (c) our common stock price fails to sustain specified price levels, Lazard Group or its affiliate will pay IXIS or one of its affiliates the difference between the target revenue number and the sum of (1) the revenue credits and (2) any gain IXIS has realized on a sale of its investment in our securities prior to the end of the initial term of the arrangement. The level of this potential payment would depend, among other things, on the level of revenue generated by the cooperation activities. The potential payment is limited to a maximum of approximately €16.5 million (subject to reduction in certain circumstances) which would only occur if the cooperation activities generate no revenue over the course of the three-year initial period of such activities and the other conditions noted above have not been met.

 

Asset Management

 

Our Asset Management business provides investment management and advisory services to institutional clients, financial intermediaries, private clients and investment vehicles around the world. Our goal in our Asset Management business is to produce superior risk-adjusted investment returns and provide investment solutions customized for our clients. Many of our equity investment strategies share an investment philosophy that centers on fundamental security selection with a focus on the trade-off between a company’s valuation and its financial productivity.

 

As of December 31, 2004, total AUM was $86.4 billion, approximately 81% of which was invested in equities, 13% in fixed income, 3% in alternative investments, 3% in cash and less than 1% in merchant banking funds. As of the same date, approximately 56% of our AUM was invested in international (i.e., non-U.S.) investment strategies and 23% was invested in global investment strategies and 21% was invested in U.S. investment strategies, and our top ten clients and third-party relationships accounted for 26% of total AUM. Approximately 80% of our AUM as of that date was managed on behalf of institutional clients, including corporations, labor unions, public pension funds, insurance companies and banks, and through sub-advisory relationships, mutual fund sponsors, broker-dealers and registered advisors. Approximately 20% of AUM as of December 31, 2004 was managed on behalf of individual client relationships, which are principally with family offices and high-net worth individuals.

 

The charts below illustrates the mix of our AUM as of December 31, 2004, measured by broad product strategy and by office location.

 

LOGO

 

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LAM and LFG

 

Our largest Asset Management subsidiaries are LAM in New York, San Francisco, London, Milan, Frankfurt, Hamburg, Tokyo, Sydney and Seoul (aggregating $76.5 billion in total AUM as of December 31, 2004), and LFG in Paris (aggregating $9.4 billion in total AUM as of December 31, 2004). LAM was founded in 1970 and LFG can trace its history back to 1969. These operations provide our business with a global presence and local identity.

 

Primary distinguishing features of these businesses include:

 

  Ÿ   a global footprint with global research, global mandates and global clients,

 

  Ÿ   a broad-based team of approximately 170 investment professionals: LAM has approximately 150 investment professionals, which includes our approximately 60 focused, in-house, investment analysts across all products and platforms (35 of whom are on our global research platform), many of whom have substantial industry or sector specific expertise, and LFG has approximately 20 investment professionals, including five investment analysts, in each case as of December 31, 2004,

 

  Ÿ   a security selection-based investment philosophy applied across products,

 

  Ÿ   worldwide brand recognition and multi-channel distribution capabilities,

 

  Ÿ   the significant investment in technology and systems development we have made, and

 

  Ÿ   substantial equity participation in LAM held by a broad group of key employees.

 

Our Investment Philosophy, Process and Research.    Our investment philosophy is generally based upon a fundamental security selection approach to investing. Across many of our products, we apply three key principles to investment portfolios:

 

  Ÿ   pick securities, not markets,

 

  Ÿ   find relative value, and

 

  Ÿ   manage risk.

 

In searching for equity investment opportunities, our investment professionals generally follow an investment process that incorporates several interconnected components that may include:

 

  Ÿ   analytical framework analysis and screening,

 

  Ÿ   accounting validation,

 

  Ÿ   fundamental analysis,

 

  Ÿ   security selection and portfolio construction, and

 

  Ÿ   risk management.

 

At LAM, we conduct investment research on a global basis, to develop market, industry and company specific insight. Approximately 60 investment analysts, located in our worldwide offices, conduct research and evaluate investment opportunities around the world across all products and platforms. The LAM global research platform is organized around six global industry sectors:

 

  Ÿ   consumer goods,

 

  Ÿ   financial services,

 

  Ÿ   health care,

 

  Ÿ   industrials,

 

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  Ÿ   power, and

 

  Ÿ   technology, media and telecommunications.

 

Our analysts recommend companies to portfolio managers and work with them on an ongoing basis to make buy and sell decisions. At LFG, five investment analysts conduct research and evaluate investment opportunities, primarily focused on large capitalization European companies.

 

Investment Strategies.    Our Asset Management business provides equity, fixed income and cash management and alternative investment strategies to clients, paying close attention to clients’ varying and expanding investment needs. We offer the following product platform of investment strategies:

 

   

Global

  

Regional

  

Domestic

Equities  

Global

Large Capitalization

Small Capitalization

Emerging Markets

Thematic
Convertibles*

 

EAFE (Non-US)

Large Capitalization

Small Capitalization

Multi-Capitalization

 

Global Ex

Global Ex-UK

Global Ex-Japan

Global Ex-Australia

  

Pan-European

Large Capitalization

Small Capitalization

 

Eurozone

Large Capitalization**

Small Capitalization**

 

Continental European

Small Cap

Multi Cap

Eurozone (i.e., Euro Bloc)

Euro-Trend (Thematic)

  

U.S.

Large Capitalization**

Mid Capitalization

Small Capitalization

Multi-Capitalization

 

Other

U.K. (Large Capitalization)

U.K. (Small Capitalization)

Australia

France (Large Capitalization)*

France (Small Capitalization)*

Japan**

  
 
 

Fixed Income and

Cash Management

  

Global

Core Fixed Income

High Yield

Short Duration

  

Pan-European

Core Fixed Income

High Yield

Cash Management*

 

Eurozone

Fixed Income**

Cash Management*

Corporate Bonds**

  

U.S.

Core Fixed Income

High Yield

Short Duration

Municipals

Cash Management*

 

Non-U.S.

U.K. Fixed Income

  
 
 
Alternative  

Global

Global Opportunities     (Long/Short)

Fund of Hedge Funds Fund of Closed-End     Funds

  

Regional

European Explorer

    (Long/Short)

Emerging Income

    

 

All of the above strategies are offered by LAM, except for those denoted by *, which are offered exclusively by LFG. Investment strategies offered by both LAM and LFG are denoted by **.

 

In addition to the primary investment strategies listed above, we also provide locally customized investment solutions to our clients. In many cases, we also offer both diversified and more

 

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concentrated versions of our products. These products are generally offered on a separate account basis, as well as through pooled vehicles.

 

Distribution.    We distribute our products through a broad array of marketing channels on a global basis. LAM’s marketing, sales and client service efforts are organized through a global market delivery and service network, with distribution professionals located in New York, San Francisco, London, Milan, Frankfurt, Hamburg, Tokyo, Sydney and Seoul. We have developed a well-established presence in the institutional asset management arena, managing money for corporations, labor unions and public pension funds around the world. In addition, we manage assets for insurance companies, savings and trust banks, endowments, foundations and charities.

 

We also have become a leading firm in third-party distribution, managing mutual funds and separately managed accounts for many of the world’s largest broker-dealers, insurance companies, registered advisors and other financial intermediaries. In the area of wealth management, we cater to family offices and private clients.

 

LFG markets and distributes its products through approximately ten sales professionals based in France who directly target both individual and institutional investors.

 

The managing directors of LAM and other key LAM employees hold LAM equity units, which entitle their holders to payments in connection with selected fundamental transactions affecting Lazard Group or LAM. For more information regarding these rights, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

Merchant Banking

 

Lazard Group has a long history of making merchant banking investments with its own capital, usually alongside capital of qualified institutional and individual investors. These activities typically are organized in funds that make substantial or controlling investments in private or public companies, generally through privately negotiated transactions and with a view to divestment within two to seven years. While potentially risky and frequently illiquid, such investments when successful can yield investors substantial returns on capital and generate attractive management and performance fees for the sponsor of such funds.

 

In connection with the separation, we will transfer to LFCM Holdings all of our merchant banking fund management activities, except for our merchant banking business in France, which is regulated as part of our Paris-based banking affiliate, LFB. We also will transfer to LFCM Holdings $20.8 million of principal investments by Lazard Group in the funds managed as part of the separated business, while our investment of $10.6 million in our French merchant banking funds will be retained in Lazard Group.

 

LFCM Holdings will operate the merchant banking business transferred to it in the separation. Consistent with Lazard Group’s intent to support the development of the merchant banking business, including investing capital in future funds to be managed or formed by the merchant banking subsidiary of LFCM Holdings, and in order to benefit from what we believe to be the potential of this business, Lazard Group will be entitled to receive from LFCM Holdings payments equal to the incentive fees attributable to these funds (net of compensation payable to investment professionals who manage these funds) pursuant to the business alliance agreement between us and LFCM Holdings. In addition, pursuant to the business alliance agreement, we will have an option to acquire the merchant banking business owned by LFCM Holdings and will have the right to participate in the oversight and investment decisions of LFCM Holdings’ funds and consent to certain actions. We will continue to abide by our obligations with respect to transferred funds and will agree not to compete with LFCM

 

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Holdings’ funds. For a description of these and other arrangements with respect to the merchant banking fund management activities being transferred to LFCM Holdings, see “Certain Relationships and Related Transactions—Relationship with LAZ-MD Holdings and LFCM Holdings—Business Alliance Agreement.”

 

We believe that the merchant banking business that will be transferred to LFCM Holdings has benefited recently from renewed attention and commitment by senior management. We believe that the merchant banking business can derive significant benefits from the resources of our Financial Advisory business as contemplated by the business alliance agreement, including sourcing investment opportunities through Financial Advisory client relationships. In addition, our Financial Advisory business can benefit from association with our merchant banking funds and their portfolio companies.

 

As of December 31, 2004, Lazard Group’s merchant banking business in North America consisted of a number of funds specializing in real estate, venture capital and private equity, with $1,173 million of AUM, and in France consisted of a group of private equity funds and an affiliated investment company with approximately $551 million of AUM. Lazard Group’s investments in these funds totaled $31 million as of December 31, 2004. Lazard Group is also in the process of raising capital for a number of new merchant banking funds in North America and Europe, including a new private equity fund, Corporate Partners II Limited, with $1 billion of institutional capital commitments and a $100 million capital commitment from us through 2010, formed on February 25, 2005.

 

Strategy

 

Our strategic plan in our Asset Management business is to focus on delivering superior investment performance and client service and broadening our product offerings and distribution in selected areas order to continue to drive improved business results. In March 2004, we undertook a senior management transition at LAM to put in place the next generation of leadership and to better position the business to execute our strategic plan. Over the past several years, in an effort to improve LAM’s operations and expand our business, we have:

 

  Ÿ   focused on enhancing our investment performance,

 

  Ÿ   improved our investment management platform by hiring ten senior equity analysts and filling the newly established position of Head of Risk Management,

 

  Ÿ   strengthened our marketing capabilities by establishing a global consultant relations effort aimed at improving our relations with the independent consultants who advise many of our clients on the selection of investment managers,

 

  Ÿ   expanded our product platform by “lifting-out” experienced portfolio managers to establish new products in the hedge fund area and in thematic investing, and

 

  Ÿ   launched new products such as “Lazard European Explorer,” a European long/short strategy, and “Lazard Global Total Return and Income Fund, Inc.,” a closed-end fund.

 

We believe that LAM has long maintained an outstanding team of portfolio managers and global research analysts. We intend to maintain and supplement our intellectual capital to achieve our goals. We also believe that LAM’s specific investment strategies, global reach, unique brand identity and access to multiple distribution channels will allow it to leverage into new investment products, strategies and geographic locations. In addition, we plan to expand our participation in merchant banking activities through investments in new and successor funds.

 

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Employees

 

We believe that our people are our most important asset, and it is their reputation, talent, integrity and dedication that underpin our success. As of December 31, 2004, after giving effect to the separation, we employed 2,339 people, which includes 131 managing directors and 512 other professionals in our Financial Advisory segment and 35 managing directors and 260 other professionals in our Asset Management segment. We strive to maintain a work environment that fosters professionalism, excellence, diversity and cooperation among our employees worldwide. We utilize an evaluation process at the end of each year to measure performance, determine compensation and provide guidance on opportunities for improved performance. Generally, our employees are not subject to any collective bargaining agreements, except that our employees in certain of our European offices, including France and Italy, are covered by national, industry-wide collective bargaining agreements. We believe that we have good relations with our employees.

 

See “Management” and “Risk Factors.”

 

Competition

 

The financial services industry, and all of the businesses in which we compete, are intensely competitive, and we expect them to remain so. Our competitors are other investment banking and financial advisory firms, broker-dealers, commercial and “universal” banks, insurance companies, investment management firms, hedge fund management firms, merchant banking firms and other financial institutions. We compete with some of our competitors globally and with others on a regional, product or niche basis. We compete on the basis of a number of factors, including quality of people, transaction execution skills, investment track record, quality of client service, individual and institutional client relationships, absence of conflicts, range of products and services, innovation, brand recognition and business reputation.

 

While our competitors vary by country in our Mergers and Acquisitions practice, we believe our primary competitors in securing mergers and acquisitions advisory engagements are Bear Stearns, Citigroup, Credit Suisse First Boston, Goldman Sachs, JPMorgan Chase, Lehman Brothers, Mediobanca, Merrill Lynch, Morgan Stanley, Rothschild and UBS. In our Financial Restructuring practice our primary competitors are The Blackstone Group, Greenhill & Co. and Rothschild.

 

We believe that our primary competitors in our Asset Management business include, in the case of LAM, Alliance Bernstein, AMVESCAP, Brandes Investment Partners, Capital Management & Research, Fidelity, Lord Abbett and Schroders and, in the case of LFG, Swiss private banks with offices in France as well as large institutional banks and fund managers. We face competition in merchant banking both in the pursuit of outside investors for our merchant banking funds and to acquire investments in attractive portfolio companies. We compete with hundreds of other funds, many of which are subsidiaries of or otherwise affiliated with large financial service providers.

 

Competition is also intense in each of our businesses for the attraction and retention of qualified employees, and we compete on the level and nature of compensation and equity-based incentives for key employees. Our ability to continue to compete effectively in our businesses will depend upon our ability to attract new employees and retain and motivate our existing employees.

 

In recent years there has been substantial consolidation and convergence among companies in the financial services industry. In particular, a number of large commercial banks, insurance companies and other broad-based financial services firms have established or acquired broker-dealers or have merged with other financial institutions. Many of these firms have the ability to offer a wider range of products than we offer, including loans, deposit taking, insurance and brokerage services. Many of these firms also have more extensive asset management and investment banking services, which may enhance their competitive position. They also have the ability to support investment banking and

 

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securities products with commercial banking, insurance and other financial services revenue in an effort to gain market share, which could result in pricing pressure in our businesses. This trend toward consolidation and convergence has significantly increased the capital base and geographic reach of our competitors.

 

Regulation

 

Our businesses, as well as the financial services industry generally, are subject to extensive regulation throughout the world. As a matter of public policy, regulatory bodies are charged with safeguarding the integrity of the securities and other financial markets and with protecting the interests of customers participating in those markets, not with protecting the interests of our stockholders or creditors. In the U.S., the SEC is the federal agency responsible for the administration of the federal securities laws. The exchanges, the NASD and the National Futures Association are voluntary, self- regulatory bodies composed of members, such as our broker-dealer subsidiaries, that have agreed to abide by the respective bodies’ rules and regulations. Each of these and non-U.S. regulatory organizations may examine the activities of, and may expel, fine and otherwise discipline, member firms and their employees. The laws, rules and regulations comprising this framework of regulation and the interpretation and enforcement of existing laws, rules and regulations are constantly changing. The effect of any such changes cannot be predicted and may impact the manner of operation and profitability of our company.

 

Our U.S. broker-dealer subsidiary, Lazard Frères & Co. LLC, through which we will conduct our U.S. Financial Advisory business, is currently registered as a broker-dealer with the SEC, the NASD, and as a broker-dealer in all 50 states, the District of Columbia and Puerto Rico, and is a member firm of the NYSE, the AMEX and the Boston Stock Exchange. In connection with the separation, Lazard Frères & Co. LLC intends to withdraw its membership in the NYSE, the AMEX and the Boston Stock Exchange, at which time the NASD will become its primary regulator. We expect the broker-dealer subsidiary to be formed under LFCM Holdings will apply for membership on these exchanges. As such, Lazard Frères & Co. LLC is subject to regulations governing effectively every aspect of the securities business, including the effecting of securities transactions, minimum capital requirements, record-keeping and reporting procedures, relationships with customers, experience and training requirements for certain employees and business procedures with firms that are not members of certain regulatory bodies. Lazard Asset Management Securities LLC, a subsidiary of LAM, also is registered as a broker-dealer with the SEC, the NASD and in all 50 states, the District of Columbia and Puerto Rico. Lazard & Co., Limited, our wholly-owned U.K. subsidiary, is subject to regulation by the Financial Services Authority in the U.K. Lazard Frères SAS, our wholly-owned French subsidiary, is subject to regulation by the Comité de la Réglementation Bancaire et Financière for its banking activities, conducted though its affiliate LFB. In addition, the investment services activities of the Paris group, exercised through LFB and other subsidiaries of Lazard Frères SAS, primarily LFG (asset management) and Fonds Partenaires Gestion (merchant banking), are subject to regulation and supervision by the Autorité des Marchés Financiers (AMF). Our business is subject to regulation by non-U.S. governmental and regulatory bodies and self-regulatory authorities in other countries where we operate. Violation of applicable regulations can result in the revocation of broker-dealer licenses, the imposition of censures or fines and the suspension, expulsion or other disciplining of a firm, its officers or employees.

 

Our broker-dealer subsidiary is also subject to the SEC’s uniform net capital rule, Rule 15c3-1, and the net capital rules of the NYSE and the NASD, which may limit our ability to make withdrawals of capital from our broker-dealer subsidiary. The uniform net capital rule sets the minimum level of net capital a broker-dealer must maintain and also requires that a portion of its assets be relatively liquid. The NYSE and the NASD may prohibit a member firm from expanding its business or paying cash dividends if resulting net capital falls below its requirements. In addition, our broker-dealer subsidiary is subject to certain notification requirements related to withdrawals of excess net capital. Our broker-

 

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dealer subsidiary is also subject to several new laws and regulations that were just recently enacted. The USA Patriot Act of 2001 has imposed new obligations regarding the prevention and detection of money-laundering activities, including the establishment of customer due diligence and other compliance policies and procedures. Additional obligations under the USA Patriot Act regarding procedures for customer verification became effective on October 1, 2003. Failure to comply with these new requirements may result in monetary, regulatory and, in the case of the USA Patriot Act, criminal penalties.

 

Certain of our Asset Management subsidiaries are registered as investment advisers with the SEC. As registered investment advisers, each is subject to the requirements of the Investment Advisers Act and the SEC’s regulations thereunder. Such requirements relate to, among other things, principal transactions between an adviser and advisory clients, as well as general anti-fraud prohibitions. The Investment Company Act regulates the relationship between a mutual fund and its investment adviser (and other service providers) and prohibits or severely restricts principal record-keeping and reporting requirements, disclosure requirements, limitations on trades where a single broker acts as the agent for both the buyer and seller (known as “agency cross”), and limitations on transactions, affiliated transactions and joint transactions. Prior to this offering, Lazard Asset Management Securities LLC, a subsidiary of LAM, served as the underwriter or distributor for mutual funds and hedge funds managed by LAM, and as an introducing broker to Lazard Frères & Co. LLC for unmanaged accounts of LAM’s private clients. Lazard Fund Managers Limited and Lazard Asset Management Limited, subsidiaries of LAM, are subject to regulation by the Financial Services Authority in the U.K.

 

Regulators are empowered to conduct administrative proceedings that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer or its directors, officers or employees.

 

Many of our affiliates that participate in securities markets are subject to comprehensive regulations that include some form of capital structure regulations and other customer protection rules. These standards, requirements and rules are implemented throughout the European Union and are broadly comparable in scope and purpose to the regulatory capital and customer protection requirements imposed under the SEC and NASD rules. European Union directives also permit local regulation in each jurisdiction, including those in which we operate, to be more restrictive than the requirements of such directives, and these sometimes burdensome local requirements can result in certain competitive disadvantages to us. In addition, the Japanese Ministry of Finance and the Financial Supervisory Agency in Japan as well as Australian, German, French and Swiss banking authorities, among others, regulate various of our operating entities and also have capital standards and other requirements comparable to the rules of the SEC.

 

Over the past several years, European Union financial services regulators have taken steps to institute consolidated supervision over a wide range of financial services companies that conduct business in the European Union, even if their head offices are located outside of the European Union. Under the Financial Conglomerates Directive (2002/87/EC), we, along with a number of our competitors, will be required to submit to consolidated supervision by a European Union financial services regulator commencing on January 1, 2005, unless we are already subject to “equivalent” supervision by another regulator. On June 8, 2004, the SEC issued final regulations establishing a consolidated supervision framework for investment banks. The regulations became effective on August 20, 2004. Under these regulations, we can voluntarily submit to a stringent framework of rules relating to group-wide capital levels, internal risk management control systems and regulatory reporting requirements. We currently expect to elect to become subject to consolidated supervision by the SEC.

 

We are working with the SEC to fully understand the consequences of submitting to its consolidated supervision framework. We are unable at this time to accurately predict the impact that

 

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these regulations will have on our businesses and financial results. It is possible that these regulations may ultimately require that we increase our regulatory capital, which may adversely affect our profitability and result in other increased costs.

 

Legal Proceedings

 

Our businesses, as well as the financial services industry generally, are subject to extensive regulation throughout the world. We are involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of our businesses. We believe, based on currently available information, that the results of such proceedings, in the aggregate, will not have a material adverse effect on our financial condition but might be material to our operating results for any particular period, depending, in part, upon the operating results for such period.

 

We have received a letter from the NASD as part of what we understand to be an industry investigation relating to gifts and gratuities. In addition, we have received a subpoena from the SEC similarly seeking information concerning gifts and entertainment involving a mutual fund company. We believe that other broker-dealers have received similar subpoenas. The investigations primarily are focused on the capital markets business that will be part of the separated businesses. These investigations are in their early stages and we cannot predict their potential outcomes.

 

Properties

 

The following table lists the properties used for the entire Lazard organization, including properties used by the separated businesses. As a general matter, one or both of our Financial Advisory and Asset Management segments uses the following properties. We expect to license or sublease to LFCM Holdings certain office space, including office space that is used by the separated businesses. This will include subleasing or licensing approximately 55,100 square feet in New York, New York located at 30 Rockefeller Plaza and 24,900 square feet of excess space under the lease in London located at 50 Stratton Street to LFCM Holdings, which London space LFCM Holdings expects to further sublease to third parties. We will remain fully liable for the subleased space to the extent LFCM Holdings fails to perform its obligations under the leases for any reason. See “Certain Relationships and Related Transactions—Relationship with LAZ-MD Holdings and LFCM Holdings—Agreements with LAZ-MD Holdings and LFCM Holdings.”

 

Location

   

Square feet

   

Comments

New York    273,000 square feet of leased space    Key office located at 30 Rockefeller Plaza, New York, New York, 10020.
Other North America    47,400 square feet of leased space   

Includes offices in Atlanta, Chicago, Houston, Los Angeles, Montreal, San Francisco, Toronto and Washington, D.C.

 

Paris    112,400 square feet of leased space    Key office located at 121 Boulevard Haussmann, 75382 Paris Cedex 08.
London    142,400 square feet of leased space   

Key office located at 50 Stratton Street London W1J 8LL.

 

Milan    27,000 square feet of leased space    Key office located at via Dell’Orso 2 20121 Milan.
Other Europe    59,300 square feet of leased space    Includes offices in Amsterdam, Berlin, Bordeaux, Frankfurt, Hamburg, Lyon, Madrid, Rome and Stockholm.
Asia and Australia    42,500 square feet of leased space    Includes offices in Mumbai, Hong Kong, New Delhi, Seoul, Singapore, Sydney and Tokyo.

 

We believe that we currently maintain sufficient space to meet our anticipated needs.

 

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MANAGEMENT

 

Directors and Executive Officers

 

Set forth below is information concerning our directors and executive officers. We expect to appoint additional directors over time who are not employees of Lazard or otherwise affiliated with management.

 

Name

    Age
   

Position

Bruce Wasserstein

    57   

Chairman and Chief Executive Officer

Michael J. Castellano

    58   

Managing Director and Chief Financial Officer

Steven J. Golub

    59   

Managing Director and Vice Chairman, Chairman of Financial Advisory Group

Scott D. Hoffman

    42   

Managing Director and General Counsel

Charles G. Ward, III

    52   

President, Chairman of Asset Management Group

 

Executive officers are appointed by, and serve at the pleasure of, our board of directors. A brief biography of each director and executive officer follows.

 

Bruce Wasserstein will serve as our Chairman and Chief Executive Officer. Mr. Wasserstein has served as the Head of Lazard and Chairman of the Executive Committee since January 2002. Prior to joining Lazard, Mr. Wasserstein was Executive Chairman at Dresdner Kleinwort Wasserstein from January 2001 to November 2001. Prior to joining Dresdner Kleinwort Wasserstein, he served as CEO of Wasserstein Perella Group (an investment banking firm he co-founded) from February 1988 to January 2001, when Wasserstein Perella Group was sold to Dresdner Bank. Prior to founding Wasserstein Perella Group, Mr. Wasserstein was the Co-Head of Investment Banking at The First Boston Corporation. Prior to joining First Boston, Mr. Wasserstein was an attorney at Cravath, Swaine & Moore. Mr. Wasserstein also currently serves as Chairman of Wasserstein & Co., LP, a private merchant bank. Mr. Wasserstein has over 30 years of experience in the investment banking and mergers and acquisitions industry.

 

Michael J. Castellano will be our Chief Financial Officer. Mr. Castellano has served as a Managing Director and Chief Financial Officer of Lazard Group since August 2001. Prior to joining Lazard, Mr. Castellano held various senior management positions at Merrill Lynch & Co. from August 1991 to August 2001, including Senior Vice President—Chief Control Officer for Merrill Lynch’s capital markets businesses, Chairman of Merrill Lynch International Bank and Senior Vice President —Corporate Controller. Prior to joining Merrill Lynch & Co., Mr. Castellano was a partner with Deloitte & Touche where he served a number of investment banking clients over the course of his 24 years with the firm. Mr. Castellano has over 35 years of relevant investment banking and securities industry experience.

 

Steven J. Golub will be our Vice Chairman and Chairman of our Financial Advisory Group. Mr. Golub has served as Vice Chairman of Lazard Group since October 2004 and as a Managing Director of Lazard Group since January 1986. Mr. Golub previously served as Chief Financial Officer from July 1997 to August 2001. Mr. Golub also served as a Senior Vice President of Lazard from May 1984 to January 1986. Prior to joining Lazard, Mr. Golub was a Partner at Deloitte Haskins & Sells from July 1980 to May 1984. Prior to joining Deloitte Haskins & Sells, he served as the Deputy Chief Accountant in the Chief Accountant’s Office of the Securities and Exchange Commission from January 1979 to June 1980. Mr. Golub currently serves on the Board of Directors of Minerals Technologies Inc. Mr. Golub has over 20 years of experience in the investment banking and mergers and acquisitions industry.

 

Scott D. Hoffman will be our General Counsel. Mr. Hoffman has served as a Managing Director of Lazard Group since January 1999 and General Counsel of Lazard Group since January 2001.

 

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Mr. Hoffman previously served as Vice President and Assistant General Counsel from February 1994 to December 1997 and as a Director from January 1998 to December 1998. Prior to joining Lazard, Mr. Hoffman was an attorney at Cravath, Swaine & Moore. Mr. Hoffman has over 17 years of experience in the investment banking and mergers and acquisitions industry.

 

Charles G. Ward, III will be our President and Chairman of our Asset Management Group. Mr. Ward has served as President and a Managing Director of Lazard Group since February 2002 and is the Chairman of our Asset Management Group. Prior to joining Lazard, he was variously the Head or Co-Head of Global Investment Banking and Private Equity of Credit Suisse First Boston, or “CSFB,” from February 1994 to February 2002. Mr. Ward also served as a member of the Executive Board of CSFB from February 1994 to February 2002 and as President of CSFB from April 2000 to November 2000. Prior to joining CSFB, Mr. Ward co-founded Wasserstein Perella Group in February 1988 and served as President of Wasserstein Perella & Co. from January 1990 to February 1994. Prior to serving at Wasserstein Perella & Co., Mr. Ward was Co-Head of Mergers and Acquisitions and the Media Group at The First Boston Corporation where he worked from July 1979 to February 1988. Mr. Ward has over 25 years of experience in the investment banking and mergers and acquisitions industry.

 

There are no family relationships between any of the executive officers or directors of Lazard. There are no restrictions under Bermuda law as to nationality or professional qualifications for directors. However, exempted companies such as Lazard must comply with Bermuda resident representation provisions under the Companies Act, which, as a company whose shares are listed on an appointed stock exchange, including the NYSE, require Lazard to have a resident representative. The resident representative is responsible for making a report to the Bermuda Registrar of Companies in the event he or she becomes aware that Lazard has committed a breach of any provision of the Companies Act or where any issue or transfer of shares of Lazard have been effected in contravention of any other statute regulating the issue or transfer of shares.

 

Board Composition; Classes of Directors

 

Upon the consummation of this offering, our board of directors will consist of          members, who are Messrs. Wasserstein,                                                      , who is an independent director. During the year following this offering, we expect to appoint          additional directors. Following such appointments, we will have a         -member board, the majority of whom we expect to satisfy the independence standards established by the applicable rules including the Sarbanes—Oxley Act of 2002, of the SEC and the NYSE. It is anticipated that our board of directors will meet at least quarterly. We expect at least half of our independent directors will be non-U.S. residents at the time of their appointment.

 

Because LAZ-MD Holdings initially will hold a majority of the voting power in us, we could qualify for various exceptions to governance standards as a “controlled company.” We do not, however, intend to elect to be treated as a controlled company following this offering.

 

Our board of directors is divided into three classes, each of whose members serve for a staggered three-year term. Upon the expiration of the term of a class of directors, directors in the class will be up for election for three-year terms at the annual meeting of stockholders to be held in the year in which the term expires.

 

In connection with IXIS’s investment as part of the additional financing transactions, we have agreed that we will nominate one person designated by IXIS to our board of directors until such time as (1) the shares of our common stock then owned by IXIS, plus (2) the shares of our common stock issuable under the terms of any exchangeable securities issued by us then owned by IXIS, constitute less than 50% of the sum of (a) the shares of our common stock initially purchased by IXIS, plus (b) the shares of our common stock issuable under the terms of any exchangeable securities issued by us initially purchased by IXIS.

 

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Board Committees

 

Our board of directors will establish several standing committees in connection with the discharge of its responsibilities. These committees will include an audit committee, a compensation committee and a nominating and corporate governance committee. The board of directors also will establish such other committees as it deems appropriate, in accordance with applicable law and our bye-laws. Pursuant to the IXIS investment agreement, our management intends to support, upon IXIS’s request, the nomination of IXIS’s designee to our board of directors to the audit committee or the nominating and corporate governance committee on which such designee is permitted to serve, legally and pursuant to applicable stock exchange rules. The actual appointment of such designee to any such board committee will be subject to approval of our board of directors in its sole discretion.

 

Audit Committee

 

We expect that the members of the audit committee will be appointed promptly following this offering. All of the members of the audit committee will be independent, as determined in accordance with the rules of the NYSE and any relevant federal securities laws and regulations. The audit committee will assist our board of directors in monitoring the integrity of the financial statements, the independent auditors’ qualifications, independence and performance, the performance of our company’s internal audit function and compliance by our company with certain legal and regulatory requirements.

 

Compensation Committee

 

We expect that the members of the compensation committee will be appointed promptly following this offering. All of the members of the compensation committee will be independent, as determined in accordance with the rules of the NYSE and any relevant federal securities laws and regulations. The compensation committee will have overall responsibility for evaluating and approving the executive officer incentive compensation, benefit, severance, equity-based or other compensation plans, policies and programs of our company. The compensation committee also will be responsible for producing an annual report on executive compensation for inclusion in our proxy statement. We do not anticipate having any compensation committee interlocks.

 

Nominating and Corporate Governance Committee

 

We expect that the members of the nominating and corporate governance committee will be appointed promptly following this offering. All of the members of the nominating and corporate governance committee will be independent, as determined in accordance with the rules of the NYSE and any relevant federal securities laws and regulations. The nominating and corporate governance committee will not have more than four directors.The nominating and corporate governance committee will assist our board of directors in promoting the best interests of our company and our stockholders through the implementation of sound corporate governance principles and practices.

 

The nominating and corporate governance committee will identify individuals qualified to become board members and recommend to our board of directors the director nominees for each annual meeting of stockholders. It also will review the qualifications and independence of the members of our board of directors and its various committees on a regular basis and make any recommendations the committee members may deem appropriate from time to time concerning any changes in the composition of our board of directors and its committees. The nominating and corporate governance committee also will recommend to our board of directors the corporate governance guidelines and standards regarding the independence of outside directors applicable to our company and review such guidelines and standards and the provisions of the nominating and corporate governance committee charter on a regular basis to confirm that such guidelines, standards and charter remain consistent with sound corporate governance practices and with any legal, regulatory or NYSE requirements. The nominating and corporate

 

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governance committee also will monitor our board of directors and our company’s compliance with any commitments made to regulators or otherwise regarding changes in corporate governance practices and will lead our board of directors in its annual review of our board of directors’ performance. Our nominating and corporate governance committee also has other responsibilities with respect to our Chief Executive Officer as more fully described under “Description of Capital Stock—Bermuda Law—Board Actions.”

 

Compensation Committee Interlocks and Insider Participation

 

We do not anticipate any interlocking relationships between any member of our compensation committee or our nominating and corporate governance committee and any of our executive officers that would require disclosure under the applicable rules promulgated under the U.S. federal securities laws.

 

Director Compensation

 

Non-Employee Directors

 

We anticipate that directors who are not our employees will receive an annual retainer of $                 in cash for service on our board of directors, inclusive of meeting fees. Non-employee directors may receive an equity award grant upon initial election to office and annually thereafter. All or a portion of these awards may be subject to vesting requirements.

 

We also anticipate that the chairman of the audit committee will receive an additional annual retainer of $                 in cash, the chairman of the compensation committee will receive an additional annual retainer of $                 in cash and the chairman of the nominating and corporate governance committee will receive an additional annual retainer of $                 in cash. No other remuneration will be paid to our board members in their capacity as directors.

 

Employee Directors

 

Our employees who also serve as directors will receive compensation for their services as employees, but they will not receive any additional compensation for their service as directors.

 

Executive Compensation

 

The following table sets forth information regarding the compensation paid by Lazard Group to the Head of Lazard and Chairman of the Executive Committee and Lazard Group’s executive officers, collectively referred to as the “named executive officers” in this prospectus, during Lazard Group’s fiscal year ended December 31, 2004.

 

2004 Compensation Information

Name and Principal Position

    Salary
($)
    Bonus
($)
   

All Other
Compensation
($)

        

Bruce Wasserstein

               

Michael J. Castellano

               

Steven J. Golub

               

Scott D. Hoffman

               

Charles G. Ward, III

               

 

In 2004, Lazard Group did not pay long-term compensation to its named executive officers.

 

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Retirement Plan Benefits

 

Each of Messrs. Golub and Hoffman have an accrued benefit under the Lazard Frères & Co. LLC Employees’ Pension Plan, a qualified defined-benefit pension plan, and Mr. Hoffman has accrued additional benefits under a related supplemental defined-benefit pension plan. The annual benefit under such plans, payable as a single life annuity commencing at age 65, would be $4,332 for Mr. Golub and $18,852 for Mr. Hoffman. These benefits accrued in each case prior to the applicable officer’s becoming a managing director of Lazard. Benefit accruals under both of these plans were frozen for all participants effective January 31, 2005.

 

Arrangements with Our Managing Directors

 

In connection with this offering, Lazard Group, on behalf of itself, us, and its other affiliates, has entered into Agreements Relating to Retention and Noncompetition and Other Covenants (the “retention agreements”) with substantially all of our Financial Advisory managing directors and Asset Management managing directors who are not employed by LAM. Asset Management managing directors who are employed by LAM participate in separate equity arrangements at LAM, which contain restrictive covenants. The material terms of the retention agreements and the LAM arrangements are described below. Those of our managing directors who are employees of our joint venture with Intesa have signed service agreements with our joint venture entity that contain restrictive covenants that are comparable to those in the retention agreements described below. They will participate in our equity or results solely through a cash based incentive plan in the joint venture. See “—The Retention Agreements” and “—LAM Managing Directors.”

 

The Retention Agreements

 

The terms set forth below describe the material terms of the form of retention agreement entered into with our managing directors who are currently working members. You should refer to the exhibits that are a part of the registration statement for a copy of the form of agreement. See “Where You Can Find More Information.”

 

Participation in this Offering

 

As part of the retention agreement, the managing director agrees to execute and deliver all documents, consents and agreements that are necessary to effectuate this offering and related transactions, and we agree that certain material terms of the agreements described below will not be modified in a manner that materially and adversely affects the rights provided thereunder.

 

In connection with the transactions, each retention agreement provides that the managing director’s unvested working member interests will vest, and the managing director will receive, in exchange for his or her working member interests, LAZ-MD Holdings exchangeable interests. They also will have their working member capital exchanged for an identical amount of capital in LAZ-MD Holdings, and receive a profits interest in LAZ-MD Holdings. The chart below sets forth the amounts of interests that will be held by each named executive officer:

 

Managing Director

   

LAZ-MD Holdings
Exchangeable Interests

   

Capital

   

LAZ-MD
Holdings
Profits Interests

Bruce Wasserstein

               

Michael J. Castellano

               

Steven J. Golub

               

Scott D. Hoffman

               

Charles G. Ward, III

               

 

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LAZ-MD Holdings Exchangeable Interests

 

The retention agreements provide that the LAZ-MD Holdings exchangeable interests may, at the managing director’s election, be effectively exchangeable into shares of our common stock on the eighth anniversary of this offering. In addition, the managing director may elect such an exchange on an accelerated basis under certain circumstances, as follows:

 

  Ÿ   If the managing director continues to provide services through the third anniversary of this offering (or is terminated without cause or due to disability prior thereto) and has not violated any of the restrictive covenants described below, the managing director may elect such a conversion in three equal installments on and after each of the third, fourth, and fifth anniversaries of this offering.

 

  Ÿ   If the managing director continues to provide services through the second anniversary of this offering but not through the third anniversary of this offering (and was not terminated without cause or due to disability) and has not violated any of the restrictive covenants described below, the managing director may elect such an exchange in three equal installments on and after each of the fourth, fifth, and sixth anniversaries of this offering.

 

  Ÿ   If a managing director incurs a termination of services due to death on or prior to the second anniversary of this offering, all exchangeable interests held by the managing director shall, at our election, either become exchangeable no later than the first anniversary of such death or be purchased by LAZ-MD Holdings no later than the first anniversary of such death at the trading price of our common stock on the date of such repurchase. The same treatment shall apply upon a death on or prior to the second anniversary of this offering that occurs subsequent to the managing director’s retirement, provided that the managing director did not violate any of the restrictive covenants described below subsequent to retirement (without regard to the time limits generally applicable to such covenants). For purposes of the agreement, retirement is defined as voluntary termination following attainment either of both age 55 and 10 years of service as a managing director or attainment of age 65.

 

  Ÿ   If a managing director incurs a termination of services due to death subsequent to the second anniversary of this offering, but prior to the fourth anniversary of this offering, all exchangeable interests held by the managing director may be exchanged on the later of the third anniversary of this offering and the anniversary of this offering that next follows the date of such death. The same treatment shall apply upon a death subsequent to the second anniversary of this offering, but prior to the fourth anniversary of this offering that occurs subsequent to the managing director’s retirement, provided that the managing director did not violate any of the restrictive covenants described below subsequent to retirement (without regard to the time limits generally applicable to such covenants).

 

  Ÿ   In the event of a change of control, all exchangeable interests held by the managing director will be exchanged immediately by our managing directors prior to the change of control at a time and in a fashion designed to allow the managing director to participate in the change of control on a basis no less favorable than that applicable to our stockholders generally. This acceleration right will apply to all holders of LAZ-MD Holdings exchangeable interests regardless of whether they sign or are asked to sign a retention agreement.

 

The subsidiaries of Lazard Ltd that hold Lazard Ltd’s Lazard Group common membership interests can, with the approval of our board of directors, accelerate the above described exchange schedule in its discretion. Both LAZ-MD Holdings and our subsidiaries through which the exchanges will be effected, with the consent of the Lazard Ltd board of directors, have the right to require the managing director to effectively exchange the exchangeable interests into shares of our common stock during the 30-day period commencing on the ninth anniversary of this offering, if no such exchange has previously occurred.

 

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Profits Interests

 

The retention agreements provide that LAZ-MD Holdings profits interests will receive distributions designed to reimburse the managing director for income taxes due in respect of such profits interests. In addition, beginning as of the third anniversary of this offering, the LAZ-MD Holdings profits interests will receive distributions parallel to the dividends paid on our shares of common stock. The retention agreements provide that LAZ-MD Holdings profits interests will be granted only if the managing director continues to provide services as of this offering and only while such managing director continues to provide services to us.

 

Capital

 

The retention agreements provide that LAZ-MD Holdings shall assume the existing obligations of Lazard Group for capital in Lazard Group and that LAZ-MD Holdings shall distribute to each managing director who is a party to a retention agreement amounts in respect of the managing director’s capital accounts relating to his or her working member interests in equal installments on the first, second, third and fourth anniversaries of this offering. Each managing director also agrees that his rights to all capital of LAZ-MD Holdings allocated with respect to the LAZ-MD Holdings exchangeable interests and related profits interests shall be forfeited without payment therefor upon the exchange of the LAZ-MD Holdings exchangeable interests.

 

Services

 

Pursuant to the retention agreement, each managing director makes a commitment that is not legally binding to continue to provide services to us at least through the second anniversary of this offering, and, while providing services, to devote his entire working time, labor, skill and energies to us. The retention agreements provide each of the managing directors with a minimum base salary. The retention agreements also provide that annual bonuses will be determined in the sole discretion of the Chief Executive Officer of Lazard, subject to approval by our board of directors or an appropriate committee thereof if required by law or regulation, and such annual bonuses may be paid pursuant to our bonus plan (see “—Bonus Plan” below). A portion of the annual bonuses may be payable as equity compensation. In addition, each managing director will be eligible to participate in our long-term incentive compensation programs and in our employee benefit plans generally. The provision of services under the retention agreements is terminable by either party upon three months’ notice. No severance is payable upon a termination by us, other than continued compensation during the three-month notice period.

 

Restrictive Covenants

 

The retention agreements provide that the managing director is subject to the following restrictive covenants:

 

Noncompetition and Nonsolicitation of Clients.    While providing services to us and during the three-month period following termination of the managing director’s services to us (one-month period in the event of such a termination by us without cause), the managing director may not:

 

  Ÿ   perform services in a line of business that is similar to any line of business in which the managing director provided services to us in a capacity that is similar to the capacity in which the managing director acted for us while providing services to us (“competing services”) for any business enterprise that engages in any activity, or owns a significant interest in any entity that engages in any activity, that competes with any activity in which we are engaged up to and including the date of termination of employment (a “competitive enterprise”),

 

  Ÿ   acquire an ownership or voting interest of 5% or more in any competitive enterprise, or

 

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  Ÿ   solicit any of our clients on behalf of a competitive enterprise in connection with the performance of services that would be competing services or otherwise interfere with or disrupt any client’s relationship with us.

 

Nonsolicitation of Employees.    While providing services to us and during the six-month period following termination of the managing director’s services, the managing director may not, directly or indirectly, in any manner, solicit or hire any of our employees at the associate level or above to apply for, or accept employment with, any competitive enterprise or otherwise interfere with any such employee’s relationship with us.

 

Transfer of Client Relationships, Nondisparagement and Notice Period Restrictions.    The managing director is required, upon termination of his or her services to us and during the 90-day period following termination, to take all actions and do all things reasonably requested by us to maintain for us the business, goodwill and business relationships with our clients with which he worked, provided that such actions and things do not materially interfere with other employment or professional activities of the managing director. In addition, while providing services to us and thereafter, the managing director generally may not disparage us, and during the three-month notice period described above, the managing director is prohibited from entering into a written agreement to perform services for a competitive enterprise.

 

Breach of Restrictive Covenants Prior to this Offering.    In the event that the managing director violates the restrictive covenants prior to this offering, the managing director will forfeit his unvested existing Lazard Group interests. If the violation of the restrictive covenants also is a violation of the restrictive covenants in the managing director’s existing agreement with Lazard Group, the managing director will forfeit his vested Lazard Group interests as well. These remedies will be in addition to any other remedies we may have against the managing director.

 

Supercession of and Integration with Other Agreements

 

The retention agreements generally supersede all other agreements between us and the managing directors, except, to the extent that the managing director is subject to an existing services agreement, the provisions of the existing agreement generally survive if they are not inconsistent with the terms of the retention agreements. In addition, limited modifications have been made to some of the terms of the retention agreement to reflect the specific situations of some of the managing directors. The material terms of the surviving provisions of any existing agreements with the named executive officers and any modifications to their retention agreements are described below. See “—Other Agreements with Named Executive Officers.”

 

Expiration If No Offering

 

The retention agreements provide that they shall expire and be of no further effect in the event this offering does not occur prior to September 30, 2005 or is otherwise abandoned or terminated prior to such date or in the event that the agreement with the historical partners is terminated prior to such date.

 

Other Agreements with Named Executive Officers

 

In connection with this offering, the named executive officers have entered into employment agreements with Lazard Group, on behalf of itself, us and our other affiliates, that contain provisions relating to their participation in this offering and the terms of the LAZ-MD Holdings exchangeable interests that are substantially similar to those of the form of retention agreement and the additional terms described below.

 

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LAM Managing Directors

 

As noted above, managing directors employed by LAM generally are not parties to the above retention agreements and will not be receiving interests in LAZ-MD Holdings in connection with this offering. Instead, these managing directors and certain LAM employees will continue to hold their LAM equity units. The economic characteristics of these LAM equity units are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Measures and Indicators—Minority Interest.”

 

When granted, the LAM equity units were subject to various multi-year vesting schedules. We expect that, as of December 31, 2004, approximately 65% of the LAM equity units will have vested. The LAM equity units are subject to the following additional vesting and forfeiture rules set forth in the limited liability company agreement of LAM and in the equity plan:

 

  Ÿ   All unvested LAM equity units are forfeited upon a termination of the holder’s employment for cause or upon a voluntary termination of employment that is not for good reason.

 

  Ÿ   Upon a termination for cause prior to January 2, 2006, all vested LAM equity units are forfeited, and upon such a termination subsequent to January 2, 2006, LAM equity units which vested during the 24-month period prior to such termination shall be forfeited.

 

  Ÿ   All LAM equity units are forfeited upon a breach of the confidentiality and non-solicit restrictions applicable to LAM managing directors, or upon violation prior to January 2, 2006 of the non-compete restrictions applicable to LAM managing directors. Upon a violation of the non-compete restrictions subsequent to January 2, 2006, any unvested LAM equity units and any LAM equity units which vested during the 24-month period prior to such termination shall be forfeited.

 

  Ÿ   Upon certain change of control or liquidity events, the LAM phantom equity units are forfeited in exchange for payments similar to those payable to LAM equity interest holders in connection with the event, whose LAM equity interests also are forfeited for payment.

 

The non-solicitation restrictions prohibit solicitation and hire of our employees to work for a competing business or to resign from employment with us. These restrictions apply during the employment of the managing director with us and for one year thereafter. The non-compete restriction prohibits activities for competitive enterprises that are similar to those performed by the managing director for us. These restrictions apply during employment with us and until the six-month anniversary of termination of employment, except that they expire on the first anniversary of various change of control or liquidity events and are limited to 30 days following termination of employment if the termination is by the managing director for good reason or by us without cause.

 

Bonus Plan

 

To align employee and stockholder interests, we intend to adopt the 2005 Bonus Plan for purposes of determining annual bonuses for our senior executives. The compensation committee will have full direct responsibility and authority for determining our Chief Executive Officer’s compensation under the plan and will make recommendations with regard to the compensation of our other executive officers under the plan. Subject to overall compensation limits as determined from time to time and, with respect to plan participants, the terms of the plan, our Chief Executive Officer will have responsibility for determining the compensation of all employees except as provided above.

 

Participants in the plan will be designated during the first three months of each fiscal year, although participants may be added or removed at any time prior to payment of bonuses for the fiscal year. While the employees who are expected to participate in the plan during the 2005 fiscal year have not yet been designated, it is estimated that there will be approximately          initial participants in the

 

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plan, including all of the named executive officers. The actual size of the bonus pool will be determined at the end of each fiscal year, taking into account our results of operations, stockholder return, and/or other measures of our financial performance or of the financial performance of one or more of our subsidiaries or divisions. A target maximum ratio of aggregate compensation and benefits expense for the year (including annual cash bonus payments under the plan) to annual revenue or income (or to similar measures of corporate profitability) may also be taken into account, and it is currently anticipated that this will initially be based on our current target ratio of compensation and benefits expense to operating revenue of 57.5%. The bonus pool will be allocated among the participants in the plan with respect to each fiscal year. This allocation may be made at any time prior to payment of bonuses for such year, and may take into account any factors deemed appropriate, including, without limitation, assessments of individual, subsidiary or division performance and input of management.

 

Amounts payable under the bonus plan will be satisfied in cash or through equity awards granted under our equity incentive plan.

 

The Equity Incentive Plan

 

The following is a description of the material terms of the Equity Incentive Plan (which we refer to in this section as the “plan”). You should, however, refer to the exhibits that are a part of the registration statement for a copy of the plan. See “Where You Can Find More Information.”

 

Purpose

 

The purposes of the plan are to attract, retain and motivate key employees and directors of, and consultants and advisors to, Lazard and to align the interests of key employees, directors, consultants and advisors with those of stockholders through equity-based compensation and enhanced opportunities for ownership of shares of our common stock. We currently expect that after this offering we will pay a portion of our bonus compensation in the form of equity awards of Lazard Ltd that will be subject to vesting and other terms. We do not currently intend to grant any stock options in respect of shares of our common stock during the first two years following this offering unless and to the extent that we determine that such grants would be appropriate for European employees or managing directors under agreed upon circumstances.

 

Administration

 

The plan will be administered by the compensation committee or such other committee of our board of directors as our board of directors may from time to time establish. The committee administering the plan will be referred to in this description as the “committee.” Among other things, the committee will have the authority to select individuals to whom awards may be granted, to determine the type of award as well as the number of shares of common stock to be covered by each award, and to determine the terms and conditions of any such awards. All determinations by the committee or its designee under the plan will be final, binding and conclusive.

 

Eligibility

 

Persons who serve or agree to serve as our officers, employees, directors, consultants or advisors who are responsible for, or contribute to, our management, growth and profitability are eligible to be granted awards under the plan. Holders of equity-based awards issued by a company acquired by us or with which we combine will be eligible to receive substitute awards under the plan.

 

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Shares Available

 

Subject to adjustment, the plan authorizes the issuance of up to                      million shares of common stock pursuant to the grant or exercise of stock options, stock appreciation rights (“SARs”), restricted stock, stock units and other equity-based awards. If any award is forfeited or if any stock option or SAR terminates without being exercised, or if any SAR is exercised for cash, shares of common stock subject to such awards will be available for distribution in connection with awards under the plan. If the option price of any stock option granted under the plan is satisfied by delivering shares of common stock to us (by actual delivery or attestation), only the number of shares of common stock issued net of the shares of common stock delivered or attested to will be deemed delivered for purposes of determining the maximum number of shares of common stock available for delivery under the plan. To the extent any shares are not delivered to a participant because such shares are used to satisfy any applicable tax-withholding obligation, such shares will not be deemed to have been delivered for purposes of determining the maximum number of shares of common stock available for delivery under the plan. The shares subject to grant under the plan are to be made available from authorized but unissued shares or from shares held by our subsidiaries, as determined from time to time by our board of directors.

 

Change in Capitalization or Change in Control

 

The plan provides that, in the event of any change in corporate capitalization, such as a stock split, or any fundamental corporate transaction, such as any merger, amalgamation, consolidation, separation, spinoff or other distribution of property (including any extraordinary cash or stock dividend), or any reorganization or partial or complete liquidation of us, the committee or the board of directors may make such substitution or adjustment as it deems appropriate in its discretion in the aggregate number and kind of shares reserved for issuance under the plan, in the exercise price of shares subject to outstanding stock options and SARs, and in the number and kind of shares subject to other outstanding awards granted under the plan. Any adjustments described in the immediately preceding sentence that are considered “deferred compensation” subject to Section 409A of the U.S. Internal Revenue Code of 1986, as amended, or the “Code,” will be made in such manner as to ensure that after such adjustment, the awards either continue not to be subject to, or comply with the requirements of, Section 409A of the Code. The plan also provides that in the event of a “change in control” (as defined in the plan) of us, unless otherwise provided for in the individual award agreement: (i) SARs and stock options outstanding as of the date of the change in control, which are not then exercisable and vested will become fully exercisable and vested, (ii) the restrictions and deferral limitations applicable to restricted stock will lapse and such restricted stock will become free of all restrictions and fully vested, and (iii) all stock units will vest in full and be immediately settled.

 

Types of Awards

 

As indicated above, several types of awards can be made under the plan. A summary of these grants is set forth below.

 

Stock Options

 

Eligible individuals can be granted non-qualified stock options under the plan. The exercise price of such options cannot be less than 100% of the fair market value of the stock underlying the options on the date of grant. The term of such options is determined by the committee. Optionees may pay the exercise price in cash or, if approved by the committee, in common stock (valued at its fair market value on the date of exercise) or a combination thereof, or, to the extent permitted by applicable law, by “cashless exercise” through a broker or by withholding shares otherwise receivable on exercise. The committee will determine the vesting and exercise schedule of options. Unless determined otherwise by the committee in its discretion, unvested options terminate upon termination of employment, and vested options will generally remain exercisable for one year after the optionee’s

 

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death, three years after the optionee’s termination for disability, five years after the optionee’s retirement and 90 days after the optionee’s termination for any other reason (other than for cause, in which case all options will terminate). Unless determined otherwise by the committee, if an optionee’s employment terminates during the two-year period following a change in control (other than for cause), options held by the optionee will remain exercisable until the third anniversary of the change in control. Notwithstanding the foregoing rules, in no event will an option remain exercisable following the expiration of its original term.

 

SARs

 

SARs may be granted as stand-alone awards or in conjunction with an option. An SAR entitles the holder to receive, upon exercise, the excess of the fair market value of a share of common stock at the time of exercise over the exercise price of the applicable SAR multiplied by the specified number of shares of common stock in respect of which the SAR has been exercised. Such amount will be paid to the holder in stock (valued at its fair market value on the date of exercise), cash or a combination thereof, as the committee may determine. An SAR granted in conjunction with an option is exercisable only when and to the extent the related option is exercisable. An option will be cancelled to the extent that its related SAR is exercised or cancelled, and an SAR will be cancelled to the extent the related option is exercised or cancelled. Unless determined otherwise by the committee, unvested SARs terminate upon termination of employment, and vested SARs generally will remain exercisable for one year after the holder’s death, three years after the holder’s termination for disability, five years after the holder’s retirement and 90 days after the holder’s termination for any other reason (other than for cause, in which case all SARs will terminate). Unless determined otherwise by the committee, if a holder’s employment terminates during the two-year period following a change in control (other than for cause), SARs held by the holder will remain exercisable until the third anniversary of the change in control. Notwithstanding the foregoing rules, in no event will a SAR remain exercisable following the expiration of its original term. Generally, stand-alone SARS are subject to the same terms and conditions as stock options as described above.

 

Restricted Stock

 

Restricted stock may be granted with such restrictions and restricted periods as the committee may determine. The committee may provide that a grant of restricted stock will vest upon the continued service of the participant or the satisfaction of applicable performance goals. Restricted stock is generally forfeited upon termination of employment, unless otherwise provided by the committee. Other than such restrictions on transfer and any other restrictions the committee may impose, the participant will have all the rights of a stockholder with respect to the restricted stock award, although the committee may provide for the automatic deferral or reinvestment of dividends or impose vesting requirements on dividends.

 

Stock Units

 

The committee may grant stock unit awards, which represent a right to receive cash based on the fair market value of a share of common stock or a share of common stock. The committee may provide that a grant of stock units will vest upon the continued service of the participant or the satisfaction of applicable performance goals. Stock units that are not vested are generally forfeited upon termination of employment, unless otherwise provided by the committee. Holders of stock units do not have the rights of a stockholder with respect to the award unless and until the award is settled in shares of common stock, although the committee may provide for dividend equivalent rights.

 

Other Equity-Based Awards

 

The committee may grant other types of equity-based awards based upon Lazard common stock, including unrestricted stock and dividend equivalent rights.

 

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Transferability

 

Awards generally will not be transferable, except by will and the laws of descent and distribution or to the extent otherwise permitted by the committee.

 

Duration of the Plan

 

The plan will have a term of ten years from the date of its adoption by our board of directors.

 

Amendment and Discontinuance

 

The plan may be amended, altered or discontinued by the board of directors, but, except as required by applicable law, stock exchange rules, tax rules or accounting rules, no amendment, alteration or discontinuance may materially impair the rights of an optionee under an option or a recipient of an SAR, restricted stock award, stock unit award or other equity-based award previously granted without the optionee’s or recipient’s consent. The plan may not be amended without stockholder approval to the extent such approval is required by applicable law or stock exchange rules. Notwithstanding the foregoing, the committee may grant awards to employees who are subject to legal or regulatory provisions of countries or jurisdictions outside the U.S., on terms and conditions different from those specified in the plan, as it determines to be necessary, and may make such modifications, amendments, procedures, or subplans as are necessary to comply with such legal or regulatory provisions.

 

Federal Income Tax Consequences

 

The following discussion is intended only as a brief summary of the material U.S. federal income tax rules that are generally relevant to non-qualified stock options as the plan does not provide for the grant of incentive stock options within the meaning of Section 422 of the Code. The laws governing the tax aspects of awards are complex and such laws are subject to change.

 

Upon the grant of a nonqualified option, the optionee will not recognize any taxable income and we will not be entitled to a deduction. Upon the exercise of such an option or related SAR, the excess of the fair market value of the shares acquired upon the exercise of the option or SAR over the exercise price of the option or the cash paid under an SAR will constitute compensation taxable to the optionee as ordinary income. We, or our applicable affiliate, in computing our U.S. federal income tax, will generally be entitled to a deduction in an amount equal to the compensation taxable to the optionee.

 

Participatory Interests in Lazard Group

 

We also intend to grant participatory interests in Lazard Group to certain of our current and future managing directors in connection with the separation and recapitalization transactions. The participatory interests will be discretionary profits interests that are intended to enable Lazard Group to compensate our managing directors in a manner consistent with its historical compensation practices. Initially,             % of Lazard Group’s adjusted operating income (as defined below) will be distributable among our current managing directors holding Lazard Group participatory interests in amounts as determined in our sole discretion. We may elect to withhold all or part of the distributions otherwise payable in respect of a participatory interest (subject to minimum distributions in respect of taxes). Any associated capital interests will be surrendered in the event the managing director ceases to be employed by Lazard Group. The             % figure will be set forth in the Lazard Group operating agreement and will be subject to adjustment if the total amount allocable to the holders of the participatory interests exceeds             % of adjusted operating revenue (as defined below), in which case the aggregate percentage interest will be reduced to equal the amount determined by dividing

 

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            % of adjusted operating revenue by adjusted operating income. For purposes of the above, “adjusted operating revenue” is defined as revenue less interest expenses relating to financing other than with respect to “operating” interest expense and extraordinary gains, and “adjusted operating income” is defined as the difference between adjusted operating revenue and adjusted operating expenses, which, in turn, are defined as expenses exclusive of compensation expense paid to managing directors (other than LAM managing directors), minority interest, interest expenses other than “operating” interest expense, extraordinary losses and income taxes. Amounts distributed pursuant to the participatory interests will be accounted for as part of our compensation and benefits expense and, therefore, included in the computation of our target ratio of compensation expense-to-operating revenue.

 

This program is terminable, in whole or in part, at any time at our election. The participatory interests will carry no other rights, including voting or liquidation rights or preferences, beyond those incident to such distributions, must be forfeited upon a holder ceasing to be a managing director and will not be transferable.

 

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PRINCIPAL STOCKHOLDERS

 

The following table sets forth as of the date of this prospectus certain information regarding the beneficial ownership of our common stock.

 

To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them. The following table reflects the principal stockholders of Lazard immediately following this offering. Except as indicated below, the address for each listed stockholder is c/o Lazard Group LLC, 30 Rockefeller Plaza, New York, New York 10020.

 

Name and Address

of Beneficial Owner

   Number of Shares of
Common Stock
Beneficially Owned (a)
   Percentage of Shares of
Common Stock
Beneficially Owned
    

Percentage of

Voting
Power (b)

  

5% Stockholders:

                

LAZ-MD Holdings

                

30 Rockefeller Plaza

New York, New York

10020

   0   —         (e )(f)

IXIS (c)

                

47, Quai d’Austerlitz

75648 Paris Cedex 13

France

                

Directors and named executive officers (d):

                

Bruce Wasserstein

                

Michael J. Castellano

                

Steven J. Golub

                

Scott D. Hoffman

                

Charles G. Ward, III

                

All directors and executive

officers as a group

(         persons) (g)

                

 

(a) The Lazard Group common membership interests issued to LAZ-MD Holdings are exchangeable for shares of common stock on a one-for-one basis, as described under “The Separation and Recapitalization Transactions and the Lazard Organizational Structure—The Separation and Recapitalization Transactions—The Recapitalization of LAZ-MD Holdings and Lazard Group.” As each of these Lazard Group common membership interests is associated with a LAZ-MD Holdings exchangeable interest, LAZ-MD Holdings disclaims beneficial ownership of the shares of common stock into which the Lazard Group common membership interests are exchangeable.

 

(b) The percentage of voting power includes both the voting power of common stock and Class B common stock in the aggregate.

 

(c) The              shares of our common stock that IXIS is expected to acquire as part of the additional financing transactions generally may not be transferred for a period of 545 days from the date of purchase. Excludes                  to                  shares of our common stock underlying the exchangeable debt securities to be issued to IXIS pursuant to the IXIS investment agreement.

 

(d) Excludes                      shares of our common stock that are issuable upon exchange of the LAZ-MD Holdings exchangeable interests held by such person. Messrs. Wasserstein, Castellano, Golub, Hoffman and Ward beneficially own LAZ-MD exchangeable interests that, if they were exchangeable within 60 days of the date of the closing of this offering, would be effectively exchangeable for           ,           ,           ,            and            shares of our common stock, respectively.

 

(e) LAZ-MD Holdings holds the single outstanding share of Class B common stock, which immediately following this offering and the additional financing transactions will represent             % of the voting power of all shares of our voting stock (or approximately             % of the voting power if the underwriters’ over-allotment is fully exercised).

 

(f) The single share of Class B common stock held by LAZ-MD Holdings generally will entitle our working members to one vote per share of each LAZ-MD exchangeable interest on a pass-through basis as a result of, and subject to the terms of, the LAZ-MD Holdings stockholders’ agreement. See “The Separation and Recapitalization Transactions and the Lazard Organizational Structure—The Separation and Recapitalization Transactions—Exchange of Working Member Interests for LAZ-MD Holdings Interests” and “Description of Capital Stock.”

 

(g) Excludes                      shares of our common stock that are issuable upon exchange of the LAZ-MD Holdings exchangeable interests held by such persons.

 

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Relationship with LAZ-MD Holdings and LFCM Holdings

 

Immediately following the completion of the separation and recapitalization transactions, LAZ-MD Holdings will control our company. LAZ-MD Holdings will own approximately             % of the voting power of all shares of our voting stock (or approximately             % of the voting power if the underwriters’ over-allotment option is fully exercised) and will thereby be able to control the election of our directors. LAZ-MD Holdings’ voting power in our company is intended to mirror its economic interest in Lazard Group, and its voting power will decrease over time in connection with the exchange of the LAZ-MD Holdings exchangeable interests for shares of our common stock. The working members, including our managing directors who hold working member interests at the time of the separation, will own LAZ-MD Holdings and will, through the LAZ-MD Holdings stockholders’ agreement, have the right to cause LAZ-MD Holdings to vote its Class B common stock on an as-if-exchanged basis. In addition, LFCM Holdings, which is the entity that will own and operate the separated businesses, will no longer be a subsidiary of either Lazard Group or LAZ-MD Holdings. It will be owned by the working members, including our managing directors who will be members of LAZ-MD Holdings. See “Risk Factors—Risks Related to the Separation—Lazard will be controlled by LAZ-MD Holdings and, through the LAZ-MD stockholders’ agreement, by the working members, whose interests may differ from those of other stockholders,” and “The Separation and Recapitalization Transactions and the Lazard Organizational Structure.”

 

We intend to enter into several agreements with LAZ-MD Holdings and LFCM Holdings to effect the separation and recapitalization transactions and to define and regulate the relationships of the parties after the closing of those transactions. Except as described in this section, we do not expect to have any material arrangements with LAZ-MD Holdings and LFCM Holdings after the completion of the separation and recapitalization transactions other than ordinary course business relationships on arm’s length terms.

 

Agreements with LAZ-MD Holdings and LFCM Holdings

 

We have provided below summary descriptions of the master separation agreement and the other key related agreements we will enter into with LAZ-MD Holdings and LFCM Holdings prior to the closing of this offering. These agreements effect the separation and recapitalization transactions and also provide a framework for our ongoing relationship with LAZ-MD Holdings and LFCM Holdings. These agreements include:

 

  Ÿ   the master separation agreement,

 

  Ÿ   the employee benefits agreement,

 

  Ÿ   the insurance matters agreement,

 

  Ÿ   the license agreement,

 

  Ÿ   the administrative services agreement,

 

  Ÿ   the business alliance agreement, and

 

  Ÿ   the tax receivable agreement.

 

The descriptions set forth below, which summarize the material terms of these agreements, are not complete. You should read the full text of these agreements, which will be filed with the SEC as exhibits to the registration statement of which this prospectus is a part. See “Where You Can Find More Information.”

 

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Master Separation Agreement

 

We will enter into a master separation agreement with Lazard Group, LAZ-MD Holdings and LFCM Holdings. The master separation agreement will contain key provisions relating to the separation and recapitalization transactions, including this offering, and the relationship among the parties after completion of this offering. The master separation agreement will identify the assets, liabilities and businesses of Lazard Group that will be included in the separated businesses being transferred to LFCM Holdings and describe when and how the separation will occur. It also will contain the conditions that must be satisfied, or waived by Lazard Group, prior to completion of the separation and recapitalization, including this offering. In addition, the master separation agreement will regulate aspects of the relationship among the parties after this offering, including the exchange mechanics of the LAZ-MD Holdings exchangeable interests. We will execute the master separation agreement and ancillary agreements before the closing of this offering.

 

The Separation and Recapitalization Transactions

 

The Separation.    The master separation agreement will provide that, prior to the closing of this offering and subject to satisfaction of the conditions described below, Lazard Group will complete the separation by:

 

  Ÿ   forming LAZ-MD Holdings as the holding company of Lazard Group pursuant to the historical partner transaction agreement,

 

  Ÿ   transferring the separated businesses to LFCM Holdings, which will have members’ equity of $             million, and

 

  Ÿ   distributing all of the interests in LFCM Holdings to LAZ-MD Holdings.

 

Immediately after completion of the separation,

 

  Ÿ   all of the members of Lazard Group immediately prior to the separation will be members of LAZ-MD Holdings and hold interests in LAZ-MD Holdings, including, in the case of the working members, the LAZ-MD Holdings exchangeable interests,

 

  Ÿ   Lazard Group will be a wholly-owned subsidiary of LAZ-MD Holdings, and

 

  Ÿ   LFCM Holdings will be a wholly-owned subsidiary of LAZ-MD Holdings.

 

Pursuant to the master separation agreement, the parties will cooperate to effect any transfers of the assets, liabilities or businesses included in the separated businesses but not completed on the closing date of the separation due to any approval or consent issues as promptly following that date as is practicable. Until these transfers can be completed, the party retaining any such assets, liabilities or businesses will act as a custodian and trustee on behalf of LFCM Holdings with respect to those assets, liabilities or businesses. In an effort to place each party, insofar as reasonably possible, in the same position as that party would have been had the contributions or assumptions occurred at the time contemplated by the master separation agreement, the master separation agreement will provide that the benefits derived or expenses or liabilities incurred from those assets, liabilities or businesses will be passed on to LFCM Holdings as if the transfers had occurred as contemplated. In addition, we will retain and manage on behalf of LFCM Holdings selected assets relating to the LFCM Holdings business which we have determined are not capable of being transferred. The master separation agreement will also contain provisions regarding LFCM Holdings’ funding obligations with respect to our U.K. pension plan.

 

It is our intention that, immediately after the separation, LFCM Holdings will have $         million of members’ equity. After the separation, Lazard Group will prepare a balance sheet setting forth the members’ equity of LFCM Holdings as of the separation. If that amount of members’ equity exceeds

 

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the target of $         million of members’ equity, LFCM Holdings will pay to Lazard Group an amount of cash equal to the excess, and if that amount is less than the target, Lazard Group will pay to LFCM Holdings an amount of cash equal to the shortfall.

 

The master separation agreement provides for an adjustment after separation based on the actual amount of members’ equity of LFCM Holdings as of separation. If the actual amount of members’ equity of LFCM Holdings turns out to be greater than the target members’ equity of $          million, LFCM Holdings will pay an amount of cash to Lazard Group equal to the difference. If the actual amount of members’ equity of LFCM Holdings turns out to be less than the target members’ equity of $          million, Lazard Group will pay an amount of cash to LFCM Holdings equal to the difference. The master separation agreement will provide that Lazard Group will license or sublease to LFCM Holdings certain office space, including office space that is used by the separated businesses. This will include subleasing or licensing approximately                      square feet of excess space under the lease in London located at 50 Stratton Street to LFCM Holdings, which LFCM Holdings expects to further sublease to third parties. LFCM Holdings will pay to Lazard Group the lease costs of up to a maximum of $                     in the aggregate under these sublease arrangements.

 

The Recapitalization.    The master separation agreement will provide that, subject to satisfaction of the conditions described below, the parties will complete the recapitalization by:

 

  Ÿ   closing this offering and the additional financing transactions,

 

  Ÿ   causing Lazard Ltd to purchase Lazard Group common membership interests with the net proceeds of this offering,

 

  Ÿ   redeeming historical partner interests and redeemable preferred stock held by the historical partners pursuant to the historical partner transaction agreement, and

 

  Ÿ   having LAZ-MD Holdings distribute all of the interests in LFCM Holdings to its members.

 

Pursuant to the master separation agreement, the redemption of the historical partners’ interests will occur in two steps. LAZ-MD Holdings will redeem the two classes of LAZ-MD Holdings interests held by the historical partners for interests in Lazard Group, and Lazard Group will immediately thereafter redeem those Lazard Group interests for the cash redemption payment or other consideration as provided in the historical partner transaction agreement or for shares of our common stock as described in “The Separation and Recapitalization Transactions and The Lazard Organizational Structure—The Separation and Recapitalization Transactions—The Recapitalization of LAZ-MD Holdings and Lazard Group.

 

Immediately after completion of the recapitalization, including the closing of this offering and the additional financing transactions,

 

  Ÿ   LAZ-MD Holdings will hold           % of the Lazard Group common membership interests (or           % if the underwriters’ over-allotment option is exercised in full),

 

  Ÿ   Lazard Ltd will indirectly hold           % of the Lazard Group common membership interests (or           % if the underwriters’ over-allotment option is exercised in full),

 

  Ÿ   LAZ-MD Holdings will hold our Class B common stock, which will entitle it to           % of the voting power of, and no economic rights in, Lazard (or           % of the voting power if the underwriters’ over-allotment option is exercised in full), and

 

  Ÿ   the working members will be the sole members of each of LAZ-MD Holdings and LFCM Holdings.

 

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The master separation agreement provides that the separation and recapitalization transactions will be completed on the closing date of this offering.

 

Conditions to the Separation and Recapitalization Transactions

 

The master separation agreement will provide that the separation and recapitalization transactions, including the closing of this offering, are subject to several conditions that must be satisfied, or waived by Lazard Group, including:

 

  Ÿ   each of the conditions to the separation set forth in the historical partner transaction agreement shall have been satisfied or waived in accordance with the historical partner transaction agreement, and the historical partner transaction agreement shall not have been terminated and shall be in full force and effect,

 

  Ÿ   the board of directors of Lazard Group shall have given final approval of the separation and the recapitalization transactions, which approval the board of directors may give in its sole and absolute discretion,

 

  Ÿ   the SEC shall have declared effective the registration statements relating to this offering and the ESU offering, and no stop order shall be in effect with respect to those registration statements,

 

  Ÿ   the actions and filings necessary or appropriate with state securities and blue sky laws and any comparable foreign laws shall have been taken and where applicable become effective or been accepted,

 

  Ÿ   the NYSE shall have accepted for listing the shares of our common stock to be issued in this offering,

 

  Ÿ   no order by any court or other legal restraint preventing completion of any of the separation or recapitalization transactions shall be in effect,

 

  Ÿ   all third-party consents and governmental approvals required in connection with the separation and recapitalization transactions shall have been received, and

 

  Ÿ   neither the master separation agreement nor the historical partner transaction agreement shall have been terminated and shall be in full force and effect.

 

Relationship among Lazard Ltd, Lazard Group, LAZ-MD Holdings and LFCM Holdings

 

The master separation agreement will contain various provisions governing the relationship among Lazard Ltd, Lazard Group, LAZ-MD Holdings and LFCM Holdings after the completion of the separation and recapitalization transactions, including with respect to the following matters.

 

Limitation on Scope of LAZ-MD Holdings’ Operations.    The master separation agreement will provide that LAZ-MD Holdings will not engage in any business other than to act as the holding company for the working members’ interests in Lazard Group and our Class B common stock and actions incidental thereto, except as otherwise agreed by Lazard.

 

Parity of Lazard Group Common Membership Interests and Our Common Stock. The master separation agreement will also set forth the intention of Lazard Group and Lazard Ltd that the number of Lazard Group common membership interests held by Lazard Ltd (or its subsidiaries) will at all times be equal in number to the number of outstanding shares of our common stock, subject to customary anti-dilution adjustments.

 

Lazard Ltd Expenses. The master separation agreement will also set forth the intention of Lazard Group to reimburse Lazard Ltd for its costs and expenses incurred in the ordinary course of business.

 

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LAZ-MD Holdings Exchangeable Interests

 

Terms of Exchange.    The master separation agreement will set forth the terms and arrangements with respect to the LAZ-MD Holdings exchangeable interests. See “Management—Arrangements with Our Managing Directors—The Retention Agreements —LAZ-MD Holdings Exchangeable Interests.”

 

Accelerated Exchange.    The master separation agreement will provide that each of LAZ-MD Holdings and our subsidiaries that directly hold our Lazard Group common interests, upon the approval of our board of directors, will have the power to accelerate the exchange of LAZ-MD Holdings exchangeable interests for our common shares. Any such accelerated exchange must be offered to all holders of LAZ-MD Holdings exchangeable interests who are managing directors of our company or LFCM Holdings (or to their trusts, estate planning entities to which any such managing director has transferred his or her LAZ-MD Holdings exchangeable interests as described below) at the time of the exchange. Each of LAZ-MD Holdings and our subsidiaries that directly hold our Lazard Group common interests, upon the approval of our board of directors, will be entitled to permit the acceleration of exchangeability of LAZ-MD Holdings exchangeable interests in other circumstances. In addition, the exchangeability of the LAZ-MD Holdings exchangeable interests will be accelerated in connection with a change in control of Lazard Ltd, as defined in our 2005 equity incentive plan, unless otherwise determined by our board of directors.

 

Transfers of LAZ-MD Holdings Exchangeable Interests.    Lazard Group will be empowered to authorize transfers of LAZ-MD Holdings exchangeable interests to trusts or similar entities for estate planning or charitable purposes, which transfers will otherwise generally be prohibited by the terms of the LAZ-MD Holdings exchangeable interests in the absence of such authorization. In addition, Lazard Group will be entitled to permit the transfer of LAZ-MD Holdings exchangeable interests to other holders of LAZ-MD Holdings exchangeable interests or pursuant to a repurchase of LAZ-MD Holdings exchangeable interests.

 

Indemnification

 

In general, under the master separation agreement, Lazard Group will indemnify LFCM Holdings, LAZ-MD Holdings and their respective representatives and affiliates for any and all losses (including tax losses) that such persons incur to the extent arising out of or relating to our business (both historically and in the future) and any and all losses that LFCM Holdings, LAZ-MD Holdings and their respective representatives and affiliates incur arising out of or relating to Lazard Group’s or Lazard’s breach of the master separation agreement.

 

In general, LFCM Holdings will indemnify Lazard Ltd, Lazard Group, LAZ-MD Holdings and their respective representatives and affiliates for any and all losses (including tax losses) that such persons incur arising out of or relating to the separated businesses and the businesses conducted by LFCM Holdings (both historically and in the future) and any and all losses that Lazard Ltd, Lazard Group, LAZ-MD Holdings and their respective representatives or affiliates incur arising out of or relating to LFCM Holdings’ breach of the master separation agreement.

 

In general, under the master separation agreement, LAZ-MD Holdings will indemnify Lazard, Lazard Group, LFCM Holdings and their respective representatives and affiliates for any and all losses that such persons incur to the extent arising out of or relating to LAZ-MD Holdings’ breach of the master separation agreement.

 

All indemnification amounts would be reduced by any insurance proceeds and other offsetting amounts recovered by the indemnitee. The master separation agreement will specify procedures with respect to claims subject to indemnification and related matters.

 

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Access to Information

 

Under the master separation agreement, the following terms govern access to information:

 

  Ÿ   before and after the closing date of the separation, subject to applicable confidentiality provisions and other restrictions, the parties will each give the other any information within that company’s possession that the requesting party reasonably needs (i) to comply with requirements imposed on the requesting party by a governmental or regulatory authority, (ii) for use in any proceeding or to satisfy audit, accounting, tax or similar requirements, or (iii) to comply with its obligations under the master separation agreement or the ancillary agreements,

 

  Ÿ   after the closing date of the separation and recapitalization transactions, LAZ-MD Holdings and LFCM Holdings will provide to Lazard and Lazard Group, at no charge, all financial and other data and information that Lazard or Lazard Group determines is necessary or advisable in order to prepare its financial statements and reports or filings with any governmental or regulatory authority,

 

  Ÿ   after the closing date of the separation and recapitalization transactions, the parties will each use reasonable best efforts to provide assistance to the other parties for litigation and to make available to the other parties, their directors, officers, other employees and agents as witnesses, in legal, administrative or other proceedings, and will cooperate and consult to the extent reasonably necessary with respect to any litigation,

 

  Ÿ   the company providing information, consultant or witness services under the master separation agreement will be entitled to reimbursement from the other for reasonable expenses,

 

  Ÿ   the parties will each retain all proprietary information in its possession relating to each other’s businesses for a period of time, and, if the information is to be destroyed, the destroying company will give the applicable other company the opportunity to receive the information, and

 

  Ÿ   from and after the closing date of the separation and recapitalization transactions, the parties will agree to hold in strict confidence all information concerning or belonging to any other party obtained prior to the closing date of the separation and recapitalization transactions or furnished pursuant to the master separation agreement or any ancillary agreement, subject to applicable law.

 

No Representations and Warranties

 

Pursuant to the master separation agreement, LAZ-MD Holdings and LFCM Holdings will acknowledge and agree that neither Lazard nor Lazard Group is representing or warranting to LAZ-MD Holdings or LFCM Holdings as to the separated businesses, the assets, liabilities and businesses included therein or the historical operations of those businesses, assets and liabilities. LAZ-MD Holdings and LFCM Holdings will take all such businesses and assets “as is, where is” and bear the economic and legal risk relating to conveyance of, and title to, those assets and businesses.

 

Termination

 

The master separation agreement may be terminated at any time prior to the closing of this offering by Lazard Group.

 

Expenses

 

In general, LAZ-MD Holdings and LFCM Holdings, on the one hand, and Lazard and Lazard Group, on the other hand, are responsible for their own costs incurred in connection with the transactions contemplated by the master separation agreement.

 

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Lazard Group intends to reimburse Lazard for all of its ordinary course expenses incurred in connection with the separation and recapitalization transactions and thereafter, including expenses incurred in operating as a public company.

 

Employee Benefits Agreement

 

We will enter into an employee benefits agreement with LAZ-MD Holdings and LFCM Holdings that will govern our compensation and employee benefit obligations with respect to our active and former employees.

 

Insurance Matters Agreement

 

The separated businesses are currently insured under insurance policies held within Lazard Group, which policies provide coverage to Lazard Group and its subsidiaries and affiliates for property and casualty, errors and omissions, directors and officers and certain other risks commonly insured by financial services companies. Following the separation, we intend to surrender a portion of these policies and replace them with new policies that separately cover our business and the separated businesses, respectively, or to vary or retain all or a portion of these policies which will be governed to the extent necessary by the insurance matters agreement.

 

Prior to the separation, LFCM Holdings and we intend to enter into an insurance matters agreement. Under the agreement, our former insurance policies and those insurance policies currently in effect generally will continue to provide coverage to Lazard Ltd and Lazard Group and their respective subsidiaries and will generally provide coverage to LFCM Holdings and its subsidiaries only for pre-separation occurrences. After the separation, Lazard Ltd and Lazard Group and their respective subsidiaries and LFCM Holdings and its subsidiaries will separately make their own insurance arrangements.

 

The insurance matters agreement includes provisions establishing the manner in which LFCM Holdings and we will cooperate with each other in seeking insurance for our respective liabilities under policies that provide coverage to both companies. The insurance matters agreement also includes provisions concerning the allocation between LFCM Holdings and us of insurance recoveries in excess of available limits of liability. In addition, with respect to the type of coverage required as a matter of law, LFCM will obtain separate replacement policies that provide for coverage commencing with the separation date. With respect to any additional insurance policies that other similar businesses obtain in the ordinary course of business, LFCM Holdings will use commercially reasonable efforts to obtain separate policies that provide for such coverage after the separation.

 

Lazard License Agreement

 

The logo, trademarks, trade names and service marks of Lazard are currently property of various wholly-owned subsidiaries of Lazard Group. Pursuant to the master separation agreement, Lazard Group and those subsidiaries will enter into a license agreement with LFCM Holdings that will govern the use of the Lazard and LF names by LFCM Holdings in connection with the separated businesses.

 

In general, LFCM Holdings will be permitted to use the Lazard name to the extent that the Lazard name is being used at the time of this offering by the separated businesses and will be permitted to use the LF name solely for the use of the name LFCM Holdings LLC in its capacity as a holding company for the separated businesses. LFCM Holdings’ license will not extend to any new research covered by the capital markets business or to any new funds (including any successor funds to funds existing at the time of this offering) established or otherwise obtained by the merchant banking business after this offering, unless LFCM Holdings receives Lazard Group’s prior consent. Under the agreement, LFCM Holdings will pay $100,000 per year for the right to license the Lazard name. The

 

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license will survive with respect to capital markets activities until the expiration or termination of the business alliance provided for in the business alliance agreement that LFCM Holdings will enter with Lazard Group. With respect to merchant banking activities, LFCM Holdings’ license will survive until the earlier of the expiration, termination or closing of the options to purchase the North American and European merchant banking businesses, to be granted in the business alliance agreement, as described in “—Business Alliance Agreement” or until the business alliance agreement is terminated. The license for the LF name in LFCM Holdings LLC may be terminated by either party for any reason after the license with respect to the capital markets business and the license for the merchant banking activities have both expired or been terminated. Upon termination of either the license with respect to the capital markets business or the license for the merchant banking activities, the license fee for the calendar year following the termination will be $75,000 per year. If both of those licenses are terminated, the license fee for the calendar year following the termination will be $25,000 per year.

 

Administrative Services Agreement

 

We intend to enter into an administrative services agreement with LAZ-MD Holdings and LFCM Holdings regarding administrative and support services to be provided after the completion of the separation and recapitalization transactions.

 

Pursuant to the administrative services agreement, Lazard Group will provide selected administrative and support services to LAZ-MD Holdings and LFCM Holdings, such as:

 

  Ÿ   cash management and debt service administration,

 

  Ÿ   accounting and financing activities,

 

  Ÿ   tax,

 

  Ÿ   payroll,

 

  Ÿ   human resources administration,

 

  Ÿ   financial transaction support,

 

  Ÿ   information technology,

 

  Ÿ   public communications,

 

  Ÿ   data processing,

 

  Ÿ   procurement,

 

  Ÿ   real estate management, and

 

  Ÿ   other general administrative functions.

 

Lazard Group intends to charge for the above services based on Lazard Group’s cost allocation methodology. Notwithstanding Lazard Group’s providing data processing services, Lazard Group will not provide any security administration services, as such services are being transferred to LFCM Holdings.

 

Pursuant to the administrative services agreement, Lazard Group also will be providing tax services to LAZ-MD Holdings and LFCM Holdings will provide securities administrative services to Lazard Group.

 

The services provided by Lazard Group to LFCM Holdings, and by LFCM Holdings to Lazard Group, under the administrative services agreement generally will be provided until December 31, 2008. LFCM Holdings and Lazard Group have a right to terminate the services earlier if there is a change of control of either party or the business alliance provided in the business alliance agreement expires or is terminated. The services provided by Lazard Group to LAZ-MD Holdings will generally be provided until December 31, 2014, unless terminated earlier because of a change of control of either party.

 

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In the absence of willful misconduct, the party receiving services under the administrative services agreement will waive any rights and claims they may have against the service provider in respect of any services provided under the administrative services agreement.

 

Business Alliance Agreement

 

Lazard Group and LFCM Holdings intend to enter into a business alliance agreement that will provide for the continuation of Lazard Group’s and LFCM Holdings’ business relationships in the areas and on the terms summarized below.

 

The business alliance agreement will provide that Lazard Group will refer to LFCM Holdings selected opportunities for underwriting and distribution of securities. In addition, Lazard Group will provide assistance in the execution of any such referred business. In exchange for this referral obligation and assistance, Lazard Group will be entitled to a referral fee. In addition, LFCM Holdings will refer opportunities in the Financial Advisory and Asset Management businesses to Lazard Group. The term of the business alliance will expire on the fifth anniversary of this offering, subject to periodic automatic renewal, unless either party elects to terminate in connection with any such renewal or elects to terminate on account of a change of control of either party.

 

In addition, the business alliance agreement further provides that, during the term of the business alliance, Lazard Frères & Co. LLC and LAM Securities will introduce execution and settlement transactions to newly-formed broker-dealer entities affiliated with LFCM Holdings.

 

In addition, the business alliance agreement to be entered into between Lazard Group and LFCM Holdings will grant Lazard Group options to acquire the North American and European merchant banking activities of Lazard Alternative Investments Holdings LLC, or “LAI,” the subsidiary of LFCM Holdings that will own and operate all of LFCM Holdings’ merchant banking activities, exercisable at any time prior to the ninth anniversary of the consummation of this offering for a total price of $10 million. The option may be exercised by Lazard Group in two parts, consisting of an $8 million option to purchase the North American merchant banking activities and a $2 million option to purchase the European merchant banking activities. LAI’s merchant banking activities initially will consist of the merchant banking management and general partner entities that were transferred to LFCM Holdings pursuant to or in anticipation of the separation. The business alliance agreement will provide that, prior to the expiration, termination or exercise of the options, Lazard Group will have certain governance rights with respect to LAI and LFCM Holdings and will be required to support the business of LAI. In addition, Lazard Group will abide by existing obligations with respect to funds existing as of the date of this offering, and, other than with respect to the merchant banking operations retained by Lazard Group in the separation, Lazard Group will agree not to compete with the merchant banking business of LAI until the expiration, termination or exercise of the options. Lazard Group also may agree to new capital commitments and other obligations with respect to newly formed funds in its sole discretion. Lazard Group will be entitled to receive the carried interest with respect to newly established LAI funds, such as Corporate Partners II Limited, less the share of the carry distributed to managers of such funds.

 

Pursuant to the business alliance agreement, LFCM Holdings will agree not to compete with any existing Lazard Group businesses until the latest to occur of the termination of the license agreement, the expiration, termination or exercise of the options to purchase the North American merchant banking activities and the European merchant banking activities or the expiration or termination of the business alliance.

 

Tax Receivable Agreement

 

As described in “The Separation and Recapitalization Transactions and the Lazard Organizational Structure—The Separation and Recapitalization Transactions—The Recapitalization of LAZ-MD Holdings and Lazard Group—The Redemption of the Historical Partners’ Interests,” prior to

 

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and in connection with this offering, historical partner interests and preferred interests generally will be redeemed for cash. In addition, as described in “Certain Relationships and Related Transactions—Relationship with LAZ-MD Holdings and LFCM Holdings—Master Separation Agreement—LAZ-MD Holdings Exchangeable Interests,” LAZ-MD Holdings exchangeable interests may, in effect, be exchanged in the future for shares of our common stock. The redemption will, and the exchanges may, result in increases in the tax basis of the tangible and intangible assets of Lazard Group attributable to our subsidiaries’ interest in Lazard Group that otherwise would not have been available, although the IRS may challenge all or part of that tax basis increase, and a court could sustain such a challenge by the IRS. These increases in tax basis, if sustained, may reduce the amount of tax that our subsidiaries would otherwise be required to pay in the future.

 

Our subsidiaries intend to enter into a tax receivable agreement with LAZ-MD Holdings that will provide for the payment by our subsidiaries to LAZ-MD Holdings of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize as a result of these increases in tax basis and of certain other tax benefits related to our entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. Our subsidiaries expect to benefit from the remaining 15% of cash savings, if any, in income tax that our subsidiaries realize. Any amount paid by our subsidiaries to LAZ-MD Holdings will generally be distributed to the working members in proportion to their goodwill interests underlying the working member interests held by or allocated to such persons immediately prior to the formation of the new holding company pursuant to the separation.

 

In order to mitigate the risk to us of an IRS challenge to the tax basis increase, 20% of each payment that would otherwise be made by our subsidiaries will be deposited into an escrow account until the expiration of the statute of limitations for the tax year to which the payment relates. In addition, if the IRS successfully challenges the tax basis increase, any subsequent payments our subsidiaries are required to make under the tax receivable agreement will be reduced accordingly. However, under no circumstances will our subsidiaries receive any reimbursements from LAZ-MD Holdings or any of the holders of LAZ-MD Holdings of amounts previously paid by our subsidiaries under the tax receivable agreement. As a result, under certain circumstances, our subsidiaries could make payments to LAZ-MD Holdings under the tax receivable agreement in excess of our subsidiaries’ cash tax savings.

 

For purposes of the tax receivable agreement, cash savings in income and franchise tax will be computed by comparing our subsidiaries’ actual income and franchise tax liability to the amount of such taxes that our subsidiaries would have been required to pay had there been no increase in the tax basis of the tangible and intangible assets of Lazard Group attributable to our subsidiaries’ interest in Lazard Group as a result of the redemption and exchanges and had our subsidiaries not entered into the tax receivable agreement. The term of the tax receivable agreement will commence upon consummation of this offering and will continue until all such tax benefits have been utilized or expired, unless our subsidiaries exercise their right to terminate the tax receivable agreement for an amount based on an agreed value of payments remaining to be made under the agreement.

 

While the actual amount and timing of any payments under this agreement will vary depending upon a number of factors, including the timing of exchanges, the extent to which such exchanges are taxable and the amount and timing of our subsidiaries’ income, we expect that, as a result of the size of the increases of the tangible and intangible assets of Lazard Group attributable to our subsidiaries’ interest in Lazard Group, during the expected 24-year term of the tax receivable agreement, the payments that our subsidiaries may make to LAZ-MD Holdings could be substantial. If the LAZ-MD Holdings exchangeable interests had been effectively exchanged in a taxable transaction for common stock at the time of the closing of this offering, the increase in the tax basis attributable to our subsidiaries’ interest in Lazard Group would have been approximately $             million, assuming an initial offering price of $             per share of common stock (the midpoint of the range of initial public

 

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offering prices set forth on the cover of this prospectus), including the increase in tax basis associated with the redemption and recapitalization. The cash savings that our subsidiaries would actually realize as a result of this increase in tax basis likely would be less than this amount multiplied by our effective tax rate due to a number of factors, including the allocation of the increase in tax basis to foreign assets, the impact of the increase in the tax basis on our ability to use foreign tax credits and the rules relating to the amortization of intangible assets. The tax receivable agreement will require approximately 85% of such cash savings, if any, to be paid to LAZ-MD. The actual increase in tax basis will depend, among other factors, upon the price of shares of our common stock at the time of the exchange and the extent to which such exchanges are taxable and, as a result, could differ materially from this amount. Our ability to achieve benefits from any such increase, and the payments to be made under this agreement, will depend upon a number of factors, as discussed above, including the timing and amount of our future income.

 

LAZ-MD Holdings Stockholders’ Agreement

 

We expect that the members of LAZ-MD Holdings, consisting of the working members, including our managing directors, will enter into a stockholders’ agreement with LAZ-MD Holdings and Lazard in connection with the separation that addresses, among other things, LAZ-MD Holdings’ voting of its share of Class B common stock and registration rights in favor of the stockholders who are party to the agreement.

 

The LAZ-MD Holdings stockholders’ agreement will continue in effect until all LAZ-MD Holdings exchangeable interests have been exchanged for shares of our common stock, and individual members of LAZ-MD Holdings will cease being party to the LAZ-MD Holdings stockholders’ agreement upon full exchange of his or her LAZ-MD Holdings exchangeable interests and underlying Lazard interests for our common stock. The LAZ-MD Holdings stockholders’ agreement may be terminated on an earlier date by LAZ-MD Holdings members entitled to vote at least 66 2/3% of the aggregate voting power represented by the LAZ-MD Holdings members who are party to the LAZ-MD Holdings stockholders’ agreement. The LAZ-MD Holdings stockholders’ agreement generally may be amended at any time by a majority of the aggregate voting power represented by LAZ-MD Holdings members who are party to the LAZ-MD Holdings stockholders’ agreement.

 

Voting Rights

 

Prior to any vote of the stockholders of Lazard, the LAZ-MD Holdings stockholders’ agreement requires a separate, preliminary vote of the members of LAZ-MD Holdings who are party to the LAZ-MD Holdings stockholders’ agreement (either by a meeting or by proxy or written instruction of the members of LAZ-MD Holdings) on each matter upon which a vote of the stockholders is proposed to be taken. Every working member will be offered the opportunity to become a party to the LAZ-MD Holdings stockholders’ agreement. Pursuant to the LAZ-MD Holdings stockholders’ agreement, the members of LAZ-MD Holdings will individually be entitled to direct LAZ-MD Holdings how to vote their proportionate interest in our Class B common stock on an as-if-exchanged basis. For example, if a working member’s LAZ-MD Holdings exchangeable interests were exchangeable for 1,000 shares of our common stock, that working member would be able to instruct LAZ-MD Holdings how to vote 1,000 of the votes represented by the Class B common stock. However, the LAZ-MD Holdings board of directors will have the ability to vote the voting interest represented by the Class B common stock in its discretion if the LAZ-MD Holdings board determines that it is in the best interest of LAZ-MD Holdings.

 

The votes under the Class B common stock that are associated with any working member who does not sign the LAZ-MD Holdings stockholders’ agreement, or with any working member who signs but does not direct LAZ-MD Holdings how to vote on a particular matter, will be abstained from voting. The terms of the LAZ-MD Holdings stockholders’ agreement will continue to apply to any working

 

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member party to the LAZ-MD Holdings stockholders’ agreement who receives Lazard Group common membership interests upon exchange of his or her LAZ-MD Holdings exchangeable interest, until such time as that working member exchanges his or her Lazard Group common membership interests for shares of our common stock.

 

Registration Rights

 

The LAZ-MD Holdings stockholders’ agreement will provide that the holders of shares of our common stock issued or to be issued upon exchange of the LAZ-MD Holdings exchangeable interests or the Lazard Group common membership interests initially held by LAZ-MD Holdings will be granted registration rights. These shares we refer to as “registrable securities,” and the holders of these registrable securities we refer to as “holders.” The holders will be third-party beneficiaries for that purpose under the LAZ-MD Holdings stockholders’ agreement, meaning that they will have the right to compel us to honor those obligations under the LAZ-MD Holdings stockholders’ agreement.

 

The LAZ-MD Holdings stockholders’ agreement will provide that, after exchange for shares of our common stock, each holder is entitled to unlimited “piggyback” registration rights, meaning that each holder can include his or her registrable securities in registration statements filed by us, subject to certain limitations. Holders also have “demand” registration rights, meaning that, subject to certain limitations, after exchange for shares of our common stock, they may require us to register the registrable securities held by them, provided that the amount of registrable securities subject to such demand has a market value in excess of $50 million or, on and after six months after the nine-year anniversary of this offering, $20 million. We will pay the costs associated with all such registrations. Moreover, we also will use our reasonable best efforts to file and make effective a registration statement on the third through the ninth anniversaries of this offering, in order to register registrable securities that were issued on those anniversaries or otherwise subject to continuing volume or transfer restrictions under Rule 144 upon the exchange of the LAZ-MD Holdings exchangeable interests and the Lazard Group common membership interests, provided that the amount of registrable securities subject to such registration constitutes at least             % of the shares of our outstanding common stock on the date of such demand.

 

Shares of our common stock will cease to be registrable securities upon the consummation of any sale of such shares pursuant to an effective registration statement or under Rule 144 under the Securities Act or when they become eligible for sale under Rule 144(k) under the Securities Act. However, any holder who has shares that would have been registrable securities but for their eligibility for sale under Rule 144(k) and who holds, in the aggregate, an amount of registrable securities with a market value in excess of $25 million of our outstanding common stock will be entitled to continued demand and piggyback registration rights as described above.

 

Immediately following this offering,              shares of our common stock to be issued upon exchange of the LAZ-MD Holdings exchangeable interests and the Lazard Group common membership interests will have the foregoing registration rights.

 

The Historical Partners Transaction Agreement

 

The redemption of the historical partners’ interests is governed by the Class B-1 and Class C Members Transaction Agreement, entered into on December 16, 2004, by LAZ-MD Holdings, Lazard Group, Lazard Ltd and our historical partners who are parties thereto. We refer to this document as the “historical partners transaction agreement.” Pursuant to the historical partners transaction agreement, the historical interests will be redeemed for an aggregate price of $1.6 billion, in cash, except that a portion of the consideration payable to Eurazeo S.A. may be delivered in the form of Eurazeo S.A. common shares currently held by us.

 

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Completion of the redemption is subject to customary conditions, including receipt of regulatory approvals, legal and other opinions and financing, as well as Lazard Group board approval. The redemption may be completed at any time of our choosing on or before December 31, 2005, but must be completed on the same day that this offering and the additional financing transactions are to close. The historical partners transaction agreement contemplates a specific plan of financing that includes this offering and the additional financing transactions, but allows us to change the financing structure so long as the new structure does not have an adverse effect on the historical partners whose interests are being redeemed.

 

In the event that the redemption has not been completed on or before June 30, 2005, accrued interest on the capital accounts in respect of historical partner interests for calendar year 2004 will be paid in cash on June 30, 2005, and Lazard Group shall receive a credit against the applicable redemption price for the cash so paid. In addition, in the event that the redemption has not been completed on or before June 30, 2005, the redemption price to be paid in respect of historical partner interests will be increased by an amount equal to the interest rate, if any, ordinarily applicable to the capital in respect of historical partner interests being redeemed for the period from July 1, 2005 to the completion date for the redemption.

 

The historical partners transaction agreement contains a number of additional important agreements, including:

 

  Ÿ   The signing historical partners have agreed, for a period of 12 months after the closing of the redemption, not to hire or solicit any employees or officers of Lazard Group to leave such employment, and we have agreed to similar reciprocal provisions regarding the historical partners.

 

  Ÿ   For a period of 2 years after the closing of the redemption, the signing historical partners other than Eurazeo S.A. have agreed not to engage on such historical partner’s own behalf in a competitive enterprise and not to own any interest in or engage in or perform any service for any competitive enterprise, either as a partner, owner, employee, consultant, agent, officer, director, stockholder or otherwise, subject to certain exceptions. This restriction will apply to Mr. David-Weill for so long as he continues to maintain office space at Lazard Group, which he will do at least until March 31, 2007.

 

  Ÿ   The signing historical partners have agreed, for so long as the historical partners transaction agreement is in effect, not to solicit or encourage any competing transaction, as defined in the historical partners transaction agreement, which includes any transaction that could reasonably be expected to prevent, materially delay, reduce the likelihood of or otherwise materially adversely affect completion of any of the material steps of the recapitalization.

 

  Ÿ   The signing historical partners have agreed to resign, effective as of the closing of the redemption, to end their respective affiliations with Lazard Group and its affiliates, including by resigning from all positions and titles they hold in Lazard Group or any of its affiliates, and to terminate any agreements they may have with Lazard Group or any of its affiliates, in all cases subject to limited exceptions.

 

  Ÿ   The signing historical partners have agreed to release at closing Lazard Group and its affiliates and representatives from any claims arising out of (1) any member of Lazard Group (including its affairs and operations), (2) Lazard Group interests being redeemed, and any associated rights, (3) any and all aspects of the redemption and (4) if applicable, any employment, severance or bonus agreement between such historical partner and any member of Lazard Group, but excluding any such claims or causes of action arising out of any ordinary course business dealings such as provision of money management services by a member of Lazard Group to that historical partner or its affiliates and certain other specified matters. We have granted a similar release to the signing historical partners.

 

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  Ÿ   We have agreed to indemnify the signing historical partners and their affiliates and representatives for any out-of-pocket liabilities incurred in their capacities as directors, employees, executives, partners, stockholders, officers or affiliates of Lazard Group, LAZ-MD Holdings, Lazard Ltd or any of their subsidiaries to the extent such losses arise out of the redemption of this offering, the additional financing transactions or any other financing, and in their capacity as general partner of any predecessor of Lazard Group or any of its affiliates. This indemnification is subject to a number of specified exceptions.

 

  Ÿ   In the event that the transaction has not been completed by December 31, 2005, or has been earlier abandoned by Mr. Wasserstein, Mr. David-Weill and Mr. Wasserstein (and such others as they determine) shall review alternatives for Lazard Group during the ensuing three-month period.

 

The historical partners transaction agreement may be terminated before closing under the following circumstances:

 

  Ÿ   automatically if the redemption has not been completed on or prior to December 31, 2005,

 

  Ÿ   by agreement of us, Lazard Group, Mr. David-Weill and Eurazeo S.A.,

 

  Ÿ   if the transaction has been permanently enjoined by unappealable order of a court or other legal authority,

 

  Ÿ   by either us and Lazard Group, on the one hand, or Mr. David-Weill and Eurazeo S.A., on the other, if Lazard Group delivers written notice of its intention to abandon the transaction, and

 

  Ÿ   by Mr. David-Weill if we had failed to include the disclosure specified in Section 5(n) of the historical partners transaction agreement in this prospectus or if we fail to include it in certain later offering documents, if any, and fail to cure such failing within two business days.

 

Certain Relationships with Our Directors, Executive Officers and Employees

 

Loans and Banking Relationships with Our Directors and Executive Officers

 

During 2004, our broker-dealer subsidiary engaged in transactions with our executive officers and directors in respect of brokerage services, including a brokerage account margin loan to one of our executive officers. All brokerage services in connection with these transactions were made in the ordinary course of business and on substantially the same terms as those prevailing at the time for comparable transactions with independent third parties, and the loan did not involve more than the normal risk of collectability or present other features unfavorable to us.

 

Other than as permitted under the Sarbanes-Oxley Act of 2002 and any other applicable law, we will not enter into new loans with our executive officers or directors or modify or renew any loan with our executive officers or directors.

 

Relationships Involving Employee Directors and Executive Officers

 

Mr. Wasserstein, our Chairman and Chief Executive Officer, serves as the Chairman and is the majority owner of Wasserstein Holdings, LLC, the ultimate general partner of Wasserstein & Co., LP, a separate merchant banking firm in which Lazard does not hold any economic interest. Wasserstein & Co., LP focuses primarily on leveraged buyout investments, venture capital investments and related investment activities, and manages capital on behalf of its institutional and individual investors, including public and corporate pension funds, foreign governmental entities, endowments and foundations and high-net worth individuals. Wasserstein & Co., LP also manages capital from its partners and officers. In addition, Wasserstein Holdings, LLC has various other business interests.

 

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The Wasserstein funds may engage in activities that are similar to those in which we and our affiliates are engaged. If Mr. Wasserstein desires to make available any corporate opportunity of ours or our affiliates that arises from a relationship of ours or any of our affiliates (other than any relationship of Mr. Wasserstein existing on November 15, 2001), those opportunities can only be referred to the Wasserstein funds if Mr. Wasserstein first obtains the written consent of our board of directors.

 

Director and Officer Indemnification

 

Our bye-laws provide for indemnification of our officers and directors against all liabilities, loss, damage or expense incurred or suffered by such party as an officer or director of us, provided that such indemnification shall not extend to any matter which would render it void pursuant to the Companies Act.

 

The Companies Act provides that a Bermuda company may indemnify its directors and officers in respect of any loss arising or liability attaching to them as a result of any negligence, default or breach of trust of which they may be guilty in relation to the company in question. However, the Companies Act also provides that any provision, whether contained in the company’s bye-laws or in a contract or arrangement between the company and the director or officer, indemnifying a director or officer against any liability which would attach to him in respect of his fraud or dishonesty will be void.

 

Our directors and officers are covered by directors’ and officers’ insurance policies maintained by us.

 

Subject to limitations imposed by Bermuda law, we will enter into agreements that provide indemnification to our directors, officers and all other persons requested or authorized by our board of directors to take actions on behalf of us for all losses, damages, costs and expenses incurred by the indemnified person arising out of such person’s service in such capacity. This agreement is in addition to our indemnification obligations under our bye-laws as described under “Description of Capital Stock.”

 

For more information on our indemnification arrangements, see “—Relationship with LAZ-MD Holdings and LFCM Holdings—Master Separation Agreement—Relationship Among Lazard, Lazard Group, LAZ-MD Holdings and LFCM Holdings.”

 

Distributions by Lazard Group

 

After this offering Lazard Group intends to make distributions to LAZ-MD Holdings, and LAZ-MD Holdings intends to make distributions to its members, including certain of our managing directors, officers and          of our directors. See “The Separation and Recapitalization Transactions and the Lazard Organizational Structure—Lazard Ownership Structure After the Separation and Recapitalization Transactions—Distributions by Lazard Group with Respect to Lazard Group Common Membership Interests.”

 

Transactions with Our Working Members

 

From time to time, Lazard Group has reallocated the capital interests of its managing directors. Prior to the closing of this offering, Lazard Group has repurchased and reallocated working member interests from various current and former managing directors at prices lower than those to be paid to the historical partners for their historical partner interests pursuant to the historical partners transaction agreement. In connection with this offering, Lazard Group also intends to grant additional unallocated working member interests to current managing directors pursuant to the retention agreements. These repurchases and grants are accounted for as reallocations of capital on our financial statements.

 

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DESCRIPTION OF CAPITAL STOCK

 

The following summary is a description of the material terms of our share capital. We will file our certificate of incorporation and memorandum of association and bye-laws as exhibits to the registration statement of which this prospectus is a part. See “Where You Can Find More Information.” The following summary also highlights material differences between Bermuda and Delaware corporate laws. The following summary also contains a description of the material terms of the capital stock of Lazard Group.

 

General

 

Our authorized capital stock consists of 500,000,000 shares of common stock, par value $0.01 per share, and 1 share of Class B common stock, par value $0.01 per share and 15,000,000 preference shares, par value $0.01 per share.

 

Common Stock

 

Immediately following the completion of this offering, there will be                  shares of common stock issued and outstanding, and one share of Class B common stock issued and outstanding. No preference shares will be issued or outstanding at that time.

 

Voting

 

Each share of common stock will entitle its holder to one vote per share. On all matters submitted to a vote of our stockholders, the Class B common stock held by LAZ-MD Holdings will entitle LAZ-MD Holdings to the number of votes equal to the number of shares of our common stock that would be issuable if all of the then outstanding Lazard Group common membership interests issued to LAZ-MD Holdings were exchanged for shares of our common stock on the applicable record date. The voting power of our outstanding Class B common stock will, however, represent not less than 50.1% of the voting power of our company until December 31, 2007. The members of our board of directors will be elected by the common stockholders and the Class B common stockholder voting together as a single class. Generally, all matters to be voted on by stockholders must be approved by a majority of the votes entitled to be cast by all shares of common stock and Class B common stock present in person or represented by proxy, voting together as a single class, subject to any voting rights granted to holders of any preference shares. However, except as otherwise provided by law, and subject to any voting rights granted to holders of any preference shares, mergers and amalgamations, amendments to the memorandum of association or bye-laws and any removal of a director for cause must be approved by a majority of the combined voting power of all of the outstanding common stock and Class B common stock, voting together as a single class. However, amendments to the bye-laws that would alter or otherwise modify provisions of the bye-laws relating to the size or classified nature of the board of directors, the ability to remove directors only for cause, the ability of the board of directors to adopt a rights plan and certain other matters must be approved by at least 66 2/3% of the combined voting power of all common stock and Class B common stock voting as a single class. In addition, amendments to the memorandum of association or bye-laws that would alter or change the powers, preferences or special rights of the common stock or the Class B common stock so as to affect them adversely also must be approved by a majority of the votes entitled to be cast by the holders of the class of shares affected by the amendment, present in person or represented by proxy, voting as a separate class.

 

Economic Rights

 

Pursuant to our bye-laws, each share of our common stock is entitled to equal economic rights. However, the Class B common stock will have no rights to dividends or any liquidation preference.

 

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Accordingly, although immediately after this offering the Class B common stock will represent approximately           % of the voting power of Lazard, the Class B common stock will have no economic rights.

 

Dividends

 

Lazard Ltd has not declared or paid any cash dividends on our common equity since our inception. Subject to compliance with applicable law, we currently intend to declare quarterly dividends on all outstanding shares of our common stock and expect our initial quarterly dividend to be approximately $           per share, payable in respect of the            quarter of 2005. We expect that the initial dividend will be prorated for the portion of that quarter following the closing of this offering. The Class B common stock will not be entitled to dividend rights.

 

The declaration of this and any other dividends and, if declared, the amount of any such dividend, will be subject to the actual future earnings, cash flow and capital requirements of our company, the amount of distributions to us from Lazard Group and the discretion of our board of directors. Our board of directors will take into account:

 

  Ÿ   general economic and business conditions,

 

  Ÿ   the financial results of our company and Lazard Group,

 

  Ÿ   capital requirements of our company and our subsidiaries (including Lazard Group),

 

  Ÿ   contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries (including Lazard Group) to us, and

 

  Ÿ   such other factors as our board of directors may deem relevant.

 

We are a holding company and have no direct operations. As a result, we will depend upon distributions from Lazard Group to pay any dividends. We expect to cause Lazard Group to pay distributions to us in order to fund any such dividends, subject to applicable law and the other considerations discussed above. In addition, as managing directors and other members of LAZ-MD Holdings convert their interests into shares of our common stock, they will also have a proportionate interest in the excess cash held by us to the extent that we retain excess cash balances or acquire additional assets with excess cash balances. For a discussion of Lazard Group’s intended distribution policy, see “The Separation and Recapitalization Transactions and the Lazard Organizational Structure.”

 

Additionally, we are subject to Bermuda legal constraints that may affect our ability to pay dividends on our common stock and make other payments. Under the Companies Act, we may declare or pay a dividend out of distributable reserves only if we have reasonable grounds for believing that we are, or would after the payment be, able to pay our liabilities as they become due and if the realizable value of our assets would thereby not be less than the aggregate of our liabilities and issued share capital and share premium accounts.

 

Preference Shares

 

Pursuant to Bermuda law and our bye-laws, our board of directors by resolution may establish one or more series of preference shares having such number of shares, designations, dividend rates, relative voting rights, conversion or exchange rights, redemption rights, liquidation rights and other relative participation, optional or other special rights, qualifications, limitations or restrictions as may be fixed by the board without any stockholder approval. Such rights, preferences, powers and limitations as may be established could also have the effect of discouraging an attempt to obtain control of Lazard. We currently have 15,000,000 authorized preference shares. We have no present plans to

 

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issue any preference shares. See “Risk Factors—Risks Related to the Offering—We may issue preferred stock and our bye-laws and Bermuda law may discourage takeovers, which could affect the rights of holders of our common stock.”

 

Acquisition of Shares by Us

 

Our bye-laws provided that if our board of directors determines that we or any of its subsidiaries does not meet, or in the absence of repurchases of shares will fail to meet, the ownership requirements of a limitation on benefits article of a bilateral income tax treaty with the U.S., and that such tax treaty would provide material benefits to us or any subsidiaries, we generally have the right, but not the obligation, to repurchase at fair market value (as determined in the good faith discretion of our board) shares from any shareholder who beneficially owns more than 0.25% of our outstanding shares and who fails to demonstrate to our satisfaction that such shareholder is either (a) a U.S. citizen or (b) a qualified resident of the U.S. or the other contracting state of the applicable tax treaty (as determined for purposes of the relevant provision of the limitation on benefits article of such treaty). IXIS is not subject to this repurchase right with respect to the aggregate number of shares it acquired pursuant to the IXIS investment agreement. The number of shares that may be repurchased from any such stockholder will equal the product of the total number of shares that we reasonably determine to purchase to ensure on-going satisfaction of the limitation on benefits article of the applicable tax treaty, multiplied by a fraction, the numerator of which is the number of shares beneficially owned by such stockholder (other than the aggregate number of shares IXIS acquired pursuant to the IXIS investment agreement, in the case of IXIS) and the denominator of which is the total number of shares (reduced by the aggregated number of shares IXIS acquired pursuant to the IXIS investment agreement) beneficially owned by all stockholders. Instead of exercising the repurchase right described above, we will have the right, but not the obligation, to cause the transfer to, and procure the purchase by, any U.S. citizen or a qualified resident of the U.S. or the other contracting state of applicable tax treaty) of the number of outstanding shares beneficially owned by any shareholder that are otherwise subject to repurchase under our bye-laws as described above, at fair market value (as determined in the good faith discretion of our board).

 

Bermuda Law

 

Our board of directors believes that it is of primary importance that our stockholders are treated fairly and have proper access to and recourse against the company. Bermuda was chosen as our place of incorporation for several reasons, including its acceptability to our working members, who are domiciled around the world, and potential investors. Bermuda has an established corporate law which, coupled with the provisions of our bye-laws, we believe provides stockholders with an appropriate level of protection and rights.

 

We are an exempted company organized under the Companies Act. The rights of our stockholders, including those persons who will become stockholders in connection with this offering, are governed by Bermuda law and our memorandum of association and bye-laws. The Companies Act differs in some material respects from laws generally applicable to U.S. corporations and their stockholders. The following is a summary of material provisions of Bermuda law and our organizational documents not discussed above.

 

Dividends

 

Under Bermuda law, a company may pay dividends that are declared from time to time by its board of directors unless there are reasonable grounds for believing that the company is or would, after payment, be unable to pay its liabilities as they become due or that the realizable value of its assets would as a result be less than the aggregate of its liabilities and issued share capital and share premium accounts.

 

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Voting Rights

 

Under Bermuda law, voting rights of stockholders are regulated by the company’s bye-laws and, in certain circumstances, the Companies Act. Our bye-laws generally provide that all matters to be voted on by stockholders must be approved by a majority of the votes entitled to be cast by all shares of our common stock and Class B common stock present in person or represented by proxy, voting together as a single class, subject to any voting rights granted to holders of any preference shares. Our bye-laws also contain heightened voting requirements and class vote requirements, as described above in “—Common Stock—Voting.”

 

Classified Board; Removal of Directors

 

The Companies Act does not contain statutory provisions specifically mandating classified board arrangements for a Bermuda company. However, a Bermuda company may validly provide for a classified board in its bye-laws. Our board of directors is divided into three classes of directors serving staggered three-year terms. As a result, approximately one-third of the board of directors will be elected each year. In addition, directors may only be removed for cause, by vote of shares representing a majority of the combined voting power of all of our common stock and Class B common stock, voting together as a single class. The existence of a classified board of directors may deter a stockholder from removing incumbent directors and simultaneously gaining control of the board of directors by filling vacancies with its own nominees.

 

Rights in Liquidation

 

Under Bermuda law, in the event of a liquidation or winding-up of a company, after satisfaction in full of all claims and creditors and subject to the preferential rights accorded to any series of preference shares and subject to any specific provisions of the company’s bye-laws, the proceeds of the liquidation or winding-up are distributed pro rata among the holders of common shares.

 

Meetings of Stockholders

 

Under Bermuda law, a company is required to convene at least one stockholders’ meeting each calendar year. Bermuda law provides that a special general meeting may be called by the board of directors and must be called upon the request of stockholders holding not less than 10% of the paid-up share capital of the company carrying the right to vote. Bermuda law also requires that stockholders be given at least five days’ advance notice of a general meeting, but the accidental omission to give notice to any person does not invalidate the proceedings at a meeting. Our bye-laws provide that our board of directors may convene an annual general meeting or a special general meeting. Under our bye-laws, we must give each stockholder at least 30 days’ notice of the annual general meeting and at least 10 days’ notice of any special general meeting.

 

Under Bermuda law, the number of stockholders constituting a quorum at any general meeting of stockholders is determined by the bye-laws of a company. Our bye-laws provide that the presence in person or by proxy of two or more stockholders entitled to attend and vote and holding shares representing more than 50% of the combined voting power constitutes a quorum.

 

The holders of not less than 5% of the total voting rights of all stockholders or one hundred stockholders, whichever is the lesser, may require the directors to include in the notice for the next annual general meeting of a company any resolution which may properly be moved and is intended to be moved. In addition, such persons may also require the directors to circulate to the other stockholders a statement on any matter which is proposed to be considered at any general meeting.

 

Access to Books and Records and Dissemination of Information

 

Members of the general public have the right to inspect the public documents of a company available at the office of the Registrar of Companies in Bermuda. These documents include a

 

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company’s certificate of incorporation, its memorandum of association, including its objects and powers, and any alteration to its memorandum of association. The stockholders have the additional right to inspect the bye-laws of the company, minutes of general meetings and the company’s audited financial statements. The register of members of a company is also open to inspection by stockholders without charge and by members of the general public on the payment of a fee. A company is required to maintain its share register in Bermuda but may, subject to the provisions of Bermuda law, establish a branch register outside Bermuda. We maintain a share register in Hamilton, Bermuda. A company is required to keep at its registered office a register of its directors and officers that is open for inspection for not less than two hours each day by members of the public without charge. Bermuda law does not, however, provide a general right for stockholders to inspect or obtain copies of any other corporate records.

 

Board Actions

 

Under Bermuda law, at common law, the directors of a Bermuda company owe their fiduciary duty to the company rather than the stockholders. In addition, the Companies Act imposes a specific duty on directors and officers of a Bermuda company to act honestly and in good faith with a view to the best interests of the company and requires them to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. The Companies Act also imposes various duties on officers of a company with respect to certain matters of management and administration of the company. Our bye-laws provide that some actions are required to be approved by our board of directors. A majority of the directors then in office constitutes a quorum. Actions must be approved by a majority of the directors present and entitled to cast votes at a properly convened meeting of our board of directors, provided, however, that our Chairman of the Board or Chief Executive Officer may be removed or requested to resign or retire from such office or may have the power or authority granted to him reduced or limited by our board of directors only upon the recommendation of a majority of the members of our nominating and corporate governance committee to the full board of directors and the approval of a majority of the full board of directors then in office. Notice of any meeting of our board of directors to discuss, resolve or act upon such matter following the recommendation of the nominating and corporate governance committee must be given at least seven business days before the date of such meeting.

 

Our bye-laws provide that our business is to be managed and conducted by our board of directors. Bermuda law requires that our directors be individuals, but there is no requirement in our bye-laws or Bermuda law that directors hold any of our shares. There is also no requirement in our bye-laws or Bermuda law that our directors must retire at a certain age.

 

Our bye-laws provide that our directors may (but are not required to) in taking any action (including an action that may involve or relate to a change of control or potential change of control of Lazard) consider, among other things, the effects that the action may have on other interests or persons (including our stockholders and employees and the communities in which we do business) as long as the director acts honestly and in good faith with a view to the best interests of Lazard Ltd.

 

Amendment of Memorandum of Association and Bye-laws

 

Bermuda law provides that the memorandum of association of a company may be amended by a resolution passed at a general meeting of stockholders of which due notice has been given. An amendment to the memorandum of association, other than an amendment that alters or reduces a company’s share capital, also requires the approval of the Bermuda Minister of Finance, who may grant or withhold approval at his or her discretion. Our bye-laws may be amended if it is first approved by our board of directors and then is approved by our stockholders by a resolution passed by the requisite vote of our stockholders.

 

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Under Bermuda law, the holders of an aggregate of no less than 20% in par value of a company’s issued share capital or any class of issued share capital have the right to apply to the Bermuda Supreme Court for an annulment of any amendment of the memorandum of association adopted by stockholders at any general meeting, other than an amendment that alters or reduces a company’s share capital. Where such an application is made, the amendment becomes effective only to the extent that it is confirmed by the Bermuda Supreme Court. An application for the annulment of an amendment of the memorandum of association or continuance must be made within 21 days after the date on which the resolution altering the company’s memorandum of association is passed and may be made on behalf of the persons entitled to make the application by one or more of their number as they may appoint in writing for the purpose. No such application may be made by persons voting in favor of the amendment.

 

Appraisal Rights and Stockholder Suits

 

Under Bermuda law, in the event of an amalgamation of a Bermuda company with another company, a stockholder of the Bermuda company who is not satisfied that fair value has been offered for his or her shares in the Bermuda company may apply to the Bermuda Supreme Court within one month of notice of the stockholders’ meeting, to appraise the fair value of his or her shares. Under Bermuda law and our bye-laws, the amalgamation of Lazard with another company or corporation (other than certain affiliated companies) requires the amalgamation agreement to first be approved and then recommended by our board of directors and by resolution of our stockholders.

 

Class actions and derivative actions are generally not available to stockholders under Bermuda law. The Bermuda Court, however, would ordinarily be expected to permit a stockholder to commence an action in the name of a company to remedy a wrong done to the company where the act complained of is alleged to be beyond the corporate power of the company or is illegal or would result in violation of the company’s memorandum of association or continuance or bye-laws. Furthermore, consideration would be given by the Bermuda Court to acts that are alleged to constitute a fraud against the minority stockholders or, for instance, where an act requires the approval of a greater percentage of the company’s stockholders than that which actually approved it.

 

When the affairs of a company are being conducted in a manner oppressive or prejudicial to the interests of some part of the stockholders, one or more stockholders may apply to the Bermuda Court for an order regulating the company’s conduct of affairs in the future or compelling the purchase of the shares of any stockholder, by other stockholders or by the company.

 

Discontinuance

 

Under Bermuda law, an exempted company may be discontinued and be continued in a jurisdiction outside Bermuda as if it had been incorporated under the laws of that other jurisdiction. Our bye-laws provide that our board of directors may exercise all our power to discontinue to another jurisdiction without the need of any stockholder approval.

 

Mergers and Similar Arrangements

 

A Bermuda exempted company may acquire the business of another Bermuda exempted company or a company incorporated outside Bermuda when the business of the target company is within the acquiring company’s objects as set forth in its memorandum of association. Any merger or amalgamation first requires the approval of our board of directors and then the approval of our stockholders, by the affirmative vote of a majority of the combined voting power of all of the outstanding common stock and Class B common stock, voting together as a single class, subject to any voting rights granted to holders of any preference shares.

 

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Takeovers

 

Bermuda law provides that where an offer is made for shares of a company and, within four months of the offer, the holders of not less than 90% of the shares which are the subject of the offer accept, the offeror may by notice require the non-tendering stockholders to transfer their shares on the terms of the offer.

 

Dissenting stockholders may apply to the court within one month of the notice objecting to the transfer. The test is one of fairness to the body of the stockholders and not to individuals, and the burden is on the dissentient stockholder to prove unfairness, not merely that the scheme is open to criticism.

 

Registration Rights

 

For a description of registration rights available under the LAZ-MD Holdings stockholders’ agreement, see “Certain Relationships and Related Transactions—LAZ-MD Holdings Stockholders’ Agreement.” Registration rights also will be granted to IXIS. See “—IXIS Investment in Our Common Stock—Registration Rights” and “—IXIS Investment in Exchangeable Debt Securities.”

 

Transfer Agent and Registrar

 

A register of holders of our common stock will be maintained by Codan Services Limited in Bermuda, and a branch register will be maintained in the U.S. by the Bank of New York, who will serve as branch registrar and transfer agent.

 

Description of Lazard Group Membership Interests

 

Lazard Group Common Membership Interests

 

Immediately following this offering and the separation and recapitalization transactions, there will be                  Lazard Group common membership interests issued and outstanding,                  of which will be beneficially owned by LAZ-MD Holdings and                  of which will be beneficially owned by us and certain of our wholly-owned subsidiaries (or                  assuming that the underwriters exercise their over-allotment option in full). The profits and losses of Lazard Group will be allocated to holders of the Lazard Group common membership interests after deducting amounts allocated to the Lazard Group participatory interests described below.

 

The number of outstanding Lazard Group common membership interests owned by us and our wholly-owned subsidiaries will initially equal the number of shares of our common stock outstanding immediately after this offering.

 

We expect that the net cash proceeds received by Lazard Ltd from any issuance of shares of our common stock, including with regard to the exercise of options issued under the Equity Incentive Plan and an exchange of any of the exchangeable securities will be transferred to Lazard Group in exchange for Lazard Group common membership interests equal in number to such number of shares of common stock.

 

Pursuant to the terms of our memorandum of association, bye-laws and the master separation agreement, each Lazard Group common membership interest owned by LAZ-MD Holdings is exchangeable on a one-for-one basis with our common stock at any time by a holder of a LAZ-MD Holdings exchangeable interest subject to customary anti-dilution adjustments. See “The Separation and Recapitalization Transactions and the Lazard Organizational Structure.”

 

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Participatory Interests

 

We also intend to grant participatory interests in Lazard Group to certain of our current and future managing directors in connection with the separation and recapitalization transactions which are described under “Management—Arrangements with Our Managing Directors—The Retention Agreements.”

 

IXIS Investment in Our Common Stock

 

We have entered into an investment agreement with IXIS as part of the additional financing transactions. Under the investment agreement, IXIS has agreed to purchase an aggregate of $200,000,000 of securities concurrently with this offering, $150,000,000 of which will be debt securities of Lazard Group (or a separate financing subsidiary) that are effectively exchangeable into shares of our common stock and $50,000,000 of which will be shares of our common stock. See “Description of Indebtedness—IXIS Investment in Exchangeable Debt Securities.”

 

Board Composition

 

In connection with IXIS’s investment in us as part of the additional financing transactions, we have agreed that we will nominate one person designated by IXIS to our board of directors until such time as (1) the shares of our common stock then owned by IXIS, plus (2) the shares of our common stock issuable under the terms of any exchangeable securities issued by us then owned by IXIS, constitute less than 50% of the sum of (a) the shares of our common stock initially purchased by IXIS, plus (b) the shares of our common stock issuable under the terms of any exchangeable securities issued by us initially purchased by IXIS.

 

Voting

 

In connection with IXIS’s investment in us as part of the additional financing transactions, until such time as (a) IXIS is no longer entitled to designate a person of its choice to our board of directors, (b) IXIS owns securities representing less than 5% of our outstanding common stock on an as exchanged or as-if-exchanged basis and (c) the arrangements contemplated by the cooperation arrangement are terminated, IXIS has agreed to vote all of our common stock beneficially owned by them in the manner recommended by our board of directors, except that IXIS may freely vote on matters relating to:

 

  Ÿ   certain transactions that might involve a change in our control submitted to a vote of our common stockholders,

 

  Ÿ   amendments to our organizational documents that may adversely affect the rights of holders of our securities, and

 

  Ÿ   matters directly relating to the arrangements contemplated by the cooperation arrangement.

 

Registration Rights

 

Pursuant to a registration rights agreement, we have agreed to grant IXIS registration rights with respect to our securities held by them. The IXIS registration rights agreement will provide that holders of those securities generally will have unlimited piggyback registration rights. The registration rights agreement also will grant IXIS four demand registration rights requiring that we register the shares of our common stock held by IXIS, provided that the amount of securities subject to such demand constitutes at least 25% of the shares of our common stock held by IXIS and have an aggregate market value in excess of $20 million.

 

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Lock-up Agreements

 

In connection with its investment as part of the additional financing transactions, IXIS has agreed not to make any disposition, sale, transfer, pledge or hedge (including by way of short selling) or to otherwise encumber any of our securities purchased by them for a period of 545 days from the date of purchase. In addition, following the expiration of the 545 day period, IXIS will not make any transfers of our securities representing more than 2.5% of our then outstanding common stock to any person, entity or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) that, after giving effect to such transfer, would beneficially own common stock or securities exchangeable for our common stock representing more than 5% of our outstanding common stock or make any transfers to any person, entity or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) that beneficially owns common stock or securities exchangeable into our common stock representing more than 5% of our outstanding common stock, unless, in either case the transferee agrees in writing to be bound by the transfer restrictions applicable to IXIS.

 

Limitations on Activities of IXIS

 

Until such time as (a) IXIS is no longer entitled to designate a person of their choice to our board of directors, (b) IXIS owns securities representing less than 5% of our outstanding common stock on an as-if-exchanged basis and (c) the arrangements contemplated by the cooperation arrangement are terminated, IXIS may not, among other things:

 

  Ÿ   acquire, offer to acquire or agree to acquire beneficial ownership of any of our common stock,

 

  Ÿ   acquire, offer to acquire or agree to acquire any of our businesses or material assets or any of our subsidiaries,

 

  Ÿ   initiate or propose any offer by any third party to acquire, offer to acquire or agree to acquire beneficial ownership of our common stock or any securities convertible into or exerciseable or exchangeable for any other of our voting securities,

 

  Ÿ   initiate, propose or enter into any merger, tender offer, business combination, sale or other disposition outside of the ordinary course of business of any material portion of our assets or any of our subsidiaries or other extraordinary transaction involving us or any of our subsidiaries,

 

  Ÿ   call, or seek to call, a meeting of our stockholders,

 

  Ÿ   act, alone or in concert with others, to seek to affect or influence the control of our board of directors or our management, or our business, operations, affairs or policies,

 

  Ÿ   initiate or propose any stockholder proposal or make, or in any way participate in, directly or indirectly, any solicitation of proxies to vote, or seek to influence any stockholder with respect to the voting of our securities,

 

  Ÿ   form, join or in any way participate in a group for the purpose of acquiring, holding, voting or disposing of any of our securities, or

 

  Ÿ   propose, or agree to, or enter into any discussions, negotiations or arrangements with, or provide any confidential information to, any third party with respect to any of the foregoing.

 

Preemptive Rights

 

In connection with IXIS’s investment as part of the additional financing transactions, we have agreed that for so long as IXIS is entitled to designate a person of their choice to our board of directors, in the event of a sale by us of any of our common stock (or any securities convertible into or exercisable or exchangeable for our common stock) in a broadly distributed, underwritten public offering (or broadly distributed offering made in compliance with Regulation S under the Securities Act

 

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of 1933, as amended), in which the consideration to be received by us consists solely of cash, other than any offer or sale of securities (a) to working partners or employees of Lazard Group or LAZ-MD Holdings, (b) relating to a merger, amalgamation, consolidation or acquisition or (c) relating to a strategic transaction, IXIS shall be entitled to purchase an amount of such securities so as to maintain their proportionate share of ownership of our common stock.

 

Delaware Law

 

The terms of share capital of corporations incorporated in the U.S., including Delaware, differ from corporations incorporated in Bermuda. The following discussion highlights material differences of the rights of a stockholder of a Delaware corporation compared with the rights of our stockholders under Bermuda law.

 

Under Delaware law, a corporation may indemnify its director or officer (other than in action by or in the right of of the corporation) against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in defense of an action, suit or proceeding by reason of such position if such director or officer (i) acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation and (ii) with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

 

Delaware law provides that a majority of the shares entitled to vote, present in person or represented by proxy, constitutes a quorum at a meeting of stockholders. In matters other than the election of directors, with the exception of special voting requirements related to extraordinary transactions, the affirmative vote of a majority of shares present in person or represented by proxy at the meeting and entitled to vote is required for stockholder action, and the affirmative vote of a plurality of shares is required for the election of directors. With certain exceptions, a merger, consolidation or sale of all or substantially all the assets of a corporation must be approved by the board of directors and a majority of the outstanding shares entitled to vote thereon. Under Delaware law, a stockholder of a corporation participating in certain major corporate transactions may, under certain circumstances, be entitled to appraisal rights pursuant to which such stockholder may receive cash in the amount of the fair value of the shares held by such stockholder (as determined by a court) in lieu of the consideration such stockholder would otherwise receive in the transaction.

 

Under Delaware law, subject to any restrictions contained in the company’s certificate of incorporation, a company may pay dividends out of surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and for the preceding fiscal year. Delaware law also provides that dividends may not be paid out of net profits if, after the payment of the dividend, capital is less than the capital represented by the outstanding stock of all classes having a preference upon the distribution of assets.

 

Delaware law permits corporations to have a classified board of directors. Delaware law permits the board of directors or any person who is authorized under a corporation’s certificate of incorporation or by-laws to call a special meeting of stockholders. Under Delaware law, the business and affairs of a corporation are managed by or under the direction of its board of directors. In exercising their powers, directors are charged with a fiduciary duty of care to protect the interests of the corporation and a fiduciary duty of loyalty to act in the best interests of its stockholders.

 

Delaware law permits any stockholder to inspect or obtain copies of a corporation’s stockholder list and its other books and records for any purpose reasonably related to such person’s interest as a stockholder.

 

Class actions and derivative actions generally are available to stockholders under Delaware law for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law, and the court generally has discretion in such actions to permit the winning party to recover attorneys’ fees.

 

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DESCRIPTION OF THE EQUITY SECURITY UNITS

 

The Units

 

Concurrently with the closing of this offering and as part of the additional financing transactions, we will be selling, by means of a separate prospectus,           % equity security units for total gross offering proceeds of $           million, plus up to an additional $           million of gross proceeds if the underwriters exercise in full their option to purchase additional equity security units. Each unit will consist of and represent:

 

(1) a purchase contract pursuant to which:

 

  Ÿ   the holder will agree to purchase, and Lazard Ltd will agree to sell, for $25, shares of our common stock on                 , 2008, which we refer to in this prospectus as the “stock purchase date,” the number of which will be determined based on the trading price of our common stock during a period preceding that date, calculated in the manner described below or, if we have previously fixed the settlement rate as a result of an accounting event (as defined below), the fixed number of shares to be determined as described below, and

 

  Ÿ   Lazard Ltd will pay the holder contract adjustment payments on a quarterly basis at the annual rate of           % of the stated amount of $25, subject to its right to defer such payments, as specified below, and

 

(2) a 1/40, or 2.5%, ownership interest in a senior note of Lazard Group Finance with a principal amount of $1,000, on which Lazard Group Finance will pay interest at the initial annual rate of           % until a successful remarketing of the senior notes and at the reset rate, which is described below, thereafter. Interest will be payable quarterly in arrears through and including the stock purchase date and, thereafter, semi-annually in arrears.

 

The ownership interest in the senior note initially will be pledged to secure the holder’s obligations under the purchase contract. If a special event redemption, as described below, occurs prior to a successful remarketing, specified treasury securities will replace the ownership interest in a senior note as a component of each unit and will be pledged to the collateral agent for Lazard Ltd’s benefit to secure the holder’s obligations under the purchase contract.

 

If a holder desires to have the senior note released from the pledge, such holder may at any time on or before the second business day prior to the stock purchase date (subject to certain exceptions) substitute specified U.S. Treasury securities for the senior note (or, after a special event redemption, as described below, the specified pledged treasury securities) as collateral, thereby creating what we refer to as a stripped unit.

 

Lazard Ltd will be permitted to assign its rights and obligations under the purchase contracts, including settlement and the making of the contract adjustment payments, to any wholly owned subsidiary of Lazard Ltd, but only if, and for so long as, the assignment does not adversely affect the holders of the purchase contracts or our common stockholders. Any incremental cost, including tax, that would be imposed on or payable by a holder as a result of an assignment will be considered to be an adverse effect, except to the extent Lazard Ltd or its assignee fully compensates the holders for the cost. Notwithstanding an assignment, Lazard Ltd will remain a primary obligor under the purchase contracts and will satisfy, or cause the assignee to satisfy, the obligations under the purchase contracts.

 

The Purchase Contracts

 

The purchase contract underlying a unit obligates the holder to purchase, and Lazard Ltd to sell, for $25, on                 , 2008, a number of newly issued shares of our common stock. We will determine the number of shares the holder will receive by the settlement rate described below, based on the

 

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closing price of shares and common stock during a specified period prior to the stock purchase date. Lazard will pay the holder quarterly contract adjustment payments on the purchase contracts at the annual rate of           % of the stated amount of $25 per purchase contract, subject to Lazard Ltd’s right to defer these payments until the stock purchase date. Lazard Ltd will accrue additional contract adjustment payments on any deferred installments of contract adjustment payments at a rate of           % per year until paid, compounded quarterly, up to but excluding the stock purchase date, unless the purchase contract has been earlier settled or terminated.

 

In the event that Lazard Ltd elects to defer the payment of contract adjustment payments on the purchase contracts until the stock purchase date, each holder of normal units and stripped units will receive on the stock purchase date in respect of the deferred contract adjustment payments, in lieu of a cash payment, a number of shares of our common stock equal to the sum of the “share amounts” calculated for each of the 20 trading days beginning on                 , 2008. For each of those 20 trading days, the share amount shall be equal to (a) the aggregate amount of deferred contract adjustment payments payable to the holder divided by (b) the product of 20 multiplied by the closing price of the common stock for the respective trading day.

 

In the event Lazard Ltd exercises its option to defer the payment of contract adjustment payments, then until the deferred contract adjustment payments have been paid, in general, it cannot declare or pay dividends on, make distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of Lazard Ltd’s capital stock.

 

The Senior Notes

 

The senior notes will be senior, unsecured obligations of Lazard Group Finance equal in right of payment to all of its existing and future unsecured and unsubordinated indebtedness. The senior notes will mature (a) in the event of a successful remarketing, any date no earlier than                     , 2010 and no later than                     , 2035, as we may elect, (b) in the event of a failed remarketing, the stock purchase date and (c) otherwise on                     , 2035. Each senior note will initially bear interest at the rate of           % per year, payable quarterly in arrears on                 ,                 ,                  and                  of each year, commencing                 , 2005, with the last quarterly payment occurring on                 , 2008. After that date, interest will be paid semiannually in arrears on                  and                  of each year, through the maturity date of the senior notes.

 

Lazard Group Finance will use the net proceeds from the ESU offering to purchase notes from Lazard Group, the terms of which are described below. The Lazard Group notes will be pledged to secure the obligations of Lazard Group Finance under the senior notes. The ability of Lazard Group Finance to pay its obligations under the senior notes depends on its ability to obtain interest and principal payments on the Lazard Group notes. The Lazard Group notes will have the following terms and conditions:

 

  Ÿ   the aggregate principal amount of the Lazard Group notes will be equal to the aggregate principal amount of the senior notes,

 

  Ÿ   the notes will accrue interest at a rate equivalent to the interest rate applicable from time to time on the senior notes,

 

  Ÿ   the notes will mature on the same date as the senior notes,

 

  Ÿ   the notes will be a senior, unsecured obligation of Lazard Group, ranking pari passu with all other senior, unsecured indebtedness of Lazard Group, and

 

  Ÿ   the notes will be issued in denominations of $1,000 and integral multiples thereof.

 

As noted above, the Lazard Group notes will be a senior, unsecured obligation of Lazard Group. The senior notes and the Lazard Group notes, however, will rank effectively junior to the indebtedness

 

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of any subsidiary of Lazard Group. As of December 31, 2004, on a pro forma basis, there was approximately $             million of liabilities and other obligations (other than intercompany liabilities and obligations) of subsidiaries of Lazard Group that would have ranked senior to the senior notes and the Lazard Group notes as a result of this structural subordination. The senior notes and the Lazard Group notes do not limit the ability of Lazard Ltd, Lazard Group Finance or Lazard Group or any of their respective subsidiaries to incur indebtedness.

 

Remarketing

 

Through a remarketing by a nationally-recognized investment banking firm, the senior notes held by the holders of normal units (as well as separately held senior notes) that are participating in the remarketing will be sold and the net cash proceeds, less the remarketing fee, will be paid directly to Lazard Ltd in settlement of the obligations of the holders of normal units to purchase shares of our common stock. Upon a remarketing of the senior notes, the interest rate, payment dates and maturity date on the Lazard Group notes also will be reset on the same terms such that the interest rate, payment dates and maturity date on the Lazard Group notes are the same as those for the senior notes.

 

A holder of normal units may elect not to participate in any remarketing and, instead, may retain the ownership interests in senior notes underlying those normal units by delivering to the collateral agent, in respect of each senior note to be retained, cash in the amount and on the date specified in the remarketing notice to satisfy its obligations under the related purchase contracts. Whether or not a holder of normal units participates in the remarketing, the interest rate, payment dates and maturity date on the senior notes that form part of those units nevertheless will be reset if the remarketing is successful.

 

Reset Rate

 

The senior notes will bear interest from the original issuance date. If the senior notes are successfully remarketed, they will pay interest at the reset rate, described below, from the settlement date of a successful remarketing until they mature. The reset rate will be the rate sufficient to cause the then current market value of each outstanding senior note to be equal to 100.5% of the principal amount of the senior note. We anticipate that the settlement date of any successful remarketing will be on or before                 , 2008.

 

The reset rate will be determined by the remarketing agent during the seven business day period beginning on the ninth business day prior to the stock purchase date and ending on the third business day prior to the stock purchase date. If the remarketing agent fails to remarket the senior notes that form part of the normal units by the end of the third business day immediately preceding the stock purchase date, Lazard Ltd will be entitled to exercise its rights as a secured party with respect to such senior notes and, subject to applicable law, may retain the pledged senior notes or treasury securities, as the case may be, or sell them in one or more public or private sales to satisfy in full such holder’s obligation to purchase shares of common stock under the related purchase contracts.

 

The reset of the interest rate on the senior notes in connection with a successful remarketing will not change the amount of the interest due to holders of normal units on the stock purchase date, which will be at the initial annual rate of           %.

 

Special Event Redemption

 

If a special event occurs and is continuing, Lazard Ltd or Lazard Group Finance may, at Lazard Ltd’s option, redeem the senior notes in whole, but not in part, at any time at the redemption price for each senior note referred to below. If, following the occurrence of a special event, Lazard Group

 

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Finance exercises its option to redeem the senior notes, the proceeds of the redemption will be payable in cash to the holders of the senior notes. If a special event redemption occurs prior to a successful remarketing of the senior notes, the redemption price for the senior notes forming part of normal units at the time of the special event redemption will be distributed to the collateral agent, who in turn will purchase the applicable treasury portfolio described below on behalf of the holders of normal units and remit the remainder of the redemption price, if any, to a purchase contract agent for payment to such holders. The treasury portfolio will be substituted for the redeemed senior notes and will be pledged to the collateral agent to secure the obligations of the holders of the normal units to purchase the shares of common stock under the purchase contracts.

 

“Special event ” means either a redemption accounting event or a tax event.

 

“Redemption accounting event ” means the receipt, at any time prior to the earlier of the date of any successful remarketing of the senior notes and the stock purchase date, by the audit committee of our Board of Directors of a written report in accordance with Statement on Auditing Standards (“SAS”) No. 97, “Amendment to SAS No. 50—Reports on the Application of Accounting Principles,” from our independent auditors, provided at the request of management, to the effect that, as a result of any change in accounting rules or interpretations thereof after the date of this prospectus, we must either (a) account for the purchase contracts as derivatives under SFAS 133 (or any successor accounting standard) or (b) account for the units using the if-converted method under SFAS 128 (or any successor accounting standard), and that such accounting treatment will cease to apply upon redemption of the senior notes.

 

“Tax event ” means the receipt by Lazard Group Finance of an opinion of nationally recognized tax counsel to the effect that there is more than an insubstantial increase in the risk that interest payable by Lazard Group Finance on the senior notes on the next interest payment date is not, or within 90 days of the date of such opinion, will not be deductible, in whole or in part, by Lazard Group for U.S. federal income tax purposes as a result of (i) any amendment to, change in, or announced proposed change in, the laws, or any regulations thereunder, of the U.S. or any political subdivision or taxing authority thereof or therein affecting taxation (other than any such amendment, change or announced proposed change to the so-called “earnings stripping” provisions of Section 163(j) of the Code, which limit the ability of U.S. corporations to deduct interest on certain debt owed to or guaranteed by related foreign persons), (ii) any amendment to or change in an official interpretation or application of any such laws or regulations by any legislative body, court, governmental agency or regulatory authority or (iii) any official interpretation, pronouncement or application that provides for a position with respect to any such laws or regulations that differs from the generally accepted position on the date of this prospectus, which amendment, change or proposed change is effective or which interpretation or pronouncement is announced on or after the date of the prospectus for the equity security units.

 

If a special event redemption occurs prior to a successful remarketing of the senior notes, the treasury portfolio to be purchased on behalf of the holders of the normal units will consist of a portfolio of zero coupon U.S. treasury securities consisting of (i) interest or principal strips of U.S. treasury securities that mature on or prior to the stock purchase date, in an aggregate amount equal to the aggregate principal amount of the senior notes included in the normal units on the special event redemption date and (ii) with respect to each scheduled interest payment date on the senior notes that occurs after the special event redemption date, and on or before                 , 2008, interest or principal strips of U.S. treasury securities that mature on or prior to that interest payment date in an aggregate amount equal to the aggregate interest payment that would be due on the aggregate principal amount of the senior notes included in the normal units on that date if the interest rate of the senior notes were not reset, on the applicable remarketing date. These treasury securities would be non-callable by Lazard Group Finance.

 

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Redemption price means for each senior note the product of the principal amount of the senior note and a fraction the numerator of which is the treasury portfolio purchase price and the denominator of which is, in the case of a special event redemption occurring prior to a successful remarketing of the senior notes, the aggregate principal amount of senior notes included in normal units, and in the case of a tax event redemption date occurring after a successful remarketing of the senior notes, the aggregate principal amount of the senior notes. Depending on the amount of the treasury portfolio purchase price, the redemption amount could be less than or greater than the principal amount of the senior notes.

 

Settlement

 

The settlement rate is the number of newly issued shares of common stock that Lazard is obligated to sell, and the holder of the unit is obligated to purchase, upon settlement of a purchase contract on the stock purchase date. The number of shares of common stock the holder will receive will depend on the price of our common stock on each of the 20 trading days beginning on                 , 2008. On each of those 20 trading days, a formula will be applied to that day’s closing price for our common stock, and the results of the 20 days’ calculations will be added to determine the total number of shares of common stock that the holder will receive on the stock purchase date. Under that formula, the settlement rate for each purchase contract, subject to any then applicable anti-dilution adjustments, will be an amount equal to the sum of:

 

  Ÿ   for each of those 20 trading days on which the closing price for our common stock is greater than or equal to $           per share,            of one share of common stock per purchase contract,

 

  Ÿ   for each of those 20 trading days on which the closing price for our common stock is greater than $           per share but less than $           per share, a fraction of a share of our common stock per purchase contract equal to the result of multiplying 1/20 of a share by the result of dividing $           by the closing price, and

 

  Ÿ   for each of those 20 trading days on which the closing price for our common stock is less than or equal to $           per share, the holder will receive 1/20 of one share of our common stock per purchase contract.

 

If an accounting event occurs and is continuing prior to the earlier of the date of any successful remarketing of the senior notes and the stock purchase date, Lazard Group Finance may, at Lazard’s option, fix the settlement rate according to a formula based on the Black-Scholes option pricing model, which is a function of several variables, including the market price of shares of our common stock, Lazard’s dividend yield, the remaining maturity of the purchase contract, the risk-free rate and the volatility of shares of our common stock.

 

An accounting event means the receipt by the audit committee of our board of directors of a written report in accordance with SAS No. 97, Amendment to SAS No. 50—Reports on the Application of Accounting Principles, from our independent auditors, provided at the request of management, to the effect that, as a result of any change in accounting rules or interpretations thereof after the date of this prospectus, we must either (a) account for the purchase contracts under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (or otherwise mark-to-market or measure the fair value of all or any portion of the purchase contracts with changes appearing in our statement of income), or (b) account for the units using the if-converted method under SFAS No. 128, Earnings Per Share, and that such accounting treatment will cease to apply upon the fixing of the settlement rate on the purchase contracts. SAS No. 97 currently requires a written description of the facts, circumstances, management’s assumptions and conclusions regarding the appropriate accounting treatment by management in connection with the written report.

 

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In addition to the remarketing, the holder’s obligations under the purchase contract may be satisfied:

 

  Ÿ   if the holder has elected not to participate in the remarketing by delivering treasury securities to secure its obligations under the purchase contract, and in certain other circumstances, through the application of the cash payments received upon maturity of the treasury securities,

 

  Ÿ   through the early delivery of cash to the purchase contract agent on or prior to the thirteenth business day prior to the stock purchase date,

 

  Ÿ   by delivering a notice to settle for cash along with the requisite amount of cash on the thirteenth business day prior to the stock purchase date, or

 

  Ÿ   if Lazard is involved in a merger, acquisition or consolidation prior to the stock purchase date in which at least 30% of the consideration for the shares of common stock consists of cash or cash equivalents, through an early settlement.

 

In addition, the purchase contracts, our related rights and obligations and those of the holders of the units, including their obligations to purchase shares of our common stock, will automatically terminate upon the occurrence of bankruptcy, insolvency or reorganization of Lazard Ltd, Lazard Group or Lazard Group Finance. Upon termination, the senior notes or treasury securities pledged to secure the holder’s obligations under the purchase contract will be released and distributed to the holder.

 

Listing

 

We will apply for listing of our equity security units on the NYSE under the symbol “            .”

 

Accounting Treatment

 

The proceeds from the sale of the units will be allocated between the purchase contracts and the senior notes based on the fair value of each at the date of the offering. We expect the fair value of each purchase contract to be $0.

 

We expect to recognize the present value of the quarterly purchase contract adjustment as a liability with an offsetting reduction in shareholders’ equity. There may be circumstances that would require us to record the purchase contract at fair value, with subsequent changes in fair value reported in earnings and disclosed in the financial statements. The quarterly purchase contract adjustment payments will be allocated between the liability recognized at the date of issuance and the interest expense based on a constant rate calculation over the term of the purchase contract.

 

The quarterly and, after successful remarketing, semi-annual interest payments on the senior notes will be recognized as interest expense.

 

The purchase contracts are forward transactions in shares of our common stock. Upon settlement of a purchase contract, Lazard Ltd will receive $25 on that purchase contract and will issue the requisite number of shares of our common stock. The $25 Lazard Ltd receives will be credited to stockholders’ equity and allocated between our common stock and additional paid-in capital.

 

Fees and expenses incurred in connection with this offering will be allocated between the senior notes and the purchase contracts. The amount allocated to the senior notes will be deferred and recognized as interest expense over the term of the senior notes. The amount allocated to the purchase contracts will be charged to stockholders’ equity.

 

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DESCRIPTION OF INDEBTEDNESS

 

The following are summaries of the material terms and conditions of our principal indebtedness.

 

Credit Facilities

 

Following the completion of this offering, we expect to enter into new credit facilities that will provide approximately $           million of borrowing capacity.

 

Lazard Group Senior Notes

 

Concurrently with this offering and as part of the additional financing transactions, we are privately placing $           aggregate principal amount of           % senior notes due                 . Interest on the notes is due on                  and                  of each year, and the maturity date of the notes is             . The notes are unsecured.

 

The indenture governing the Lazard Group senior notes will contain covenants that limit our ability and that of our subsidiaries, subject to important exceptions and qualifications, to, among other things create a lien on any shares of capital stock of any designated subsidiary, and consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries. The indenture governing the Lazard Group Senior Notes also may contain a customary make-whole provision in the event of early redemption.

 

Lazard Group Finance Senior Notes

 

Each unit of the equity security units issued in the ESU offering will consist of a purchase contract which will obligate the holder to purchase, and Lazard Ltd to sell, for $25 newly issued shares of our common stock on                 , 2008 and a 1/40, or 2.5%, ownership interest in a           % senior note of Lazard Group Finance with a principal amount of $1,000. The senior notes will be senior obligations of Lazard Group Finance. Lazard Group will issue Lazard Group notes to Lazard Group Finance in connection with the ESU offering. See “Description of the Equity Security Units.”

 

IXIS Investment in Exchangeable Debt Securities

 

Exchangeable Debt Securities

 

We have entered into an investment agreement with IXIS as part of the additional financing transactions. Under the investment agreement, IXIS has agreed to purchase an aggregate of $200,000,000 of securities concurrently with this offering, $150,000,000 of which will be debt securities of Lazard Group (or a separate financing subsidiary) that are effectively exchangeable into shares of our common stock and $50,000,000 of which will be shares of our common stock. “Description of Capital Stock—IXIS Investment in Our Common Stock.” If the exchangeable debt securities are issued through a separate financing subsidiary, Lazard Group will issue Lazard Group notes to the financing subsidiary. Any such Lazard Group notes will have the same terms as the Lazard Group notes issued in the ESU offering. In the event that we choose to issue exchangeable debt securities with terms other than those agreed to by IXIS in the investment agreement, IXIS will have ten business days to choose to accept those securities. If they do not so choose, the investment agreement with IXIS will terminate automatically.

 

The features of the exchangeable debt securities to be purchased by IXIS will be as agreed with IXIS and will be the same as those we sell to the public in a registered public offering or qualified institutional investors in a private placement. The price per security to be paid by IXIS will be equal to

 

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the initial public offering price in a registered public offering of securities or the price offered to qualified institutional investors in a private placement of securities, as the case may be. With respect to the exchangeable debt securities, IXIS or one of its affiliates will receive underwriting fees or commissions equal in percentage terms to those paid to the underwriters for the public offering or private placement of the exchangeable debt securities. Our obligation to sell any securities to IXIS will be conditioned upon the completion of this offering and our decision to issue the agreed upon exchangeable debt securities. IXIS’s obligation to purchase any securities from us will be conditioned upon (a) the completion of this offering in an aggregate amount not less than $500 million, exclusive of the amount invested by IXIS, (b) the acceptance for listing of our common stock on the NYSE, subject to official notice of issuance and other customary initial listing conditions, and (c) the completion of the public offering or private placement of exchangeable debt securities in an aggregate amount of not less than $200 million exclusive of the amount invested by IXIS. IXIS has informed us that it has relied upon descriptions of Bruce Wasserstein’s intention to roll forward his historical partner interest into Lazard Ltd, and, with respect to the other working partners, the non-compete undertakings and the undertakings relating to their equity interests, in the aggregate. Consequently, in the event that there were to occur prior to the completion of this offering a fundamental change in either of the arrangements which would materially and adversely affect this offering, IXIS has stated that it reserves the right to void its undertaking to make the agreed upon investment.

 

Board Composition

 

In connection with IXIS’s investment in us as part of the additional financing transactions, we have agreed that we will nominate one person designated by IXIS to our board of directors until such time as: (i) the shares of our common stock then owned by IXIS, plus (ii) the shares of our common stock issuable under the terms of any exchangeable securities issued by us then owned by IXIS, constitute less than 50% of the sum of (x) the shares of our common stock initially purchased by IXIS, plus (y) the shares of our common stock issuable under the terms of any exchangeable securities issued by us initially purchased by IXIS.

 

Registration Rights

 

Pursuant to a registration rights agreement, we have agreed to grant IXIS registration rights with respect to our securities held by them. The IXIS registration rights agreement will provide that holders of those securities generally will have unlimited piggyback registration rights. The registration rights agreement also will grant IXIS one demand registration right requiring that we register the debt securities held by IXIS, provided that the amount of securities subject to such demand constitutes at least 33% of debt securities held by IXIS.

 

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MATERIAL U.S. FEDERAL INCOME TAX AND BERMUDA TAX

CONSIDERATIONS

 

The following summary of our taxation and the taxation of our stockholders is based upon current law and does not purport to be a comprehensive discussion of all the tax considerations that may be relevant to a decision to purchase common shares. Legislative, judicial or administrative changes may be forthcoming that could affect this summary.

 

The following legal discussion (including, and subject to, the matters and qualifications set forth in such discussion) of the material tax considerations under (1) “Taxation of Stockholders—Bermuda Taxation,” to the extent they are statements of Bermuda law, constitutes the opinion of Conyers Dill & Pearman, special Bermuda counsel to Lazard Ltd, and (2) “Taxation of Stockholders—U.S. Federal Income Taxation” to the extent they are statements of U.S. federal income tax law, constitutes the opinion of Wachtell, Lipton, Rosen & Katz, special U.S. counsel to Lazard Ltd. The advice of such firms does not include any factual or accounting matters, determinations or conclusions, such as amounts and computations or facts relating to the business, income, activities, or ownership of Lazard. The discussion is based upon current law, including the Code. Legislative, judicial or administrative changes or interpretations may be forthcoming that could be retroactive and could affect the tax consequences to holders of common shares. The tax treatment of a holder of common shares, or of a person treated as a holder of common shares for federal income, state, local or foreign tax purposes, may vary depending on the holder’s particular tax situation. Statements contained herein as to the beliefs, expectations and conditions of Lazard and its subsidiaries, as they relate to the application of such tax laws or facts, represent the view of management and do not represent the opinions of counsel. PROSPECTIVE INVESTORS (INCLUDING ALL NON-U.S. PERSONS AS DEFINED BELOW) SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF OWNING COMMON SHARES UNDER THE LAWS OF THEIR COUNTRIES OF CITIZENSHIP, RESIDENCE, ORDINARY RESIDENCE OR DOMICILE.

 

Taxation of Lazard and its Subsidiaries

 

Bermuda

 

At the present time, Lazard Ltd is not subject to any Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax. Lazard Ltd has obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 28, 2016, be applicable to Lazard Ltd or to any of Lazard Ltd’s operations or to our shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by us in respect of real property owned or leased by us in Bermuda.

 

United States

 

Partnership Status of Lazard Ltd.    In connection with Lazard Ltd’s formation, Lazard Ltd made an election to be treated as a partnership for U.S. federal income tax purposes. An entity that is treated as a partnership for U.S. federal income tax purposes is not a taxable entity and incurs no U.S. federal income tax liability. Instead, each partner is required to take into account its allocable share of items of income, gain, loss, and deduction of the partnership in computing its U.S. federal income tax liability, regardless of whether cash distributions are made. Distributions of cash by a partnership to a partner are generally not taxable unless the amount of cash distributed to a partner is in excess of the partner’s adjusted basis in its partnership interest.

 

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Because Lazard Ltd is a “publicly traded partnership” within the meaning of Section 7704(b) of the Code, Lazard Ltd will be taxable as a corporation unless 90% or more of its gross income (which does not include the income of its corporate subsidiaries) for each taxable year beginning with the current year is “qualifying income.” For this purpose, qualifying income includes interest (other than interest derived in the conduct of a financial business), dividends, and gains from capital assets held for the production of interest or dividends. Although certain of Lazard Group’s corporate subsidiaries will conduct a financial business (which gives rise to income that would not be qualifying income), Lazard Ltd does not believe, on the basis of all the facts and circumstances, that it will be treated as conducting a financial business within the meaning of Section 7704 of the Code. However, the IRS may challenge this position.

 

While we intend to manage our affairs so that Lazard Ltd will meet the 90% test in each taxable year, we may not, however, be able to do so. The remainder of this discussion assumes that Lazard Ltd will be treated as a partnership and not as a corporation for U.S. federal income tax purposes.

 

U.S. Subsidiaries and Effectively Connected Income of Non-U.S. Subsidiaries.    Lazard Group has been structured as a limited liability company, which is treated as a partnership for U.S. federal income tax purposes. As members of Lazard Group, certain U.S. subsidiaries of Lazard Ltd will be subject to U.S. federal income tax on a net income basis on their share of the income of Lazard Group and its subsidiaries. In addition, certain non-U.S. subsidiaries of Lazard Ltd will be subject to U.S. federal income tax on a net income basis on the income of Lazard Group and its subsidiaries that is “effectively connected” with their conduct of a trade or business in the U.S. In addition, those non-U.S. Lazard Ltd subsidiaries will be subject to a “branch profits” tax on their “effectively connected earnings and profits” (as determined for U.S. federal income tax purposes), with certain adjustments. The branch profits tax is imposed at a rate of 30%, unless an applicable income tax treaty provides for a lower rate. The eligibility of Lazard Ltd’s non-U.S. subsidiaries for treaty benefits depends upon their being “qualified residents” of their country, which in turn depends upon, among other things, at least 50% of the principal class their shares being considered “ultimately owned” by U.S. citizens or persons that are “qualified residents” of the U.S. or of the treaty partner. We expect that these subsidiaries initially will be eligible for benefits under the income tax treaty between the U.S. and relevant foreign country, which provides for a maximum branch profits tax rate of 5%. This requirement may not, however, be satisfied in any taxable year and we may not be able to document that fact to the satisfaction of the IRS.

 

Recently enacted legislation provides that non-U.S. corporations meeting certain ownership, operational and other tests may be treated as U.S. corporations for U.S. federal income tax purposes and, thus, be subject to U.S. federal income tax on their worldwide income. Lazard Ltd does not believe this legislation or any regulation promulgated within the scope of the legislation’s regulatory authority will apply to Lazard Ltd or its non-U.S. subsidiaries. See “Risk Factors—Risks Related to Our Business—In the event of a change or adverse interpretation of relevant income tax law, regulation or treaty, or a failure to qualify for treaty benefits, our overall tax rate may be substantially higher than the rate used for purposes of our pro forma financial statements.”

 

Personal Holding Companies.    Any of Lazard Ltd’s U.S. subsidiaries could be subject to additional U.S. tax on a portion of its income if any of them is considered to be a personal holding company, or “PHC,” for U.S. federal income tax purposes. A U.S. corporation generally will be classified as a PHC for U.S. federal income tax purposes in a given taxable year if (1) at any time during the last half of such taxable year, five or fewer individuals (without regard to their citizenship or residency and including as individuals for this purpose certain entities such as certain tax-exempt organizations and pension funds) own or are deemed to own (pursuant to certain constructive ownership rules) more than 50% of the stock of the corporation by value and (2) at least 60% of the

 

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corporation’s adjusted ordinary gross income, as determined for U.S. federal income tax purposes, for such taxable year consists of “PHC income” (which includes, among other things, dividends, interest, royalties, annuities and, under certain circumstances, rents). The PHC rules do not apply to non-U.S. corporations.

 

We believe that five or fewer individuals or tax-exempt organizations will be treated as owning more than 50% of the value of our shares. Consequently, one or more of our U.S. subsidiaries could be or become PHCs, depending on whether any such subsidiaries satisfy the PHC gross income test. We intend to cause our subsidiaries to manage their affairs in a manner that reduces the possibility that any of them will meet the 60% income threshold. We cannot be certain, however, that Lazard Ltd’s subsidiaries will not become PHCs following this offering or in the future.

 

If any of Lazard Ltd’s U.S. subsidiaries is or were to become a PHC in a given taxable year, such company would be subject to an additional 15% PHC tax on its “undistributed PHC income,” which generally includes the company’s taxable income, subject to certain adjustments. For taxable years beginning after December 31, 2008, the PHC tax rate on “undistributed PHC income” will be equal to the highest marginal rate on ordinary income applicable to individuals. Consequently, if Lazard Ltd’s U.S. subsidiaries were to become PHCs, the amount of PHC income may be material.

 

Taxation of Stockholders

 

Bermuda Taxation

 

Under current Bermuda law, there is no Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by our stockholders in respect of our common stock.

 

U.S. Federal Income Taxation

 

The following summary sets forth the material U.S. federal income tax considerations related to the purchase, ownership and disposition of our common shares. Unless otherwise stated, this summary deals only with stockholders that are U.S. Persons (as defined below) who purchase their common shares in this offering, who did not own (directly or indirectly, through foreign entities or constructively) shares of Lazard Ltd prior to this offering and who hold their common shares as capital assets within the meaning of Section 1221 of the Code. The following discussion is only a discussion of the material U.S. federal income tax matters as described herein and does not purport to address all of the U.S. federal income tax consequences that may be relevant to a particular stockholder in light of such stockholder’s specific circumstances. For example, if a partnership holds our common shares, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding common shares, you should consult your tax advisor. In addition, except as expressly stated, the following summary does not address the U.S. federal income tax consequences that may be relevant to special classes of stockholders who may be subject to special rules or treatment under the Code, such as financial institutions, insurance companies, regulated investment companies, real estate investment trusts, partnerships or other pass-through entities, financial asset securitization investment trusts, dealers or traders in securities, tax-exempt organizations, expatriates, any person who owns or is deemed to own 10% or more of the total combined voting power of all classes of shares of Lazard Ltd entitled to vote, any person who holds common shares as part of a hedging or conversion transaction or as part of a short-sale or straddle or any individual who is a non-U.S. Person (as defined below) and who is present in the U.S. for 183 days or more in a taxable year. This discussion does not include any description of the tax laws of any state or local governments within the U.S. and this discussion does not address any aspects of estate and gift taxation.

 

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For purposes of this discussion, the term “U.S. Person” means (1) a citizen or resident of the U.S., (2) a corporation created or organized in or under the laws of the U.S., or any political subdivision thereof (including the District of Columbia), (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source, (4) a trust if either (a) a court within the U.S. is able to exercise primary supervision over the administration of such trust and one or more U.S. Persons have the authority to control all substantial decisions of such trust or (b) the trust has a valid election in effect to be treated as a U.S. Person for U.S. federal income tax purposes or (5) any other person or entity that is treated for U.S. federal income tax purposes as if it were one of the foregoing. The term “non-U.S. Person” means any person other than a U.S. Person.

 

Partner Status.    Beneficial owners of shares who are also stockholders of record of Lazard Ltd will be treated as partners of Lazard Ltd for U.S. federal income tax purposes. Beneficial owners whose common shares are held in street name or by a nominee and who have the right to direct the nominee in the exercise of all substantive rights attendant to the ownership of their common shares also will be treated as partners of Lazard Ltd for U.S. federal income tax purposes.

 

A beneficial owner of common shares whose common shares have been transferred to a short seller to complete a short sale would appear to lose its status as a partner with respect to these common shares for U.S. federal income tax purposes. Please read “—Treatment of Shares Lent to Short Sellers.”

 

Flow-Through of Taxable Income.    Lazard Ltd will not pay any U.S. federal income tax. Instead, each stockholder will be required to report on its income tax return its allocable share of Lazard Ltd’s income, gains, losses, and deductions without regard to whether corresponding cash distributions are received by that stockholder. Although we generally intend to operate our business so that Lazard Ltd’s only net income consists of dividends received from its subsidiaries (and possibly interest), and we intend to allocate that income to the stockholders of Lazard Ltd to whom it is distributed, a stockholder may be allocated a share of Lazard Ltd’s income even if it has not received a cash distribution. Each stockholder must include in income its allocable share of our income, gain, loss, and deduction for our taxable year ending with or within such stockholder’s taxable year.

 

We expect that Lazard Ltd’s gross income will be derived principally from distributions on, and redemptions of, shares of its wholly-owned subsidiaries’ stock. Such distributions and redemptions will be taxable as dividend income to the extent of the payor corporation’s current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, then treated as a tax-free return of capital to the extent of our basis in the payor corporation’s stock, and thereafter taxed as capital gain.

 

To the extent received by Lazard Ltd from a U.S. subsidiary, such dividend income received before 2009 that is allocable to individual Lazard Ltd stockholders that are U.S. Persons should be eligible for reduced rates of tax, provided that certain holding period requirements are satisfied.

 

Subject to the discussions below relating to the potential application of the passive foreign investment company, or “PFIC,” rules to Lazard Ltd’s non-U.S. subsidiaries, dividend income received from Lazard Ltd’s non-U.S. subsidiary before 2009 that is allocable to individual Lazard Ltd stockholders that are U.S. Persons should be characterized as “qualified dividend income” eligible for reduced rates of tax, provided that certain holding period requirements are satisfied and that the payor corporation is a “qualified resident” of the relevant treaty partner as described above.

 

Treatment of Distributions.    Lazard Ltd’s distributions to a stockholder generally will not be taxable to the stockholder for U.S. federal income tax purposes to the extent of its tax basis in its common shares immediately before the distribution. Lazard Ltd’s cash distributions in excess of a stockholder’s tax basis generally will be considered to be gain from the sale or exchange of the

 

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common shares, taxable in accordance with the rules described under “—Dispositions of Common Shares” below. Any reduction in a stockholder’s share of Lazard Ltd’s liabilities, if any, for which no partner bears the economic risk of loss, known as “nonrecourse liabilities,” will be treated as a distribution of cash to that stockholder. A decrease in a stockholder’s percentage interest in Lazard Ltd because of Lazard Ltd’s issuance of additional common shares would decrease its share of Lazard Ltd’s nonrecourse liabilities, if any, and thus would result in a corresponding deemed distribution of cash. However, we generally intend to operate Lazard Ltd’s business so that Lazard Ltd has no direct “nonrecourse liabilities.”

 

Basis of Common Shares.    A stockholder will have an initial tax basis for its common shares equal to the amount it paid for the common shares plus its share of Lazard Ltd’s nonrecourse liabilities, if any. That basis will be increased by its share of Lazard Ltd income and by any increases in its share of Lazard Ltd’s nonrecourse liabilities, if any. That basis will be decreased, but not below zero, by distributions from Lazard Ltd, by the stockholder’s share of Lazard Ltd’s losses, by any decrease in its share of Lazard Ltd’s nonrecourse liabilities (if any) and by its share of Lazard Ltd expenditures that are not deductible in computing our taxable income and are not required to be capitalized.

 

Limitations on Deductibility of Our Losses.    Because we do not expect Lazard Ltd to hold any significant assets other than stock of its subsidiaries, Lazard Ltd will likely incur losses, if any, only under limited circumstances, including, potentially, upon a sale of some or all of the stock of its subsidiaries. If Lazard Ltd were to incur any losses, a stockholder’s use of such losses could be limited under the “at risk” or “passive loss” rules.

 

The deduction by a stockholder of its share of Lazard Ltd’s losses will be limited to the tax basis in its common shares and, in the case of an individual stockholder or a corporate stockholder that is subject to the “at risk” rules, to the amount for which the stockholder is considered to be “at risk” with respect to Lazard Ltd’s activities, if that is less than its tax basis. In general, a stockholder will be at risk to the extent of the tax basis of its common shares, excluding any portion of that basis attributable to its share of Lazard Ltd’s nonrecourse liabilities (if any), reduced by any amount of money it borrows to acquire or hold its common shares, if the lender of those borrowed funds owns an interest in Lazard Ltd, is related to the stockholder, or can look only to the common shares for repayment. A stockholder’s at risk amount will generally increase or decrease as the tax basis of the stockholder’s common shares increases or decreases. A stockholder must recapture losses deducted in previous years to the extent that distributions cause its at risk amount to be less than zero at the end of any taxable year. Losses disallowed to a stockholder or recaptured as a result of these limitations will carry forward and will be allowable to the extent that its tax basis or at risk amount, whichever is the limiting factor, subsequently increases. Upon the taxable disposition of a common share, any gain recognized by a stockholder can be offset by losses that were previously suspended by the at risk limitation but may not be offset by losses suspended by the basis limitation. Any excess loss above that gain previously suspended by the at risk or basis limitations may no longer be used.

 

The passive loss limitations generally provide that individuals, estates, trusts and some closely-held corporations and personal service corporations can deduct losses from passive activities only to the extent of the taxpayer’s income from those passive activities. A passive activity is defined as any activity that involves the conduct of a trade or business in which the taxpayer does not materially participate or any rental activity. We anticipate that the manner in which Lazard Ltd conducts its operations will not constitute the conduct of a trade or business for purposes of the passive activity loss rules. Consequently, these rules are not expected to apply to holders of our common stock. We cannot be certain, however, that Lazard Ltd’s manner of operations will not change and that holders of our common stock will not become subject to the passive activity loss rules following this offering or in the future.

 

Prospective investors should consult their tax advisor as to the effects of the at risk and/or passive activity loss rules.

 

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Limitations on Interest Deductions.    The deductibility of a non-corporate taxpayer’s “investment interest” expense is generally limited to the amount of that taxpayer’s “net investment income.” The IRS has announced that Treasury Regulations will be issued that characterize net passive income (as determined under the passive loss limitation rules) from a publicly-traded partnership as investment income for this purpose. In addition, the stockholder’s share of Lazard Ltd’s dividend and interest income will be treated as investment income, although “qualified dividend income” subject to reduced rates of tax in the hands of an individual, as described above, will only be treated as investment income if the individual stockholder elects to treat such dividend as ordinary income not subject to reduced rates of tax. Investment interest expense includes:

 

  Ÿ   interest on indebtedness properly allocable to property held for investment,

 

  Ÿ   Lazard Ltd’s interest expense attributed to portfolio income, if any, and

 

  Ÿ   the portion of interest expense incurred to purchase or carry an interest in a passive activity to the extent attributable to portfolio income.

 

The computation of a stockholder’s investment interest expense will take into account interest on any margin account borrowing or other loan incurred to purchase or carry a common share. Net investment income includes gross income from property held for investment and amounts treated as portfolio income under the passive loss rules, less deductible expenses, other than interest, directly connected with the production of investment income, but generally does not include gains attributable to the disposition of property held for investment.

 

Allocation of Income, Gain, Loss, and Deduction.    In general, if Lazard Ltd has a net profit or net loss, its items of income, gain, loss, and deduction are allocated among the stockholders in accordance with their particular percentage interests in Lazard Ltd. However, we generally intend to operate our business so that Lazard Ltd’s only net income consists of dividends received from its subsidiaries (and possibly interest), and we intend to allocate that income to the stockholders of Lazard Ltd to whom it is distributed.

 

Special rules generally apply to determine the allocation of a partnership’s items of income, deduction, gain and loss related to “contributed property” (other than cash). Such special rules will have limited relevance to our stockholders because such rules will generally not adversely affect stockholders who purchase their shares directly from Lazard Ltd for cash.

 

An allocation of items of Lazard Ltd’s income, gain, loss, or deduction, will generally be given effect for U.S. federal income tax purposes in determining a partner’s distributive share of an item of income, gain, loss or deduction only if the allocation has “substantial economic effect.” In any other case, a partner’s distributive share of an item will be determined on the basis of the partner’s interest in Lazard Ltd, which will be determined by taking into account all the facts and circumstances, including the partner’s relative contributions to Lazard Ltd, the interests of the partners in economic profits and losses, the interests of the partners in cash flow and other nonliquidating distributions, and rights of the partners to distributions of capital upon liquidation.

 

Although we do not expect that our operations will result in the creation of negative capital accounts, if negative capital accounts nevertheless result, items of Lazard Ltd’s income and gain will be allocated in an amount and manner sufficient to eliminate the negative balance as quickly as possible.

 

Treatment of Shares Lent to Short Sellers. A stockholder whose common shares are loaned to a “short seller” to cover a short sale of common shares may be considered as having disposed of ownership of those common shares. If so, the stockholder would no longer be a partner with respect to

 

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those common shares during the period of the loan and, although the stockholder will receive no cash, the stockholder may recognize gain or loss from the disposition, which will generally be capital gain or loss as described below under “—Dispositions of Common Shares.” As a result, during this period:

 

  Ÿ   any of Lazard Ltd’s income, gain, deduction or loss with respect to those common shares would not be reportable by the stockholder,

 

  Ÿ   any cash distributions received by the stockholder with respect to those common shares would be fully taxable, and

 

  Ÿ   all of these distributions would appear to be treated as ordinary income.

 

The holding period of a stockholder whose common shares are loaned to a “short seller” to cover a short sale of common shares will restart when the common shares are returned to the stockholder. Stockholders desiring to ensure their status as partners and avoid the risk of gain recognition should modify any applicable brokerage account agreements to prohibit their brokers from borrowing their common shares. The IRS has announced that it is actively studying issues relating to the tax treatment of short sales of partnership interests. Please also read “—Disposition of Common Shares—Recognition of Gain or Loss.” Stockholders whose common shares are loaned to a “short seller” should consult their own tax advisors with respect to their status as partners of Lazard Ltd for U.S. federal income tax purposes.

 

Dispositions of Common Shares

 

Recognition of Gain or Loss.    A stockholder will recognize gain or loss on a sale of common shares equal to the difference between the amount realized and the stockholder’s tax basis for the common shares sold. A stockholder’s amount realized will be measured by the sum of the cash or the fair market value of other property received plus its share of Lazard Ltd’s nonrecourse liabilities, if any. Because the amount realized includes a stockholder’s share of Lazard Ltd’s nonrecourse liabilities, if any, the gain recognized on the sale of common shares could result in a tax liability in excess of any cash received from the sale. However, we generally intend to operate our business so that Lazard Ltd has no direct “nonrecourse liabilities.”

 

Prior distributions from Lazard Ltd that decreased a stockholder’s tax basis in that common share will, in effect, become taxable income if the common share is sold at a price greater than the stockholder’s tax basis in that common share, even if the price is less than its original cost.

 

Except as noted below (and, if applicable, under “—Passive Foreign Investment Companies”) gain or loss recognized by a stockholder on the sale or exchange of a common share will generally be taxable as capital gain or loss and as long-term capital gain or loss if the common shares were held for more than 12 months, subject (in the case of stockholders who are individuals) to tax at a maximum U.S. federal income tax rate of 15%. Net capital loss may offset no more than $3,000 of ordinary income in the case of individuals and may only be used to offset capital gain in the case of corporations.

 

The IRS has ruled that a partner who acquires interests in a partnership in separate transactions must combine those interests and maintain a single adjusted tax basis for all those interests. Upon a sale or other disposition of less than all of those interests, a portion of that tax basis must be allocated to the interests sold using an “equitable apportionment” method. On the other hand, a selling stockholder who can identify common shares transferred with an ascertainable holding period may elect to use the actual holding period of the common shares transferred. A stockholder electing to use the actual holding period of common shares transferred must consistently use that identification method for all subsequent sales or exchanges of common shares.

 

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Section 754 Election.    Lazard Ltd will make the election permitted by Section 754 of the Code. The election is irrevocable without the consent of the IRS. The election generally permits Lazard Ltd to adjust a common share purchaser’s tax basis in Lazard Ltd’s assets (“inside basis”) under Section 743(b) of the Code to reflect the common share purchaser’s purchase price. This election does not apply to a person who purchases common shares directly from Lazard Ltd. The Section 743(b) adjustment belongs to the purchaser and not to other partners. For purposes of this discussion, a partner’s inside basis in Lazard Ltd’s assets will be considered to have two components, (1) its share of Lazard Ltd’s tax basis in Lazard Ltd’s assets (“common basis”) and (2) its Section 743(b) adjustment to that basis.

 

Because we do not expect Lazard Ltd to hold any significant assets other than stock of its subsidiaries, Lazard Ltd’s Section 754 election will likely not be relevant to Lazard Ltd’s stockholders except if Lazard Ltd sells, or is treated as selling, all or part of the stock of its subsidiaries. Generally, a Section 754 election is advantageous to a transferee stockholder if such stockholder’s tax basis in its common shares is higher than the common shares’ share of the aggregate tax basis of Lazard Ltd’s assets immediately prior to the transfer. In that case, as a result of the election, the transferee stockholder would have a higher tax basis in its share of Lazard Ltd’s assets for purposes of calculating, among other items, its share of any gain or loss on a sale of Lazard Ltd’s assets. Conversely, a Section 754 election is disadvantageous to a transferee stockholder if such stockholder’s tax basis in its common shares is lower than those common shares’ share of the aggregate tax basis of Lazard Ltd’s assets immediately prior to the transfer. Thus, the fair market value of the common shares may be affected either favorably or adversely by the election.

 

The calculations involved in the Section 754 election are complex, and we will make them on the basis of assumptions as to the value of Lazard Ltd’s assets and other matters. The determinations we make may be successfully challenged by the IRS and any allocations resulting from them may be reduced or disallowed altogether. Should the IRS require a different basis adjustment to be made, and should, in our opinion, the expense of compliance exceed the benefit of the election, Lazard Ltd may seek permission from the IRS to revoke its Section 754 election (although Lazard Ltd will be required to make similar adjustments to a partner’s inside basis in its assets under certain circumstances even if no Section 754 election is in effect). If Lazard Ltd successfully revokes its Section 754 election, a subsequent purchaser of common shares may be allocated more income than it would have been allocated had the election not been revoked.

 

Constructive Termination.    Subject to the electing large partnership rules described below, Lazard Ltd will be considered to have been terminated for tax purposes if there is a sale or exchange of 50% or more of the total interests in Lazard Ltd’s capital and profits within a 12-month period. Lazard Ltd’s termination would result in the closing of Lazard Ltd’s taxable year for all stockholders. In the case of a stockholder reporting on a taxable year other than a fiscal year ending December 31, the closing of Lazard Ltd’s taxable year may result in more than 12 months of Lazard Ltd’s taxable income or loss being includable in its taxable income for the year of termination. Lazard Ltd would be required to make new tax elections after a termination, including a new election under Section 754 of the Code. A termination could also result in penalties if Lazard Ltd were unable to determine that the termination had occurred. Moreover, a termination might either accelerate the application of, or subject us to, any tax legislation enacted before the termination.

 

Passive Foreign Investment Companies.    In general, a foreign corporation will be a PFIC during a given year if (1) 75% or more of its gross income constitutes “passive income” or (2) 50% or more of its assets produce passive income.

 

If any of Lazard Ltd’s direct non-U.S. subsidiaries were characterized as a PFIC during a given year, U.S. Persons holding common shares would be subject to adverse U.S. federal income tax consequences, including a penalty tax at the time of the sale at a gain of, or receipt of an “excess

 

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distribution” with respect to, their shares, unless such persons made a “qualified electing fund election” or “mark-to-market” election. For these purposes, stock of a PFIC that is owned by Lazard Ltd is considered as owned proportionately by Lazard Ltd’s stockholders. It is uncertain that Lazard Ltd would be able to provide its stockholders with the information necessary for a U.S. Person to make a “qualified electing fund election” with respect to Lazard Ltd’s non-U.S. subsidiaries.

 

We believe that none of Lazard’s non-U.S. subsidiaries should be treated as a PFIC. However, actual determination of PFIC status is fundamentally factual in nature and cannot be made until the close of the applicable taxable year. Moreover, we cannot be certain that the IRS will not challenge this position and that a court will not sustain such challenge. Prospective investors should consult their tax advisor as to the effects of the PFIC rules.

 

U.S. Federal Income Tax Considerations for Non-U.S. Persons.    Ownership of our common shares by non-U.S. Persons raises special U.S. federal income tax considerations. To the extent Lazard Ltd receives dividends from a U.S. subsidiary, distributions of such dividend income to Lazard Ltd stockholders who are non-U.S. Persons will be subject to U.S. withholding tax at a rate of 30%. A non-U.S. Person’s ability to lower such withholding rate under an applicable income tax treaty will likely be limited due to special rules under the Code relating to hybrid entities, such as Lazard Ltd, which is a partnership for U.S. federal income tax purposes but which may not be under the laws of the non-U.S. Person’s country of residence.

 

To the extent Lazard Ltd receives dividends from a non-U.S. subsidiary, distributions of such dividend income to Lazard Ltd stockholders who are non-U.S. Persons will not be subject to U.S. tax, unless such income were deemed to be effectively connected with a trade or business conducted by Lazard Ltd or the recipient stockholder in the U.S.

 

While we intend to manage our affairs so that Lazard Ltd will not be engaged in a trade or business in the U.S., we may not, however, be able to do so. If Lazard Ltd were engaged in a trade or business in the U.S., non-U.S. Persons that own our common shares will be considered to be engaged in business in the U.S. and will be subject to U.S. federal income tax on a net income basis at regular rates on “effectively connected income.”

 

Lazard Ltd will be required to pay withholding tax with respect to the portion of Lazard Ltd’s income that is “effectively connected” with the conduct of a U.S. trade or business and which is allocable to non-U.S. Persons that hold our common shares. Under rules applicable to publicly-traded partnerships, Lazard Ltd will withhold taxes on actual cash distributions attributable to effectively connected income made quarterly to stockholders that are non-U.S. Persons at the highest marginal rate applicable to individuals at the time of the distribution. Each stockholder that is a non-U.S. Person must obtain a taxpayer identification number from the IRS and submit that number to Lazard Ltd’s transfer agent on a Form W-8 BEN or applicable substitute form in order to obtain credit for the taxes withheld or to claim the benefits of an applicable tax treaty. A change in applicable law may require us to change these procedures.

 

If Lazard Ltd is unable to avoid being considered to be engaged in a trade or business in the U.S., a foreign corporation that owns common shares may be subject to U.S. branch profits tax at a rate of 30%, in addition to regular federal income tax, on its allocable share of Lazard Ltd’s income and gain, as adjusted for changes in the foreign corporation’s “U.S. net equity,” which are effectively connected with the conduct of a U.S. trade or business. That tax may be reduced or eliminated by an income tax treaty between the U.S. and the country of which the foreign corporate stockholder is a “qualified resident.” In addition, this type of stockholder is subject to special information reporting requirements under Section 6038C of the Code.

 

A stockholder that is a non-U.S. Person will be subject to U.S federal income tax upon the sale or disposition of Lazard Ltd’s common stock to the extent that such stockholder recognizes gain upon

 

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such sale or disposition and such gain is effectively connected with a U.S. trade or business of the stockholder. The IRS has concluded in a published ruling that a stockholder’s gain will be treated as effectively connected with a U.S. trade or business of the stockholder to the extent Lazard Ltd is treated as engaged in a U.S. trade or business through a fixed place of business in the U.S. and the stockholder’s gain is attributable to Lazard Ltd’s U.S. source property.

 

Administrative Matters

 

Information Returns.    We intend to furnish to each stockholder, within 90 days after the close of each calendar year, specific tax information, which describes each stockholder’s share of Lazard Ltd’s income, gain, loss and deduction for its preceding taxable year. In preparing this information, which will generally not be reviewed by counsel, we will use various accounting and reporting conventions, some of which have been mentioned in the previous discussion, to determine the stockholder’s share of income, gain, loss and deduction. Any of those conventions may not yield a result that conforms to the requirements of the Code, regulations or administrative interpretations of the IRS. The IRS may successfully contend in court that those accounting and reporting conventions are impermissible. Any challenge by the IRS could negatively affect the value of the common shares.

 

Elective Procedures for Large Partnerships.    The Code allows large partnerships to elect streamlined procedures for income tax reporting. This election would reduce the number of items that must be separately stated on the Schedules K-1 that are issued to the stockholders, and such Schedules K-1 would have to be provided to stockholders on or before the first March 15 following the close of each taxable year. In addition, this election would prevent Lazard Ltd, which will be taxed as a partnership for U.S. federal income tax purposes, from suffering a “technical termination” (which would close our taxable year) if, within a twelve month period, there is a sale or exchange of 50 percent or more of Lazard Ltd’s total interests. When eligible, Lazard Ltd may make such an election.

 

Backup Withholding.    For each calendar year, Lazard Ltd will report to its U.S. stockholders and to the IRS the amount of distributions that it pays, and the amount of tax (if any) that it withholds on these distributions. Under the backup withholding rules, you may be subject to backup withholding tax with respect to distributions paid unless you: (i) are a corporation or come within another exempt category and demonstrate this fact when required or (ii) provide a taxpayer identification number, certify as to no loss of exemption from backup withholding tax and otherwise comply with the applicable requirements of the backup withholding tax rules. Exempt stockholders who are U.S. Persons should indicate their exempt status on a properly completed IRS Form W-9. A non-U.S. Person may qualify as an exempt recipient by submitting a properly completed IRS Form W-8BEN. Backup withholding is not an additional tax; the amount of any backup withholding from a payment to a stockholder will be allowed as a credit against such stockholder’s U.S. federal income tax liability and may entitle the stockholder to a refund.

 

Treatment of Amounts Withheld.    If Lazard Ltd or any of its subsidiaries is required to withhold any U.S. tax on distributions made to any stockholder or to Lazard Ltd that are allocable to any stockholder, Lazard Ltd or such subsidiary will pay such withheld amount to the IRS. That payment, if made, will be treated as a distribution of cash to the stockholder with respect to whom the payment was made and will reduce the amount of cash to which such stockholder would otherwise be entitled.

 

Nominee Reporting.    Persons who hold an interest in Lazard Ltd as a nominee for another person are required to furnish to us:

 

(a) the name, address and taxpayer identification number of the beneficial owner and the nominee,

 

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(b) whether the beneficial owner is:

 

(1) a person that is not a U.S. Person,

 

(2) a foreign government, an international organization or any wholly-owned agency or instrumentality of either of the foregoing, or

 

(3) a tax-exempt entity;

 

(c) the amount and description of common shares held, acquired or transferred for the beneficial owner, and

 

(d) specific information including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition cost for purchases, as well as the amount of net proceeds from sales.

 

Brokers and financial institutions are required to furnish additional information, including whether they are U.S. Persons and specific information on common shares they acquire, hold or transfer for their own account. A penalty of $50 per failure, up to a maximum of $100,000 per calendar year, is imposed by the Code for failure to report that information to Lazard Ltd. The nominee is required to supply the beneficial owner of the common shares with the information furnished to Lazard Ltd.

 

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SHARES ELIGIBLE FOR FUTURE SALE

 

Prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of our common stock in the public market, or the perception that such sales may occur, could adversely affect the prevailing market price of the common stock. Furthermore, because only a limited number of shares will be available for sale shortly after this offering due to existing contractual and legal restrictions on resale as described below, there may be sales of substantial amounts of our common stock in the public market after the restrictions lapse. This could adversely affect the prevailing market price of our common stock and our ability to raise equity capital in the future. Upon completion of this offering, there will be                  shares of common stock outstanding (or                  shares assuming the underwriters exercise their over-allotment option in full). Of the shares of common stock outstanding,                                  shares of common stock sold in this offering will be freely transferable without restriction or further registration under the Securities Act. In addition, we will have                  shares of our common stock reserved for issuance in connection with the LAZ-MD Holdings exchangeable interests.

 

The following table reflects the timetable for exchangeability of the LAZ-MD Holdings exchangeable interests assuming continued employment of the current managing directors, although exchangeability may be accelerated under certain circumstances as described in “Management—Arrangements with Our Managing Directors—The Retention Agreements—LAZ-MD Holdings Exchangeable Interests” and “Certain Relationships and Related Transactions—Relationship with LAZ-MD Holdings and LFCM Holdings—Master Separation Agreement—LAZ-MD Holdings Exchangeable Interests.”

 

Anniversary of offering

    Number of additional shares of common stock that
are expected to become available for exchange
under LAZ-MD Holdings exchangeable interests

First

     

Second

     

Third

     

Fourth

     

Fifth

     

Sixth

     

Seventh

     

Eighth

     

 

The exchangeable securities we expect to issue in connection with the additional financing transactions will be effectively exchangeable for shares of our common stock on the third anniversary of purchase. We expect that shares of common stock issued upon settlement of the purchase contracts relating to the equity security units will be freely tradeable upon issuance. The shares of our common stock that IXIS will acquire as part of the additional financing transactions generally may not be transferred for a period of 545 days from the date of purchase, but thereafter may be transferred or sold under certain circumstances. See “Description of Our Capital Stock—Securities Issued in the Additional Financing Transactions.” Under limited, agreed upon circumstances, a few of our European managing directors will have the right to cause an early exchange of a portion of their exchangeable interests. In addition, between the first and third anniversaries of this offering, a limited number of our managing directors will be entitled to exchange a portion of their LAZ-MD Holdings exchangeable interests in connection with their anticipated future retirement from us. Our working partners who hold historical partner interests and elect to exchange those interests for shares of our common stock in lieu of the cash consideration in the redemption will hold shares of our common stock after this offering that will be available for resale upon expiration of the underwriters’ lock-up arrangements, subject to compliance with the Securities Act. See “The Separation and Recapitalization Transactions and the Lazard Organizational Structure—The Separation and Recapitalization Transactions—The

 

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Recapitalization of LAZ-MD Holdings and Lazard Group” and “The Separation and Recapitalization Transactions and the Lazard Organizational Structure—The Separation and Recapitalization Transactions—Exchange of Working Member Interests for LAZ-MD Holdings Interests.”

 

The shares of common stock to be received upon exchange of the LAZ-MD Holdings exchangeable interests will constitute “restricted securities” for purposes of the Securities Act. As a result, absent registration under the Securities Act or compliance with Rule 144 thereunder or an exemption therefrom, these shares of common stock will not be freely transferable to the public.

 

In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including an affiliate, who beneficially owns “restricted securities” may not sell those securities until they have been beneficially owned for at least one year. Thereafter, the person would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:

 

  Ÿ   1% of the number of shares of common stock then outstanding, or

 

  Ÿ   the average weekly trading volume of the common stock on the NYSE during the four calendar weeks preceding the filing with the SEC of a notice on the SEC’s Form 144 with respect to such sale.

 

Sales under Rule 144 are also subject to certain other requirements regarding the manner of sale, notice and availability of current public information about Lazard.

 

Under Rule 144(k), a person who is not, and has not been at any time during the 90 days preceding a sale, an affiliate of Lazard and who has beneficially owned the shares proposed to be sold for at least two years (including the holding period of any prior owner except an affiliate) is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. See “Certain Relationships and Related Transactions—LAZ-MD Holdings Stockholders’ Agreement—Registration Rights.”

 

We intend to file a registration statement on Form S-8 with the SEC to register the shares of common stock and other securities being offered under our Equity Incentive Plan. See “Management—The Equity Incentive Plan.” We also will grant registration rights in connection with the LAZ-MD Holdings stockholders’ agreement. See “Certain Relationships and Related Transactions—LAZ-MD Holdings Stockholders’ Agreement.”

 

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UNDERWRITING

 

We and the underwriters named below have entered into an underwriting agreement with respect to the shares of common stock being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co. is acting as sole book-running manager of this offering and is acting as the representative of the underwriters.

 

Underwriters

    Number of Shares

Goldman, Sachs & Co.

     

Citigroup Global Markets Inc.

     

Lazard Frères & Co. LLC

     

Merrill Lynch, Pierce, Fenner & Smith
               Incorporated

     

Morgan Stanley & Co. Incorporated

     

Credit Suisse First Boston LLC

     

J.P. Morgan Securities Inc.

     
    

Total

     
    

 

The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below unless and until this option is exercised.

 

The completion of this offering is conditioned upon the consummation of the concurrent ESU offering and the debt offering.

 

If the underwriters sell more shares than the total number set forth in the table above, the underwriters have an option to buy up to an additional                      shares from us to cover such sales. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.

 

The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by us. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase                      additional shares.

 

Paid by Lazard

    No Exercise
    Full Exercise

Per Share

    $                        $                      

Total

    $                 $             

 

Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover page of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $             per share from the initial public offering price. Any such securities dealers may resell any shares purchased from the underwriters to certain other brokers or dealers at a discount of up to $             per share from the initial public offering price. If all of the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms.

 

Each of us, our directors and officers and all of our stockholders have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their shares of common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Goldman, Sachs & Co. In addition, in connection with their

 

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participation in this offering, we have requested that each of the underwriters commit to specified limitations on their ability to hire our managing directors or employees and such underwriters have agreed to abide by such commitments for a specified period of time.

 

The 180-day restricted period described in the preceding paragraph will be automatically extended if during the last 17 days of the 180-day restricted period we issue an earnings release or announce material news or a material event or prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 15-day period following the last day of the 180-day period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release of the announcement of the material news or material event. This agreement does not apply to the shares of common stock underlying any future awards granted under the Equity Incentive Plan. See “Shares Eligible for Future Sale” for a discussion of certain transfer restrictions.

 

Prior to this offering, there has been no public market for the shares of our common stock. The initial public offering price will be negotiated between us and the representative. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be our historical performance, estimates of the business potential and earnings prospects of us, an assessment of our and LAZ-MD Holdings’ management and the consideration of the above factors in relation to market valuation of companies in related businesses.

 

An application has been made to list the common stock on the NYSE under the symbol “LAZ”. In order to meet one of the requirements for listing shares of our common stock on the NYSE, the underwriters have undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial holders.

 

In connection with this offering, the underwriters may purchase and sell shares of our common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in this offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares from us in this offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option granted to them. “Naked” short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of shares of our common stock in the open market after pricing that could adversely affect investors who purchase in this offering. Stabilizing transactions consist of various bids for or purchases of shares of our common stock made by the underwriters in the open market prior to the completion of this offering.

 

The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representative has repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.

 

Purchases to cover a short position and stabilizing transactions may have the effect of preventing or retarding a decline in the market price of the company’s stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of shares of our common

 

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stock. As a result, the price of shares of our common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued at any time. These transactions may be effected on the NYSE, in the over-the-counter market or otherwise.

 

After the offering, because Lazard Frères & Co. LLC is a member of the NYSE and because of its relationship to us, it will not be permitted under the rules of the NYSE to make markets in or recommendations regarding the purchase or sale of the common stock. This may adversely affect the trading market for the common stock.

 

Also, because of the relationship between Lazard Frères & Co. LLC and us, this offering is being conducted in accordance with Rule 2720 of the Conduct Rules of the National Association of Securities Dealers, Inc. That rule requires that the initial public offering price can be no higher than that recommended by a “qualified independent underwriter,” as defined by the NASD. Goldman, Sachs & Co. has served in that capacity and performed due diligence investigations and reviewed and participated in the preparation of the registration statement of which this prospectus forms a part. Goldman, Sachs & Co. has received $10,000 from us as compensation for such role.

 

The underwriters may not confirm sales to discretionary accounts without the prior written approval of the customer.

 

Lazard Frères & Co. LLC is a subsidiary of Lazard Group and has agreed to purchase approximately         % of the shares being offered in this offering. If any of the shares underwritten by Lazard Frères & Co. LLC are sold by them at a price less than the initial public offering price, the net proceeds from the offering to Lazard on a consolidated basis will be reduced because such affiliate and us are accounted for on a consolidated basis.

 

Each underwriter has represented, warranted and agreed that: (a) it has not offered or sold and, prior to the expiry of a period of six months from the closing date, will not offer or sell any shares to persons in the U.K. except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the U.K. within the meaning of the Public Offers of Securities Regulations 1995; (b) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (“FSMA”)) received by it in connection with the issue or sale of any shares in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and (c) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the U.K.

 

The shares may not be offered or sold, transferred or delivered as part of their initial distribution or at any time thereafter, directly or indirectly, to any individual or legal entity in the Netherlands other than to individuals or legal entities who or which trade or invest in securities in the conduct of their profession or trade, which includes banks, securities intermediaries, insurance companies, pension funds, other institutional investors and commercial enterprises, which, as an ancillary activity, regularly trade or invest in securities.

 

The shares may not be offered or sold by means of any document other than to persons whose ordinary business is to buy or sell shares or debentures, whether as principal or agent, or in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong, and no advertisement, invitation or document relating to the shares may be issued, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the

 

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securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made thereunder.

 

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation, subscription or purchase, of the securities may not be circulated or distributed, nor may the securities be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than under circumstances in which such offer, sale or invitation does not constitute an offer or sale, or invitation for subscription or purchase, of the securities to the public in Singapore.

 

The securities have not been and will not be registered under the Securities and Exchange Law of Japan (the “Securities and Exchange Law”) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.

 

We estimate that our share of the total expenses of this offering, excluding underwriting discounts and commissions, will be approximately $                .

 

We have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act.

 

Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they have received or may receive customary fees and expenses. We and our affiliates have in the past provided, and may in the future from time to time provide, similar services to the underwriters and their affiliates on customary terms and for customary fees. Lazard Frères & Co. LLC is an indirect, wholly-owned subsidiary of Lazard Group and will be participating in the distribution of this offering. Affiliates of Citigroup Global Markets Inc. and J.P. Morgan Securities Inc. are lenders in an existing senior subordinated credit facility provided to Lazard Frères & Co. LLC. An affiliate of Citigroup Global Markets Inc. also is a lender in an existing senior credit facility provided to one of our affiliates in London. An affiliate of J.P. Morgan Securities Inc. also is a lender in an existing senior credit facility provided to one of our affiliates in Paris. None of these credit facilities will be repaid with the proceeds of this offering. Additionally, certain employees of some of the underwriters and their affiliates have invested their personal assets in various funds managed by our affiliates.

 

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LEGAL MATTERS

 

The validity of the shares of common stock offered hereby has been passed upon for us by Conyers Dill & Pearman, Bermuda. The validity of the shares of common stock offered hereby will be passed upon for the underwriters by Appleby Spurling Hunter. We have been represented by Wachtell, Lipton, Rosen & Katz, and the underwriters have been represented by Cravath, Swaine & Moore LLP, New York, New York. Cravath, Swaine & Moore LLP has, from time to time, represented, and will continue to represent, us, our managing directors and our affiliates, for which it has received, and will receive, customary fees and reimbursement of expenses.

 

EXPERTS

 

The consolidated financial statements as of December 31, 2003 and 2004 and for each of the three years in the period ended December 31, 2004, included in this prospectus and the related financial statement schedule included elsewhere in the registration statement have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their reports appearing herein and elsewhere in the registration statement, and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed with the SEC, in Washington, D.C., a registration statement on Form S-1 under the Securities Act with respect to the common stock offered hereby. This prospectus is a part of the registration statement and, as permitted by the SEC’s rules, does not contain all of the information presented in the registration statement. For further information with respect to us, Lazard Group and the common stock offered hereby, reference is made to the registration statement and the exhibits and any schedules filed therewith. Statements contained in this prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance, if such contract or document is filed as an exhibit, reference is made to the copy of such contract or other document filed as an exhibit to the registration statement, each statement being qualified in all respects by such reference. A copy of the registration statement, including the exhibits and schedules thereto, may be read and copied at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site at www.sec.gov, from which interested persons can electronically access the registration statement, including the exhibits and any schedules thereto. The registration statement, including the exhibits and schedules thereto, is also available for reading and copying at the offices of the NYSE at 20 Broad Street, New York, New York 10005.

 

As a result of this offering, we will become subject to the informational requirements of the Securities Exchange Act of 1934, as amended. We will fulfill our obligations with respect to such requirements by filing periodic reports, proxy statements and other information with the SEC. We intend to furnish our stockholders with annual reports containing consolidated financial statements certified by an independent public accounting firm. We also maintain an Internet site at www.lazard.com. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the registration statement of which this prospectus forms a part, and you should not rely on any such information in making your decision whether to purchase our securities.

 

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INDEX TO FINANCIAL STATEMENTS

 

Consolidated Financial Statements*

     

Report of Independent Registered Public Accounting Firm

   F-2

Consolidated Statements of Financial Condition, as of December 31, 2003 and 2004

    F-3

Consolidated Statements of Income for the years ended December 31, 2002, 2003 and 2004

   F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2003 and 2004

   F-6

Consolidated Statements of Changes in Members’ Equity for the years ended December 31, 2002, 2003 and 2004

   F-7

Notes to Consolidated Financial Statements

    F-8
* The historical consolidated financial statements reflect the historical results of operations and financial position of Lazard LLC (the “Company” or “Lazard Group”), including the separated businesses, for all periods presented. Accordingly, the historical financial statements do not reflect what the results of operations and financial position of Lazard Ltd or the Company would have been had these companies been stand-alone, public companies for the periods presented. Specifically, the historical results of operations do not give effect to the following matters:

 

  Ÿ   The separation of the Company’s Capital Markets and Other activities, which consists of equity, fixed income and convertibles sales and trading, broking, research and underwriting services, merchant banking fund management activities outside of France and specified non-operating assets and liabilities.

 

  Ÿ   Payment for services rendered by the Company’s managing directors, which, as a result of the Company operating as a limited liability company, historically has been accounted for as distributions from members’ capital, or in some cases as minority interest, rather than as compensation and benefits expense. As a result, the Company’s operating income historically has not reflected payments for services rendered by its managing directors. After this offering, Lazard Ltd will include all payments for services rendered by its managing directors in employee compensation and benefits expense.

 

  Ÿ   U.S. corporate federal income taxes, since the Company has operated in the U.S. as a limited liability company that was treated as a partnership for U.S. federal income tax purposes. As a result, the Company’s income has not been subject to U.S. federal income taxes. Taxes related to income earned by partnerships represent obligations of the individual partners. Outside the U.S., the Company historically has operated principally through subsidiary corporations and has been subject to local income taxes. Income taxes shown on the Company’s historical consolidated statements of income are attributable to taxes incurred in non-U.S. entities and to New York City Unincorporated Business Tax (“UBT”) attributable to the Company’s operations apportioned to New York City.

 

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Members of

Lazard LLC:

 

We have audited the accompanying consolidated statements of financial condition of Lazard LLC and subsidiaries (the “Company”) as of December 31, 2003 and 2004, and the related consolidated statements of income, cash flows and changes in members’ equity for each of the three years in the period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 the Company as of December 31, 2003 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

 

/s/    Deloitte & Touche LLP

New York, New York

March 14, 2005

 

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Table of Contents

LAZARD LLC

 

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

DECEMBER 31, 2003 AND 2004

(in thousands)

 

     December 31,
     2003
    2004

ASSETS

              

Cash and cash equivalents

    $ 315,817    $ 273,668

Cash and securities segregated for regulatory purposes

      82,737      82,631

Marketable investments

      182,040      112,467

Securities purchased under agreements to resell

      166,674      153,681

Securities owned—at fair value:

              

Bonds—Corporate

      379,405      397,258

Non-U.S. Government and agency securities

      49,463      53,528

U.S. Government and agency securities pledged as collateral

      38,755      98,342

Equities

      28,412      48,101
    
  
       496,035      597,229

Swaps and other contractual agreements

      700      666

Securities borrowed

      891,976      852,266

Receivables—net:

              

Fees

      242,340      284,376

Customers

      129,336      130,668

Banks

      127,721      346,285

Brokers and dealers

      77,015      128,979

Other

      14,684      1,216
    
  
       591,096      891,524

Long-term investments

      214,429      202,644

Other investments

      4,009      9,118

Property—net

      192,476      199,453

Goodwill

      16,547      17,205

Other assets

      102,693      106,672
    
  

Total assets

    $ 3,257,229    $ 3,499,224
    
  

 

 

See notes to consolidated financial statements.

 

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Table of Contents

LAZARD LLC

 

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION—(Continued)

DECEMBER 31, 2003 AND 2004

(in thousands)

 

     December 31,
     2003
    2004

LIABILITIES AND MEMBERS’ EQUITY

              

Notes payable

    $ 57,911    $ 70,777

Securities sold under agreements to repurchase

      109,351      196,338

Securities sold, not yet purchased—at fair value:

              

Bonds—Corporate

      76,480      76,425

U.S. Government and agency securities

      20,575      133,775

Equities

      13,562      22,281
    
  
       110,617      232,481

Swaps and other contractual agreements

      3,222      4,619

Securities loaned

      616,706      624,918

Payables:

              

Banks

      340,464      379,797

Customers

      207,618      178,728

Brokers and dealers

      21,979      43,057
    
  
       570,061      601,582

Accrued employee compensation

      181,043      204,898

Capital lease obligations

      62,167      51,546

Other liabilities

      541,348      652,547

Subordinated loans

      200,000      200,000

Mandatorily redeemable preferred stock

      100,000      100,000
    
  

Total liabilities

      2,552,426      2,939,706

Commitments and contingencies

              

Minority interest

      169,078      174,720

Members’ equity (including $49,777 and $18,058 of accumulated other comprehensive income, net of tax)

      535,725      384,798
    
  

Total liabilities and members’ equity

    $ 3,257,229    $ 3,499,224
    
  

 

See notes to consolidated financial statements.

 

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Table of Contents

LAZARD LLC

 

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

(in thousands)

 

     Year Ended December 31,
     2002
    2003
    2004

REVENUE

                     

Investment banking and other advisory fees

    $ 521,994    $ 676,001    $ 642,367

Money management fees

      444,114      346,955      430,727

Commissions

      60,896      53,003      65,526

Trading gains and losses—net

      62,231      42,499      35,508

Underwriting

      23,888      27,821      54,585

Investment gains (losses), non-trading—net

      25,796      18,212      31,968

Interest income

      63,973      47,025      47,373

Other

      26,770      22,029      20,126
    
  
  

Total revenue

      1,229,662      1,233,545      1,328,180

Interest expense

      63,383      50,161      53,875
    
  
  

Net revenue

      1,166,279      1,183,384      1,274,305
    
  
  

OPERATING EXPENSES

                     

Employee compensation and benefits

      469,037      481,212      573,779

Premises and occupancy costs

      82,121      98,412      96,668

Professional fees

      67,862      56,121      73,547

Travel and entertainment

      41,225      45,774      50,822

Communications and information services

      30,103      34,199      38,848

Equipment costs

      20,527      21,422      26,239

Other

      79,359      56,890      56,640
    
  
  

Total operating expenses

      790,234      794,030      916,543
    
  
  

OPERATING INCOME

      376,045      389,354      357,762

Provision for income taxes

      38,583      44,421      28,375
    
  
  

INCOME ALLOCABLE TO MEMBERS BEFORE MINORITY INTEREST AND EXTRAORDINARY GAIN

      337,462      344,933      329,387

Minority interest

      40,015      94,550      87,920
    
  
  

INCOME ALLOCABLE TO MEMBERS BEFORE EXTRAORDINARY GAIN

      297,447      250,383      241,467

Extraordinary gain

      —        —        5,507
    
  
  

NET INCOME ALLOCABLE TO MEMBERS

    $ 297,447    $ 250,383    $ 246,974
    
  
  

 

See notes to consolidated financial statements.

 

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LAZARD LLC

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

(in thousands)

 

     Year Ended December 31,
  
     2002
     2003
     2004
  

CASH FLOWS FROM OPERATING ACTIVITIES

                         

Net income allocable to Members

    $ 297,447     $ 250,383     $ 246,974  

Adjustments to reconcile net income allocable to Members to net cash provided by operating activities:

                         

Noncash charges included in net income allocable to Members:

                         

Depreciation and amortization

      12,156       13,994       16,938  

Minority interest

      40,015       94,550       87,920  

(Increase) decrease in operating assets:

                         

Cash and securities segregated for regulatory purposes

      558,700       (19,654 )     106  

Securities purchased under agreements to resell

      247,132       (70,911 )     11,444  

Securities owned, at fair value and swaps and other contractual agreements

      676,528       (10,017 )     (71,505 )

Securities borrowed

      (239,570 )     (420,916 )     39,710  

Receivables

      (106,008 )     101,149       (254,382 )

Marketable and long-term investments

      136,058       (190,433 )     101,504  

Other assets

      14,275       8,301       (2,965 )

Increase (decrease) in operating liabilities:

                         

Securities sold under agreements to repurchase

      (510,439 )     27,419       82,919  

Securities sold, not yet purchased, at fair value and swaps and other contractual agreements

      (288,017 )     40,572       122,743  

Securities loaned

      201,539       415,167       8,212  

Payables

      (610,181 )     (110,948 )     (8,633 )

Accrued employee compensation and other liabilities

      7,429       77,865       45,296  
    
 
 

Net cash provided by operating activities

      437,064       206,521       426,281  
    
 
 

CASH FLOWS FROM INVESTING ACTIVITIES

                         

Consolidation of VIEs, net of cash

      —         —         110  

Proceeds from formation of strategic alliance in Italy

      —         100,000       —    

Additions to property

      (22,938 )     (56,230 )     (19,012 )

Disposals and retirements of property

      4,995       10,208       8,606  
    
 
 

Net cash (used in) provided by investing activities

      (17,943 )     53,978       (10,296 )
    
 
 

CASH FLOWS FROM FINANCING ACTIVITIES

                         

Issuance of subordinated debt relating to strategic alliance in Italy

      —         200,000       —    

Distributions to Members and capital withdrawals, net of issuance of interests to LAM Members in 2003 of $27,483 relating to formation of LAM

      (395,017 )     (381,141 )     (366,182 )

Proceeds from notes payable

      19,729       1,636       15,046  

Repayment of notes payable

      (11,844 )     (22,914 )     (2,179 )

Repayment of capital lease obligations

      (7,490 )     (11,647 )     (14,242 )

Repayment of subordinated loans

      (2,968 )     (2,367 )     —    

Proceeds from subordinated loans

      2,367       —         —    

Net capital contributions and distributions from (to) minority interest stockholders

      (14,605 )     (70,862 )     (102,330 )
    
 
 

Net cash used in financing activities

      (409,828 )     (287,295 )     (469,887 )
    
 
 

EFFECT OF EXCHANGE RATE CHANGES ON CASH

      9,538       10,100       11,753  
    
 
 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

      18,831       (16,696 )     (42,149 )

CASH AND CASH EQUIVALENTS—Beginning of year

      313,682       332,513       315,817  
    
 
 

CASH AND CASH EQUIVALENTS—End of year

    $ 332,513     $ 315,817     $ 273,668  
    
 
 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

                         

Cash paid during the year for:

                         

Interest

    $ 59,448     $ 39,722     $ 41,639  
    
 
 

Income taxes

    $ 89,885     $ 19,458     $ 61,877  
    
 
 

 

See notes to consolidated financial statements.

 

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LAZARD LLC

 

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY

YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

(in thousands)

 

     Capital and
Retained
Earnings
     Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
     Total
Members’
Equity
  

BALANCE—January 1, 2002

    $ 741,759     $ (37,062 )   $ 704,697  
    
 
 

Comprehensive income (loss):

                         

Net income allocable to Members

      297,447       —         297,447  

Other comprehensive income—net of tax:

                         

Currency translation adjustments

      —         46,923       46,923  

Minimum pension liability adjustments

      —         (5,139 )     (5,139 )
    
 
 

Comprehensive income

      297,447       41,784       339,231  

Distributions and withdrawals to Members

      (395,017 )     —         (395,017 )
    
 
 

BALANCE—December 31, 2002

      644,189       4,722       648,911  
    
 
 

Comprehensive income (loss):

                         

Net income allocable to Members

      250,383       —         250,383  

Other comprehensive income—net of tax:

                         

Currency translation adjustments

      —         51,042       51,042  

Minimum pension liability adjustments

      —         (5,987 )     (5,987 )
    
 
 

Comprehensive income

      250,383       45,055       295,438  

Distributions and withdrawals to Members

      (408,624 )     —         (408,624 )
    
 
 

BALANCE—December 31, 2003

      485,948       49,777       535,725  
    
 
 

Comprehensive income (loss):

                         

Net income allocable to Members

      246,974       —         246,974  

Other comprehensive income—net of tax:

                         

Currency translation adjustments

      —         29,890       29,890  

Minimum pension liability adjustments

      —         (61,609 )     (61,609 )
    
 
 

Comprehensive income (loss)

      246,974       (31,719 )     215,255  

Distributions and withdrawals to Members

      (366,182 )     —         (366,182 )
    
 
 

BALANCE—December 31, 2004

    $ 366,740     $ 18,058     $ 384,798  
    
 
 

 

See notes to consolidated financial statements.

 

F-7

Table of Contents

LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, unless otherwise noted)

 

1.    ORGANIZATION

 

Lazard LLC (collectively referred to with its subsidiaries as the “Company” or “Lazard Group”) is a Delaware limited liability company. The Company is governed by its Amended and Restated Operating Agreement dated as of January 1, 2002 (the “Operating Agreement”).

 

The Company’s principal activities are divided into three business segments:

 

  Ÿ   Financial Advisory, which includes providing advice on mergers, acquisitions, restructurings and other financial matters,

 

  Ÿ   Asset Management, which includes the management of equity and fixed income securities and merchant banking funds, and

 

  Ÿ   Capital Markets and Other, which consists of equity, fixed income and convertibles sales and trading, broking, research and underwriting services, merchant banking fund management activities outside of France and specified non-operating assets and liabilities.

 

In addition, the Company records selected other activities in Corporate, including cash and marketable investments, certain long-term investments, and the Company’s Paris-based Lazard Frères Banque SA (“LFB”). LFB is a registered bank regulated by the Banque de France. LFB’s primary operations include commercial banking, the management of the treasury positions of Lazard’s Paris House through its money market desk and, to a lesser extent, credit activities relating to securing loans granted to clients of Lazard Frères Gestion (“LFG”) and custodial oversight over assets of various clients. In addition, LFB also operates many support functions of the Paris House. The Company also allocates outstanding indebtedness to Corporate.

 

The consolidated financial statements include the Company’s principal operating subsidiaries, Lazard Frères & Co. LLC (“LFNY”), a New York limited liability company, along with its subsidiaries, including Lazard Asset Management LLC and its subsidiaries (collectively referred to as “LAM”); Lazard Frères SAS and Maison Lazard SAS, along with its subsidiaries, including LFB (collectively referred to as “LFP”), French limited liability companies; and Lazard & Co., Limited (“LCL”), through Lazard & Co., Holdings Limited, an English private limited company (“LCH”); together with their jointly-owned affiliates and subsidiaries.

 

See Note 18 for information regarding a contemplated initial public offering and separated businesses.

 

2.    SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation—The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Company’s policy is to consolidate all majority-owned subsidiaries in which it has a controlling financial interest as well as variable interest entities where the Company is deemed to be the primary beneficiary (Note 3). All material intercompany transactions and balances have been eliminated.

 

The consolidated financial statements are presented in U.S. dollars. Many of the Company’s non-U.S. subsidiaries have a functional currency (i.e., the currency in which operational activities are primarily conducted) that is other than the U.S. dollar, generally the currency of the country in which such subsidiaries are domiciled. Such subsidiaries’ assets and liabilities are translated into U.S. dollars

 

F-8

Table of Contents

LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

at year-end exchange rates, while revenue and expenses are translated at average exchange rates during the year. Adjustments that result from translating amounts from a subsidiary’s functional currency are reported as a component of Members’ equity. Foreign currency remeasurement gains and losses on transactions in non-functional currencies are included on the consolidated statements of income.

 

Use of Estimates—The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions regarding certain trading inventory valuations, compensation liabilities and other matters that affect reported amounts of assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ materially from those estimates.

 

Cash and Cash Equivalents—The Company defines cash equivalents as short-term, highly liquid securities and cash deposits with original maturities of 90 days or less, other than those used for trading purposes.

 

Cash and Securities Segregated for Regulatory Purposes—At December 31, 2003 and 2004, cash and securities with a market value of $35,971 and $27,200, respectively, were deposited in a special reserve account for the exclusive benefit of customers pursuant to Rule 15c3-3 under the Securities Exchange Act of 1934. The remaining balance at December 31, 2003 and 2004 of $46,766 and $55,431, respectively, relates to restricted cash deposits made by the Company to satisfy the requirements of various non-U.S. regulatory authorities.

 

Marketable and Long-Term Investments—“Marketable investments” and “long-term investments” consist principally of investments in exchange traded funds, merchant banking and alternative investment funds, and other privately managed investments. These investments are carried at fair value on the consolidated statements of financial condition, with unrealized gains and losses reflected net on the consolidated statements of income. Where applicable, the fair value of a publicly traded investment is determined by quoted market prices. Most of the Company’s investments included in “long-term investments,” however, are not publicly traded and, as a result, are valued based upon management’s best estimate. The fair value of such investments is based upon an analysis of the investee’s financial results, condition, cash flows and prospects. The carrying value of such investments is adjusted when changes in the underlying fair values are readily ascertainable, generally as evidenced by third party transactions or transactions that directly affect the value of such investments. The Company’s investments in partnership interests, including general partnership and limited partnership interests in real estate funds, are recorded at fair value based on changes in the fair value of the partnerships’ underlying net assets. Because of the inherent uncertainty in the valuation of investments that are not readily marketable, estimated values may differ significantly from the values that would have been reported had a ready market for such investments existed.

 

The Company’s gross non-trading investment gains and (losses) of $52,465 and $(26,669), $23,948 and $(5,736), and $39,808 and $(7,840) for the years ended December 31, 2002, 2003 and 2004, respectively, are included in “investment gains (losses), non-trading-net” on the consolidated statements of income.

 

Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase—Securities purchased under agreements to resell and securities sold under agreements to repurchase are treated as collateralized financing transactions. The agreements provide

 

F-9

Table of Contents

LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

that the transferor will receive substantially the same securities in return at the maturity of the agreement and the transferor will obtain from the transferee sufficient cash or collateral to purchase such securities during the term of the agreement. These securities are carried at the amounts at which they will be subsequently resold or repurchased plus accrued interest. The Company’s policy is to take possession of securities purchased under agreements to resell. As these transactions are short-term in nature, their carrying amounts are a reasonable estimate of fair value.

 

Securities sold under agreements to repurchase and securities purchased under agreements to resell with the same counterparty are reported net by the counterparty in accordance with Financial Interpretation No. (“FIN”) 41, Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements.

 

Securities Owned and Securities Sold, Not Yet Purchased—Securities owned and securities sold, not yet purchased, are stated at quoted market values with realized and unrealized trading and investment gains and losses reflected in “trading gains and losses—net” on the consolidated statements of income. Securities transactions and the related revenue and expenses are recorded on a trade date basis.

 

Swaps and Other Contractual Agreements—A derivative is typically defined as an instrument whose value is “derived” from an underlying instrument or index, such as a future, forward, swap, or option contract, or other financial instrument with similar characteristics. Derivative contracts often involve future commitments to exchange interest payment streams or currencies based on a notional or contractual amount (i.e., interest rate swaps or currency forwards) or to purchase or sell other financial instruments at specified terms on a specified date (i.e., options to buy or sell securities or currencies).

 

Derivatives are reported separately as assets and liabilities unless a legal right of set-off exists under a master netting agreement enforceable by law. Balances related to the fair value of trading and non-trading derivative transactions are included in “swaps and other contractual agreements” on the consolidated statements of financial condition. There are no non-trading derivative transactions to which hedge accounting under Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities, is applied, and, as such, the related gains and losses are reported in the consolidated statements of income.

 

The Company periodically enters into transactions principally for the purchase or sale of government and agency securities with customers that do not settle during the normal settlement cycle, generally three business days (extended settlement or delayed delivery transactions). Accordingly, such delayed delivery transactions are treated in a manner consistent with forward contracts and are recorded on the consolidated statement of financial condition on a settlement date basis with the related gains and losses in value between the trade and settlement date reported as a component of “trading gains and losses—net” on the consolidated statements of income.

 

Securities Borrowed and Securities Loaned—Securities borrowed and securities loaned are recorded at the amount of cash collateral advanced or received. Securities borrowed transactions facilitate the settlement process and require the Company to deposit cash or other collateral with the lender. With respect to securities loaned, the Company receives collateral in the form of cash or other collateral. The amount of collateral required to be deposited for securities borrowed, or received for

 

F-10

Table of Contents

LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

securities loaned, is an amount generally in excess of the market value of the applicable securities borrowed or loaned. The Company monitors the market value of securities borrowed and loaned, with additional collateral obtained, or excess collateral recalled, when deemed appropriate. As the majority of such financing activities are short-term in nature, the carrying value of securities borrowed and securities loaned approximates fair value. Interest related to securities loaned and securities borrowed is included in interest income and interest expense, respectively, on the consolidated statements of income.

 

Collateral—As described above, the Company accepts and pledges collateral in secured financing and securities borrowing and lending transactions. Agreements covering these transactions may permit the secured party to sell or repledge the collateral. Collateral accepted under reverse repurchase agreements, securities lending agreements and margin loans are used to cover short positions, to enter into secured financing transactions and to satisfy reserve requirements under SEC Rule 15c3-3. At December 31, 2003 and 2004, the market value of collateral accepted under reverse repurchase agreements, in securities borrowed transactions and for customer margin loans was $985,669 and $995,525, respectively, of which $688,877 and $747,056 at December 31, 2003 and 2004, respectively, was sold or repledged.

 

Customer Transactions—Customer securities transactions are recorded on a settlement date basis with the related commissions recorded on a trade date basis and included in “commissions” on the consolidated statements of income. Receivables from and payables to customers include amounts due on cash and margin transactions. Securities owned by customers, including those that collateralize margin or other similar transactions, are not reflected on the consolidated statements of financial condition. Receivables from and payables to customers are short-term in nature, and accordingly, their carrying amount is a reasonable estimate of fair value.

 

Receivables—net—Receivables are stated net of an allowance for doubtful accounts of approximately $19,960 and $16,444 at December 31, 2003 and 2004, respectively. The estimate is derived by management of the Company by utilizing past client transaction history and an assessment of the client’s creditworthiness. The Company recorded bad debt expense of approximately $13,245, $3,391 and $4,093 for the years ended December 31, 2002, 2003 and 2004, respectively. The Company recorded recoveries, charge-offs and other adjustments to the allowance for doubtful accounts of approximately $616, $(4,724) and $(7,609) for the years ended December 31, 2002, 2003 and 2004, respectively.

 

Property—net—At December 31, 2003 and 2004 property-net consists of the following:

 

     December 31,
  
     2003
     2004
  

Buildings

    $ 159,302     $ 171,821  

Leasehold improvements

      130,161       111,658  

Furniture and equipment

      40,206       67,283  
    
 

Total

      329,669       350,762  

Less—Accumulated depreciation and amortization

      (137,193 )     (151,309 )
    
 

Property-net

    $ 192,476     $ 199,453  
    
 

 

F-11

Table of Contents

LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

Buildings, leasehold improvements, and furniture and equipment are stated at cost, or in the case of buildings under capital leases, the present value of the future minimum lease payments, less accumulated depreciation and amortization. Buildings represent amounts recorded pursuant to capital leases (Note 11), with the related obligations recorded as capital lease obligations. Such buildings are amortized on a straight-line basis over the estimated useful lives of the assets, which approximate 33 years. Leasehold improvements are capitalized and are amortized over the lesser of the economic useful life of the improvement or the term of the lease. Depreciation of furniture and equipment is determined using estimated useful lives, generally between two to five years. Amortization expense on buildings and leasehold improvements of $7,991, $9,147 and $11,972 for the years ended December 31, 2002, 2003 and 2004, respectively, is included in “premises and occupancy costs” on the consolidated statements of income. Depreciation expense on furniture and equipment of $4,165, $4,847 and $4,966 for the years ended December 31, 2002, 2003 and 2004, respectively, is included in “equipment costs” on the consolidated statements of income. Repair and maintenance costs are expensed as incurred.

 

Goodwill—In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill and intangible assets with indefinite lives are no longer amortized, but instead are tested for impairment annually or more frequently if circumstances indicate impairment may have occurred. In connection with the implementation of SFAS No. 142, the Company was required to assess goodwill for impairment. It was determined that there was no impairment of goodwill at January 1, 2002. The Company has selected December 31 as the date to perform the annual impairment test. At December 31, 2002, 2003 and 2004, the Company compared the fair value of the reporting unit with its carrying amount including goodwill and determined that the fair value exceeded its carrying value. Therefore, the Company determined that no impairment existed. Goodwill reflected on the consolidated statements of financial condition relates to the Financial Advisory business segment.

 

Minority Interest—Minority interest recorded on the consolidated financial statements as of December 31, 2002 and for the year then ended relates primarily to minority interests in various LAM-related general partnership interests. The Company consolidates various LAM related general partnership interests that it controls but does not wholly own. As a result, the Company includes on its consolidated statements of income all of the general partnerships’ net revenue with an appropriate minority interest expense.

 

As of December 31, 2003 and 2004 and for the years then ended, minority interest principally relates to minority interests in (i) various LAM-related general partnership interests, (ii) the Company’s business in Italy (Note 5) and (iii) LAM (Note 6).

 

Revenue Recognition

 

Investment Banking and Other Advisory Fees—Fees for mergers and acquisitions advisory services and financial restructuring advisory services are recorded when billed, which is generally the date the related transactions are consummated. Transaction related expenses, which are directly related to such transactions and billable to clients, are deferred to match revenue recognition. Client reimbursements of expenses are presented net in “investment banking and other advisory fees” on the Company’s consolidated statements of income. The Company also includes receivables related to client reimbursement of expenses in “fees receivable” on the consolidated statements of financial condition. The amounts of expenses reimbursed by clients for the years ended December 31, 2002, 2003 and 2004 are $9,655, $11,041 and $11,583, respectively.

 

F-12

Table of Contents

LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

Money Management Fees—Money management fees are derived from fees for investment management and advisory services provided to institutional and private clients. Revenue is recorded on an accrual basis primarily based on the contractual investment advisory fee applied to the level of client assets under management. Fees vary with the type of assets managed, with higher fees earned on actively managed equity assets, alternative investment (such as hedge funds) and merchant banking products, and lower fees earned on fixed income and money market products. The Company also earns performance-based incentive fees on some investment products, such as hedge funds and merchant banking funds. Incentive fees on hedge funds generally are recorded at the end of the year and typically are calculated based on a specified percentage of a fund’s net appreciation during the year. Incentive fees on hedge funds generally are subject to loss carry-forward provisions in which losses incurred by the funds in any year are applied against future period net appreciation before any incentive fees can be earned. The Company makes merchant banking investments with its own capital, usually alongside capital of qualified institutional and individual investors. These activities typically are organized in funds that make investments in private or public companies, generally through privately negotiated transactions. With respect to merchant banking funds, the Company also may earn incentive fees in accordance with the terms of the funds’ respective agreements. These fees are in the form of a carried interest and are recognized when realized or unrealized gains relating to the underlying investments of the fund exceed a specified threshold. Accordingly, revenue from merchant banking incentive fees are recorded when the return on the underlying investments have exceeded certain contractually established thresholds. Any future underperformance by the merchant banking funds would reduce the Company’s incentive fee revenue, money management fees (since revenue is based on the value of assets under management) and the value of the Company’s merchant banking investments. Receivables relating to money management fees are reported in “fees receivable” on the consolidated statements of financial condition. There are no unrecorded merchant banking incentive fees as of December 31, 2004.

 

Commissions—Commissions charged for executing customer transactions are accrued on a trade date basis and are included in current period earnings.

 

Trading Gains and Losses—net—Changes in the fair value (i.e., unrealized gains and losses) of securities owned and securities sold, not yet purchased are recognized in trading gains and losses—net in the current period. Realized gains and losses and any related interest amounts are included in trading gains and losses—net and interest income and interest expense, respectively, depending on the nature of the instrument. Trading gains and losses are recorded on a trade date basis. Dividend income and expense incurred on trading long and short securities is reported net in trading gains and losses—net.

 

Underwriting—Underwriting revenue is accrued on a trade date basis and represents fees earned, net of estimated transaction related expenses, on primary offerings of debt and equity securities.

 

Soft Dollar Arrangements—The Company’s Asset Management business obtains research and other services through “soft dollar” arrangements. Consistent with the “soft dollar” safe harbor established by Section 28(e) of the Securities Exchange Act of 1934, as amended, the Asset Management business does not have any contractual obligation or arrangement requiring it to pay for research and other services obtained through soft dollar arrangements with

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

brokers. Instead, the broker is obligated to pay for the services. Consequently, the Company does not incur any liability and does not accrue any expenses in connection with any research or other services obtained by the Asset Management business pursuant to such soft dollar arrangements. If the use of soft dollars is limited or prohibited in the future by regulation, we may have to bear the costs of research and other services.

 

Income Taxes—The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes, which requires the recognition of tax benefits or expenses on the temporary differences between the financial reporting and tax bases of assets and liabilities. The Company operates in the U.S. as a limited liability company that is treated as a partnership for U.S. federal income tax purposes. Accordingly, the Company’s income is not subject to U.S. federal income taxes. Taxes related to income earned by partnerships represent obligations of the individual partners. Outside the U.S. the Company principally operates through subsidiary corporations and is subject to local income taxes. Income taxes shown on the Company’s historical consolidated statements of income are attributable to taxes incurred in non-U.S. entities and to New York City Unincorporated Business Tax (“UBT”) attributable to the Company’s operations apportioned to New York City.

 

Net Income Allocable to Members—Payment for services rendered by the Company’s managing directors, as a result of the Company operating as a limited liability company, historically has been accounted for as distributions from members’ capital, or in some cases as minority interest, rather than as compensation and benefits expense. As a result, the Company’s operating income historically has not reflected payments for services rendered by its managing directors.

 

Reclassifications—Certain prior year amounts have been reclassified to conform to the manner of presentation in the current year.

 

3.    RECENTLY ISSUED ACCOUNTING STANDARDS

 

Effective January 1, 2003, the Company adopted FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others—an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34. FIN 45 requires certain disclosures to be made by a guarantor about its obligations under certain guarantees issued. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The adoption of FIN 45 did not have a material impact on the Company’s consolidated financial position or results of operations.

 

In December 2003, the Financial Accounting Standards Board (“FASB”) issued FIN 46R, Consolidation of Certain Variable Interest Entities—an interpretation of ARB No. 51, that further clarifies FIN 46 which was issued on January 17, 2003. FIN 46R clarifies when an entity should consolidate a Variable Interest Entity (“VIE”), more commonly referred to as a special purpose entity (“SPE”). A VIE is an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties, and may include many types of SPEs. FIN 46R requires that an entity shall consolidate a VIE if that entity has a variable interest that will absorb a majority of the VIE’s expected losses if they occur, receive a majority of the VIE’s expected residual returns if they occur, or both. FIN 46R does not apply to certain qualifying SPEs (“QSPEs”), the accounting for which is governed by Statement of Financial Accounting Standards (“SFAS”) No. 140, Accounting for Transfers and Servicing of Financing Assets and Extinguishments of Liabilities. FIN 46R

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

is effective for newly created VIEs beginning January 1, 2004 and for existing VIEs as of the first reporting period beginning after March 15, 2004.

 

Effective January 1, 2004, the Company adopted FIN 46R for VIEs created after December 31, 2003 and for VIEs in which the Company obtained an interest after December 31, 2003. The Company adopted FIN 46R in the second quarter of 2004 for VIEs in which it holds a variable interest that it acquired on or before December 31, 2003.

 

The Company is involved with various entities in the normal course of business that are VIEs and hold variable interests in such VIEs. Transactions associated with these entities primarily include investment management, real estate and private equity investments. Those VIEs for which the Company is the primary beneficiary were consolidated in the second quarter of 2004 in accordance with FIN 46R. Those VIEs include company sponsored venture capital investment vehicles established in connection with the Company’s compensation plans (Note 7).

 

The Company’s merchant banking activities consist of making private equity, venture capital and real estate investments on behalf of customers. At December 31, 2003 and 2004, in connection with its merchant banking activities, the net assets of entities for which the Company has a significant variable interest was approximately $148,398 and $96,733, respectively. The Company’s variable interests associated with these entities, consisting of investments, carried interest and management fees, were approximately $24,449 and $23,983 at such dates which represent the maximum exposure to loss, only if total assets declined 100% at December 31, 2003 and 2004. At December 31, 2004, the consolidated statement of financial condition included $21,013 of incremental assets relating to the consolidation of VIEs for such merchant banking activities in which the Company was deemed to be the primary beneficiary.

 

In connection with its Capital Markets and Other segment activities, the Company holds a significant variable interest in an entity with assets of $3,600 and liabilities of $15,800 at December 31, 2003 and with assets of $2,000 and liabilities of $14,600 at December 31, 2004. The Company’s variable interests associated with this entity, primarily paid-in-kind notes, were approximately $15,800 and $14,600 at December 31, 2003 and 2004, respectively. As the noteholders have sole recourse only to the underlying assets, the Company has no exposure to loss at December 31, 2003 and 2004. Also, as the Company is not the primary beneficiary, the entity has not been consolidated.

 

In connection with its Asset Management business, the Company was the asset manager and held a significant variable interest in a hedge fund, where the aggregate net assets at December 31, 2003 was approximately $8,222. The Company’s maximum exposure to loss at December 31, 2003 was $7,019. This fund was liquidated as of December 31, 2004.

 

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 clarifies the circumstances under which a contract with an initial investment meets the characteristics of a derivative under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149 also amended other existing pronouncements to result in more consistent reporting of derivative contracts. This pronouncement is effective for all contracts entered into or modified after June 30, 2003. The Company adopted SFAS No. 149 as required, with no material impact on the Company’s consolidated financial statements.

 

In May 2003, the FASB issued the SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 requires that the issuer classify a

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

financial instrument that is within its scope as a liability. The initial recognition of SFAS No. 150 applies to financial instruments entered into or modified after May 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company’s classification of mandatorily redeemable preferred stock (Note 10) is in accordance with SFAS No. 150.

 

In December 2003, the Company adopted the provisions of SFAS No. 132R, Employers’ Disclosure about Pensions and Other Post-Retirement Benefits. The Statement requires additional disclosures to those in the original SFAS 132 about assets, obligations, cash flows and net periodic benefit costs of defined benefit pension plans and other defined benefit post-retirement plans.

 

In March 2004, the EITF reached a final consensus on Issue 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. EITF 03-1 requires that when the fair value of an investment security is less than its carrying value, an impairment exists for which the determination must be made as to whether the impairment is other-than-temporary. The EITF 03-1 impairment model applies to all investment securities accounted for under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities and to investment securities accounted for under the cost method to the extent an impairment indicator exists. Under the guidance, the determination of whether an impairment is other-than-temporary and therefore would result in a recognized loss depends on market conditions and management’s intent and ability to hold the securities with unrealized losses. Subsequent to its issuance, the FASB deferred certain provisions of EITF 03-1; however, the disclosure requirements remain effective. The adoption of EITF 03-1 did not have an impact on the Company’s consolidated financial position or results of operations since the Company does not have any securities accounted for under SFAS No. 115.

 

4.    TRADING ACTIVITIES AND RELATED RISKS

 

The Company’s trading activities include providing securities brokerage and underwriting services. Trading activities are primarily related to proprietary positions taken by the Company based on expectations of future market movements and conditions as well as to facilitate client order flow.

 

Market Risk—Market risk is the potential change in an instrument’s value caused by fluctuations in interest and currency exchange rates, equity prices, or other risks. The level of market risk is influenced by the volatility and the liquidity in the markets in which financial instruments are traded.

 

The Company seeks to mitigate market risk associated with trading inventories by employing hedging strategies that correlate rate, price, and spread movements of trading inventories and related financing and hedging activities. The Company uses a combination of cash instruments and derivatives to hedge its market exposure. The following discussion describes the types of market risk faced by the Company.

 

Interest Rate Risk—Interest rate risk arises from the possibility that changes in interest rates will affect the value of financial instruments, primarily the Company’s securities owned and securities sold but not yet purchased. The Company typically uses U.S. Treasury securities to manage interest rate risk relating to interest bearing deposits of non-U.S. banking operations as well as certain non-U.S. securities owned. The Company often hedges its interest rate risk by using interest rate swaps and forward rate agreements. Interest rate swaps generally involve the exchange of fixed and floating interest payment obligations without the exchange of the underlying principal amounts. Forward rate agreements are contracts under which two counterparties agree on the interest to be paid on a notional deposit of a specified maturity at a specific future settlement date with no exchange of principal.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

Currency Risk—Currency risk arises from the possibility that fluctuations in foreign exchange rates will impact the value of financial instruments. The Company uses currency forwards and options to manage currency risk. Exchange rate contracts include cross-currency swaps and foreign exchange forwards. Currency swaps are agreements to exchange future payments in one currency for payments in another currency. These agreements are used to transform the assets or liabilities denominated in different currencies. Foreign exchange forwards are contracts for delayed delivery of currency at a specified future date.

 

Equity Price Risk—Equity price risk arises from the possibility that equity security prices will fluctuate, affecting the value of equity securities. The Company is subject to equity price risk primarily in securities owned and securities sold, not yet purchased, as well as for equity swap contracts entered into for trading purposes.

 

Credit Risk—The Company is exposed to the risk of loss if an issuer or counterparty fails to perform its obligations under contractual terms and the collateral held, if any, is insufficient or worthless. Both cash instruments and derivatives expose the Company to this type of credit risk. The Company has established policies and procedures for mitigating credit risk on principal transactions, including establishing and reviewing limits for credit exposure, maintaining collateral and continually assessing the creditworthiness of counterparties.

 

In the normal course of business, the Company executes, settles, and finances various customer securities transactions. Execution of securities transactions includes the purchase and sale of securities by the Company that exposes the Company to default risk arising from the potential that customers or counterparties may fail to satisfy their obligations. In these situations, the Company may be required to purchase or sell financial instruments at unfavorable market prices to satisfy obligations to other customers or counterparties. The Company seeks to control the risks associated with its customer margin activities by requiring customers to maintain collateral in compliance with regulatory and internal guidelines.

 

Liabilities to other brokers and dealers related to unsettled transactions (i.e., securities failed-to-receive) are recorded at the amount for which the securities were acquired and are paid upon receipt of the securities from other brokers or dealers. In the case of aged securities failed-to-receive, the Company may purchase the underlying security in the market and seek reimbursement for losses from the counterparty.

 

Concentrations of Credit Risk—The Company’s exposure to credit risk associated with its trading and other activities is measured on the individual counterparty basis, as well as by groups of counterparties that share similar attributes. To reduce the potential for risk concentration, credit limits are established and monitored in light of changing counterparty and market conditions.

 

At December 31, 2003 and 2004, the Company’s most significant concentration of credit risk was with the U.S. Government and its agencies. This concentration consists of both direct and indirect exposures. Direct exposure primarily results from securities owned that are issued by the U.S. Government and its agencies. The Company’s indirect exposure results from maintaining U.S. Government and agency securities as collateral for resale agreements and securities borrowed transactions. The Company’s direct exposure on these transactions is with the counterparty; thus, the Company has credit exposure to the U.S. Government and its agencies only in the event of the counterparty’s default.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

Trading and Non-Trading Derivatives—The Company enters into forward foreign exchange contracts, interest rate swaps and other trading contracts for trading purposes and non-trading derivative contracts, including forward foreign exchange rate contracts, interest rate swaps, cross- currency interest rate swaps and other derivative contracts to hedge exposures to interest rate and currency fluctuations. These trading and non-trading contracts are recorded at their fair values on the statements of financial condition. The related gains and losses on trading contracts are included in “trading gains and losses—net” on the consolidated statements of income. The Company’s hedging strategy is an integral part of its trading strategy, and therefore the related gains and losses on the Company’s hedging activities also are recorded in “trading gains and losses—net” on the consolidated statements of income.

 

The table below presents the fair values of the Company’s trading and non-trading derivatives as of December 31, 2003 and 2004:

 

     December 31,
     2003
    2004

Assets

              

Trading Derivatives:

              

Interest rate swap contracts

    $ 695    $ 377

Exchange rate contracts

      5      289
    
  

Total

    $ 700    $ 666
    
  

Liabilities

              

Trading Derivatives:

              

Interest rate swap contracts

    $ —      $ 1,124

Exchange rate contracts

      —        291
    
  

Total trading derivatives

      —        1,415
    
  

Non-Trading Derivatives:

              

Interest rate swap contracts

      3,222      3,204
    
  

Total

    $ 3,222    $ 4,619
    
  

 

Off-Balance Sheet Risks—The Company may be exposed to a risk of loss not reflected on the consolidated financial statements for securities sold, not yet purchased, should the value of such securities rise.

 

For transactions in which the Company extends credit to others, the Company seeks to control the risks associated with these activities by requiring the counterparty to maintain margin collateral in compliance with various regulatory and internal guidelines. Counterparties include customers who are generally institutional investors and brokers and dealers that are members of major exchanges. The Company monitors required margin levels daily and, pursuant to such guidelines, requests counterparties to deposit additional collateral or reduce securities positions when necessary.

 

It is the Company’s policy to take possession of securities purchased under agreements to resell. The Company monitors the market value of the assets acquired to ensure their adequacy as compared to the amount at which the securities will be subsequently resold, as specified in the respective agreements. The agreements provide that, where appropriate, the Company may require the delivery of additional collateral.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

In connection with securities sold under agreements to repurchase, the Company monitors the market value of assets delivered to ensure that the collateral value is not excessive as compared to the amount at which the securities will be subsequently repurchased.

 

5.    STRATEGIC ALLIANCE IN ITALY

 

In September 2002, the Company and Banca Intesa S.p.A. (“Intesa”) announced their agreement to form a strategic alliance (the “Strategic Alliance”). Pursuant to the terms of the Strategic Alliance, effective January 2003, Intesa became a 40% partner in the Company’s business in Italy (“Lazard Italy”), and the Company and Intesa agreed to work to grow the investment banking business in Italy. Lazard Italy is consolidated in the consolidated financial statements, with Intesa’s 40% share recorded as minority interest.

 

The initial term of the Strategic Alliance ends December 31, 2007, and, unless terminated by either of the parties in connection with the end of any term, will automatically extend for additional five-year terms. Both the Company and Intesa have the right to terminate the Strategic Alliance arrangement at the end of each five-year term or at any other time should certain defined events occur, such as changes in control involving either party, transfers of either party’s interest in Lazard Italy or the removal of the chairman of that business under certain circumstances.

 

In connection with the Strategic Alliance, Intesa became an economic partner of the Company through an aggregate financial investment of $300,000. The investments made by Intesa consist of (i) a March 2003 purchase from a subsidiary of the Company of a $150,000 Subordinated Convertible Promissory Note (the “Subordinated Convertible Note”), convertible into a contractual right that entitles the holder to receive payments that would be equivalent to those that a holder of a three percent equity goodwill interest (see Note 12) in the Company would be entitled to in certain fundamental events and (ii) $150,000 invested in Lazard Italy in June 2003, comprised of an investment of euro then equal to $100,000 for 40% of the capital stock in Lazard Italy and the purchase of a $50,000 Subordinated Promissory Note issued by Lazard Italy (the “Subordinated Promissory Note”). The Subordinated Promissory Note has a scheduled maturity date in the year 2078 (subject to extension), with interest payable annually at the rate of 3.0% per annum. The Subordinated Convertible Note, which is guaranteed by the Company, has a scheduled maturity date in the year 2018 and has interest payable annually at a variable interest rate of not less than 3%, and not more than 3.25%, per annum (with such annual interest rate for the years ending March 2004 and March 2005 being 3.0%). Under certain circumstances, including a termination of the Strategic Alliance, the Subordinated Convertible Note and the Subordinated Promissory Note could be redeemed earlier than its stated maturity, and in connection with a termination of the Strategic Alliance, the Company has the obligation to repurchase Intesa’s capital stock of Lazard Italy and the Subordinated Promissory Note and may be obligated to redeem the Subordinated Convertible Note at face value. The proceeds from the sale of capital stock in Lazard Italy exceeded the underlying book value of the net assets purchased by Intesa by approximately $55,000. This amount has been deferred and included in “other liabilities” on the consolidated statement of financial condition as Lazard Italy could be required to repurchase such amount of capital stock held by Intesa in the event of a termination of the Strategic Alliance.

 

The Company has provided financial advisory services to Intesa.

 

6.    FORMATION OF LAM

 

On January 1, 2003, in connection with the formation of the Company’s LAM subsidiary, certain Members of the Company (the managing directors of LAM) who provide services to LAM exchanged

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

their Members’ equity in the Company in the amount of $27,483 for membership interests in LAM of a like amount. As a result, these managing directors ceased being Members of the Company and became exclusively Members of LAM. Following the formation of LAM, the Company continues to control, and thereby consolidates, the operations of LAM with the membership interest held by the LAM managing directors included in “minority interest” on the consolidated statement of financial condition.

 

Pursuant to the formation of LAM, the LAM managing directors also were granted equity units in LAM. In addition, certain other key LAM employees were granted equity units in LAM. The LAM equity units entitle holders to payments only in connection with selected fundamental transactions affecting the Company or LAM, including a dissolution or sale of all or substantially all of the assets of the Company or LAM, a merger of or sale of all of the interests in LAM whereby the Company ceases to own a majority of, or have the right to appoint a majority of the board of, LAM or a non-ordinary course sale of assets by LAM that exceeds $50,000 in value. As a general matter, in connection with a fundamental transaction that triggers the LAM equity units, the holders of the LAM equity units would be entitled in the aggregate to 21.75% of the net proceeds or imputed valuation of LAM in such a transaction after deductions for payment of creditors of LAM and the return of LAM capital, with the remaining 78.25% being retained by the Company. The LAM equity units are not entitled to share in the operating results of LAM. A separate class of interests in LAM is entitled to the ordinary profit and losses of LAM, all of which is owned by the Company. Accordingly, in the absence of a fundamental transaction that triggers the LAM equity units, all of LAM’s net income is allocable to the Company. The equity units granted to LAM managing directors are a part of the LAM managing directors’ membership interest in LAM, and, therefore, all transactions related to the equity units are treated as equity transactions among members. The equity units granted to LAM employees are considered to be compensation for financial accounting purposes. As a fundamental transaction has not yet been considered probable of occurrence, no compensation cost has been recognized to date. The Company has no current intention to cause or otherwise trigger a fundamental transaction that would give rise to payment obligations to the holders of interests in LAM.

 

Commencing in 2003, payments for services rendered by LAM managing directors and other key LAM employees were accounted for as minority interest expense on the consolidated statement of income. The substantial portion of such payments related to compensation of LAM managing directors, which, in prior years, had been accounted for as “distributions to Members” and, therefore, was not reported in prior years’ consolidated statements of income. Such amount was approximately $89,000 for the year ended December 31, 2002. The remainder of such payments, which related to compensation of employee members of LAM, was recorded as employee compensation and benefits expense in prior years’ consolidated statements of income.

 

On and after January 1, 2006, the board of directors of LAM (a majority of which are appointed by the Company) may, in its discretion, grant LAM equity interests that include profit rights to managing directors of, and other persons providing services to, LAM, as a portion of their ongoing compensation. If granted, these equity interests will be subject to specified vesting conditions with 50% of the equity interests vesting on the second anniversary of the date of issuance and the remaining 50% of the equity interests vesting on the third anniversary of the date of issuance.

 

7.    EMPLOYEE BENEFIT PLANS

 

The Company, through its subsidiaries, provides certain retirement and other post-employment benefits to certain of its employees through defined contribution and defined benefit pension plans and other post-retirement benefit plans. The retirement and post-employment benefit plans costs incurred

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

for the years ended December 31, 2002, 2003 and 2004 are included in “employee compensation and benefits” on the consolidated statements of income. The Company has the right to amend or terminate its benefit plans at any time subject to the terms of such plans. Expenses incurred related to the defined benefit pension plans amounted to $12,011, $20,319 and $21,609 for the years ended December 31, 2002, 2003 and 2004, respectively. Expenses (benefits) incurred related to the defined benefit pension plan supplement amounted to $355, $418 and $(60) for the years ended December 31, 2002, 2003 and 2004, respectively. Expenses (benefits) incurred related to the post-retirement health care plans amounted to $3,848, $5,007 and $(1,444) for the years ended December 31, 2002, 2003 and 2004, respectively.

 

The Company also has an incentive compensation plan (the “Plan”) pursuant to which amounts are invested in a Company sponsored investment vehicle for certain key employees. The Company records expenses for the Plan on the dates on which capital calls from such vehicle are funded. Net costs related to the Plan for the years ended December 31, 2002, 2003 and 2004 amounted to approximately $2,000, $2,000 and $100, respectively, and are included in “employee compensation and benefits” on the consolidated statements of income. At December 31, 2004, the Company had remaining commitments of approximately $9,400 under the Plan.

 

LFNY Pension and Post-Retirement Benefits—LFNY has two non-contributory defined benefit pension plans—the Employees’ Pension Plan (“EPP”), which provides benefits to substantially all employees based on certain averages of compensation, as defined, and the Employees’ Pension Plan Supplement (“EPPS”), which provides benefits to certain employees whose compensation exceeds a defined threshold. It is LFNY’s policy to fund EPP to meet the minimum funding standard as prescribed by the Employee Retirement Income Security Act of 1974 (“ERISA”). At December 31, 2003 and 2004, the pension plan assets were invested in a portfolio consisting primarily of equity and fixed-income mutual fund investments managed by LAM. EPPS is a non-qualified supplemental plan and was unfunded at December 31, 2004. LFNY utilizes the “projected unit credit” actuarial method for financial reporting purposes.

 

LFNY also has a non-funded contributory post-retirement medical plan (the “Medical Plan”) covering substantially all of its employees. The Medical Plan pays stated percentages of most necessary medical expenses incurred by retirees, after subtracting payments by Medicare or other providers and after stated deductibles have been met. Participants become eligible for benefits if they retire from the Company after reaching age 62 and completing 10 years of service.

 

LFNY Defined Contribution Plan—LFNY sponsors a defined contribution plan, which covers substantially all of its employees. The Company historically has not matched employee contributions to the plan. On December 14, 2004, the plan was amended to provide for certain matching contributions by the Company, as described below. LFNY also sponsors a profit sharing plan, which covers eligible Managing Directors of LFNY who are also Members of the Company. LFNY makes contributions to the profit sharing plan from funds that would have otherwise been distributable profits. As such, contributions to the profit sharing plan are included in “distributions and withdrawals to Members” on the consolidated statement of changes in Members’ equity.

 

Amendments to LFNY Employee Benefit Plans—On December 14, 2004, LFNY announced the following amendments to its defined benefit pension plan, defined benefit pension plan supplement,

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

defined contribution plan and post-retirement medical plan, all of which will be implemented subsequent to December 31, 2004:

 

  Ÿ   LFNY Defined Benefit Pension Plan and Pension Plan Supplement—Effective as of January 31, 2005, the LFNY Employees’ Pension Plan and the Employees’ Pension Plan Supplement were amended to cease future benefit accruals and future participation. As a result of such amendment, active participants will continue to receive credit for service completed after January 31, 2005 for purposes of vesting; however, future service will not count for purposes of future benefit accruals under the plans. Vested benefits for active participants as of January 31, 2005 will be retained.

 

  Ÿ   LFNY Defined Contribution Plan—Effective January 1, 2005, the LFNY Defined Contribution Plan (the “401(k) Plan”) was amended to implement an employer match to participant pre-tax contributions. LFNY will match 100% of pre-tax contributions, excluding catch-up contributions, to the 401(k) Plan up to 4% of eligible compensation. Participants will be 100% vested in all employer-matching contributions after three years of service. Any service accrued prior to January 1, 2005 will count toward this three-year vesting requirement.

 

  Ÿ   LFNY Post-Retirement Medical Plan—Effective December 31, 2005, post-retirement health care benefits will no longer be offered to those Members and employees hired on or after the effective date and for those Members and employees hired before the effective date who attain the age of 40 after December 31, 2005. In addition, effective January 1, 2006, the cost sharing policy will change for those who qualify for the benefit.

 

LCH Pension and Post-Retirement Benefits—LCH also has two defined benefit pension plans and, in addition, makes contributions to personal pension plans for certain individuals. Each of the defined benefit plans has had a valuation by independent actuaries at December 31, 2003 and 2004, using the “projected unit funding” method.

 

LCH has a non-funded post-retirement medical plan, which is provided, at LCH’s discretion, to certain retired employees. The costs of private medical insurance are provided for these individuals, their spouses and eligible dependents.

 

Termination of LCH’s Post-Retirement Medical Plan—In April 2004, LCH announced a plan to terminate its Post-Retirement Medical Plan. As a result of such action, benefits available to eligible active employees and retirees will cease on February 28, 2007. In accordance with SFAS No. 106, Employers’ Accounting for Post-Retirement Benefits Other Than Pensions, the Company is recognizing the effect of such termination, which resulted in a reduction in the Company’s accumulated post-retirement benefit obligation of approximately $24,000, the effect of which reduced employee compensation and benefits expense by approximately $4,500 for the year ended December 31, 2004 and is expected to reduce employee compensation and benefits expense by approximately $9,000, $9,000 and $1,500 for the years ending December 31, 2005, 2006 and 2007, respectively.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

The following table summarizes LFNY’s and LCH’s benefit obligations, the fair value of the assets and the funded status at December 31, 2003:

 

     Pension
Plans
     Pension
Plan
Supplement
     Post-Retirement
Medical Plans
  

Change in benefit obligation

                         

Benefit obligation at January 1, 2003

    $ 384,484     $ 2,363     $ 38,625  

Service cost

      14,692       246       2,233  

Interest cost

      22,295       121       2,324  

Plan participants’ contributions

                         

Amendments

      1,723       (88 )        

Actuarial gain

      (3,955 )     (23 )     (620 )

Benefits paid

      (17,750 )     (333 )     (1,322 )

Curtailment gain

      (1,482 )                

Foreign currency translation adjustment

      39,662               2,613  
    
 
 

Benefit obligation at December 31, 2003

      439,669       2,286       43,853  
    
 
 

Change in plan assets

                         

Fair value of plan assets at January 1, 2003

      294,598                  

Actual return on plan assets

      36,748                  

Employer contribution

      25,294       333       1,322  

Plan participants’ contributions

                         

Benefits paid

      (17,750 )     (333 )     (1,322 )

Foreign currency translation adjustment

      32,494                  
    
 
 

Fair value of plan assets at December 31, 2003

      371,384       —         —    
    
 
 

Funded status

      (68,285 )     (2,286 )     (43,853 )

Unrecognized net transition (asset)/obligation

      (115 )                

Unrecognized net prior service cost

      (2,185 )     712          

Unrecognized net actuarial (gain)/loss

      80,141       (423 )     2,932  
    
 
 

Prepaid (accrued) benefit cost recognized on the consolidated statement of financial condition

    $ 9,556     $ (1,997 )   $ (40,921 )
    
 
 

Amounts recognized on the consolidated statement of financial condition consist of:

                         

Prepaid benefit cost (included in “other assets”)

    $ 11,857                  

Accrued benefit liability (included in “other liabilities”)

      (16,743 )   $ (1,997 )   $ (40,921 )

Accumulated other comprehensive loss

      14,442                  
    
 
 

Net amount recognized

    $ 9,556     $ (1,997 )   $ (40,921 )
    
 
 

Weighted-average assumptions used to determine benefit obligations at December 31, 2003:

 

Discount rate

      5.6%       6.3%       5.8%  

Rate of annual compensation increase

      3.8% - 6.3%       5.5%       N/A      

Weighted-average assumptions used to determine net periodic benefit cost for year ended December 31, 2003:

  

Discount rate

      5.6%       6.5%       6.0%  

Expected long-term return on plan assets

      7.4%       N/A           N/A      

Rate of annual compensation increase

      3.8% - 6.3%       5.5%       N/A      

 

As of December 31, 2003, the fair value of plan assets and the accumulated benefit obligation within the LFNY plan was $31,178 and $30,373, respectively, and the fair value of plan assets and the accumulated benefit obligation within the LCH plan was $340,206 and $346,767, respectively.

 

F-23

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LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

The following table summarizes LFNY’s and LCH’s benefit obligations, the fair value of the assets and the funded status at December 31, 2004:

 

     Pension
Plans
     Pension
Plan
Supplement
     Post-Retirement
Medical Plans
  

Change in benefit obligation

                         

Benefit obligation at January 1, 2004

    $ 439,669     $ 2,286     $ 43,853  

Service cost

      16,143       341       1,926  

Interest cost

      24,911       138       1,088  

Plan participants’ contributions

                      46  

Amendments

      5,292       41       (15,556 )

Actuarial loss

      27,869       72       442  

Benefits paid

      (17,061 )     (131 )     (1,342 )

Curtailment gain

      (5,759 )     (1,275 )        

Foreign currency translation adjustment

      34,373               1,974  
    
 
 

Benefit obligation at December 31, 2004

      525,437       1,472       32,431  
    
 
 

Change in plan assets

                         

Fair value of plan assets at January 1, 2004

      371,384                  

Actual return on plan assets

      33,951                  

Employer contribution

      13,024       131       1,296  

Plan participants’ contributions

                      46  

Benefits paid

      (17,061 )     (131 )     (1,342 )

Foreign currency translation adjustment

      29,361                  
    
 
 

Fair value of plan assets at December 31, 2004

      430,659       —         —    
    
 
 
                          

Funded status

      (94,778 )     (1,472 )     (32,431 )

Unrecognized net prior service cost

      (2,697 )             (11,068 )

Unrecognized net actuarial (gain)/loss

      98,056       (334 )     3,344  
    
 
 

Prepaid (accrued) benefit cost recognized on the consolidated statement of financial condition

    $ 581     $ (1,806 )   $ (40,155 )
    
 
 

Amounts recognized on the consolidated statement of financial condition consist of:

                         

Prepaid benefit cost (included in “other assets”)

    $ 7,099                  

Accrued benefit liability (included in “other liabilities”)

      (82,568 )   $ (1,806 )   $ (40,155 )

Accumulated other comprehensive loss

      76,050                  
    
 
 

Net amount recognized

    $ 581     $ (1,806 )   $ (40,155 )
    
 
 

Weighted-average assumptions used to determine benefit obligations at December 31, 2004:

 

Discount rate

      5.4%       6.0%       5.0%  

Rate of annual compensation increase

      3.8% - 6.3%       5.5%       N/A      

Weighted-average assumptions used to determine net periodic benefit cost for year ended December 31, 2004:

  

Discount rate

      5.8%       6.3%       5.3%  

Expected long-term return on plan assets

      7.4%       N/A           N/A      

Rate of annual compensation increase

      3.8% - 6.3%       5.5%       N/A      

 

As of December 31, 2004, the fair value of plan assets and the accumulated benefit obligation within the LFNY plan was $34,919 and $34,703, respectively, and the fair value of plan assets and the accumulated benefit obligation within the LCH plan was $395,740 and $478,308, respectively.

 

F-24

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LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

In selecting the expected long-term rate of return on plan assets, the Company considered the average rate of earnings expected on the funds invested or to be invested to provide for the benefits of the plan. The expected long-term rate of return on plan assets is based on expected returns on different asset classes held by the plan in light of prevailing economic conditions as well as historic returns. This included considering the trusts’ asset allocation and the expected returns likely to be earned over the life of the plan. This basis is consistent with the prior year.

 

For measurement purposes, an 8.8% and 9.8% annual rate of increase in the per capita cost of covered health care benefits was assumed for the computation of the December 31, 2003 and 2004 benefit obligations, respectively. The rate was assumed to decrease gradually to 6.7% through 2006 and remain at that level thereafter.

 

The assumed cost of healthcare has an effect on the amounts reported for the firm’s post-retirement plans. A 1% change in the assumed healthcare cost trend rate would have the following effects:

 

     1% Increase
    1% Decrease
  
     2003
    2004
    2003
     2004
  

Cost

    $ 1,322    $ 899    $ (968 )   $ (652 )

Obligation

      10,586      1,176      (8,072 )     (988 )

 

F-25

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LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

The following table summarizes the components of benefit costs, return on plan assets, benefits paid and contributions for the years ended December 31, 2002, 2003 and 2004 for LFNY and LCH:

 

     Pension
Plans
     Pension
Plan
Supplement
     Post-
Retirement
Medical
Plans
  

Year Ended December 31, 2002

                         

Components of net periodic benefit costs:

                         

Service cost

    $ 13,243     $ 265     $ 1,742  

Interest cost

      19,518       148       2,065  

Expected return on plan assets

      (22,950 )                

Amortization of transition (asset)/obligation

      (63 )                

Amortization of net:

                         

Prior service cost

      (301 )     96          

Recognized actuarial (gain) loss

      387       (46 )     41  
    
 
 

Net periodic benefit cost

      9,834       463       3,848  

Settlements

      2,177       (108 )        
    
 
 

Total benefit cost

    $ 12,011     $ 355     $ 3,848  
    
 
 

Actual return on plan assets

    $ (24,204 )                

Employer contribution

      24,341     $ 587     $ 975  

Plan participants’ contributions

                         

Benefits paid

      25,729       587       975  

Year Ended December 31, 2003

                         

Components of net periodic benefit costs:

                         

Service cost

    $ 14,692     $ 246     $ 2,233  

Interest cost

      22,295       121       2,324  

Expected return on plan assets

      (20,930 )                

Amortization of transition (asset)/obligation

      (13 )                

Amortization of net:

                         

Prior service cost

      (240 )     87          

Recognized actuarial (gain) loss

      4,515       (36 )     450  
    
 
 

Net periodic benefit cost

      20,319       418       5,007  

Settlements

                         
    
 
 

Total benefit cost

    $ 20,319     $ 418     $ 5,007  
    
 
 

Actual return on plan assets

    $ 36,749                  

Employer contribution

      25,294     $ 333     $ 1,285  

Plan participants’ contributions

                      37  

Benefits paid

      17,750       333       1,322  

Year Ended December 31, 2004

                         

Components of net periodic benefit costs:

                         

Service cost

    $ 16,998     $ 341     $ 1,926  

Interest cost

      25,373       138       1,088  

Expected return on plan assets

      (27,422 )                

Amortization of transition (asset)/obligation

      (116 )                

Amortization of net:

                         

Prior service cost

      532       87          

Recognized actuarial (gain) loss

      2,588       (17 )     30  
    
 
 

Net periodic benefit cost

      17,953       549       3,044  

Settlements (curtailments)

      3,656       (609 )     (4,488 )
    
 
 

Total benefit cost (benefit)

    $ 21,609     $ (60 )   $ (1,444 )
    
 
 

Actual return on plan assets

    $ 33,951                  

Employer contribution

      13,024     $ 131     $ 1,297  

Plan participants’ contributions

      —         —         46  

Benefits paid

      17,061       131       1,343  

 

F-26

Table of Contents

LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

Expected Benefit Payments—The following table summarizes the expected benefit payments for each of the Company’s plans for the next five fiscal years and in the aggregate for the five fiscal years thereafter:

 

     Pension
Plans
    Pension Plan
Supplement
    Post-Retirement
Medical Plans

2005

    $ 16,289    $ 23    $ 1,302

2006

      17,587      26      1,348

2007

      18,469      35      438

2008

      19,283      40      446

2009

      20,093      43      472

2010-2014

      114,869      325      3,159

 

Plan Assets—The Company’s pension plan weighted-average asset allocations at December 31, 2003 and December 31, 2004 by asset category are as follows:

 

     Plan Assets at December 31
  
     2003
     2004
  

Asset Category

             

Equity Securities

    53 %   53 %

Debt Securities

    38     41  

Other

    9     6  
    
 

Total

    100 %   100 %
    
 

 

The “Other” asset category includes cash, annuities and accrued dividends.

 

Investment Policies and Strategies—The Company’s Employees’ Pension Trust—The primary investment goal is to ensure that the plan remains well funded, taking account of the likely future risks to investment returns and contributions. As a result, a portfolio of assets is maintained with appropriate liquidity and diversification that can be expected to generate long-term future returns that minimize the long-term costs of the pension plan without exposing the trust to an unacceptable risk of under funding. The Company’s likely future ability to pay such contributions as are required to maintain the funded status of the plan over a reasonable time period is considered when determining the level of risk that is appropriate.

 

Measurement Date—The measurement date for the Company’s employee benefit plans was December 31, 2004.

 

Cash Flows

 

Employer Contributions—The Company is expected to make a pension contribution during fiscal year 2005 in the amount of $7,300.

 

Employee Contributions—Employee pension contributions are neither required nor allowed.

 

F-27

Table of Contents

LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

8.    BORROWINGS AND INDEBTEDNESS

 

Notes Payable—The Company’s principal notes payable at December 31, 2003 and 2004 are described below:

 

In May 2001, the Company issued $50,000 of Senior Notes due 2011 (the “Notes”). The Notes, which are unsecured obligations, bear interest at an annual rate of 7.53%. Under certain circumstances the interest rate could be increased to 8.03% if a rating downgrade were to occur, with the interest rate returning to 7.53% if a rating upgrade were to occur subsequent to a rating downgrade. A rating downgrade would be deemed to have occurred if the rating most recently assigned to the Notes by a designated rating agency is below investment grade. If, at any time after a rating downgrade has occurred the Notes are assigned a rating of at least investment grade by a designated rating agency, a rating upgrade would have been deemed to have occurred. The Notes are redeemable from time to time in whole or in part at the option of the Company, with payment of a make-whole amount, and the Company is required to offer to redeem the Notes upon a change of control. The proceeds from the Notes were used for general corporate purposes.

 

The remaining balance at December 31, 2003 and 2004 consists of overdrafts of $3,512 and $18,310, respectively, and borrowings under credit arrangements of approximately $4,399 and $2,467, respectively, at various interest rates ranging from approximately 3.0% to 8.6% per year, maturing through 2005. Of such arrangements, $3,067 and $1,535 at December 31, 2003 and 2004, respectively, relates to a non-recourse term loan, which is collateralized solely by certain fixed assets and leasehold improvements of an equal amount.

 

The carrying value of borrowings described above approximates fair value.

 

Subordinated Loans—Subordinated loans at December 31, 2003 and 2004 amounted to $200,000 and consist of amounts due to Intesa in connection with the Strategic Alliance transaction in Italy (Note 5).

 

LFNY can borrow up to $150,000 of subordinated debt under a Revolving Credit Agreement, which, based on an approval obtained from LFNY’s regulators, qualifies as additional net capital. The interest rate on such borrowings is based upon the prevailing market rate on the dates issued. There were no borrowings outstanding under this agreement as of December 31, 2003 and 2004.

 

Debt maturities relating to notes payable and subordinated loans outstanding at December 31, 2004 for the five years in the period ending December 31, 2009 and thereafter are set forth below:

 

Year Ending December 31,

    Amount

2005

    $ 20,777

2006

      —

2007

      —

2008

      —

2009

      —

Thereafter

      250,000
    
     $ 270,777
    

 

In regard to notes payable and subordinated loans, as of December 31, 2004, the Company is in compliance with all obligations under its various borrowing arrangements.

 

F-28

Table of Contents

LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

Also see Note 10 below regarding the Company’s mandatorily redeemable preferred stock.

 

9.    OTHER ASSETS AND OTHER LIABILITIES

 

Other assets, at December 31, 2003 and 2004, primarily include prepaid pension assets, current and deferred tax assets, deferred expenses, advances and prepayments and deposits.

 

Other liabilities, at December 31, 2003 and 2004, primarily include pension and post-retirement medical plan liabilities, deferred income, current and deferred tax liabilities, deferred compensation, liabilities for certain lease commitments relating to abandoned leases (Note 11), accrued expenses and other payables. Additionally, the Company reclassified amounts principally related to tax liabilities from customer payables to other liabilities at December 31, 2003. This reclassification was to conform to the current year presentation.

 

No individual amount within other assets or other liabilities was greater than 5% of total assets or total liabilities.

 

10.    MANDATORILY REDEEMABLE PREFERRED STOCK

 

In 2001, the Company issued mandatorily redeemable preferred stock (“Class C Preferred Interests”) for an aggregate amount of $100,000. The Class C Preferred Interests are subject to mandatory redemption by the Company in March 2011 and, prior to such date, are redeemable in whole or in part, at the Company’s option. The Class C Preferred Interests are entitled to receive distributions out of the profits of the Company at a rate of 8% per annum, which distributions must be paid prior to any distributions of profits to holders of any other existing class of interests in the Company. Unpaid distributions on the Class C Preferred Interests accrue but are not compounded. Upon liquidation of the Company, the Class C Preferred Interests rank senior to Members’ equity. Interest on mandatorily redeemable preferred stock for the years ended December 31, 2002, 2003 and 2004 of $8,000 per year is included in “interest expense” on the consolidated statements of income.

 

11.    COMMITMENTS AND CONTINGENCIES

 

Leases—The Company leases office space under non-cancelable lease agreements, which expire on various dates through 2022.

 

Occupancy lease agreements, in addition to base rentals, generally are subject to escalation provisions based on certain costs incurred by the landlord. Included in “premises and occupancy costs” on the consolidated statements of income for the years ended December 31, 2002, 2003 and 2004 is $39,520, $48,503 and $54,689, respectively, of rental expense relating to operating leases. The Company subleases office space under agreements, which expire on various dates through March 2013. Sublease income from such agreements was $2,208, $2,437 and $3,201 for the years ended December 31, 2002, 2003 and 2004, respectively.

 

In June 2002, the Company determined that it would no longer utilize certain operating leases in the U.K., which were abandoned in April 2003. In accordance with EITF 88-10, Costs Associated with Lease Modification or Termination, the Company has recorded a liability for operating lease commitments, which expire in 2008, that will continue to be incurred for the remaining term of the lease without substantive future use or benefit to the Company. The liability is based on the discounted future

 

F-29

Table of Contents

LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

commitment net of expected sublease income. The liability approximated $39,000 at December 31, 2003 and 2004, and is included in “other liabilities” on the consolidated statements of financial condition. Approximately $25,000 was recorded as “premises and occupancy costs” on the consolidated statements of income for the year ended December 31, 2002. During the years ended December 31, 2003 and 2004, due to the deterioration in the market for rentals relating to the abandoned lease and the resulting reduction in the expected sublease income, and increases in costs relating to the abandoned space, the Company recorded approximately $16,000 and $6,000 as “premises and occupancy costs” on the consolidated statements of income for the years ended December 31, 2003 and 2004, respectively.

 

Capital lease obligations recorded under sale/leaseback transactions are payable through 2017 at a weighted average interest rate of approximately 6.2%. Such obligations are collateralized by certain assets with a net book value of approximately $109,400 and $114,024 at December 31, 2003 and 2004, respectively. The carrying value of capital lease obligations approximates fair value.

 

At December 31, 2004, minimum rental commitments under non-cancelable leases, net of sublease income, are approximately as follows:

 

Year Ending December 31

    Minimum Rental Commitments
         Capital      
          Operating      

2005

    $ 26,558    $ 50,145

2006

      2,885      48,218

2007

      2,885      46,138

2008

      2,885      44,789

2009

      2,885      43,625

Thereafter

      28,456      309,209
    
  

Total minimum lease payments

      66,554    $ 542,124
           

Less amount representing interest

      15,008       
    
      

Present value of capital lease commitments

    $ 51,546       
    
      

 

Other Commitments—At December 31, 2004, the Company has commitments for capital contributions of $14,031 to Company-sponsored investment funds through 2006 (including $9,400 in connection with the Company’s compensation plans – see Note 7) and for guaranteed compensation arrangements with advisors aggregating $1,644 through 2005. In addition, the Company has agreements relating to future minimum distributions to certain Members or compensation to certain employees of $62,801 and $8,128, respectively, through 2007 and 2009, respectively, incurred for the purpose of recruiting and retaining these senior professionals. The future minimum distributions relating to Members and employees are $36,364, $28,403, $5,180, $619 and $363 for the years ending December 31, 2005, 2006, 2007, 2008 and 2009, respectively. Such agreements are cancelable under certain circumstances. Payments to Members relating to these commitments have been accounted for as distributions from Members’ capital. Amounts relating to employees have been reflected as “employee compensation and benefits,” on the consolidated statements of income in the period such expenses are incurred. See Note 18 for information relating to a commitment made subsequent to December 31, 2004.

 

F-30

Table of Contents

LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

The Company has various other contractual commitments arising in the ordinary course of business. In the opinion of management, the consummation of such commitments will not have a material adverse effect on the Company’s consolidated financial position or results of operations.

 

Exchange/Clearinghouse Member Guarantees—The Company is a member of various U.S. and non-U.S. exchanges and clearinghouses that trade and clear securities or futures contracts. Associated with its membership, the Company may be required to pay a proportionate share of the financial obligations of another member who may default on its obligations to the exchange or the clearinghouse. To mitigate these performance risks, the exchanges and clearinghouses often require members to post collateral as well as meet minimum financial standards. While the rules governing different exchange or clearinghouse memberships vary, the Company’s guarantee obligations generally would arise only if the exchange or clearinghouse had previously exhausted its resources. In addition, any such guarantee obligation would be apportioned among the other non-defaulting members of the exchange or clearinghouse. Any potential contingent liability under these membership agreements cannot be estimated. The Company has not recorded any contingent liability in the consolidated financial statements for these agreements and believes that any potential requirement to make payments under these agreements is remote.

 

Legal—The Company’s businesses, as well as the financial services industry generally, are subject to extensive regulation throughout the world. The Company is involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of our businesses. Management believes, based on currently available information, that the results of such proceedings, in the aggregate, will not have a material adverse effect on its financial condition but might be material to its operating results for any particular period, depending, in part, upon the operating results for such period. As of December 31, 2004, the Company has recorded an accrual for losses for one matter that was settled subsequent thereto.

 

The Company has received a letter from the NASD as part of what it understands to be an industry investigation relating to gifts and gratuities. In addition, the Company has received a subpoena from the SEC similarly seeking information concerning gifts and entertainment involving a mutual fund company. The Company believes that other broker-dealers have received similar subpoenas. The investigations primarily are focused on the capital markets business that will be part of the separated businesses. These investigations are in their early stages and the Company cannot predict their potential outcomes or estimate any potential loss or range of losses related to them. Accordingly, the Company has not recorded an accrual for losses related to any such judicial, regulatory or arbitration proceedings.

 

12.    MEMBERS’ EQUITY

 

Pursuant to the Company’s Operating Agreement, the Company allocates and distributes to its Members a substantial portion of its distributable profits in three monthly installments, as soon as practicable after the end of each fiscal year. Such installment distributions usually begin in February. In addition, other periodic distributions to Members include, as applicable, capital withdrawals, fixed return on Members’ equity and income tax advances made on behalf of Members. Fixed return on Members’ equity includes (i) a fixed rate on Class C Preferred Interests of 8% per annum, (ii) a defined annual rate of return at the broker’s call rate for undistributed payments for services rendered, and (iii) a fixed rate of return of 6% per annum on all other capital excluding certain preferences of Members, as agreed to by all Members. The return on Class C Preferred Interests has been reflected

 

F-31

Table of Contents

LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

in the consolidated statements of income as “interest expense” (see Note 10). The returns on capital (which, exclusive of the interest on mandatorily redeemable preferred stock, aggregated $19,677, $22,061 and $23,991 for the years ended December 31, 2002, 2003 and 2004, respectively) have been reflected as “distributions and withdrawals to Members” on the consolidated statements of changes in Members’ equity.

 

In addition, Members of the Company (other than in respect of their Class C Preferred Interests) also generally are entitled to participate in goodwill of the Company. The right to participate in goodwill represents the right to share (after payments or reserve for existing preferences of creditors, holders of the Class C Preferred Interests and the capital or capital equivalents of the Members) in the net proceeds of fundamental corporate events, such as a sale of all or substantially all of the assets of the Company or a disposition of a line of business. At December 31, 2004, the aggregate preferences of Members exceeds the amount shown on the consolidated statement of financial condition as Members’ equity by approximately $587,000. This amount consists of (i) amounts allocated to the historical partners in respect of the revaluation of the Company’s business as a result of the formation of the predecessor entity to Lazard Group in 1984, (ii) amounts allocated to Members in fiscal years 2002, 2003 and 2004 to reflect the value of additional intangibles not previously recognized in the capital accounts of Lazard Group prior to such years and (iii) the cumulative effect of other charges to Members’ equity reflected in the consolidated statement of financial condition (such as minimum pension liability adjustments) that were not charged to individual Members’ capital accounts. The amounts related to the revaluation and additional intangibles in clauses (i) and (ii) in the preceding sentence are not reflected in the consolidated statement of financial condition. These aggregate preferences, when added together with Members’ equity as shown on the consolidated statement of financial condition, equal the total amount of capital associated with the historical partner interest and working member interests.

 

13.    REGULATORY AUTHORITIES

 

LFNY is a U.S. registered broker-dealer and is subject to the net capital requirements of Rule 15c3-1 under the Securities Exchange Act of 1934. Under the alternative method permitted by this rule, the minimum required net capital, as defined, is 2% of aggregate debit items arising from customer transactions or $1,500, whichever is greater. LFNY’s regulatory net capital at December 2002, 2003 and 2004 was $74,875, $146,761 and $83,165, respectively, which exceeded the minimum requirement by $73,375, $145,261 and $81,665, respectively.

 

Certain U.K. subsidiaries of the Company, LCL, Lazard Brothers & Co., Limited, Lazard Fund Managers Limited, Lazard Asset Management Limited and in 2004, Lazard European Private Equity Partners LLP (the “UK Subsidiaries”) are regulated by the Financial Services Authority (“FSA”). At December 31, 2002, 2003 and 2004, the aggregate regulatory net capital of the U.K. subsidiaries was $308,515, $320,312 and $179,963, respectively, which exceeded the minimum requirement by approximately $170,083, $201,603 and $52,578, respectively.

 

The Financial Advisory activities of Lazard Frères SAS (“LF”) and its wholly-owned subsidiaries, including LFB, are authorized by the Comité des Etablissements de Crédit et des Entreprises d’Investissement and are regulated by the Comité de la Réglementation Bancaire et Financière. Supervision is exercised by the Commission Bancaire, which is responsible, in liaison with the Banque de France, for ensuring compliance with the regulations. In this context LF has the status of a bank

 

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LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

holding company (“Compagnie Financière”) and LFB is a registered bank (“Etablissement de Crédit”). In addition, the investment services activities of the Paris group, exercised through LFB and other subsidiaries, primarily LFG (asset management) and Fonds Partenaires Gestion (private equity, merchant banking), are subject to regulation and supervision by the Autorité des Marchés Financiers. At December 31, 2002, 2003 and 2004, the consolidated regulatory net capital of LF was $94,300, $137,800 and $149,000, respectively, which exceeded the minimum requirement set for regulatory capital levels by approximately $17,600, $45,000 and $49,000, respectively.

 

Certain other U.S. and non-U.S. subsidiaries are subject to various other capital adequacy requirements promulgated by various regulatory and exchange authorities in the countries in which they operate. At December 31, 2002, 2003, and 2004, for those subsidiaries with regulatory capital requirements, aggregate net capital of those subsidiaries were $18,612, $28,125 and $26,126, respectively, which exceeded the minimum required capital by $7,508, $14,466 and $15,544, respectively.

 

At December 31, 2002, 2003 and 2004, each of these subsidiaries individually were in compliance with its regulatory requirements.

 

14.    INCOME TAXES

 

Income taxes reflected on the consolidated statements of income are attributable to taxes incurred in non-U.S. entities and to New York City Unincorporated Business Tax (“UBT”) attributable to the Company’s operations apportioned to New York City.

 

The provisions for income taxes for the years ended December 31, 2002, 2003 and 2004 consist of:

 

     2002
     2003
    2004
  

Current expense:

                        

Foreign

    $ 43,018     $ 33,505    $ 23,750  

U.S. (UBT)

      2,421       5,070      4,665  
    
 
  

Total current

      45,439       38,575      28,415  
    
 
  

Deferred expense (benefit):

                        

Foreign

      (6,856 )     5,846      (40 )
    
 
  

Total deferred

      (6,856 )     5,846      (40 )
    
 
  

Total

    $ 38,583     $ 44,421    $ 28,375  
    
 
  

 

UBT attributable to certain Member distributions has been reimbursed by the Members under an agreement with the Company.

 

A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective tax rates is set forth below:

 

     2002
     2003
     2004
  

U.S. federal statutory income tax rate

    35.0 %   35.0 %   35.0 %

Rate benefit for U.S. partnership operations

    (35.0 )   (35.0 )   (35.0 )

Impact of Foreign operations

    9.6     10.1     6.6  

State and local (UBT)—net

    0.7     1.3     1.3  
    
 
 

Effective Income Tax Rate

    10.3 %   11.4 %   7.9 %
    
 
 

 

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Table of Contents

LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when such differences are expected to reverse. Such temporary differences are reflected in deferred tax assets and liabilities and are included in “other assets” and “other liabilities,” respectively, on the consolidated statements of financial condition.

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the level of historical taxable income, scheduled reversals of deferred taxes, projected future taxable income, and tax planning strategies that can be implemented by the Company in making this assessment. At December 31, 2003 and 2004, deferred tax assets of $60,278 and $88,007, respectively, have been offset by a valuation allowance primarily due to the uncertainty of realizing the benefit of certain foreign net operating loss carryforwards. Considering the cumulative recent historical losses incurred in the U.K., there is uncertainty related to the potential for future taxable profits to be recognized in the U.K., and there are various limitations under U.K. tax law applied to carryforward losses. Therefore, management has determined that it is more likely than not that such assets will not be realized. As of December 31, 2004, the Company’s foreign subsidiaries have net operating loss carryforwards of approximately $196,000, which may be carried forward indefinitely, subject to various limitations on use which affect the ability to apply such loss carryforwards to future taxable profits.

 

Significant components of the Company’s deferred tax assets and deferred tax liabilities at December 31, 2003 and 2004 are as follows:

 

     2003
     2004
  

Deferred Tax Assets:

                 

Compensation and benefits

    $ 2,483     $ 5,308  

Pensions

      7,411       15,919  

Depreciation and amortization

      878       17  

Other

      1,669       6,409  

Net operating loss and tax credit carryforwards

      47,837       64,672  
    
 

Gross deferred tax assets

      60,278       92,325  

Valuation allowance

      (60,278 )     (88,007 )
    
 

Total deferred tax assets (net of valuation allowance)

    $ —       $ 4,318  
    
 

Deferred Tax Liabilities:

                 

Compensation and benefits

    $ 1,085     $ —    

Unrealized gains on long-term investments

      4,924       3,998  

Other

      —         40  

Depreciation and amortization

      15,760       21,158  
    
 

Total deferred tax liabilities

    $ 21,769     $ 25,196  
    
 

 

15.    SEGMENT OPERATING RESULTS

 

The Company’s reportable segments offer different products and services and are managed separately as different levels and types of expertise are required to effectively manage the segments’ transactions. Each segment is reviewed to determine the allocation of resources and to assess its

 

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LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

performance. In reporting to management, the Company’s business results are categorized into the following three segments: Financial Advisory, Asset Management, and Capital Markets and Other. Financial Advisory includes providing advice on mergers, acquisitions, restructurings and other financial matters. Asset Management includes the management of equity and fixed income securities and merchant banking funds. Capital Markets and Other consists of equity, fixed income and convertibles sales and trading, broking, research and underwriting services, merchant banking fund management activities outside of France and specified non-operating assets and liabilities. In addition, the Company records selected other activities in Corporate, including cash and marketable investments, certain long-term investments, and LFB. LFB is a registered bank regulated by the Banque de France. LFB’s primary operations include commercial banking, the management of the treasury positions of Lazard’s Paris House through its money market desk and, to a lesser extent, credit activities relating to securing loans granted to clients of LFG and custodial oversight over assets of various clients. In addition, LFB also operates many support functions of the Paris House. The Company also allocates outstanding indebtedness to Corporate.

 

The accounting policies of the segments are consistent with those described in the summary of significant accounting policies in Note 2.

 

The Company’s segment information for the years ended December 31, 2002, 2003 and 2004 is prepared using the following methodology:

 

  Ÿ   Revenues and expenses directly associated with each segment are included in determining operating income.

 

  Ÿ   Expenses not directly associated with specific segments are allocated based on the most relevant measures applicable, including headcount, square footage and other factors.

 

  Ÿ   Segment assets are based on those directly associated with each segment, and include an allocation of certain assets relating to various segments, based on the most relevant measures applicable, including headcount, square footage and other factors.

 

The Company allocates trading gains and losses, investment gains and losses, interest income, and interest expense among the various segments based on the segment in which the underlying asset or liability is reported.

 

Each segment’s operating expenses include (i) employee compensation and benefits expenses that are incurred directly in support of the businesses and (ii) other operating expenses, which include directly incurred expenses for premises and occupancy, professional fees, travel and entertainment, communications and information services, equipment, and indirect support costs (including compensation and other operating expenses related thereto) for administrative services. Such administrative services include, but are not limited to, accounting, tax, legal, facilities management and senior management activities.

 

The Company evaluates segment results based on net revenue and operating income.

 

There were no clients for the years ended December 31, 2002, 2003 and 2004 that individually constituted more than 10% of total revenue.

 

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LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

Management believes that the following information provides a reasonable representation of each segment’s contribution to net revenue, operating expenses, operating income and total assets. Certain prior year amounts have been reclassified to conform to the manner of presentation in the current year.

 

          As of or for the Year Ended December 31,
  
          2002
    2003
     2004
  

Financial Advisory

    Net Revenue    $ 532,896    $ 690,967     $ 655,200  
     Operating Expenses (a)      330,802      380,250       443,682  
         
  
 
     Operating Income    $ 202,094    $ 310,717     $ 211,518  
         
  
 
     Total Assets    $ 222,653    $ 339,454     $ 380,331  
         
  
 

Asset Management

    Net Revenue    $ 454,683    $ 350,348     $ 417,166  
     Operating Expenses (a)      298,617      239,888       282,029  
         
  
 
     Operating Income    $ 156,066    $ 110,460     $ 135,137  
         
  
 
     Total Assets    $ 252,629    $ 198,692     $ 245,449  
         
  
 

Capital Markets and Other

    Net Revenue    $ 174,309    $ 135,534     $ 188,100  
     Operating Expenses (a)      158,411      182,195       192,471  
         
  
 
     Operating Income (Loss)    $ 15,898    $ (46,661 )   $ (4,371 )
         
  
 
     Total Assets    $ 1,037,493    $ 1,422,758     $ 1,488,675  
         
  
 

Corporate

    Net Revenue    $ 4,391    $ 6,535     $ 13,839  
     Operating Expenses (a)      2,404      (8,303 )     (1,639 )
         
  
 
     Operating Income    $ 1,987    $ 14,838     $ 15,478  
         
  
 
     Total Assets    $ 947,950    $ 1,296,325     $ 1,384,769  
         
  
 

Total

    Net Revenue    $ 1,166,279    $ 1,183,384     $ 1,274,305  
     Operating Expenses (a)      790,234      794,030       916,543  
         
  
 
     Operating Income    $ 376,045    $ 389,354     $ 357,762  
         
  
 
     Total Assets    $ 2,460,725    $ 3,257,229     $ 3,499,224  
         
  
 
(a) Operating expenses include depreciation and amortization as set forth in table below.

 

     Year Ended December 31,
     2002
    2003
    2004

Financial Advisory

    $ 4,138    $ 5,686    $ 4,792

Asset Management

      4,475      1,638      1,871

Capital Markets and Other

     434      2,082      2,295

Corporate

      3,109      4,588      7,980
    
  
  

Total

    $ 12,156    $ 13,994    $ 16,938
    
  
  

 

Geographic Information

 

Due to the highly integrated nature of international financial markets, the Company manages its business based on the profitability of the enterprise as a whole. The Company’s revenue and identifiable assets are generally allocated based on the country or domicile of the legal entity providing the service.

 

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LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

The following table sets forth the net revenue and identifiable assets of the Company and its consolidated subsidiaries by geographic region allocated on the basis described above.

 

     As Of Or For The Year Ended December 31,
     2002
    2003
    2004

Net Revenue:

                     

North America

    $ 652,090    $ 675,223    $ 675,736

United Kingdom

      189,426      136,599      212,522

France

      169,053      164,669      188,507

Other Western Europe

      118,567      178,424      175,065

Rest of World

      37,143      28,469      22,475
    
  
  

Total

    $ 1,166,279    $ 1,183,384    $ 1,274,305
    
  
  

Identifiable Assets:

                     

North America

    $ 1,085,657    $ 1,763,544    $ 1,804,346

United Kingdom

      358,212      330,461      396,873

France

      874,818      942,930      1,082,432

Other Western Europe

      119,416      194,250      182,144

Rest of World

      22,622      26,044      33,429
    
  
  

Total

    $ 2,460,725    $ 3,257,229    $ 3,499,224
    
  
  

 

16.    PANMURE GORDON—ASSET ACQUISITION

 

In January 2004, a subsidiary of the Company acquired certain assets, net of certain liabilities, of West LB Panmure Limited, an unrelated entity in the U.K. Subsequent to the acquisition, the acquired business became part of the Company’s Capital Markets and Other segment, operating as Panmure Gordon, a division of LCL. Panmure Gordon provides clients with corporate finance advisory services, corporate broking capabilities and equity sales and trading. The total purchase price allocated to the net assets of the business acquired was $1,580 related to legal costs incurred to complete the transaction. The fair value of the net assets acquired over the purchase price of those net assets amounted to $5,658. In accordance with SFAS No. 141, Business Combinations, the Company recognized an extraordinary gain of $5,507 after reducing long-lived assets principally representing property to $0. See Note 18 for further information relating to Panmure Gordon.

 

17.    FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The majority of the Company’s assets and liabilities are recorded at fair value or at amounts that approximate fair value. Such assets and liabilities include: cash and cash equivalents, cash and securities segregated for regulatory purposes, marketable investments and long-term investments, securities purchased under agreements to resell and securities sold under agreements to repurchase, securities owned and securities sold, not yet purchased, swaps and other contractual agreements, receivables and payables, and other short-term borrowings and payables (also see discussion in Note 2).

 

The fair value of certain of the Company’s other assets and liabilities are disclosed below.

 

Subordinated Loans—The Company’s subordinated loans are recorded at historical amounts. The fair value of the Company’s subordinated loans was estimated using a discounted cash flow analysis based

 

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Table of Contents

LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

on the Company’s current borrowing rates for similar types of borrowing arrangements. At December 31, 2004, the carrying value of the Company’s subordinated loans approximated fair value.

 

Mandatorily Redeemable Preferred Stock—The Company’s mandatorily redeemable preferred stock is recorded at $100,000 which approximates fair value. The fair value was estimated using a discounted cash flow analysis based on the Company’s current borrowing rates for similar types of borrowing arrangements and the Company’s ability to redeem the preferred stock at its option. At December 31, 2003 and 2004, the estimated fair value of the Company’s mandatorily redeemable preferred stock approximated the carrying value.

 

18.    SUBSEQUENT EVENTS

 

Initial Public Offering—It is currently contemplated that the Company will cause Lazard Ltd, a Bermuda company, to proceed with an initial public offering involving a portion of the Company’s business as well as certain additional financing transactions. The historical consolidated financial statements reflect the historical results of operations and financial position of the Company, including the separated businesses, for all years presented. Accordingly, the historical financial statements do not reflect what the results of operations and financial position of Lazard Ltd or the Company would have been had these companies been stand-alone, public companies for the years presented. Specifically, the historical results of operations do not give effect to the following matters:

 

  Ÿ   The separation of the Company’s Capital Markets and Other activities, which consists of equity, fixed income and convertibles sales and trading, broking, research and underwriting services, merchant banking fund management activities outside of France and specified non-operating assets and liabilities.

 

  Ÿ   Payment for services rendered by the Company’s managing directors, which, as a result of the Company operating as a limited liability company, historically has been accounted for as distributions from members’ capital, or in some cases as minority interest, rather than as compensation and benefits expense. As a result, the Company’s operating income historically has not reflected payments for services rendered by its managing directors. After this offering, Lazard Ltd will include all payments for services rendered by its managing directors in compensation and benefits expense.

 

  Ÿ   U.S. corporate federal income taxes, since the Company has operated in the U.S. as a limited liability company that was treated as a partnership for U.S. federal income tax purposes. As a result, the Company’s income has not been subject to U.S. federal income taxes. Taxes related to income earned by partnerships represent obligations of the individual partners. Outside the U.S., the Company historically has operated principally through subsidiary corporations and has been subject to local income taxes. Income taxes shown on the Company’s historical consolidated statements of income are attributable to taxes incurred in non-U.S. entities and to UBT attributable to the Company’s operations apportioned to New York City.

 

In addition, the business alliance agreement to be entered into between the Company and LFCM Holdings LLC, a newly-formed Delaware limited liability company that will hold the business to be separated from Lazard Group in connection with the initial public offering, or “LFCM Holdings,” will grant the Company the option to acquire the North American and European fund management activities of Lazard Alternative Investments Holdings LLC (“LAI”), the subsidiary of LFCM Holdings that will own and operate all of LFCM Holdings’ merchant banking activities, exercisable at any time prior to

 

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LAZARD LLC

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, unless otherwise noted)

 

the ninth anniversary of the consummation of this offering for a total price of $10,000. The option may be exercised by Lazard Group in two parts, consisting of an $8,000 option to purchase the North American merchant banking activities and a $2,000 option to purchase the European merchant banking activities. LAI’s merchant banking activities initially will consist of the merchant banking management and general partner entities, together with the Company’s direct investments in related funds, that were transferred to LFCM Holdings pursuant to or in anticipation of the separation.

 

On February 25, 2005, Lazard Group formed a new private equity fund, Corporate Partners II Limited, with $1 billion of institutional capital commitments and a $100 million capital commitment from Lazard Group through 2010. Pursuant to the master separation and business alliance agreements, following the completion of the separation, this fund will be managed by a subsidiary of LFCM Holdings, and Lazard Group will retain a capital commitment to the fund and will be entitled to receive the carried interest distributions made by the fund (other than the carried interest distributions made to investment professionals who manage the fund).

 

The business alliance agreement will provide the Company with certain governance rights with respect to LAI and provide for support by LFCM Holdings of the business of LAI. With respect to historic investments and funds transferred to LFCM Holdings as part of the separation, profits realized prior to the option exercise would be for the account of LFCM Holdings whereas profits realized after the exercise of the option would be for the account of Lazard Group. Lazard Group intends to invest capital in future funds to be managed by LFCM Holdings’ subsidiaries and will be entitled to receive incentive fee payments from such funds, as well as profits related to such investments, if any, irrespective of whether it exercises its purchase option.

 

If the initial public offering and additional financing transactions are consummated, the Company intends to use the net proceeds primarily to (i) redeem membership interests held by the historical partners based on their total capital, including preferences (Note 12), (ii) capitalize the separated businesses, and (iii) repay the 7.53% Senior Notes due 2011 in aggregate principal amount of $50,000 (Note 8).

 

Panmure Gordon—On February 1, 2005, Lazard Group announced that it had entered into a non-binding memorandum of understanding with Durlacher Corporation PLC, an unaffiliated U.K. broking firm focused on the small and mid cap sector, for the acquisition by Durlacher of Panmure Gordon. The Company expects that if consummated, the combined company would be owned one-third by former Durlacher stockholders, one-third by the Company (or upon completion of the separation, LFCM Holdings) and one-third by the employees of the combined company. The transaction is subject to entry into definitive agreements and customary closing conditions, including approval of the Durlacher stockholders. Pursuant to the terms of a letter agreement, Lazard Group and LFCM Holdings will share any cash proceeds to be derived from the sale of Panmure Gordon to Durlacher if the separation is completed and such sale occurs within six months of the date of the letter agreement.

 

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Table of Contents

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

 

 

TABLE OF CONTENTS

 

     Page

Prospectus Summary

    1

Risk Factors

   25

Special Note Regarding Forward-Looking Statements

    51

The Separation and Recapitalization Transactions and the Lazard Organizational Structure

    52

Use of Proceeds

    63

Dividend Policy

    64

Dilution

    65

Capitalization

    67

Selected Consolidated Financial Data

    68

Unaudited Pro Forma Condensed Consolidated Statement of Financial Condition

    75

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    78

Business

    116

Management

    132

Principal Stockholders

    146

Certain Relationships and Related Transactions

    147

Description of Capital Stock

    162

Description of the Equity Security Units

    172

Description of Indebtedness

   178

Material U.S. Federal Income Tax and Bermuda Tax Considerations

    180

Shares Eligible for Future Sale

    191

Underwriting

    193

Legal Matters

    197

Experts

    197

Where You Can Find More Information

    197

Index to Financial Statements

   F-1

 

 

Through and including                     , 2005 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

 

                     Shares

 

Lazard Ltd

 

Class A Common Stock

 

 

LOGO

 

 

 

Goldman, Sachs & Co.

Citigroup

Lazard

Merrill Lynch & Co.

Morgan Stanley

Credit Suisse First Boston

JPMorgan

 

 

 

Table of Contents

PART II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13. Other Expenses of Issuance and Distribution

 

The following table sets forth the estimated costs and expenses, other than underwriting discounts and commissions, payable in connection with the sale of the common stock being registered, all of which will be paid by the Registrant:

 

     Amount

SEC registration fee

    $ 100,045

New York Stock Exchange listing fee

      *

National Association of Securities Dealers, Inc. filing fee

      30,500

Printing and engraving expenses

      *

Legal fees and expenses

      *

Accounting fees and expenses

      *

Blue sky fees and expenses

      *

Transfer agent and registrar fees and expenses

      *

Miscellaneous

      *
    

Total

    $ *
    
* To be filed by amendment.

 

Item 14. Indemnification of Directors and Officers

 

The bye-laws of the Registrant provide for indemnification of the Registrant’s officers and directors against all liabilities, loss, damage or expense incurred or suffered by such party as an officer or director of the Registrant; provided that such indemnification shall not extend to any matter which would render it void pursuant to the Companies Act 1981 of Bermuda (the “Companies Act”).

 

The Companies Act provides that a Bermuda company may indemnify its directors and officers in respect of any loss arising or liability attaching to them as a result of any negligence, default or breach of trust of which they may be guilty in relation to the company in question. However, the Companies Act also provides that any provision, whether contained in the company’s bye-laws or in a contract or arrangement between the company and the director or officer, indemnifying a director or officer against any liability which would attach to him in respect of his fraud or dishonesty will be void.

 

The directors and officers of the Registrant are covered by directors’ and officers’ insurance policies maintained by the Registrant.

 

The proposed form of underwriting agreement to be filed as Exhibit 1.1 to this registration statement provides for indemnification of directors and certain officers of the Registrant by the underwriters against certain liabilities.

 

Item 15. Recent Sales of Unregistered Securities

 

On November 1, 2004, the Registrant issued 12,000 shares of common stock, par value $1.00 per share, 11,880 of which were issued to Lazard Frères & Co. LLC and 120 of which were issued to Lazard Holdings, Inc. In the opinion of the Registrant, this transaction was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), by virtue of Section 4(2) thereof in that such transaction did not involve any public offering.

 

II-1

Table of Contents

Concurrently with this offering, Lazard LLC intends to privately place $             aggregate principal amount of             % senior notes due             . The completion of that offering will be conditioned upon the completion of this offering and the ESU offering. In the opinion of the Registrant, this transaction is exempt from registration under Rule 144A of the Securities Act.

 

As part of the additional financing transactions, the Registrant has entered into an investment agreement with IXIS—Corporate & Investment Bank, or “IXIS.” Under the investment agreement, IXIS has agreed to purchase an aggregate of $200,000,000 of the Registrant’s securities concurrently with this offering, $150,000,000 of which will be debt securities of Lazard LLC (or a separate financing subsidiary) that are effectively exchangeable into the Registrant’s common stock and $50,000,000 of which will be shares of the Registrant’s common stock. The price per security to be paid by IXIS will be equal to the initial public offering price in a registered public offering of securities or the price offered to qualified institutional investors in a private placement of securities, as the case may be. With respect to the exchangeable debt securities, IXIS or one of its affiliates will receive underwriting fees or commissions equal in percentage terms to those paid to the underwriters for the public offering or private placement of the exchangeable debt securities. In the opinion of the Registrant, this transaction is exempt from registration under the Securities Act under Section 4(2) of the Securities Act and Regulation S promulgated thereunder.

 

The Registrant intends to offer to redeem Lazard LLC Class B-1 interests from holders who are not parties to the historical partners transaction agreement in exchange for shares of the Registrant’s common stock. Any interest holder who elects to exchange his or her Class B-1 interests for shares of the Registrant’s common stock will be entitled to receive the number of shares of the Registrant’s common stock (valued at the price per share in this offering) equal in value to the aggregate price that such holder would have been able to receive in cash for such redemption. The exchange of Class B-1 interests shall be effected by the holders contributing such interests to a newly formed corporation, and then exchanging the shares of that corporation with the Registrant for shares of the Registrant’s common stock. In the opinion of the Registrant, this transaction is exempt from registration under Section 4(2) of the Securities Act.

 

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Item 16. Exhibits and Financial Statement Schedules

 

Exhibit
Number
   

Exhibit Title

1.1     

Form of Underwriting Agreement.**

2.1     

Form of Master Separation Agreement.

2.2     

Class B-1 and Class C Members Transaction Agreement.*

3.1     

Certificate of Incorporation and Memorandum of Association.

3.2     

Certificate of Incorporation in Change of Name.

3.3     

Form of Amended and Restated Bye-laws.

4.1     

Form of Specimen Certificate for Class A common stock.**

5.1     

Form of opinion of Conyers Dill & Pearman, Bermuda.

8.1     

Form of opinion of Wachtell, Lipton, Rosen & Katz.

8.2     

Form of opinion of Conyers Dill & Pearman, Bermuda (included in Exhibit 5.1).

10.1     

Form of the LAZ-MD Holdings Stockholders’ Agreement.

10.2     

Form of Lazard Group Fourth Amended and Restated Limited Liability Company Operating Agreement.

10.3     

Form of Tax Receivable Agreement.**

10.4     

Form of Employee Benefits Agreement.**

10.5     

Form of Insurance Matters Agreement.

10.6     

Form of Lazard License Agreement.

10.7     

Form of Administrative Services Agreement.

10.8     

Form of Business Alliance Agreement.

10.9     

Form of Agreements Relating to Retention and Noncompetition and Other Covenants.**

10.10   

First Amended and Restated Limited Liability Company Agreement of Lazard Asset Management LLC, dated as of January 10, 2003.*

10.11   

Master Transaction and Relationship Agreement, dated as of March 26, 2003, by and among Banca Intesa S.p.A., Lazard LLC and Lazard & Co. S.r.l.*

10.12   

Note Purchase Agreement, dated as of March 26, 2003, by and among Lazard Funding LLC, Lazard LLC and Banca Intesa S.p.A.*

10.13   

$150 Million Subordinated Convertible Promissory Note due 2018, issued by Lazard Funding LLC to Banca Intesa S.p.A.*

10.14   

$50 Million Subordinated Non-Transferable Promissory Note due 2078, issued by Lazard & Co. S.r.l. to Banca Intesa S.p.A.*

10.15   

Guaranty of Lazard LLC to Banca Intesa S.p.A., dated as of March 26, 2003.*

10.16   

Amended and Restated Operating Agreement of Lazard Strategic Coordination Company LLC, dated as of January 1, 2002.*

10.17   

Note Purchase Agreement, dated as of May 11, 2001, by and between Lazard Funding Limited LLC, Lazard LLC, and the purchasers thereto.*

10.18   

Amendment No. 1, dated as of August 27, 2003, to the Note Purchase Agreement, dated as of May 11, 2001, by and between Lazard Funding Limited LLC, Lazard LLC, and the purchasers thereto.*

 

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Exhibit
Number
   

Exhibit Title

10.19   

Lease, dated as of January 27, 1994, by and between Rockefeller Center Properties and Lazard Frères & Co.*

10.20   

Lease with an Option to Purchase, dated as of July 11, 1990, by and between Sicomibail and Finabail and SCI du 121 Boulevard Hausmann (English translation).*

10.21   

Occupational Lease, dated as of August 9, 2002, Burford (Stratton) Nominee 1 Limited, Burford (Stratton) Nominee 2 Limited, Burford (Stratton) Limited, Lazard & Co., Limited and Lazard LLC.*

10.22   

Form of 2005 Equity Incentive Plan.

10.23   

Form of 2005 Bonus Plan.

10.24   

Form of Indenture relating to the Lazard Group Finance LLC senior notes, which are components of the Lazard Ltd equity security units.**

10.25   

Form of Purchase Contract Agreement relating to the Lazard Ltd purchase contracts, which are components of the Lazard Ltd equity security units.**

10.26   

Form of Pledge Agreement relating to the Lazard Group Finance LLC senior notes, which are components of the Lazard Ltd equity security units.**

10.27   

Letter Agreement, dated as of March 15, 2005, from IXIS Corporate and Investment Bank to Lazard LLC and Lazard Ltd.

10.28   

Form of Registration Rights Agreement, by and among Lazard Group Finance LLC, Lazard, Lazard LLC and IXIS Corporate and Investment Bank.

12.1   

Condensed Financial Information of Lazard LLC for the Years Ended December 31, 2002, 2003 and 2004.

21.1   

List of Subsidiaries of the Registrant.**

23.1   

Consent of Deloitte & Touche LLP.

23.2   

Consent of Conyers Dill & Pearman, Bermuda.

23.3   

Consent of Bruce Wasserstein to be named as a director nominee.*

23.4   

Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit 8.1).

23.5   

Consent of Appleby Spurling Hunter.**

24.1   

Powers of Attorney (included on signature page to this registration statement).*

* Previously filed.
** To be filed by amendment.

 

Item 17. Undertakings

 

(i) The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

 

(ii) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to

 

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a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

(iii) The undersigned Registrant hereby undertakes that:

 

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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Signatures

 

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on March 21, 2005.

 

LAZARD LTD

By:

     /s/ Steven J. Golub
   
    Name: Steven J. Golub
    Title:    President

 

Power of Attorney

 

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated.

 

Signature

   

Title

  

Date

/s/ Steven J. Golub     

Steven J. Golub

   

Director and President

(principal executive officer)

   March 21, 2005

*

Michael J. Castellano

    Director and Vice President (principal financial and accounting officer)   March 21, 2005

/s/ Scott D. Hoffman     

Scott D. Hoffman

   

Director and Vice President

   March 21, 2005

*By:

  

/s/ Scott D. Hoffman            

Name: Scott D. Hoffman

Title:    Attorney-in-fact

         

 

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EXHIBIT INDEX

 

Exhibit
Number
   

Exhibit Title

1.1     

Form of Underwriting Agreement.**

2.1     

Form of Master Separation Agreement.

2.2     

Class B-1 and Class C Members Transaction Agreement.*

3.1     

Certificate of Incorporation and Memorandum of Association.

3.2     

Certificate of Incorporation in Change of Name.

3.3     

Form of Amended and Restated Bye-laws.

4.1     

Form of Specimen Certificate for Class A common stock.**

5.1     

Form of opinion of Conyers Dill & Pearman, Bermuda.

8.1     

Form of opinion of Wachtell, Lipton, Rosen & Katz.

8.2     

Form of opinion of Conyers Dill & Pearman, Bermuda (included in Exhibit 5.1).

10.1     

Form of the LAZ-MD Holdings Stockholders’ Agreement.

10.2     

Form of Lazard Group Fourth Amended and Restated Limited Liability Company Operating Agreement.

10.3     

Form of Tax Receivable Agreement.**

10.4     

Form of Employee Benefits Agreement.**

10.5     

Form of Insurance Matters Agreement.

10.6     

Form of Lazard License Agreement.

10.7     

Form of Administrative Services Agreement.

10.8     

Form of Business Alliance Agreement.

10.9     

Form of Agreements Relating to Retention and Noncompetition and Other Covenants.**

10.10   

First Amended and Restated Limited Liability Company Agreement of Lazard Asset Management LLC, dated as of January 10, 2003.*

10.11   

Master Transaction and Relationship Agreement, dated as of March 26, 2003, by and among Banca Intesa S.p.A., Lazard LLC and Lazard & Co. S.r.l.*

10.12   

Note Purchase Agreement, dated as of March 26, 2003, by and among Lazard Funding LLC, Lazard LLC and Banca Intesa S.p.A.*

10.13   

$150 Million Subordinated Convertible Promissory Note due 2018, issued by Lazard Funding LLC to Banca Intesa S.p.A.*

10.14   

$50 Million Subordinated Non-Transferable Promissory Note due 2078, issued by Lazard & Co. S.r.l. to Banca Intesa S.p.A.*

10.15   

Guaranty of Lazard LLC to Banca Intesa S.p.A., dated as of March 26, 2003.*

10.16   

Amended and Restated Operating Agreement of Lazard Strategic Coordination Company LLC, dated as of January 1, 2002.*

10.17   

Note Purchase Agreement, dated as of May 11, 2001, by and between Lazard Funding Limited LLC, Lazard LLC, and the purchasers thereto.*

10.18   

Amendment No. 1, dated as of August 27, 2003, to the Note Purchase Agreement, dated as of May 11, 2001, by and between Lazard Funding Limited LLC, Lazard LLC, and the purchasers thereto.*

10.19   

Lease, dated as of January 27, 1994, by and between Rockefeller Center Properties and Lazard Frères & Co.*

 

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Exhibit
Number
   

Exhibit Title

10.20   

Lease with an Option to Purchase, dated as of July 11, 1990, by and between Sicomibail and Finabail and SCI du 121 Boulevard Hausmann (English translation).*

10.21   

Occupational Lease, dated as of August 9, 2002, Burford (Stratton) Nominee 1 Limited, Burford (Stratton) Nominee 2 Limited, Burford (Stratton) Limited, Lazard & Co., Limited and Lazard LLC.*

10.22   

Form of 2005 Equity Incentive Plan.

10.23   

Form of 2005 Bonus Plan.

10.24   

Form of Indenture relating to the Lazard Group Finance LLC senior notes, which are components of the Lazard Ltd equity security units.**

10.25   

Form of Purchase Contract Agreement relating to the Lazard Ltd purchase contracts, which are components of the Lazard Ltd equity security units.**

10.26   

Form of Pledge Agreement relating to the Lazard Group Finance LLC senior notes, which are components of the Lazard Ltd equity security units.**

10.27   

Letter Agreement, dated as of March 15, 2005, from IXIS Corporate and Investment Bank to Lazard LLC and Lazard Ltd.

10.28   

Form of Registration Rights Agreement, by and among Lazard Group Finance LLC, Lazard, Lazard LLC and IXIS Corporate and Investment Bank.

12.1     

Condensed Financial Information of Lazard LLC For the Years Ended December 31, 2002, 2003 and 2004.

21.1     

List of Subsidiaries of the Registrant.**

23.1     

Consent of Deloitte & Touche LLP.

23.2     

Consent of Conyers Dill & Pearman, Bermuda.

23.3     

Consent of Bruce Wasserstein to be named as a director nominee.*

23.4     

Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit 8.1).

23.5     

Consent of Appleby Spurling Hunter.**

24.1     

Powers of Attorney (included on signature page to this registration statement).*

* Previously filed.
** To be filed by amendment.

 

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Form of Master Separation Agreement

Exhibit 2.1

 

FORM OF

 

MASTER SEPARATION AGREEMENT

 

by and among

 

LAZARD LTD,

 

LAZARD LLC,

 

LAZ-MD HOLDINGS LLC

 

and

 

LFCM HOLDINGS LLC

 

Dated as of                              , 2005

 

 

TABLE OF CONTENTS

 

          Page
ARTICLE I    DEFINITIONS    3

1.1

    Definitions    3

1.2

    General    18

1.3

    References to Time    18
ARTICLE II    THE SEPARATION    19

2.1

    The Separation    19

2.2

    Actions Prior to the Forced Sale    19

2.3

    The Exchange and the Forced Sale    19

2.4

    Actions Prior to the Contribution    19

2.5

    The Contribution    20

2.6

    Actions Prior to the First Distribution    22

2.7

    The First Distribution    22

2.8

    Ancillary Agreements    22

2.9

    Post-Contribution Adjustment    23
ARTICLE III    THE RECAPITALIZATION    24

3.1

    The Recapitalization    24

3.2

    The First Redemption    24

3.3

    Actions Prior to the Financing Transactions    24

3.4

    The Financing Transactions    25

3.5

    Actions Prior to the Second Redemption    28

3.6

    The Second Redemption    28

3.7

    Actions Prior to the Second Distribution    28

3.8

    The Second Distribution    28

 

3.9

    Conditions to the Separation and the Recapitalization    28
ARTICLE IV    SURVIVAL AND INDEMNIFICATION    30

4.1

    Survival of Agreements    30

4.2

    Indemnification by LFCM    30

4.3

    Indemnification by Lazard Group    30

4.4

    Indemnification by LAZ-MD    31

4.5

    Indemnification Obligations Net of Insurance Proceeds and Other Amounts    31

4.6

    Procedures for Indemnification of Third Party Claims    32

4.7

    Additional Matters    33

4.8

    Remedies Cumulative    34

4.9

    Survival of Indemnities    34
ARTICLE V    CERTAIN ADDITIONAL COVENANTS RELATING TO THE SEPARATION AND RECAPITALIZATION    34

5.1

    Intercompany Agreements; Intercompany Accounts    34

5.2

    Guarantee Obligations    35

5.3

    Commercially Reasonable Efforts    35
ARTICLE VI    ACCESS TO INFORMATION    36

6.1

    Agreement for Exchange of Information    36

6.2

    Ownership of Information    37

6.3

    Compensation for Providing Information    37

6.4

    Record Retention    37

6.5

    Limitation of Liability    37

6.6

    Other Agreements Providing for Exchange of Information    37

6.7

    Production of Witnesses; Records; Cooperation    37

6.8

    Confidentiality    39

 

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6.9

    Protective Arrangements    39
ARTICLE VII    NO REPRESENTATIONS OR WARRANTIES    40

7.1

    No Representations or Warranties to LFCM    40

7.2

    LFCM to Bear Risk    40

7.3

    LAZ-MD to Bear Risk    40

7.4

    No Representations or Warranties to LAZ-MD    40
ARTICLE VIII    LAZ-MD EXCHANGEABLE INTERESTS    41

8.1

    Exchange Rights    41

8.2

    Elective Exchange    42

8.3

    Mandatory Exchanges    43

8.4

    Exchangeable Interests Generally    44

8.5

    No Fractional Shares    45

8.6

    Taxes    45

8.7

    Lazard Ltd Common Stock    46

8.8

    Adjustments to LAZ-MD Exchange Ratio    46

8.9

    Adjustments to Lazard Group Exchange Ratio    47

8.10

    Beneficiaries of This Article    48
ARTICLE IX    RELATIONSHIP AMONG THE PARTIES    48

9.1

    Scope of LAZ-MD Operations    48

9.2

    Parity of Lazard Group Common Units and Shares of Lazard Ltd Common Stock    48

9.3

    Lazard Ltd Expenses    49
ARTICLE X    TERMINATION    49

10.1

    Termination    49

10.2

    Effect of Termination    49

 

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ARTICLE XI    MISCELLANEOUS    49

11.1

    Representations    49

11.2

    Entire Agreement    50

11.3

    Expenses    50

11.4

    Notices    50

11.5

    Amendment, Modification or Waiver    51

11.6

    Successors and Assigns; No Third Party Beneficiaries    52

11.7

    Counterparts    52

11.8

    Negotiation    52

11.9

    Specific Performance    52

11.10

    Governing Law    52

11.11

    Delaware Court    52

11.12

    Interpretation; Conflict with Ancillary Agreements    53

11.13

    Severability    53

11.14

    Additional Parties    53

 

Exhibits to the Master Separation Agreement

 

Exhibit A    Form of Administrative Services Agreement
Exhibit B    Form of Amended and Restated Bye-laws of Lazard Ltd
Exhibit C    Form of Business Alliance Agreement
Exhibit D    Form of Employee Benefits Agreement
Exhibit E    Form of Insurance Matters Agreement
Exhibit F    Form of LAZ-MD Stockholders’ Agreement
Exhibit G    Form of LFCM Note
Exhibit H    Form of License Agreement
Exhibit I    Form of Operating Agreement of LAZ-MD Holdings LLC
Exhibit J    Form of Operating Agreement of Lazard Group LLC
Exhibit K    Form of Operating Agreement of LFCM Holdings LLC
Exhibit L    Forms of Retention Agreements
Exhibit M    Form of Tax Receivable Agreement

 

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MASTER SEPARATION AGREEMENT

 

This MASTER SEPARATION AGREEMENT (this “Agreement”), dated as of                 , 2005, by and among Lazard Ltd, a Bermuda limited company (“Lazard Ltd”), Lazard LLC, a Delaware limited liability company that will be renamed “Lazard Group LLC” (“Lazard Group”), LAZ-MD Holdings LLC, a Delaware limited liability company (formerly known as LF Holdings LLC) (“LAZ-MD”), and LFCM Holdings LLC, a Delaware limited liability company and currently a wholly owned subsidiary of Lazard Group (“LFCM,” and together with Lazard Ltd, Lazard Group and LAZ-MD, the “Parties” and each a “Party”).

 

RECITALS

 

WHEREAS, on December 16, 2004, Lazard Ltd, Lazard Group and LAZ-MD Holdings entered into that certain Class B-1 and Class C Members Transaction Agreement relating to Lazard LLC (the “Transaction Agreement”); and

 

WHEREAS, on the date hereof, the Board of Directors of Lazard Group has determined that it is in the best interests of Lazard Group and its members to separate Lazard Group’s businesses into two separate companies (the “Separation”) and to recapitalize Lazard Group through the Financing Transactions (as defined below) and the First Redemption (as defined below) and Second Redemption (as defined below) and related transactions (the “Recapitalization”), each on the terms and subject to the conditions set forth in this Agreement; and

 

WHEREAS, the Parties are entering into this Agreement to set forth the principal corporate transactions required to effect, and the principal terms and conditions of, the Separation and Recapitalization and related transactions and the relationship among the Parties and their respective Subsidiaries after the consummation of the Separation, the Recapitalization and such related transactions; and

 

WHEREAS, to effect the Separation and Recapitalization, pursuant to the Transaction Agreement and this Agreement, on the date hereof, certain members of Lazard Group shall transfer all of their limited liability company interests in Lazard Group to LAZ-MD in exchange for limited liability company interests in LAZ-MD (the “Exchange”), and simultaneously therewith pursuant to Section 6.02(b) of the Third Amended and Restated Operating Agreement of Lazard LLC, dated as of January 1, 2002, as amended (the “Old Lazard Group Operating Agreement”), all other limited liability company interests in Lazard Group shall be transferred to LAZ-MD in exchange for limited liability company interests in LAZ-MD and the admission of LAZ-MD as the sole member of Lazard Group, on the terms and subject to the conditions set forth in this Agreement (the “Forced Sale”); and

 

WHEREAS, on the date hereof after consummation of the Forced Sale, the Old Lazard Group Operating Agreement shall be amended and restated in accordance with the terms thereof to read in its entirety as the New Lazard Group Operating Agreement (as defined below), effective immediately upon execution thereof; and

 

WHEREAS, on the date hereof after the consummation of the Forced Sale and effectiveness of the New Lazard Group Operating Agreement, Lazard Group is filing a Certificate of Amendment with the Secretary of State of the State of Delaware to reflect the change in Lazard Group’s name from “Lazard LLC” to “Lazard Group”; and

 

WHEREAS, to effect the Recapitalization, on the date hereof immediately after the effectiveness of the New Lazard Group Operating Agreement, LAZ-MD shall redeem the LAZ-MD Redeemable Interests (as defined below) in full in exchange for the Lazard Group Redeemable Interests (as defined below), on the terms and subject to the conditions set forth in this Agreement (the “First Redemption”); and

 

WHEREAS, to effect the Separation, on the date hereof immediately after the First Redemption, Lazard Group shall cause, on the terms and subject to the conditions set forth herein, certain of its Subsidiaries (as defined below) to transfer and contribute to LFCM (or one of its designated Subsidiaries) all of the issued and outstanding capital stock of certain Subsidiaries of Lazard Group and certain other assets of Subsidiaries of Lazard Group relating to the LFCM Businesses (as defined below), and in exchange therefor LFCM shall assume certain liabilities of Lazard Group and its Subsidiaries related to the LFCM Businesses and issue the LFCM Common Interest (as defined below) to Lazard Group, each on the terms and subject to the conditions set forth in this Agreement (such transactions, collectively, the “Contribution”); and

 

WHEREAS, to effect the Separation, on the date hereof immediately after the consummation of the Contribution, Lazard Group shall distribute to LAZ-MD as the sole Lazard Group Common Member the entire LFCM Common Interest beneficially owned by Lazard Group, on the terms and subject to the conditions set forth in this Agreement (the “First Distribution”); and

 

WHEREAS, to effect the Recapitalization, on the date hereof immediately after the First Distribution, (1) Lazard Ltd shall consummate the initial public offering (the “Common Stock IPO”) of shares of Class A common stock, par value $.01 per share, of Lazard Ltd (“Lazard Ltd Common Stock”), (2) Lazard Ltd shall cause the contribution to Lazard Group of the net proceeds of the Common Stock IPO (the “Lazard Ltd Contribution”), (3) in exchange therefor, Lazard Group shall issue to each Subsidiary (as defined herein) of Lazard Ltd that shall contribute such amounts to Lazard Group a Lazard Group Common Interest (as defined herein) and shall admit such Subsidiaries to Lazard Group as Lazard Group Common Members, and (4) Lazard Group shall admit Lazard Group Finance LLC, a Delaware limited liability company (“FinanceCo”), to Lazard Group as the Lazard Group Managing Member, in the case of clauses (3) and (4), effective immediately upon consummation of the Lazard Ltd Contribution, on the terms and subject to the conditions set forth in this Agreement (the “Common Stock IPO Transaction”); and

 

WHEREAS, to effect the Recapitalization, on the date hereof immediately after the First Distribution, (1) Lazard Ltd and FinanceCo shall consummate the initial public offering of the Exchangeable Securities (as defined herein) (the “Exchangeable Securities IPO”) and FinanceCo shall purchase, and Lazard Group shall sell, debt securities of Lazard Group in exchange for the net proceeds from such offering, on the terms and subject to the conditions set

 

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forth in this Agreement (the “Exchangeable Securities IPO Transaction”), (2) Lazard Group shall consummate the offering of the Debt Securities (as defined herein), on the terms and subject to the conditions set forth in this Agreement (the “Debt Securities Offering”), and (3) each of Lazard Ltd and FinanceCo shall consummate the sale of Lazard Ltd Common Stock and Exchangeable Securities to IXIS-Corporate & Investment Bank, an entity organized under the laws of France (the “Investor”, and such transaction, the “Third Party Investment”; together with the Common Stock Offering IPO Transaction, the Exchange Securities IPO Transaction and the Debt Securities Offering, the “Financing Transactions”); and

 

WHEREAS, to effect the Recapitalization, immediately after consummation of the Financing Transactions, Lazard Group shall redeem the Lazard Group Redeemable Interests for the Redemption Consideration (each as defined herein), in each case on the terms and subject to the conditions set forth in this Agreement (the “Second Redemption”); and

 

WHEREAS, to effect the Recapitalization and Separation, pursuant to this Agreement, immediately after the Second Redemption on the date hereof, LAZ-MD shall distribute or otherwise transfer to LAZ-MD Members the entire LFCM Common Interest held by LAZ-MD, on the terms and subject to the conditions set forth in this Agreement (the “Second Distribution,” and together with the First Distribution, the “Distributions”); and

 

WHEREAS, the Board of Directors of each Party has determined that the Separation, the Recapitalization and the other transactions contemplated by this Agreement and the Ancillary Agreements (as defined below) are in furtherance of and consistent with their respective business strategies and are in the best interests of their respective companies and stockholders, members or sole stockholder or member, as applicable, and have approved this Agreement and each of the Ancillary Agreements.

 

NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements set forth herein, and intending to be legally bound hereby, the Parties hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

SECTION 1.1 Definitions. As used in this Agreement, the following terms shall have the meanings set forth below (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

 

“Accelerated Exchange Date” has the meaning assigned to such term in Section 8.2(a)(ii).

 

“Accountant” has the meaning assigned to such term in Section 2.9(c).

 

“Accountant’s Report” has the meaning assigned to such term in Section 2.9(d).

 

“Accounting Principles” has the meaning assigned to such term in Section 2.9(a).

 

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“Action” means any demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority or any arbitration or mediation tribunal or authority.

 

“Administrative Services Agreement” means the Administrative Services Agreement to be entered into by and among Lazard Group, LFCM and LAZ-MD, substantially in the form of Exhibit A hereto, with such changes as may be determined by the parties thereto.

 

“Affiliate” means, with respect to any specified person, a person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, such specified person; provided, however, that, for purposes of this Agreement, no member of a Group shall be deemed to be an Affiliate of any member of the other Group.

 

“Agreement” has the meaning assigned to such term in the preamble to this Agreement, and includes any amendments or modifications to this Agreement after the date hereof.

 

“Alternative Investments Assets” means all of the Assets of Lazard Group and the Lazard Group Companies that are set forth below:

 

(a) all rights and incidents of Lazard Group and the Lazard Group Companies as of the Contribution Effective Time in, to and under all contracts and agreements set forth on Schedule 1.1(a);

 

(b) all equipment, furniture, tools and other tangible personal property owned by Lazard Group and the Lazard Group Companies listed on Schedule 1.1(a);

 

(c) all accounts and notes receivable and other receivables of Lazard Group and the Lazard Group Companies as of the Contribution Effective Time to the extent primarily related to the Alternative Investments Business;

 

(d) the intellectual property of Lazard Group and the Lazard Group Companies set forth on Schedule 1.1(a);

 

(e) all books and records (other than Tax Returns), files, papers, tapes, disks, manuals, keys, reports, plans, catalogs, sales and promotional materials, and all other printed and written materials, to the extent available and primarily related to the Alternative Investments Business;

 

(f) all permits or licenses issued by any Governmental Authority to the extent primarily related to the Alternative Investments Business and permitted by applicable law to be transferred; and

 

(g) all other Assets primarily relating to the Alternative Investments Business set forth on Schedule 1.1(a).

 

“Alternative Investments Business” means (a) the management, sponsorship or formation of private alternative investment Funds whose primary objective is to make privately

 

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negotiated investments in companies, real estate or loans relating to real estate primarily doing business in North America or in Europe and (b) any and all private investment activities (including related joint ventures and alliances, and including management, general partner and investment activities) conducted by or on behalf of Lazard Frères & Co. LLC, Lazard & Co., Holdings Ltd or any of their respective Subsidiaries (including, for the avoidance of doubt, any LFCM Company) or any predecessor companies, whether conducted at any time prior to or at the Distribution Time, including the activities operated under the names Lazard Technology Partners, Lazard Capital Partners, Corporate Partners, Lazard Frères Real Estate Investors, Lazard Alternative Asset Advisors, Lazard European Private Equity Partners, Lazard Private Equity, LF Strategic Realty Investors and Lazard Structured Finance Investors; provided, however, that, for the avoidance of doubt, any activities currently conducted by Lazard Frères S.A.S., Lazard Frères Gestion S.A.S., Lazard Asset Management LLC or any of their respective Subsidiaries shall not be included in the Alternative Investments Business.

 

“Ancillary Agreements” means the Administrative Services Agreement, the Benefits Agreement, the Business Alliance Agreement, the Insurance Matters Agreement, the License Agreement, the Tax Receivables Agreement, the LAZ-MD Stockholders’ Agreement, the Retention Agreements, the Forfeiture and Grant Agreement, the LFCM Note, the Lazard Group I Note, the Lazard Group II Note and the other agreements to be entered into in connection with the Separation pursuant to Section 2.4.

 

“Applicable Exchange Date” has the meaning assigned to such term in Section 8.2(a)(ii).

 

“Asset” means any right, property or asset, whether real, personal or mixed, tangible or intangible, of any kind, nature and description, whether accrued, contingent or otherwise, and wheresoever situated and whether or not carried or reflected, or required to be carried or reflected, on the books of any person.

 

“Benefits Agreement” means the Employee Benefits Agreement to be entered into by and between Lazard Group and LFCM, substantially in the form of Exhibit D hereto, with such changes as may be agreed to by the parties thereto.

 

“Business” means any of the LFCM Businesses or the Lazard Group Businesses.

 

“Business Alliance Agreement” means the Business Alliance Agreement to be entered into by and between Lazard Group and LFCM, substantially in the form of Exhibit C hereto, with such changes as may be agreed to by the parties thereto.

 

“Capital Markets Assets” means all of the Assets of Lazard Group and the Lazard Group Companies that are set forth below:

 

(a) all rights and incidents of Lazard Group and the Lazard Group Companies as of the Contribution Effective Time in, to and under all contracts and agreements set forth on Schedule 1.1(b);

 

(b) all equipment, furniture, tools and other tangible personal property owned by Lazard Group and the Lazard Group Companies listed on Schedule 1.1(b);

 

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(c) all accounts and notes receivable and other receivables of Lazard Group and the Lazard Group Companies as of the Contribution Effective Time to the extent primarily related to the Capital Markets Business;

 

(d) the intellectual property of Lazard Group and the Lazard Group Companies set forth on Schedule 1.1(b);

 

(e) all books and records (other than Tax Returns), files, papers, tapes, disks, manuals, keys, reports, plans, catalogs, sales and promotional materials, and all other printed and written materials, to the extent available and primarily related to the Capital Markets Business;

 

(f) all permits or licenses issued by any Governmental Authority to the extent primarily related to the Capital Markets Business and permitted by applicable law to be transferred; and

 

(g) all other Assets primarily relating to the Capital Markets Business set forth on Schedule 1.1(b).

 

“Capital Markets Business” means any and all sales and trading, proprietary trading, broking, research, underwriting and distribution services (including related joint ventures and alliances but excluding private placement and private fund advisory groups) provided by or on behalf of Lazard Group or any of its Subsidiaries (including, for the avoidance of doubt, any LFCM Company) and any predecessor companies, in each case in the United States and in the United Kingdom and whether provided at any time prior to or at the Distribution Time; provided, however, that, for the avoidance of doubt, any activities currently conducted by Lazard Frères S.A.S. or any of its Subsidiaries (other than any interest held by Lazard Frères S.A.S. in Three Houses Investment Company Limited) or by Lazard Italy Limited or any of its Subsidiaries shall not be included in the Capital Markets Business.

 

“Cash Contribution” means an amount in cash equal to $                .

 

“Change in Control” means a “Change in Control” as defined in the Lazard Ltd 2005 Equity Incentive Plan, as it may be amended from time to time.

 

“Closing Balance Sheet” has the meaning assigned to such term in Section 2.9(d).

 

“Closing Members’ Equity” has the meaning assigned to such term in Section 2.9(a).

 

“Common Stock IPO” has the meaning set forth in the recitals to this Agreement.

 

“Common Stock IPO Price” means the price per share of Lazard Ltd Common Stock to the public in the Common Stock IPO.

 

“Common Stock IPO Transaction” has the meaning set forth in the recitals to this Agreement.

 

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“Consents” means any consents, waivers or approvals from, or notification or filing requirements to or with, or any authorization or permits from, any third parties.

 

“Contributed Interests” means the equity interests listed on Schedule 1.1(c).

 

“Contributing Subsidiaries” has the meaning assigned to such term in Section 3.4(a)(iii)(B).

 

“Contribution” has the meaning assigned to such term in the recitals to this Agreement.

 

“Contribution Effective Time” means the effective time of the Contribution pursuant to Section 2.5(a).

 

“Covered Information” has the meaning assigned to such term in Section 6.8(a).

 

“Debt Securities” has the meaning assigned to such term in Section 3.4(c).

 

“Debt Securities Offering” has the meaning set forth in the recitals to this Agreement.

 

“Debt Securities Prospectus” means the offering memorandum of Lazard Group relating to the Debt Securities to be issued in the Debt Securities Offering under Rule 144A promulgated under the Securities Act.

 

“Dispute Notice” has the meaning assigned to such term in Section 2.9(b).

 

“Distribution Time” means the time at which the First Distribution shall be effected, to be determined by, or under the authority of, the Board of Directors of Lazard Group consistent with this Agreement.

 

“Distributions” has the meaning assigned to such term in the recitals to this Agreement.

 

“Electing Member” has the meaning set forth in Section 8.2(b)(ii).

 

“Elective Exchange” has the meaning set forth in Section 8.2(a).

 

“Elective Exchange Effective Time” has the meaning set forth in Section 8.2(b)(iii).

 

“Exchange” has the meaning assigned to such term in the recitals to this Agreement.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.

 

“Exchange Effective Date” has the meaning set forth in Section 8.2(b)(ii)(B).

 

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“Exchange Request” has the meaning set forth in Section 8.2(b)(ii)(C).

 

“Exchangeable Interest” means a LAZ-MD Class II Interest or a Lazard Group MD Common Interest, in each case that is entitled to the rights set forth in Article VIII of this Agreement.

 

“Exchangeable MD Member” means a LAZ-MD Class II Member or a Lazard Group MD Common Member, as applicable.

 

“Exchangeable Securities” has the meaning assigned to such term in Section 3.4(b)(ii).

 

“Exchangeable Securities IPO” has the meaning assigned to such term in the recitals to this Agreement.

 

“Exchangeable Securities IPO Transaction” has the meaning assigned to such term in the recitals to this Agreement.

 

“Exchangeable Securities Over-allotment Option” has the meaning assigned to such term in Section 3.4(b)(iv).

 

“Exchanging Members” has the meaning set forth in Section 8.3(a).

 

“Excluded Assets” means (1) all of the Lazard Names and Lazard Marks and any goodwill associated with, or any rights to use, or other rights in, to or under, such Lazard Names and Lazard Marks, and (2) the Assets set forth on Schedule 1.1(d) hereto.

 

“Excluded Liability” means (1) the Liabilities expressly retained by Lazard Group pursuant to the Benefits Agreement, (2) obligations of Lazard Group described in Section 9.3(a), and (3) the Liabilities set forth on Schedule 1.1(e) hereto.

 

“FinanceCo” has the meaning assigned to such term in the recitals to this Agreement.

 

“Financing Transactions” has the meaning assigned to such term in the recitals to this Agreement.

 

“First Distribution” has the meaning assigned to such term in the recitals to this Agreement.

 

“First Redemption” has the meaning assigned to such term in the recitals to this Agreement.

 

“Forced Sale” has the meaning assigned to such term in the recitals to this Agreement.

 

“Forfeiture and Grant Agreement” means the Forfeiture and Grant Agreement dated as of                 , by and between Lazard Group, LAZ-MD and certain members of Lazard Group.

 

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“Fund” means any fund or similar investment vehicle through which commingled capital is managed, including any co-investment vehicle, alternative investment vehicle, side-by-side vehicle or managed accounts incidental thereto.

 

“General Exchange Date” has the meaning assigned to such term in Section 8.2(a)(i).

 

“Governmental Approvals” means any notices, reports or other filings to be made, or any consents, registrations, approvals, licenses, permits or authorizations to be obtained from, any Governmental Authority.

 

“Governmental Authority” means any national, local or foreign (including U.S. federal, state or local) or supranational (including European Union) governmental, judicial, administrative or regulatory (including self-regulatory) agency, commission, department, board, bureau, entity or authority of competent jurisdiction.

 

“Group” means the Lazard Group Companies or the LFCM Companies, as applicable.

 

“Indemnifiable Losses” means all out-of-pocket Liabilities suffered or incurred by an Indemnitee, including any reasonable fees, costs or expenses of enforcing any indemnity hereunder; provided that “Indemnifiable Losses” shall not include any Special Damages except if and to the extent awarded in an Action involving a Third Party Claim against such Indemnitee.

 

“Indemnifying Party” has the meaning assigned to such term in Section 4.5(a)(i).

 

“Indemnitee” has the meaning assigned to such term in Section 4.5(a)(i).

 

“Indemnity Payment” has the meaning assigned to such term in Section 4.5(a)(ii).

 

“Information” means all information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys, memos and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, legal, employee or business information or data.

 

“Initial Grant” has the meaning set forth in Section 2.4(b).

 

“Insurance Matters Agreement” means the Insurance Matters Agreement to be entered into by and between Lazard Group and LFCM on the date hereof, substantially in the form of Exhibit E hereto, with such changes as may be agreed by the parties thereto.

 

“Insurance Proceeds” means amounts:

 

(a) received by an insured from an insurance carrier;

 

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(b) paid by an insurance carrier on behalf of the insured; or

 

(c) received (including by way of set-off) from any third party in the nature of insurance, contribution or indemnification in respect of any Liability;

 

in any such case net of any applicable premium adjustments (including reserves and retrospectively rated premium adjustments) and net of any costs or expenses incurred in the collection thereof.

 

“Intellectual Property Rights” means any domestic and foreign patents and applications therefor, statutory, common law and registered copyrights and registrations therefor, trademarks and registrations and applications therefor, service marks and registrations and applications therefor, trade names and registrations and applications therefor, service names and registrations and applications therefor, trade styles and registrations and applications therefor, product registrations and licenses and applications therefor, and translations, adaptations, derivations and combinations of the foregoing; any mask works, inventions, discoveries, trade secrets, confidential information, know-how, data, proprietary processes and formulae (including any registrations, licenses and similar agreements and research, analysis and supporting documentation in respect of the foregoing); any unregistered trademarks, service marks, trade names, service names and trade styles; any goodwill associated with any of the foregoing; and any rights to use the foregoing and other rights in, to and under the foregoing; provided, however, that the term “Intellectual Property Rights” shall exclude all of the Lazard Names and Lazard Marks (and any goodwill associated with, or any rights to use, or other rights in, to or under, such Lazard Names and Lazard Marks).

 

“Investor” has the meaning assigned to such term in the recitals to this Agreement.

 

“IPO Date” means the date of the closing of the Common Stock IPO (ignoring for this purpose the date of closing of any Over-allotment Option granted in connection with the Common Stock IPO).

 

“Lazard Group” has the meaning assigned to such term in the preamble to this Agreement.

 

“Lazard Group I Note” means the note of Lazard Group to be issued to LAZ-MD in aggregate principal amount of $          .

 

“Lazard Group II Note” means the note of Lazard Group to be issued to LFCM in aggregate principal amount of $          .

 

“Lazard Group Assets” means all Assets of Lazard Group and the Lazard Group Companies other than the LFCM Assets.

 

“Lazard Group Businesses” means all businesses and operations (including related joint ventures and alliances) of Lazard Group and the Lazard Group Companies, other than the LFCM Businesses.

 

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“Lazard Group Class B-1 Interest” means a “Class B-1 Interest” as defined in the Old Lazard Operating Agreement.

 

“Lazard Group Common Capital” means “Common Capital” as defined in the New Lazard Group Operating Agreement.

 

“Lazard Group Common Capital Account” means a “Common Capital Account” as defined in the New Lazard Group Operating Agreement.

 

“Lazard Group Common Interest” means a “Common Interest” as defined in the New Lazard Group Operating Agreement.

 

“Lazard Group Common Member” means a “Common Member” as defined in the New Lazard Group Operating Agreement.

 

“Lazard Group Common Unit” means a “Common Unit” as defined in the New Lazard Group Operating Agreement.

 

“Lazard Group Companies” means Lazard Group, Lazard Ltd and their respective Subsidiaries other than any LFCM Company.

 

“Lazard Group Exchange” has the meaning set forth in Section 8.1(a).

 

“Lazard Group Exchange Ratio” means, with respect to each Lazard Group Exchange, one (1) Lazard Group Common Unit shall be exchangeable for one (1) share of Lazard Ltd Common Stock, subject to adjustment as provided in Section 8.9.

 

“Lazard Group Exchangeable Debt Securities” has the meaning assigned to such term in Section 3.4(b)(iii).

 

“Lazard Group Indemnitees” has the meaning assigned to such term in Section 4.2.

 

“Lazard Group Liabilities” means all of the Liabilities of the Lazard Group Companies other than the LFCM Liabilities.

 

“Lazard Group Managing Member” means the “Managing Member” as defined in the New Lazard Group Operating Agreement.

 

“Lazard Group MD Common Interest” means a Lazard Group Common Interest received by a LAZ-MD Class II Member in exchange for a LAZ-MD Class II Interest pursuant to a LAZ-MD Exchange.

 

“Lazard Group MD Member” means a Lazard Group Common Member who holds a Lazard Group MD Common Interest.

 

“Lazard Group Profit Participation Interest” means a “Profit Participation Interest” as defined in the New Lazard Group Operating Agreement.

 

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“Lazard Group Redeemable Interest” means a “Redeemable Interest” as defined in the New Lazard Group Operating Agreement.

 

“Lazard Group Subsidiaries” means all Subsidiaries of Lazard Group other than LFCM and the LFCM Subsidiaries.

 

“Lazard Ltd” has the meaning assigned to such term in the preamble to this Agreement.

 

“Lazard Ltd Board” means the board of directors of Lazard Ltd.

 

“Lazard Ltd Bye-laws” means the Amended and Restated Bye-Laws of Lazard Ltd, dated as of the date hereof, which are attached hereto as Exhibit B.

 

“Lazard Ltd Common Stock” has the meaning assigned to such term in the recitals to this Agreement.

 

“Lazard Ltd Contribution” has the meaning assigned to such term in the recitals to this Agreement.

 

“Lazard Ltd Sub A” means “Lazard Ltd Sub A” as defined in the New Lazard Group Operating Agreement.

 

“Lazard Ltd Sub A Common Stock” has the meaning assigned to such term in Section 2.2(b).

 

“Lazard Ltd Sub A Share Transfer Agreements” means the Stock and Interest Transfer Agreements entered into by and among the person indicated as “Seller” on the signature page hereto, Lazard Ltd Sub A and Lazard Group.

 

“Lazard Ltd Sub B” means “Lazard Ltd Sub B” as defined in the New Lazard Group Operating Agreement.

 

“Lazard Mark” means a “Lazard Mark” as defined in the New Lazard Group Operating Agreement.

 

“Lazard Name” means a “Lazard Name” as defined in the New Lazard Group Operating Agreement.

 

“LAZ-MD” has the meaning assigned to such term in the preamble to this Agreement.

 

“LAZ-MD Class I Interest” means a “Class I Interest” as defined in the LAZ-MD Operating Agreement.

 

“LAZ-MD Class II Interest” means a “Class II Interest” as defined in the LAZ-MD Operating Agreement.

 

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“LAZ-MD Class V Interest” means a “Class V Interest” as defined in the LAZ-MD Operating Agreement.

 

“LAZ-MD Distribution” means the distribution of the Lazard Group I Note.

 

“LAZ-MD Exchange” has the meaning assigned to such term in Section 8.1(a).

 

“LAZ-MD Exchange Ratio” means, with respect to each LAZ-MD Exchange, one (1) LAZ-MD Class II Unit shall be exchangeable for one (1) Lazard Group Common Unit, subject to adjustment as provided in Section 8.8.

 

“LAZ-MD Indemnitees” has the meaning assigned to such term in Section 4.2.

 

“LAZ-MD Operating Agreement” means the Operating Agreement of LAZ-MD Holdings LLC, as amended and restated and dated as of the date hereof, which is set forth on Exhibit J, and as it may be amended from time to time after the date hereof.

 

“LAZ-MD Redeemable Interest” means a “Class III Redeemable Interest” or a “Class IV Redeemable Interest” as defined in the LAZ-MD Operating Agreement.

 

“LAZ-MD Stockholders’ Agreement” means the Stockholders’ Agreement of LAZ-MD Holdings LLC to be entered into on the date hereof in the form set forth on Exhibit G, and as it may be amended from time to time after the date hereof.

 

“LEPEP” means Lazard European Private Equity Partners LLP, a Limited Liability Partnership incorporated and registered in England and Wales.

 

“LFCM” has the meaning assigned to such term in the preamble to this Agreement.

 

“LFCM Assets” means (without duplication) (1) the Assets of Lazard Group and its Subsidiaries set forth on Schedule 1.1(f) hereto, (2) the Capital Markets Assets, (3) the Alternative Investments Assets, (4) the Contributed Interests, and (5) the Cash Contribution; provided that the LFCM Assets shall not include any Excluded Asset.

 

“LFCM Businesses” means (1) the Capital Markets Business, (2) the Alternative Investments Business, (3) the holding and management of the investments to be transferred to LFCM that shall not be Capital Markets Business or Alternative Investments Business, and (4) any and all activities, services, business and operations (including related joint ventures and alliances) of any LFCM Companies to the extent conducted or provided at any time on or after the Contribution Effective Time.

 

“LFCM Common Capital Account” means a “Common Capital Account” as defined in the LFCM Operating Agreement.

 

“LFCM Common Interest” means a “Common Interest” as defined in the LFCM Operating Agreement.

 

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“LFCM Common Unit” means a “Common Unit as defined in the LFCM Operating Agreement.

 

“LFCM Companies” means LFCM and the LFCM Subsidiaries.

 

“LFCM Entities” means the following entities and each of their Subsidiaries: (1) Lazard Alternative Investments Holdings LLC, a Delaware limited liability company and a wholly owned subsidiary of LFCM; (2) Lazard Alternative Investments (North America) LLC, a Delaware limited liability company and a wholly owned subsidiary of Lazard Alternative Investments Holdings LLC; (3) Lazard Alternative Investments (Europe) Limited, a U.K. limited company and a wholly owned subsidiary of Lazard Alternative Investments Holdings LLC; (4) Lazard Capital Markets LLC, a Delaware limited liability company and a wholly owned subsidiary of LFCM; (5) UKPG Holdings LLC, a Delaware limited liability company; (6) LEPEP; and (7) Panmure Gordon & Co. Limited, a U.K. private limited company and a wholly owned subsidiary of UKPG Holdings LLC.

 

“LFCM Indemnitees” has the meaning assigned to such term in Section 4.3.

 

“LFCM Liabilities” means (1) all Liabilities that are contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) to be Liabilities of, or to be assumed by, LFCM or any other LFCM Company, and all agreements, obligations and Liabilities of any LFCM Company under this Agreement or any of the Ancillary Agreements, regardless of whether such Liabilities arise prior to, on or after the Contribution Effective Time or the Distribution Time; (2) all Liabilities relating to, arising out of or resulting from any LFCM Asset regardless of whether such Liabilities arise prior to, on or after the Contribution Effective Time or the Distribution Time; (3) all Liabilities relating to, arising out of or resulting from any LFCM Business, including, for the avoidance of doubt, any Liabilities relating to, arising out of or resulting from the offering or provision of any services or products of an LFCM Business regardless of whether such Liabilities arise prior to, on or after the Contribution Effective Time or the Distribution Time; (4) all Liabilities relating to, arising out of or resulting from any of the terminated, divested or discontinued businesses and operations that were part of any LFCM Business prior to such termination, divestiture or discontinuation, or otherwise regardless of whether such Liabilities arise prior to, on or after the Contribution Effective Time or the Distribution Time; (5) all Liabilities relating to, arising out of or resulting from the business or operations of any LFCM Company, regardless of whether such Liabilities arise prior to, on or after the Contribution Effective Time or the Distribution Time; and (6) all Liabilities relating to, arising out of or resulting from the matters described on Schedule 1.1(g); provided that the LFCM Liabilities shall not include any Excluded Liability.

 

“LFCM Member” means a “Member” as defined in the LFCM Operating Agreement.

 

“LFCM Note” means the $           Note of LFCM in the aggregate principal amount of $           in the form attached hereto as Exhibit H.

 

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“LFCM Operating Agreement” means the Operating Agreement of LFCM Holdings LLC, dated as of the date hereof, which is set forth on Exhibit L, and as it may be amended from time to time after the date hereof.

 

“LFCM Subsidiaries” means all direct and indirect Subsidiaries of LFCM, including the LFCM Entities and other Subsidiaries to be transferred (including by transfer of the Contributed Interests) to or formed by LFCM in connection with the Separation.

 

“Liabilities” means any and all losses, liabilities, claims, charges, debts, demands, actions, causes of action, suits, damages, fines, penalties, offsets, obligations, payments, costs and expenses, sums of money, bonds, indemnities and similar obligations, covenants, contracts, controversies, agreements, promises, omissions, guarantees, make whole agreements and similar obligations, and other liabilities, including all contractual obligations, whether absolute or contingent, inchoate or otherwise, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, and including those arising under any law, rule, regulation, Action or threatened or contemplated Action (including the costs and expenses of demands, assessments, judgments, settlements and compromises relating thereto and attorneys’ fees and any and all costs and expenses (including allocated costs of in-house counsel and other personnel) reasonably incurred in investigating, preparing or defending against any such Actions or threatened or contemplated Actions), order or consent decree of any Governmental Authority or any award of any arbitrator or mediator of any kind, and those arising under any contract, commitment or undertaking, including those arising under this Agreement or any Ancillary Agreement, in each case, whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any person.

 

“License Agreement” means the License Agreement to be entered into on the date hereof in the form set forth on Exhibit I, and as it may be amended from time to time after the date hereof.

 

“Lien” means any debts, claims, security interests, liens, encumbrances, pledges, mortgages, retention agreements, hypothecations, rights of others, assessments, restrictions, voting trust agreements, options, rights of first offer, assessments, proxies, title defects, and charges or other restrictions or limitations of any nature whatsoever.

 

“Mandatory Exchange” has the meaning assigned to such term in Section 8.3(a).

 

“Mandatory Exchange Members” has the meaning assigned to such term in Section 8.3.

 

“Mandatory Lazard Group Exchange” means a “Mandatory Lazard Group Exchange” as defined in the New Lazard Group Operating Agreement.

 

“Market Price” has the meaning assigned to such term in Section 8.9(b).

 

“MD Exchanges” has the meaning assigned to such term in Section 8.1(a).

 

“Members’ Equity” shall mean                 .

 

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“New Lazard Group Operating Agreement” means the Operating Agreement of Lazard Group LLC, to be entered into on the date hereof in the form set forth on Exhibit K, and as it may be amended from time to time after the date hereof.

 

“NYSE” means the New York Stock Exchange, Inc.

 

“Offering Document” means any of the Registration Statements, the Debt Securities Prospectus or any other registration statement, prospectus, offering memorandum or other document pursuant to which Lazard Ltd Common Stock, Exchangeable Securities or Debt Securities are being offered in connection with the Financing Transactions.

 

“Old Lazard Group Operating Agreement” has the meaning assigned to such term in the recitals to this Agreement.

 

“Operating Agreement” means the New Lazard Group Operating Agreement or the LAZ-MD Operating Agreement, as applicable.

 

“Over-allotment Option” has the meaning assigned to such term in Section 3.4(a)(iv).

 

“Partial LAZ-MD Mandatory Exchange” has the meaning assigned to such term in Section 8.3(a)(iii).

 

“Party” or “Parties” has the meaning assigned to such term in the preamble to this Agreement, and shall include each of Lazard Ltd Sub A and Lazard Ltd Sub B for the purposes of Article VIII and Article XI hereto in the event such persons are added as parties to this Agreement pursuant to Section 11.14.

 

“Recapitalization” has the meaning assigned to such term in the recitals to this Agreement.

 

“Redemption Consideration” means the “Redemption Consideration” as defined in the New Lazard Group Operating Agreement.

 

“Registration Exchange Date” has the meaning set forth in Section 8.2(b)(ii)(B).

 

“Registration Statement” means, as applicable, (1) the registration statement on Form S-1 of Lazard Ltd under the Securities Act relating to the Lazard Ltd Common Stock to be issued in the Common Stock IPO or (2) the registration statement on Form S-1 of FinanceCo and Lazard Ltd under the Securities Act relating to the Exchangeable Securities to be issued in the Exchangeable Securities IPO, in each case as amended or supplemented from time to time.

 

“Representative” has the meaning assigned to such term in Section 6.8(a).

 

“Resolution Date” has the meaning assigned to such term in Section 2.9(e).

 

“Resolution Period” has the meaning assigned to such term in Section 2.9(b).

 

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“Retention Agreement” means the retention agreements entered into on or prior to the date hereof substantially in the forms set forth on Exhibit M, as such agreements may be amended from time to time.

 

“Review Period” has the meaning assigned to such term in Section 2.9(b).

 

“Rights Issuance” has the meaning assigned to such term in Section 8.9(b).

 

“SEC” means the Securities and Exchange Commission.

 

“Second Distribution” has the meaning assigned to such term in the recitals to this Agreement.

 

“Second Redemption” has the meaning assigned to such term in the recitals to this Agreement.

 

“Securities Act” means the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder.

 

“Separation” has the meaning assigned to such term in the recitals to this Agreement.

 

“Special Damages” means any special, indirect, incidental, punitive or consequential damages whatsoever including, without limitation, damages for lost profits and lost business opportunities or damages calculated based upon a multiple of earnings approach or variant thereof.

 

“Subsidiary” means, with respect to any person, any corporation, limited liability company, company, partnership, trust, association or other legal entity or organization of which such person (either directly or through one or more Subsidiaries of such person) (a) owns, directly or indirectly, a majority of the capital stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation, limited liability company, partnership, trust, association or other legal entity or organization, or (b) is otherwise entitled to exercise (1) a majority of the voting power generally in the election of the board of directors or other governing body of such corporation, limited liability company, partnership, trust, association or other legal entity or organization or (2) Control of such corporation, limited liability company, partnership, trust, association or other legal entity or organization.

 

“Target Closing Members’ Equity” shall mean $            .

 

“Tax Receivable Agreement” means the Tax Receivables Agreement to be entered into by and among                 , Lazard Ltd Sub A and Lazard Ltd Sub B, substantially in the form of Exhibit N hereto, with such changes as may be determined by the parties thereto.

 

“Third Party” has the meaning assigned to such term in Section 4.6(a).

 

“Third Party Claim” has the meaning assigned to such term in Section 4.6(a).

 

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“Third Party Investment” has the meaning assigned to such term in the recitals to this Agreement.

 

“Third Party Investment Agreement” means the Letter Agreement, dated as of March 14, 2005, by and among the Investor, Lazard Group and Lazard Ltd, as amended from time to time.

 

“Transaction Agreement” has the meaning set forth in the recitals of this Agreement.

 

SECTION 1.2 General. Wherever required by the context of this Agreement, the singular shall include the plural and vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa, and references to any agreement, document or instrument shall be deemed to refer to such agreement, document or instrument as amended, supplemented or modified from time to time. When used herein:

 

(a) the word “or” is not exclusive;

 

(b) the word “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any person, means the direct or indirect possession of the power to direct or cause the direction of the management or policies of such person, whether through the ownership of voting securities, by contract or otherwise;

 

(c) the words “including,” “includes,” “included” and “include” are deemed to be followed by the words “without limitation”;

 

(d) the terms “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision;

 

(e) the word “person” means any individual, corporation, limited liability company, trust, joint venture, association, company, partnership or other legal entity or a government or any department or agency thereof or self-regulatory organization; and

 

(f) all section, paragraph or clause references not attributed to a particular document shall be references to such parts of this Agreement, and all exhibit, annex and schedule references not attributed to a particular document shall be references to such exhibits, annexes and schedules to this Agreement.

 

SECTION 1.3 References to Time. All references in this Agreement to times of day shall be to New York City time.

 

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ARTICLE II

 

THE SEPARATION

 

SECTION 2.1 The Separation. On the date hereof and subject to the satisfaction or waiver of the conditions set forth in Section 3.9, the Parties shall effect the Separation by consummating the Exchange, the Forced Sale, the Contribution and the First Distribution in the order, on the terms, and subject to the conditions, set forth in this Article II.

 

SECTION 2.2 Actions Prior to the Forced Sale. (a) On the date hereof, immediately prior to the approval of the Lazard Board (as defined in the Old Lazard Group Operating Agreement) of the Exchange, certain Class A-2 Members (as defined in the Old Lazard Group Operating Agreement) shall forfeit and surrender their options to acquire Class A-2 Shares (as defined in the Old Lazard Group Operating Agreement) in full pursuant to the Forfeiture and Grant Agreement in effect on the date hereof.

 

(b) On the date hereof, the Parties shall use their commercially reasonable efforts to ensure that, immediately prior to the Exchange and the Forced Sale, the Lazard Group Class B-1 Interests set forth on Schedule 2.2(a) shall be transferred to Lazard Ltd Sub A, in exchange for shares of common stock, par value $.01 per share, of Lazard Ltd Sub A (the “Lazard Ltd Sub A Common Stock”) pursuant to the Lazard Ltd Sub A Share Transfer Agreement, in order to permit the holders of such Lazard Group Class B-1 Interests to exchange such Lazard Ltd Sub A Common Stock for shares of Lazard Ltd Common Stock in lieu of being redeemed for cash pursuant to the Second Redemption.

 

SECTION 2.3 The Exchange and the Forced Sale. On the date hereof immediately after the effectiveness of this Agreement, the Exchange and the Forced Sale shall be effected as follows: the members of Lazard Group who are party to the Transaction Agreement shall transfer limited liability company interests in Lazard Group to LAZ-MD in exchange for limited liability company interests in LAZ-MD, in the classes and in the amounts set forth on Schedule 2.3 in accordance with the terms and conditions of the Transaction Agreement. Simultaneously therewith pursuant to Section 6.02(b) of the Old Lazard Group Operating Agreement, (a) all other limited liability company interests in Lazard Group shall be transferred to LAZ-MD in exchange for limited liability company interests in LAZ-MD, in the classes and in the amounts set forth on Schedule 2.3, and all of the persons whose Lazard Group limited liability company interests are transferred pursuant to the Exchange and the Forced Sale shall be admitted as members of LAZ-MD and (b) Lazard Group shall admit LAZ-MD as the sole member of Lazard Group (and LAZ-MD hereby agrees to become the member of Lazard Group and abide by the terms of the Old Lazard Group Operating Agreement), in each case in accordance with the Transaction Agreement and the LAZ-MD Operating Agreement.

 

SECTION 2.4 Actions Prior to the Contribution. (a) The Parties acknowledge and agree that the transactions involving the initial transfers of certain assets and businesses in furtherance of the Separation set forth on Schedule 2.4(a) were consummated prior to the date hereof.

 

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(b) On the date hereof and immediately after completion of the Exchange and the Forced Sale and prior to the Contribution, LAZ-MD shall grant the Class II Interests pursuant to, and subject to the terms and conditions set forth in, the Forfeiture and Grant Agreement (the “Initial Grant”).

 

(c) On the date hereof and immediately after completion of the Forced Sale and prior to the Contribution, LAZ-MD and Lazard Group shall amend and restate the Old Lazard Group Operating Agreement to read in its entirety as the New Lazard Group Operating Agreement, effective immediately upon execution thereof, and an authorized person of Lazard Group shall file a Certificate of Amendment with the Secretary of State of the State of Delaware to reflect the change in Lazard Group’s name from “Lazard LLC” to “Lazard Group LLC.” Immediately after the effectiveness of the New Lazard Group Operating Agreement, LAZ-MD shall hold, inter alia, a Lazard Group Common Interest consisting of                  Lazard Group Common Units.

 

(d) On the date hereof and immediately after the actions set forth in section 2.4(c) and prior to the First Redemption, Lazard Group shall issue and distribute the Lazard Group I Note to LAZ-MD.

 

SECTION 2.5 The Contribution. (a) On the date hereof and subject to Section 2.5(d) and Section 2.5(e), immediately after the effectiveness of the New Lazard Group Operating Agreement pursuant to Section 2.4(c) and completion of the issuance of the Lazard Group I Note and consummation of the First Redemption (such time, the “Contribution Effective Time”), Lazard Group shall effect and consummate the Contribution by (i) contributing, assigning, transferring, conveying and delivering, or causing another Lazard Group Company to contribute, assign, transfer, convey and deliver to LFCM or to another LFCM Company all of Lazard Group’s (or, as the case may be, the applicable Lazard Group Company’s) right, title and interest in, to and under the LFCM Assets and (ii) issuing and contributing the Lazard Group II Note to LFCM. In consideration therefor, LFCM shall simultaneously therewith (i) assume and agree faithfully to perform and discharge in due course in full all of the LFCM Liabilities in accordance with their respective terms and (ii) issue and deliver to Lazard Group an LFCM Common Interest consisting of                  LFCM Common Units and having an LFCM Common Capital Account of $            , which LFCM Common Interest will constitute all of the issued and outstanding limited liability company interests of LFCM immediately after the Contribution Effective Time.

 

(b) The contribution, assignment, transfer, conveyance and delivery of the LFCM Assets and the assignment and assumption in full of the LFCM Liabilities pursuant to Section 2.5(a) shall be effected pursuant to the transactions set forth on, and transfer and assumption agreements attached to, Schedule 2.5(b) (it being understood that the failure to (i) contribute, assign, transfer, convey or deliver any LFCM Asset pursuant to any such transaction or agreement or (ii) assign, delegate or assume in full any LFCM Liability pursuant to any such transaction or agreement, shall not affect the obligations of Lazard Group and LFCM pursuant to Section 2.5(a) (including LFCM’s obligation to assume and agree faithfully to perform and discharge in due course in full all of the LFCM Liabilities in accordance with their respective terms) and in the event of any conflict between this Agreement and any such transfer and assumption agreements, this Agreement shall control).

 

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(c) From and after the Contribution Effective Time, LFCM shall be responsible for all LFCM Liabilities, regardless of when or where such LFCM Liabilities arose or arise, or whether the facts on which they are based occurred prior to or subsequent to the date hereof, regardless of where or against whom such LFCM Liabilities are asserted or determined (including any LFCM Liabilities arising out of claims made by any Lazard Group Company’s or LFCM Company’s respective directors, officers, employees, agents, Subsidiaries or Affiliates against any member of the Lazard Group Companies or the LFCM Companies) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of law, fraud or misrepresentation by any member of the Lazard Group Companies or the LFCM Companies or any of their respective directors, officers, employees, agents, Subsidiaries or Affiliates.

 

(d) Nothing herein shall be deemed to require the contribution, assignment, transfer, conveyance or delivery of any LFCM Assets or the assumption of any LFCM Liabilities that by their terms or operation of law cannot be contributed, assigned, transferred, conveyed, delivered or assumed; provided, however, that Lazard Group and LFCM shall, and shall cause the respective members of their Groups to, use their commercially reasonable efforts and cooperate to obtain any necessary consents, approvals or waivers for, and to resolve any impediments to, the contribution, assignment, transfer, conveyance or delivery of such LFCM Assets or assumption of such LFCM Liabilities contemplated to be contributed, assigned, transferred, conveyed, delivered or assumed pursuant to this Section 2.5; provided further, however, that Lazard Group shall not be obligated to pay any consideration therefor to the party from whom any such consent, approval or waiver is necessary in order to obtain any such consent, approval or waiver.

 

(e) To the extent that any contribution, assignment, transfer, conveyance, delivery or assumption referred to in Section 2.5(a) shall not have been consummated at or prior to the Contribution Effective Time, (i) Lazard Group and LFCM shall, and shall cause the respective members of their Groups to, use reasonable best efforts and cooperate to effect such contribution, assignment, transfer, conveyance, delivery or assumption as promptly following the Contribution Effective Time as shall be practicable; and (ii) Lazard Group shall thereafter, with respect to any such LFCM Asset, use reasonable best efforts, with the costs of Lazard Group related thereto to be promptly reimbursed by LFCM, to hold such Asset in trust for the use and benefit of LFCM and, with respect to any such LFCM Liability, retain such LFCM Liability for the account of LFCM, and to take such other action, including as may be reasonably requested by LFCM, in order to place each Party, insofar as reasonably possible, in the same position as would have existed had such LFCM Asset or LFCM Liability been contributed, assigned, transferred, conveyed, delivered or assumed as contemplated hereby (it being understood that Lazard Group shall not be required to take any action pursuant to this sentence that would, or could reasonably be expected to, result in a material financial obligation, or restriction on the business or operations, of Lazard Group). To the extent that LFCM is provided the use or benefits of any LFCM Asset or has any LFCM Liability held for its account pursuant to this Section 2.5(e), LFCM shall perform at the direction of Lazard Group and for the benefit of any third person the obligations of Lazard Group thereunder or in connection therewith; provided, that if LFCM shall fail to perform to the extent required herein, LFCM shall hold Lazard Group harmless and indemnify Lazard Group therefor. As and when any such LFCM Asset or LFCM Liability becomes contributable, assignable, transferable, conveyable, deliverable or assumable,

 

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such contribution, assignment, transfer, conveyance, delivery or assumption, as applicable, shall be effected as promptly as practicable thereafter.

 

(f) The Parties agree that, notwithstanding anything in Section 2.5 to the contrary, LFCM shall be deemed to have acquired all of Lazard Group’s right, title and interest in and to the LFCM Assets, and shall be deemed to have assumed in full in accordance with the terms of this Agreement all of the LFCM Liabilities, in each case effective as of the Contribution Effective Time.

 

SECTION 2.6 Actions Prior to the First Distribution. (a) On the date hereof, after the consummation of the Contribution and prior to the First Distribution, each of Lazard Group and LFCM shall enter into, or cause the appropriate members of the Group of which it is a member to enter into, each of the Administrative Services Agreement, the Benefits Agreement, the Business Alliance Agreement, the Insurance Matters Agreement, the License Agreement and the Tax Receivables Agreement.

 

(b) On the date hereof, after the consummation of the Contribution and prior to the First Distribution, Lazard Group and LFCM shall, or shall cause the appropriate member of such Party’s Group to, enter into the subleases, deeds of indemnity and other agreements attached hereto as Schedule 2.6(c) relating to LFCM’s use of real property of Lazard Group. If the approval or consents necessary for such subleases shall not have been obtained on or prior to the date required for such approval or consent, or Lazard Group and LFCM shall be unable to enter into a license or alternative arrangement, including the arrangement described on Schedule 2.6(b), for the subject premises of the sublease on or prior to the Consummation, then LFCM shall cause the appropriate member of the LFCM Group to vacate the subject premises of the sublease on the date of the consummation of the Contribution.

 

SECTION 2.7 The First Distribution. On the date hereof immediately after the consummation of the Contribution, the First Redemption and the actions set forth in Section 2.6, Lazard Group shall effect the First Distribution by distributing to LAZ-MD as the sole Lazard Group Common Member the entire LFCM Common Interest held by Lazard Group in accordance with the New Lazard Group Operating Agreement. Immediately after the First Distribution, Lazard Group shall cease to be a member of LFCM and bound by the LFCM Operating Agreement and LAZ-MD shall simultaneously be admitted to LFCM as a member and bound by the LFCM Operating Agreement.

 

SECTION 2.8 Ancillary Agreements. On or prior to the Contribution Effective Time, each of Lazard Group and LFCM shall enter into, or cause the appropriate members of the Group of which it is a member to enter into, (i) such bills of sale, stock powers, certificates of title, assignments of contracts and other instruments of transfer, conveyance and assignment requested by Lazard Group that are necessary or advisable to evidence the contribution, transfer, conveyance and assignment of all of Lazard Group’s right, title and interest in and to the LFCM Assets to LFCM or the applicable LFCM Company pursuant to Section 2.5(a); (ii) such bills of sale, stock powers, certificates of title, assumptions of contracts and other instruments of transfer, conveyance, assignment and assumption requested by Lazard Group that are necessary or advisable to evidence the assumption in full of the LFCM Liabilities by LFCM pursuant to Section 2.5(a); (iii) such bills of sale, stock powers, certificates of title,

 

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assumptions of contracts and other instruments of transfer, conveyance, assignment and assumption requested by Lazard Group that are necessary or advisable to evidence the valid and effective issuance and delivery of the LFCM Common Interest to Lazard Group pursuant to Section 2.5(a); and (iv) such other agreements, certificates and other documents as may be deemed to be advisable by Lazard Group in connection with the Separation.

 

SECTION 2.9 Post-Contribution Adjustment. (a) As promptly as practicable, but no later than ninety (90) days after the Closing Date, Lazard Group shall, at Lazard Group’s expense, prepare, or cause to be prepared, in good faith and deliver to LFCM (i) a balance sheet of LFCM (the “Closing Balance Sheet”) prepared in accordance with the accounting principles and policies set forth on Schedule 2.9(a) (the “Accounting Principles”) and (ii) a calculation in reasonable detail based upon such Closing Balance Sheet setting forth the amounts of Members’ Equity as of immediately after the Contribution (the “Closing Members’ Equity”). Lazard Group and its accountants and advisers shall be provided with reasonable access to the work papers of LFCM and its accountants to prepare the Closing Balance Sheet and the calculation of Closing Members’ Equity.

 

(b) LFCM shall have sixty (60) days from the date on which the Closing Balance Sheet and the calculation of Closing Members’ Equity are delivered to it to assess the Closing Balance Sheet and such calculation of Closing Members’ Equity (the “Review Period”). If LFCM believes that the Closing Balance Sheet was not prepared in accordance with the Accounting Principles or that Lazard Group’s calculation of Closing Members’ Equity was incorrect, LFCM may, on or prior to the last day of the Review Period, deliver a notice to Lazard Group setting forth, in reasonable detail, each disputed item or amount and the basis for LFCM’s disagreement therewith, together with supporting calculations (the “Dispute Notice”). Following delivery of a Dispute Notice to Lazard Group, Lazard Group and its accountants and advisers shall be provided with reasonable access to the work papers of LFCM and its accountants relating to the calculation of the amounts of Closing Members’ Equity as set forth in such Dispute Notice. If no Dispute Notice is received by Lazard Group on or prior to the last day of the Review Period, the Closing Balance Sheet and the amount of Closing Members’ Equity, as delivered by Lazard Group to LFCM, shall be deemed accepted by LFCM and shall be final and binding on LFCM. If a Dispute Notice is received by Lazard Group on or prior to the last day of the Review Period, Lazard Group and LFCM shall, during the thirty (30)-day period following the date of such notice (the “Resolution Period”), attempt to resolve their differences in good faith, and any resolution by them as to any disputed amounts shall be final, binding and conclusive.

 

(c) If, at the conclusion of the Resolution Period, there are amounts remaining in dispute with respect to the calculation of Closing Members’ Equity as to which a valid Dispute Notice has been timely delivered to Lazard Group, Lazard Group and LFCM shall jointly retain such independent accounting firm as Lazard Group and LFCM may mutually agree (the “Accountant”) to resolve any remaining issues set forth in the Dispute Notice. The Accountant shall conduct its review of such issues, any related work papers of the parties or their accountants and any supporting documentation, and hear such presentations by the parties, as the Accountant deems necessary.

 

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(d) Lazard Group and LFCM shall use their respective reasonable best efforts to agree upon and retain the Accountant as promptly as practicable following the end of the Resolution Period and to cooperate with one another and the Accountant to resolve the issues set forth in the Dispute Notice no later than forty-five (45) days following the date of the Accountant’s retention so that the Accountant may deliver to Lazard Group and LFCM a report (the “Accountant’s Report”) setting forth the adjustments, if any, that should be made to Lazard Group’s Closing Balance Sheet or calculation of Closing Members’ Equity, as the case may be. The fees, expenses and costs of the Accountant for the services described herein shall be allocated between Lazard Group and LFCM in the same proportion that the aggregate amount of the items unsuccessfully disputed by each (as finally determined by the Accountant) bears to the total amount of the disputed items. Lazard Group, on the one hand, and LFCM, on the other hand, shall each promptly reimburse the other to the extent the other paid more than the amount so required pursuant to the preceding sentence. The Accountant’s Report shall be final and binding upon Lazard Group and LFCM, and shall be deemed a final arbitration award that is enforceable in any court having jurisdiction.

 

(e) Effective upon (i) the end of the Review Period (if a timely Dispute Notice is not delivered), (ii) the resolution of all matters set forth in the Dispute Notice by agreement of the parties (if a timely Dispute Notice is delivered) or (iii) the issuance of the Accountant’s Report (the “Resolution Date”), the Closing Balance Sheet and the amounts of Closing Members’ Equity shall be adjusted if and to the extent necessary to reflect the final resolution of any disputed items and shall be final and binding on Lazard Group and LFCM. Promptly and, in any event, no later than three (3) Business Days following the Resolution Date, (i) if the Closing Members’ Equity (as finally determined under this Section 2.9) is greater than the Target Members’ Equity, LFCM shall pay to Lazard Group an amount of cash equal to such difference and (ii) if Target Members’ Equity is greater than the Closing Members’ Equity (as finally determined under this Section 2.9), Lazard Group shall pay to LFCM an amount of cash equal to such difference.

 

ARTICLE III

 

THE RECAPITALIZATION

 

SECTION 3.1 The Recapitalization. On the date hereof and subject to Section 3.9, the Parties shall effect the Recapitalization by consummating the First Redemption, the Financing Transactions, the Second Redemption and the Second Distribution in the order, on the terms, and subject to the conditions, set forth in this Article III.

 

SECTION 3.2 The First Redemption. On the date hereof immediately after the effectiveness of the New Lazard Group Operating Agreement, LAZ-MD shall effect the First Redemption by redeeming the LAZ-MD Redeemable Interests in full in exchange for the Lazard Group Redeemable Interests pursuant to, and in accordance with, the LAZ-MD Operating Agreement and the New Lazard Operating Agreement and the Transaction Agreement.

 

SECTION 3.3 Actions Prior to the Financing Transactions. (a) Effective on or prior to the date hereof and prior to the consummation of the Common Stock IPO Transaction,

 

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the bye-laws of Lazard Ltd shall be amended and restated to read in their entirety as the Lazard Ltd Bye-laws.

 

(b) Lazard Ltd and Lazard Group shall use their respective commercially reasonable efforts to cause the registration statement with respect to each of the Common Stock IPO and the Exchangeable Securities IPO to become effective under the Securities Act and the Exchange Act and to keep the applicable Registration Statement effective as long as is necessary to consummate the Common Stock IPO and Exchangeable Securities IPO, as applicable.

 

(c) Lazard Group and LFCM shall take all such action as Lazard Group may determine necessary or appropriate under federal or state securities or blue sky laws of the United States (and any comparable laws under any foreign jurisdiction) in connection with the Financing Transactions.

 

SECTION 3.4 The Financing Transactions. On the date hereof immediately after the consummation of the First Redemption and the First Distribution and the actions set forth in Section 3.3, the Parties shall effect the Financing Transactions as follows:

 

(a) Common Stock IPO Transaction. (i) Common Stock IPO. Lazard Ltd shall use its commercially reasonable efforts to take all actions necessary to consummate the Common Stock IPO.

 

(ii) Use of Proceeds. The Common Stock IPO will be a primary offering of Lazard Ltd Common Stock. The net proceeds of the Common Stock IPO (including from the exercise of any Over-allotment Option) will primarily be used by Lazard Ltd for the Lazard Ltd Contribution.

 

(iii) The Common Stock Contributions. Immediately after the consummation of the Common Stock IPO and receipt of the proceeds thereof:

 

(A) Lazard Ltd shall effect the Lazard Ltd Contribution by causing the contribution to Lazard Group of an amount in cash equal to the net proceeds of the Common Stock IPO through the contribution transaction described on Schedule 3.4(a)(iii); and

 

(B) in exchange therefor, simultaneously with such cash contributions to Lazard Group, Lazard Group shall (1) issue to the direct or indirect wholly-owned Subsidiaries of Lazard Ltd that shall directly contribute cash to Lazard Group pursuant to the Lazard Ltd Contribution as described on Schedule 3.4(a)(iii) (the “Contributing Subsidiaries”) Lazard Group Common Interests consisting of an aggregate number of Lazard Group Common Units equal to the number of shares of Lazard Ltd Common Stock sold pursuant to the Common Stock IPO and an aggregate amount of Lazard Group Common Capital equal to the net proceeds of the Common Stock IPO so contributed, with such units and capital allocated among the Contributing Subsidiaries as set forth on Schedule 3.4(a)(iii), and (2) admit each Contributing Subsidiary to Lazard Group as a Lazard Group Common Member and admit FinanceCo as the Lazard Group Managing Member.

 

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(iv) Over-allotment Option. In the event that the underwriters’ over-allotment option (the “Over-allotment Option”) shall be exercised in whole or in part in the Common Stock IPO, immediately after the closing of the Over-allotment Option and receipt of the proceeds thereof:

 

(A) Lazard Ltd shall cause the contribution to Lazard Group by the Contributing Subsidiaries of an amount in cash equal to the net proceeds of such Over-allotment Option through the transactions described on Schedule 3.4(a)(iii), and

 

(B) in exchange therefor, simultaneously with such cash contributions to Lazard Group, Lazard Group shall issue to the Contributing Subsidiaries an aggregate amount of additional Lazard Group Common Units equal to the number of shares of Lazard Ltd Common Stock sold pursuant to the Over-allotment Option, and shall credit the Contributing Subsidiaries’ Lazard Group Common Capital Accounts by an aggregate amount equal to net proceeds of the Over-allotment Option so contributed by such Contributing Subsidiaries, with such units and capital allocated among the Contributing Subsidiaries as set forth on Schedule 3.4(a)(iii).

 

(b) Exchangeable Securities IPO Transaction. (i) Exchangeable Securities IPO. Lazard Ltd shall, and shall cause FinanceCo to, use its commercially reasonable efforts to take all actions necessary to consummate the Exchangeable Securities IPO.

 

(ii) Use of Proceeds. The Exchangeable Securities IPO will be a primary offering of             % Equity Security Units (the “Exchangeable Securities”) by Lazard Ltd and FinanceCo. The net proceeds of the Exchangeable Securities IPO (including from the exercise of any Exchangeable Securities Over-allotment Option) will be used by FinanceCo to purchase the Lazard Group Exchangeable Debt Securities.

 

(iii) Purchase of the Lazard Group Debt Securities. Immediately after the consummation of the Exchangeable Securities IPO and receipt of the proceeds thereof, FinanceCo shall purchase, and Lazard Group shall sell,             % Notes Due              in principal amount equal to the aggregate principal amount of the senior notes of FinanceCo included in the Exchangeable Securities issued pursuant to the Exchangeable Securities IPO (the “Lazard Group Exchangeable Debt Securities”) for the aggregate consideration equal to the net proceeds of the Exchangeable Securities IPO in cash in immediately available funds.

 

(iv) Exchangeable Securities Over-allotment Option. In the event that the underwriters’ over-allotment option (the “Exchangeable Securities Over-allotment Option”) shall be exercised in whole or in part in the Exchangeable Securities IPO, immediately after the closing of the Exchangeable Securities Over-allotment Option and receipt of the proceeds thereof, FinanceCo shall purchase, and Lazard Group shall sell, Lazard Group Exchangeable Debt Securities in principal amount equal to the aggregate principal amount of the senior notes of FinanceCo included in the Exchangeable Securities issued pursuant to the Exchangeable Securities Over-allotment Option for the aggregate consideration equal to the net proceeds of the Exchangeable Securities Over-allotment Option in cash in immediately available funds.

 

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(v) Parallel Forward. In connection with the Exchangeable Securities IPO, each of Lazard Group and the Contributing Subsidiaries, with Lazard Ltd as guarantor thereof, shall enter into appropriate forward contracts providing for the issuance of Lazard Group Common Units to such Contributing Subsidiaries on substantially similar terms in respect of pricing, timing and antidilution as set forth in the forward purchase contracts forming part of the Exchangeable Securities.

 

(c) Debt Securities Offering Transaction. Lazard Group shall use its commercially reasonable efforts to take all actions necessary to consummate the Debt Securities Offering. The Debt Securities Offering will be a primary offering of           % Notes due $           in principal amount of $           (the “Debt Securities”) by Lazard Group.

 

(d) Third Party Investment. Lazard Group and Lazard Ltd shall use their respective commercially reasonable efforts to take all actions necessary to consummate the Third Party Investment.

 

(i) Immediately after the consummation of the Third Party Investment and receipt by Lazard Ltd of its share of the proceeds thereof:

 

(A) Lazard Ltd shall cause the contribution to Lazard Group of an amount in cash equal to the net proceeds thereof received by Lazard Ltd through the contribution transaction described on Schedule 3.4(d); and

 

(B) in exchange therefor, simultaneously with such cash contributions to Lazard Group, Lazard Group shall issue to the Contributing Subsidiaries an aggregate number of Lazard Group Common Units equal to the number of shares of Lazard Ltd Common Stock sold pursuant to the Third Party Investment and an aggregate amount of Lazard Group Common Capital equal to the aggregate amount of such contribution, with such units and capital allocated among the Contributing Subsidiaries as set forth on Schedule 3.4(d).

 

(ii) Immediately after the consummation of the Third Party Investment and receipt by FinanceCo of its share of the proceeds thereof, FinanceCo shall purchase, and Lazard Group shall sell, Lazard Group Exchangeable Debt Securities in principal amount of equal to the aggregate principal amount of the senior notes of FinanceCo included in the Exchangeable Securities issued pursuant to the Third Party Exchange for the aggregate consideration equal to the net proceeds of the Third Party Investment received by FinanceCo in cash in immediately available funds.

 

(iii) In connection with the Third Party Investment, each of Lazard Group and the Contributing Subsidiaries, with Lazard Ltd as guarantor thereof, shall enter into appropriate forward contracts providing for the issuance of Lazard Group Common Units to such Contributing Subsidiaries on substantially similar terms in respect of pricing, timing and antidilution as set forth in the forward purchase contracts forming part of the Exchangeable Securities.

 

(e) Use of Proceeds by Lazard Group. The portion of the net proceeds of the Common Stock IPO Transaction, the Exchangeable Security Offering Transaction, the Debt

 

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Securities Offering and the Third Party Investment that are received by Lazard Group shall be used by Lazard Group to fund the Second Redemption, for general corporate purposes of Lazard Group and such other purposes set forth in the Registration Statements.

 

SECTION 3.5 Actions Prior to the Second Redemption. On the date hereof after the consummation of the Financing Transactions and immediately prior to the Second Redemption, the stockholders of Lazard Ltd Sub A shall be permitted to sell and transfer to Lazard Ltd, and Lazard Ltd shall purchase and acquire in such sale and transfer, all of the outstanding shares of Lazard Ltd Sub A, in consideration for the issuance of shares of Lazard Ltd Common Stock to the transferring stockholders of Lazard Ltd Sub A, on the terms and subject to the conditions set forth in the Lazard Ltd Sub A Share Transfer Agreement and simultaneously with the payment of the Redemption Consideration. Pursuant to the Second Redemption, the Lazard Group Redeemable Interests held by Lazard Ltd Sub A will be redeemed in exchange for Lazard Group Common Units in accordance with the New Lazard Group Operating Agreement.

 

SECTION 3.6 The Second Redemption. On the date hereof immediately after consummation of the Financing Transactions and the actions set forth in Section 3.5 and in accordance with the New Lazard Group Operating Agreement, Lazard Group shall redeem the Lazard Group Redeemable Interests for the Redemption Consideration.

 

SECTION 3.7 Actions Prior to the Second Distribution. On the date hereof immediately after consummation of the Second Redemption, (a) Lazard Group shall repay in full all outstanding amounts under each of the Lazard Group I Note and the Lazard Group II Note, and (b) LAZ-MD shall purchase from LFCM, and LFCM shall issue and sell to LAZ-MD, the LFCM Note for an aggregate purchase price equal to the principal amount of such LFCM Note.

 

SECTION 3.8 The Second Distribution. On the date hereof immediately after the consummation of the Second Redemption and the actions set forth in Section 3.7, LAZ-MD shall effect the Second Distribution by distributing or otherwise transferring to each LAZ-MD Class II Member an LFCM Common Interest with an equivalent number of LFCM Common Units and pro rata portion (based on number of LAZ-MD Class II Units) of the capital associated with the LFCM Common Interest held by LAZ-MD immediately prior to the Second Distribution, on the terms set forth in the LAZ-MD Operating Agreement. Pursuant to such distribution and transfer, each recipient of an LFCM Common Interest will be admitted as an LFCM Common Member, on the terms and subject to the conditions set forth in the LFCM Operating Agreement.

 

SECTION 3.9 Conditions to the Separation and the Recapitalization. (a) Subject to satisfaction or waiver of the additional conditions set forth in Section 3.9(b) with respect to the consummation of each of the First Redemption and the Second Redemption and the provisions of Section 3.9(c), the obligations of the Parties to consummate the Separation and the Recapitalization are subject to the satisfaction, or waiver by Lazard Group in its sole discretion, of each of the following conditions prior to the consummation of the Exchange and the Forced Sale:

 

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(i) All of the conditions to the Exchange set forth in Section 4(b) of the Transaction Agreement shall have been satisfied or waived in accordance with the terms thereof.

 

(ii) Approval of the Separation and Recapitalization shall have been given by the Board of Directors of Lazard Group in its sole discretion and not revoked.

 

(iii) Each of the Registration Statements shall have been filed and declared effective by the SEC, and there shall be no stop-order in effect with respect thereto.

 

(iv) The actions and filings necessary or appropriate under federal and state securities laws and state blue sky laws of the United States (and any comparable laws under any foreign jurisdictions) in connection with the Financing Transactions (including, if applicable, any actions and filings relating to the Registration Statements or the prospectuses contained therein or any comparable registration statements or prospectuses in any foreign jurisdictions) shall have been taken and, where applicable, have become effective or been accepted.

 

(v) The Lazard Ltd Common Stock to be issued in the Common Stock IPO and the Exchangeable Securities to be issued in the Exchangeable Securities IPO shall have been accepted for listing on the NYSE, subject to official notice of issuance.

 

(vi) No order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Separation or the Recapitalization, including any of the Exchange, the Forced Sale, the Contribution, the First Redemption, the First Distribution, the Financing Transactions, the Second Redemption or the Second Distribution, or any of the other transactions contemplated by this Agreement or any Ancillary Agreement, shall be in effect.

 

(vii) All Consents and Governmental Approvals required in connection with the Separation and the Recapitalization, including the Exchange, the Forced Sale, the Contribution, the First Redemption, the First Distribution, the Financing Transactions, the Second Redemption and the Second Distribution, and any of the other transactions contemplated by this Agreement or any Ancillary Agreement, shall have been received.

 

(viii) Neither this Agreement nor the Transaction Agreement shall have been terminated, and each of this Agreement and the Transaction Agreement shall be in full force and effect.

 

(b) The obligations of the Parties to consummate the First Redemption and the Second Redemption, as applicable, are subject to the satisfaction, or waiver by Lazard Group in its sole discretion, of the following conditions:

 

(i) With respect to the First Redemption, the condition to the First Redemption set forth in Section 4(c)(i) of the Transaction Agreement shall have been satisfied or waived in accordance with the terms thereof.

 

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(ii) With respect to the Second Redemption, the condition to the Second Redemption set forth in Section 4(c)(ii) of the Transaction Agreement shall have been satisfied or waived in accordance with the terms thereof.

 

(c) In the event that after the consummation of the Exchange and Forced Sale but prior to the consummation of the Second Distribution any of the conditions to the Separation and Recapitalization set forth in this Section 3.9 shall cease to be satisfied (unless earlier waived by Lazard Group as provided herein), Lazard Group may, in its sole discretion, elect to terminate the obligations of the Parties to continue to consummate the Separation and the Recapitalization.

 

(d) Any determination made by Lazard Group (including the Board of Directors of Lazard Group) concerning the satisfaction or waiver of any or all of the conditions set forth in this Section 3.9 shall be conclusive and binding on the Parties.

 

ARTICLE IV

 

SURVIVAL AND INDEMNIFICATION

 

SECTION 4.1 Survival of Agreements. All covenants and agreements of the Parties contained in this Agreement shall survive each of the Separation and the Recapitalization (including the Exchange, the Forced Sale, the Contribution, the First Redemption, the First Distribution, the Financing Transactions, the Second Redemption and the Second Distribution).

 

SECTION 4.2 Indemnification by LFCM. LFCM shall indemnify, defend and hold harmless (1) Lazard Group, each other Lazard Group Company and each of their respective directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “Lazard Group Indemnitees”) and (2) LAZ-MD and each of its directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “LAZ-MD Indemnitees”), from and against any and all Indemnifiable Losses of the Lazard Group Indemnitees and the LAZ-MD Indemnitees to the extent relating to, arising out of or resulting from any of the following items regardless of whether arising from or alleged to arise from negligence, recklessness, violation of law, fraud or misrepresentation (without duplication):

 

(a) the failure of LFCM or any other LFCM Company or any other person to pay, perform or otherwise promptly discharge any LFCM Liabilities or any contract, agreement or arrangement included in the LFCM Assets in accordance with their respective terms, whether prior to, at or after the Distribution Time;

 

(b) any LFCM Company, any LFCM Liability or any LFCM Asset; and

 

(c) any breach by LFCM of this Agreement or any of the Ancillary Agreements to which it is a party or any breach by any other LFCM Company of any of the Ancillary Agreements to which it is a party.

 

SECTION 4.3 Indemnification by Lazard Group. Lazard Group shall indemnify, defend and hold harmless LFCM, each other LFCM Company and each of their respective directors, officers and employees, and each of the heirs, executors, successors and

 

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assigns of any of the foregoing (collectively, the “LFCM Indemnitees”) and the LAZ-MD Indemnitees, from and against any and all Indemnifiable Losses of the LFCM Indemnitees and the LAZ-MD Indemnitees to the extent relating to, arising out of or resulting from any of the following items regardless of whether arising from or alleged to arise from negligence, recklessness, violation of law, fraud or misrepresentation (without duplication):

 

(a) the failure of Lazard Group or any other Lazard Group Company or any other person to pay, perform or otherwise promptly discharge any Lazard Group Liabilities, whether prior to, at or after the Distribution Time;

 

(b) any Lazard Group Liability;

 

(c) any breach by Lazard Group of this Agreement or any of the Ancillary Agreements to which it is a party or any breach by any other Lazard Group Company of any of the Ancillary Agreements to which it is a party; and

 

(d) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, contained in any Offering Document.

 

SECTION 4.4 Indemnification by LAZ-MD. LAZ-MD shall indemnify, defend and hold harmless each LFCM Indemnitee and each Lazard Group Indemnitee from and against any and all Indemnifiable Losses of the LFCM Indemnitees and the Lazard Group Indemnitees to the extent relating to, arising out of or resulting from any breach by LAZ-MD of this Agreement or any of the Ancillary Agreements to which it is a party.

 

SECTION 4.5 Indemnification Obligations Net of Insurance Proceeds and Other Amounts. (a) The Parties intend that any Indemnifiable Loss subject to indemnification or reimbursement pursuant to this Article IV will be net of Insurance Proceeds actually recovered by or on behalf of the Indemnitee in reduction of the related Indemnifiable Loss. Accordingly, except as otherwise expressly provided in such sections of the Insurance Matters Agreement, (i) the amount that any Party (an “Indemnifying Party”) is required to pay to any person entitled to indemnification hereunder (an “Indemnitee”) will be reduced by any Insurance Proceeds theretofore actually recovered by or on behalf of the Indemnitee in reduction of the related Indemnifiable Loss; and (ii) if an Indemnitee receives a payment (an “Indemnity Payment”) required by this Agreement from an Indemnifying Party in respect of any Indemnifiable Loss and subsequently receives Insurance Proceeds in reduction of such Indemnifiable Loss, then the Indemnitee will promptly pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if the Insurance Proceeds had been received, realized or recovered before the Indemnity Payment was made.

 

(b) The existence of a claim by an Indemnitee for monies from an insurer or against a third party in respect of an Indemnifiable Loss shall not, however, delay any Indemnity Payment pursuant to the indemnification provisions contained herein and otherwise determined to be due and owning by an Indemnifying Party.

 

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SECTION 4.6 Procedures for Indemnification of Third Party Claims. (a) If an Indemnitee shall receive actual notice of the assertion by a person (including any Governmental Authority) other than LAZ-MD, any Lazard Group Company or any LFCM Company or any of their respective Affiliates (a “Third Party”) of any claim, or of the commencement by any such person of any Action, with respect to which an Indemnifying Party may be obligated to provide indemnification to such Indemnitee pursuant to Section 4.2, 4.3 or 4.4 or any other indemnification provision set forth in any Ancillary Agreement (collectively, a “Third Party Claim”), such Indemnitee shall give such Indemnifying Party and, if Lazard Group is not the Indemnifying Party, Lazard Group prompt written notice thereof (and in any event not more than 30 days after receiving such actual notice of such Third Party Claim). Any such notice shall describe the Third Party Claim in reasonable detail, including, if known, the amount of the Indemnifiable Loss for which indemnification may be available or a good faith estimate thereof. Notwithstanding the foregoing, the failure of any Indemnitee or other person to give notice within the 30-day period as provided in this Section 4.6(a) shall not relieve the related Indemnifying Party of its obligations under this Article IV, except to the extent that such Indemnifying Party is actually prejudiced by such failure to give notice within such 30-day period.

 

(b) An Indemnifying Party may elect (but is not required) to assume the defense of and defend, at such Indemnifying Party’s own expense and by such Indemnifying Party’s own counsel, any Third Party Claim. Within 30 days after the receipt of notice from an Indemnitee in accordance with Section 4.6(a), the Indemnifying Party shall notify the Indemnitee of its election whether the Indemnifying Party will assume responsibility for defending such Third Party Claim, which election shall specify any reservations or exceptions. After notice from an Indemnifying Party to an Indemnitee of its election to assume the defense of a Third Party Claim, such Indemnitee shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise, or settlement thereof, but the fees and expenses of such counsel shall be the expense of such Indemnitee.

 

(c) If an Indemnifying Party elects not to assume responsibility for defending a Third Party Claim, or fails to notify an Indemnitee of its election as provided in Section 4.6(b), such Indemnitee may defend such Third Party Claim at the cost and expense of the Indemnifying Party; provided, that the Indemnifying Party may thereafter assume the defense of such Third Party Claim upon notice to the Indemnitee (but the cost and expense of such Indemnitee in defending such Third Party Claim incurred from the last day of the notice period under Section 4.6(b) until such date as the Indemnifying Party shall assume the defense of such Third Party Claim shall be paid by the Indemnifying Party).

 

(d) If an Indemnifying Party elects not to assume responsibility for defending a Third Party Claim, or fails to notify an Indemnitee of its election as provided in Section 4.6(b), and has not thereafter assumed such defense as provided in Section 4.6(c), such Indemnitee shall have the right to settle or compromise such Third Party Claim, and any such settlement or compromise made or caused to be made of such Third Party Claim in accordance with this Article IV shall be binding on the Indemnifying Party, in the same manner as if a final judgment or decree had been entered by a court of competent jurisdiction in the amount of such settlement or compromise. Notwithstanding the foregoing sentence, the Indemnitee shall not compromise or settle a Third Party Claim without the express prior consent of the Indemnifying Party (which

 

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consent the Indemnifying Party may withhold in its sole discretion unless the compromise or settlement includes, as a part thereof, a full and unconditional release by the plaintiff or claimant of the Indemnitee and the Indemnifying Party from all liability with respect to such Third Party Claim and does not require the Indemnifying Party to be subject to any non-monetary remedy, in which case such consent may not be unreasonably withheld or delayed).

 

(e) The Indemnifying Party shall have the right to compromise or settle a Third Party Claim the defense of which it shall have assumed pursuant to Section 4.6(b) or Section 4.6(c) and any such settlement or compromise made or caused to be made of a Third Party Claim in accordance with this Article IV shall be binding on the Indemnitee, in the same manner as if a final judgment or decree had been entered by a court of competent jurisdiction in the amount of such settlement or compromise. Notwithstanding the foregoing sentence, the Indemnifying Party shall not have the right to admit Liability on behalf of the Indemnitee and shall not compromise or settle a Third Party Claim unless the compromise or settlement includes, as a part thereof, a full and unconditional release by the plaintiff or claimant of the Indemnitee from all liability with respect to such Third Party Claim and does not require the Indemnitee to make any payment that is not fully indemnified under this Agreement or to be subject to any non-monetary remedy, in each case without the express prior consent of the Indemnitee (not to be unreasonably withheld or delayed).

 

SECTION 4.7 Additional Matters. (a) Any claim on account of an Indemnifiable Loss that does not result from a Third Party Claim shall be asserted by written notice given by the Indemnitee to the related Indemnifying Party, which notice shall be given promptly after the Indemnitee shall receive actual notice of such Indemnifiable Loss (and in any event not more than 30 days after receiving such actual notice of such Indemnifiable Loss). Such Indemnifying Party shall have a period of 30 days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such 30-day period, such Indemnifying Party shall be deemed to have agreed to accept responsibility to make payment. If such Indemnifying Party does not respond within such 30-day period or rejects such claim in whole or in part, such Indemnitee shall be free to pursue such remedies as may be available to such Party as contemplated by this Agreement and the Ancillary Agreements. Any such notice shall describe the claimed Indemnifiable Loss in reasonable detail, including, if known, the amount of the Indemnifiable Loss for which indemnification may be available or a good faith estimate thereof. Notwithstanding the foregoing, the failure of any Indemnitee or other person to give notice within the 30-day period as provided in this Section 4.7(a) shall not relieve the related Indemnifying Party of its obligations under this Article IV, except to the extent that such Indemnifying Party is actually prejudiced by such failure to give notice within such 30-day period.

 

(b) In the event of payment by or on behalf of any Indemnifying Party to any Indemnitee in connection with any Third Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third Party Claim against any claimant or plaintiff asserting such Third Party Claim or against any other person. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or claim.

 

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(c) LFCM shall, and shall cause its other Indemnitees to, and Lazard Group shall, and shall cause its other Indemnitees to, make available to each other, their counsel and other representatives, all information and documents reasonably available to them that relate to any Third Party Claim, and otherwise cooperate as may reasonably be required in connection with the investigation, defense and settlement thereof, subject to the terms and conditions of a mutually acceptable joint defense agreement.

 

SECTION 4.8 Remedies Cumulative. The remedies provided in this Article IV shall be cumulative and shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party; provided, that the procedures set forth in Section 4.6 and Section 4.7 shall be the exclusive procedures governing any indemnity action brought under this Agreement, except as otherwise expressly provided in any of the Ancillary Agreements.

 

SECTION 4.9 Survival of Indemnities. The rights and obligations of each of Lazard Group, LAZ-MD and LFCM and their respective Indemnitees under this Article IV shall survive the sale or other transfer by any Party of any Assets or businesses or the assignment by it of any Liabilities.

 

ARTICLE V

 

CERTAIN ADDITIONAL COVENANTS RELATING TO THE SEPARATION AND

RECAPITALIZATION

 

SECTION 5.1 Intercompany Agreements; Intercompany Accounts. (a) All contracts, licenses, agreements, commitments or other arrangements, formal or informal, written or oral, between any of LAZ-MD or any Lazard Group Company, on the one hand, and any LFCM Company, on the other hand, in existence as of the Distribution Time, shall terminate effective as of the Distribution Time, and no persons party to any such contract, license, agreement, commitment or other arrangement shall have any rights under such contract, license, agreement, commitment or arrangement, except, in each case, (i) for this Agreement and any Ancillary Agreement (including each other agreement or instrument expressly contemplated by this Agreement or any Ancillary Agreement (A) to be entered into by any of the Parties or, if applicable, any of the members of their respective Groups or (B) to survive the Separation), (ii) for any contracts, licenses, agreements, commitments or other arrangements to which any person other than the Parties or their respective wholly owned Subsidiaries is a party and (iii) the agreements set forth on Schedule 5.1.

 

(b) Notwithstanding anything to the contrary in Section 5.1(a), after the Distribution Time, the Parties shall be obligated to pay only those intercompany accounts between any of LAZ-MD or any Lazard Group Company, on the one hand, and any LFCM Company, on the other hand, outstanding as of the Distribution Time that arose in connection with transfers of goods and services in the ordinary course of business, consistent with past practices (which the Parties shall use reasonable efforts to settle prior to the Distribution Time) and all other intercompany accounts outstanding as of the Distribution Time shall be settled without transfer of non-financial assets as of the Distribution Time, except as otherwise contemplated by this Agreement.

 

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SECTION 5.2 Guarantee Obligations. (a) Lazard Group and LFCM shall cooperate, and shall cause their respective Groups to cooperate, to terminate, or to cause a Lazard Group Company to be substituted in all respects for any LFCM Company in respect of, all obligations of any LFCM Company under any Lazard Group Liabilities for which such LFCM Company may be liable, as guarantor, original tenant, primary obligor or otherwise. If such a termination or substitution is not effected by the Distribution Date, (i) Lazard Group shall indemnify and hold harmless the LFCM Indemnitees for any Indemnifiable Loss arising from or relating thereto, and (ii) without the prior written consent of LFCM, from and after the Distribution Time, Lazard Group shall not, and shall not permit any other Lazard Group Company to, renew or extend the term of, increase its obligations under, or transfer to a third party, any loan, lease, contract or other obligation for which any LFCM Company is or may be liable unless all obligations of the LFCM Companies with respect thereto are thereupon terminated by documentation reasonably satisfactory in form and substance to LFCM; provided, that the limitations in clause (ii) shall not apply in the event that a Lazard Group Company obtains a letter of credit from a financial institution reasonably acceptable to LFCM and for the benefit of LFCM with respect to such obligation of the LFCM Companies.

 

(b) Lazard Group and LFCM shall cooperate, and shall cause their respective Groups to cooperate, to terminate, or to cause an LFCM Company to be substituted in all respects for any Lazard Group Company in respect of, all obligations of any Lazard Group Company under any LFCM Liabilities for which such Lazard Group Company may be liable, as guarantor, original tenant, primary obligor or otherwise. If such a termination or substitution is not effected by the Distribution Time, (i) LFCM shall indemnify and hold harmless the Lazard Group Indemnitees for any Liabilities arising from or relating thereto, and (ii) without the prior written consent of Lazard Group, from and after the Distribution Time, LFCM shall not, and shall not permit any other LFCM Company to, renew or extend the term of, increase its obligations under, or transfer to a third party, any loan, lease, contract or other obligation for which any Lazard Group Company is or may be liable unless all obligations of the Lazard Group Companies with respect thereto are thereupon terminated by documentation reasonably satisfactory in form and substance to Lazard Group; provided, that the limitations contained in clause (ii) shall not apply in the event that an LFCM Company obtains a letter of credit from a financial institution reasonably acceptable to Lazard Group and for the benefit of Lazard Group with respect to such obligation of the Lazard Group Companies.

 

SECTION 5.3 Commercially Reasonable Efforts. (a) In addition to the actions specifically provided for elsewhere in this Agreement, each of the Parties shall use its commercially reasonable efforts, prior to, at and after the Distribution Time, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements.

 

(b) Without limiting the foregoing, prior to, at and after the Distribution Time, each Party shall cooperate with the other Parties, and without any further consideration, to cause to be executed and delivered all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all consents, approvals or authorizations of, any Governmental Authority or any other person under any permit, license, agreement, indenture or other instrument (including any Consents or Governmental Approvals), and to take

 

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all such other actions as such Party may reasonably be requested to take by any other Party from time to time, consistent with the terms of this Agreement and the Ancillary Agreements, in order to effectuate the provisions and purposes of this Agreement and the Ancillary Agreements and each of the Separation and Recapitalization (including the Exchange, Forced Sale, Contribution, First Redemption, First Distribution, Financing Transactions, Second Redemption and Second Distribution) and the other transactions contemplated hereby and thereby.

 

(c) Each of the Parties shall, and, if applicable, shall cause members of its Group to, use its commercially reasonable efforts to obtain, or cause to be obtained, any consent, substitution, approval or amendment required to novate (including with respect to any federal government contract) or assign all obligations under agreements, leases, licenses and other obligations or Liabilities of any nature whatsoever that constitute LFCM Liabilities, or to obtain in writing the unconditional release of all parties to such arrangements other than any member of the LFCM Companies, so that, in any such case, LFCM and its Group will be solely responsible for such Liabilities; provided, that no Party or the other members of its Group shall be obligated to pay any consideration therefor to any Governmental Authority or third party from whom such consents, approvals, substitutions and amendments are requested.

 

ARTICLE VI

 

ACCESS TO INFORMATION

 

SECTION 6.1 Agreement for Exchange of Information. (a) At any time before, on or after the Distribution Time, (i) Lazard Group, on behalf of each Lazard Group Company, agrees to provide, or cause to be provided, to each of LAZ-MD and LFCM, (ii) LFCM, on behalf of each LFCM Company, agrees to provide, or cause to be provided, to each of LAZ-MD and Lazard Group, and (iii) LAZ-MD agrees to provide, or cause to be provided, to each of LFCM and Lazard Group, in each case as soon as reasonably practicable after written request therefor from such other Party, any Information in the possession or under the control of such respective Group, if applicable, that the requesting Party reasonably needs (i) to comply with reporting, disclosure, filing or other requirements imposed on the requesting Party (including under applicable securities or tax laws) by a Governmental Authority having jurisdiction over the requesting Party, (ii) for use in any other judicial, regulatory, administrative, tax or other proceeding or in order to satisfy audit, accounting, claims, regulatory, litigation, tax or other similar requirements, or (iii) to comply with its obligations under this Agreement or any Ancillary Agreement; provided, however, that in the event that any Party reasonably determines that any such provision of Information could be commercially detrimental to such Party or any member of its Group, if applicable, violate any law or agreement to which such Party or member of its Group, if applicable, is a party, or waive any attorney-client privilege applicable to such Party or member of its Group, if applicable, the Parties shall take all reasonable measures to permit the compliance with the obligations pursuant to this Section 6.1(a) in a manner that avoids any such harm or consequence (including by entering into joint defense or similar arrangements); provided further that in the event, after taking all such reasonable measures, the Party subject to such law or agreement is unable to provide any Information without violating such law or agreement, such Party shall not be obligated to provide such Information to the extent it would violate such law or agreement. The Parties intend that any transfer of Information that would otherwise be within the attorney-client privilege shall not operate as a waiver of any potentially

 

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applicable privilege. Each Party shall make its employees and facilities available and accessible during normal business hours and on reasonable prior notice to provide an explanation of any Information provided hereunder.

 

(b) Notwithstanding anything to the contrary in Section 6.1(a), after the Distribution Time, LFCM shall provide, or cause to be provided, to Lazard Group in such form as Lazard Group shall request, at no charge to Lazard Group, all financial and other data and Information as Lazard Group determines necessary or advisable in order to prepare Lazard Group’s and other Lazard Group Companies’ financial statements or any other reports or filings of Lazard Group Companies with any Governmental Authority.

 

SECTION 6.2 Ownership of Information. Any Information owned by one Group or Party that is provided to a requesting Party pursuant to Section 6.1 shall be deemed to remain the property of the providing person (or person on whose behalf such Information is being provided). Unless specifically set forth herein, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any such Information.

 

SECTION 6.3 Compensation for Providing Information. The Party requesting such Information agrees to reimburse the other Party for the reasonable out-of-pocket costs, if any, of creating, gathering and copying such Information, to the extent that such costs are incurred for the benefit of the requesting Party by or on behalf of such other Party or its Group, if applicable. Except as may be otherwise specifically provided elsewhere in this Agreement or in any other Ancillary Agreement, such costs shall be computed in accordance with the providing Party’s standard methodology and procedures.

 

SECTION 6.4 Record Retention. To facilitate the possible exchange of Information pursuant to this Article VI and other provisions of this Agreement after the Distribution Date, the Parties agree to use their reasonable best efforts to retain all Information in their respective possession or control at the Distribution Time in accordance with the policies of Lazard Group as in effect at the Distribution Time.

 

SECTION 6.5 Limitation of Liability. No Party shall have any liability to the other Party in the event that any Information exchanged or provided pursuant to this Agreement that is an estimate or forecast, or which is based on an estimate or forecast, is found to be inaccurate, in the absence of willful misconduct or fraud by the Party providing such Information. No Party shall have any liability to the other Party if any Information is destroyed after using its reasonable best efforts in accordance with the provisions of Section 6.4.

 

SECTION 6.6 Other Agreements Providing for Exchange of Information. The rights and obligations granted under this Article VI are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange or confidential treatment of Information set forth in any Ancillary Agreement.

 

SECTION 6.7 Production of Witnesses; Records; Cooperation. (a) After the Distribution Time, except in the case of an adversarial Action by one Party (or, if applicable, any member of its Group) against another Party (or, if applicable, any member of its Group) (which shall be governed by such discovery rules as may be applicable thereto), each Party shall use its

 

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reasonable best efforts to make available to the other Party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available, at the offices of such Party during normal business hours, in each case to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required (and, in the case of any such person, for reasonable periods of time) in connection with any Action in which the requesting Party may from time to time be involved, regardless of whether such Action is a matter with respect to which indemnification may be sought hereunder. The requesting Party shall bear all out-of-pocket costs and expenses (including allocated costs of in-house counsel and other personnel) in connection therewith.

 

(b) If an Indemnifying Party chooses to defend or to seek to compromise or settle any Third Party Claim, each Party shall use its reasonable best efforts to make available to the other Party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of such Party and, if applicable, the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with such defense, settlement or compromise, or such prosecution, evaluation or pursuit, as the case may be, and shall otherwise cooperate in such defense, settlement or compromise, or such prosecution, evaluation or pursuit, as the case may be, in each case at the Indemnifying Party’s expense. The Indemnifying Party shall bear all out-of-pocket costs and expenses (including allocated costs of in-house counsel and other personnel) in connection therewith.

 

(c) Without limiting the foregoing, the Parties shall cooperate and consult, and, if applicable, cause each member of its respective Group to cooperate and consult, to the extent reasonably necessary with respect to any Actions.

 

(d) Without limiting any provision of this Section 6.7, each of the Parties agrees to cooperate, and, if applicable, to cause each member of its respective Group to cooperate, with each other in the defense of any infringement or similar claim with respect to any intellectual property and shall not claim to acknowledge, or permit any member of its respective Group to claim to acknowledge, the validity or infringing use of any intellectual property of a third person in a manner that would hamper or undermine the defense of such infringement or similar claim.

 

(e) The obligation of the Parties to provide witnesses pursuant to this Section 6.7 is intended to be interpreted in a manner so as to facilitate cooperation and shall include the obligation to provide as witnesses, directors, officers, employees, other personnel and agents without regard to whether any such individual could assert a possible business conflict (subject to the exception set forth in the first sentence of Section 6.7(a)).

 

(f) In connection with any matter contemplated by this Section 6.7, the applicable Parties will enter into a mutually acceptable joint defense agreement so as to maintain

 

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to the extent practicable any applicable attorney-client privilege or work product immunity of any Party or, if applicable, member of any Group.

 

SECTION 6.8 Confidentiality. (a) Subject to Section 6.9, each of the Parties agrees to hold, and to cause each member of its Group and its and each member of its Group’s respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives (collectively, and together with the members of its Group, “Representatives”) to hold, in strict confidence, with at least the same degree of care that applies to Lazard Group’s confidential and proprietary information pursuant to policies in effect at the Distribution Time, all Information concerning each such other Party or Group (including such person’s clients, transactions, business, assets, liabilities, performance or operations) that is either in its possession (including Information in its possession prior to any of the date hereof, the Contribution Effective Time or the Distribution Time) or furnished by any such other Party or its Representatives at any time pursuant to this Agreement, any Ancillary Agreement or otherwise (collectively, “Covered Information”), except that the following shall not be deemed to be Covered Information: any such Information to the extent that (i) at the time of disclosure such Information is generally available to and known by the public (other than as a result of a disclosure by the disclosing Party or by any of its Representatives in breach of this Section 6.8) or (ii) such Information has after the Distribution Time been lawfully acquired from other sources by such Party (or, if applicable, any member of such Party’s Group) on a non-public basis which sources are, to the knowledge of Party acquiring such Information, not themselves bound by a contractual, legal or fiduciary obligation that would limit or prohibit disclosure of such Information.

 

(b) Subject to Section 6.9, each Party agrees (i) not to use any such Covered Information other than for such purposes as shall be expressly permitted hereunder or under any Ancillary Agreement and (ii) not to release or disclose, or permit to be released or disclosed, any such Covered Information to any other person, except its Representatives who need to know such Covered Information (who shall be advised of their obligations hereunder with respect to such Covered Information), except in compliance with Section 6.9. Without limiting the foregoing, when any Covered Information is no longer needed for the purposes contemplated by this Agreement or any Ancillary Agreement, each Party will promptly after request of the Party that provided such Covered Information either return to such Party all such Covered Information in a tangible form (including all copies thereof and all notes, analyses, presentations, extracts or summaries based thereon) or certify to the other Party that it has destroyed such Covered Information (and such copies thereof and such notes, extracts, analyses, presentations or summaries based thereon). Notwithstanding the return or destruction of the Covered Information, such Party will continue to be bound by its obligations of confidentiality and other obligations hereunder.

 

SECTION 6.9 Protective Arrangements. In the event that any Party or any member of its Group either determines on the advice of its counsel that it is required to disclose any Covered Information of any other Party (or any member of such other Party’s Group) pursuant to applicable law or receives any demand under lawful process or from any Governmental Authority to disclose or provide Covered Information of any other Party (or any member of such other Party’s Group), such Party shall notify the other Party prior to disclosing or providing such Covered Information and shall cooperate at the expense of the requesting Party

 

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in seeking any reasonable protective arrangements requested by such other Party. Subject to the foregoing, the person that received such request may thereafter disclose or provide Covered Information if and to the extent required by such law (as so advised by counsel) or by lawful process or such Governmental Authority; provided, that the person shall only disclose such portion of the Covered Information so required to be disclosed or provided.

 

ARTICLE VII

 

NO REPRESENTATIONS OR WARRANTIES

 

SECTION 7.1 No Representations or Warranties to LFCM. LFCM, on behalf of itself and all LFCM Companies and their Representatives, understands and agrees that, except as expressly set forth herein or in any other Ancillary Agreement, (a) none of Lazard Group, any other Lazard Group Company, LAZ-MD, their respective Representatives or any other person is, in this Agreement or in any other agreement or document, making any representation or warranty of any kind whatsoever, express or implied, to LFCM, any other LFCM Company or any of their Representatives in any way with respect any of the transactions contemplated hereby or the business, assets, condition or prospects (financial or otherwise) of, or any other matter involving, the Assets, Liabilities or businesses of Lazard Group, any other Lazard Group Company, LAZ-MD, LFCM or any other LFCM Company, any LFCM Assets, any LFCM Liabilities or the LFCM Businesses, (b) LFCM and each member of the LFCM Companies shall take all of the LFCM Assets, the LFCM Businesses and LFCM Liabilities on an “as is, where is” basis, and all implied warranties of merchantability, fitness for a specific purpose or otherwise are hereby expressly disclaimed by LAZ-MD, Lazard Group (on behalf of itself and each other Lazard Group Company), their respective Representatives and each other person, and (c) none of Lazard Group, any other Lazard Group Company, LAZ-MD, their respective Representatives or any other person is making any representation or warranty with respect to the Separation and the Recapitalization (including the Exchange, Forced Sale, Contribution, First Redemption, First Distribution, Financing Transactions, Second Redemption and Second Distribution) or the entering into of this Agreement or the Ancillary Agreements or the transactions contemplated hereby and thereby.

 

SECTION 7.2 LFCM to Bear Risk. Except as expressly set forth herein or in any other Ancillary Agreement, LFCM and each other LFCM Company shall bear the economic and legal risk that the LFCM Assets shall prove to be insufficient or that the title of any LFCM Company to any LFCM Assets shall be other than good and marketable and free from encumbrances.

 

SECTION 7.3 LAZ-MD to Bear Risk. Except as expressly set forth herein or in any other Ancillary Agreement, LAZ-MD shall bear the economic and legal risk that the assets it holds immediately after the Separation and Recapitalization shall prove to be insufficient or that the title of any LFCM Company to any such assets shall be other than good and marketable and free from encumbrances.

 

SECTION 7.4 No Representations or Warranties to LAZ-MD. LAZ-MD, on behalf of itself and its Representatives, understands and agrees that, except as expressly set forth herein or in any other Ancillary Agreement, (a) none of Lazard Group, any other Lazard Group

 

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Company, LFCM, any other LFCM Company, their respective Representatives or any other person is, in this Agreement or in any other agreement or document, making any representation or warranty of any kind whatsoever, express or implied, to LAZ-MD or its Representatives in any way with respect any of the transactions contemplated hereby or the business, assets, condition or prospects (financial or otherwise) of, or any other matter involving, the Assets, Liabilities or businesses of Lazard Group, any other Lazard Group Company, LAZ-MD, LFCM or any other LFCM Company, any LFCM Assets, any LFCM Liabilities or the LFCM Businesses, (b) LFCM and each member of the LFCM Companies shall take all of the LFCM Assets, the LFCM Businesses and LFCM Liabilities on an “as is, where is” basis, and all implied warranties of merchantability, fitness for a specific purpose or otherwise are hereby expressly disclaimed by Lazard Group (on behalf of itself and each other Lazard Group Company), its Representatives and each other person, and (c) none of Lazard Group, any other Lazard Group Company, LFCM, any other LFCM Company, their respective Representatives or any other person is making any representation or warranty with respect to the Separation and the Recapitalization (including the Exchange, Forced Sale, Contribution, First Redemption, First Distribution, Financing Transactions, Second Redemption and Second Distribution) or the entering into of this Agreement or the Ancillary Agreements or the transactions contemplated hereby and thereby.

 

ARTICLE VIII

 

LAZ-MD EXCHANGEABLE INTERESTS

 

SECTION 8.1 Exchange Rights. (a) LAZ-MD Class II Interests shall be exchangeable with LAZ-MD for Lazard Group Common Interests held by LAZ-MD, on the terms, and subject to the conditions, set forth in this Article VIII, at the LAZ-MD Exchange Ratio then in effect (the “LAZ-MD Exchange”), and Lazard Group Common Interests held by LAZ-MD and any Lazard Group MD Common Interests shall be exchangeable with Lazard Ltd Sub A and Lazard Ltd Sub B for shares of Lazard Ltd Common Stock, on the terms, and subject to the conditions, set forth in this Article VIII, at the Lazard Group Exchange Ratio then in effect (the “Lazard Group Exchange,” and together with the LAZ-MD Exchange, the “MD Exchanges”).

 

(b) Provisions that apply to the exchange of all of an Exchangeable Interest shall also apply to an exchange of a portion of an Exchangeable Interest. Each MD Exchange shall be expressed in terms of the LAZ-MD Class II Units or Lazard Group Common Units being exchanged, as applicable (with each Exchange involving the transfer of the entire Exchangeable Interest (or applicable portion thereof, including associated capital, being exchanged)).

 

(c) A holder of a LAZ-MD Class II Interest is not entitled to any rights of a holder of a Lazard Group Common Interest or Lazard Ltd Common Stock with respect to such LAZ-MD Class II Interest until, in the case of a Lazard Group Common Interest, such holder has exchanged its LAZ-MD Class II Interest for such Lazard Group Common Interest and only to the extent that such LAZ-MD Class II Interest shall have been exchanged for a Lazard Group Common Interest pursuant to this Article VIII, and, in the case of Lazard Ltd Common Stock, such holder has exchanged its Lazard Group Common Interest for such Lazard Ltd Common Stock and only to the extent that such Lazard Group Common Interest shall have been

 

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exchanged for Lazard Ltd Common Stock pursuant to this Article VIII. A holder of a Lazard Group Common Interest is not entitled to any rights of a holder of Lazard Ltd Common Stock with respect to such Lazard Group Common Interest until such holder has exchanged its Lazard Group Common Interest for such Lazard Ltd Common Stock, and only to the extent that such Lazard Group Common Interest shall have been exchanged for Lazard Ltd Common Stock pursuant to this Article VIII.

 

SECTION 8.2 Elective Exchange. (a) Elective Exchanges. Each Exchangeable MD Member shall be entitled to effect the MD Exchanges for shares of Lazard Ltd Common Stock in accordance with this Article VIII (each such exchange, an “Elective Exchange”) on the following dates:

 

(i) Each Exchangeable MD Member shall be entitled to exchange all of such member’s Exchangeable Interests for shares of Lazard Ltd Common Stock on the date that is the eighth anniversary of the IPO Date and on each subsequent anniversary date of the IPO Date (the “General Exchange Date”); and

 

(ii) Each Exchangeable MD Member who is a party to a Retention Agreement or who shall otherwise be entitled to accelerated exchange rights under Section 2(g) of any Retention Agreement shall be entitled to effect the MD Exchanges with respect to such Exchangeable MD Member’s Exchangeable Interest (or applicable portion thereof) on the anniversary dates of the IPO Date or such other dates, in each case as set forth in the applicable Retention Agreement (each, an “Accelerated Exchange Date”, and together with the General Exchange Date, the “Applicable Exchange Date”), in each case in the amounts, on the terms and subject to the conditions set forth in such Retention Agreement.

 

(b) Procedures. (i) Subject to clause (ii) below, each Elective Exchange of a LAZ-MD Class II Interest shall be effected in accordance with Section 7.4 of the LAZ-MD Operating Agreement and Section 7.05(a) of the New Lazard Group Operating Agreement, and each Elective Exchange of a Lazard Group MD Common Interest shall be effected in accordance with Section 7.05(b) of the New Lazard Group Operating Agreement.

 

(ii) Except as otherwise provided in this clause (ii), each Exchangeable MD Member who shall be entitled to make an Elective Exchange at any anniversary date of the IPO Date and desires to exchange such member’s Exchangeable Interest (or portion thereof) so exchangeable (an “Electing Member”) shall prepare and deliver to LAZ-MD and each of Lazard Ltd Sub A and Lazard Ltd Sub B a written request signed by such Electing Member (A) stating the amount of Units underlying the Exchangeable Interest that such Electing Member desires to exchange, (B) stating whether the Electing Member shall elect to have such exchange consummated on the Applicable Exchange Date or the date immediately prior to the date of effectiveness of any registration statement of Lazard Ltd that Lazard Ltd may file in order to register the sale by the Electing Member of the shares of Lazard Ltd Common Stock to be issued in such exchange to such Electing Member (such date, the “Registration Exchange Date”, and the date selected by the Exchanging Member, the “Exchange Effective Date”), and (C) certifying that such Electing Member is entitled to exchange the portion of the Exchangeable Interest that such member desires to exchange and that such Electing Member is the beneficial owner of such

 

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Exchangeable Interest (each such request, an “Exchange Request”). A properly completed Exchange Request must be delivered to LAZ-MD and each of Lazard Ltd Sub A and Lazard Ltd Sub B not less than 60 days or more than 90 days prior to the anniversary date on which such Electing Member desires to effect the Exchanges in accordance with this Section. Each of Lazard Ltd Sub A and Lazard Ltd Sub B shall have the right to determine whether any Exchange Request is proper or to waive any infraction of these procedures. Once delivered, an Exchange Request shall be irrevocable.

 

(iii) Each Elective Exchange shall be consummated effective as of the close of Lazard Ltd’s business on the applicable Exchange Effective Date (such time, the “Elective Exchange Effective Time”), and the Electing Member shall be deemed to have become the holder of record of the applicable shares of Lazard Ltd Common Stock at such Elective Exchange Effective Time and all rights of Electing Member in respect of the portion of the Exchangeable Interest so exchanged shall terminate at such Elective Exchange Effective Time. In the event that an Electing Member shall select the Registration Effective Date as the Exchange Effective Date in accordance with clause (ii) above, such Elective Exchange shall be null and void (and such Electing Member shall continue to hold the applicable Exchangeable Interest) in the event that the applicable registration statement shall be abandoned by Lazard Ltd prior to its effectiveness.

 

SECTION 8.3 Mandatory Exchanges. (a) Mandatory Exchanges. With respect to each Exchangeable Interest, a LAZ-MD Exchange and/or a Lazard Group Exchange shall occur with respect to all or a portion of such Exchangeable Interest, without any action required on the part of the Exchangeable MD Member holding such Exchangeable Interest (a “Mandatory Exchange”), as follows:

 

(i) A Mandatory Exchange with respect to all Exchangeable Interests shall occur in the event of a Change in Control unless otherwise determined by the Lazard Ltd Board;

 

(ii) Each of (1) LAZ-MD and (2) Lazard Ltd Sub A and Lazard Ltd Sub B (with the prior approval of the Lazard Ltd Board) shall be entitled to cause the Mandatory Exchange (including any Mandatory Lazard Group Exchange) with respect to all or any portion of the Exchangeable Interests, in such party’s or parties’ discretion (as applicable), beginning on the date that is the ninth anniversary of the IPO Date and ending thirty days thereafter (and during an equivalent 30 day period starting on each subsequent anniversary of the IPO Date); and

 

(iii) Each of (1) LAZ-MD and (2) Lazard Ltd Sub A and Lazard Ltd Sub B (with the prior approval of the Lazard Ltd Board) shall be entitled to cause a Mandatory Exchange involving only a LAZ-MD Exchange (a “Partial LAZ-MD Mandatory Exchange”) with respect to all or any portion of the LAZ-MD Common Interests in such party’s or parties’ discretion (as applicable) at any time in the event that such person determines, in good faith, that such Partial LAZ-MD Mandatory Exchange is necessary or advisable in light of actual or potential tax, legal or regulatory concerns.

 

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The Exchangeable MD Member(s) to which any such Mandatory Exchange under this Section 8.3 shall apply, the “Mandatory Exchange Members,” and together with the Electing Members, the “Exchanging Members.”

 

(b) Procedures. (i) Each Mandatory Exchange of a LAZ-MD Class II Interest shall be effected in accordance with Section 7.4 of the LAZ-MD Operating Agreement and Section 7.05(a) of the New Lazard Group Operating Agreement; provided, however, that each Partial LAZ-MD Mandatory Exchange shall be effected in accordance with Section 7.4 of the LAZ-MD Operating Agreement and Section 7.05(b) and Section 7.05(c) of the New Lazard Group Operating Agreement; and provided further that each Mandatory Lazard Group Exchange shall be effected in accordance with Section 7.05(b) of the New Lazard Group Operating Agreement.

 

(ii) A Mandatory Exchange pursuant to Section 8.3(a)(i) shall be consummated immediately prior to the applicable Change in Control or, at the discretion of Lazard Ltd Sub A and Lazard Ltd Sub B (with the prior approval of the Lazard Ltd Board), at an earlier time specified by Lazard Ltd Sub A and Lazard Ltd Sub B in order to permit the holders of the Exchangeable Interests to participate in such Change in Control together with the holders of Lazard Ltd Common Stock.

 

(iii) In the event of a Mandatory Exchange pursuant to Section 8.3(a)(ii) or Section 8.3(a)(iii) above, the party electing to cause the Forced Sale shall provide written notice to each of LAZ-MD and Lazard Group of such election, which notice shall state (A) the clause of Section 8.3(a) pursuant to which such party is electing to cause the Mandatory Exchange, (B) whether the Mandatory Exchange shall apply to all or a portion of the Exchangeable Interests and, if it shall apply only to a portion thereof, to which Exchangeable Interests such Mandatory Exchange shall apply, and (C) the date and time on which the Mandatory Exchange shall be consummated. If no date or time is specified in such notice, then such Mandatory Exchange shall be consummated 10 business days after the date of such notice.

 

(iv) In the event of any Mandatory Exchange, Lazard Ltd Sub A and Lazard Ltd Sub B shall use their respective reasonable best efforts to deliver notice thereof to the Mandatory Exchange Members not less than 30 days prior to the effective date of such Mandatory Exchange.

 

Notwithstanding anything to the contrary set forth herein, any failure to provide such notice for any reason shall not affect the validity or enforceability of any Mandatory Exchange.

 

SECTION 8.4 Exchangeable Interests Generally. (a) No New Issuances of Exchangeable Interests. LAZ-MD hereby agrees not to grant, issue or otherwise allocate any LAZ-MD Class II Interests (including any LAZ-MD Class II Units), or any securities exchangeable for or convertible into any LAZ-MD Class II Interests, other than the issuance of LAZ-MD Class II Interests pursuant to the Exchange and the Forced Sale and the Initial Grant. Lazard Group hereby agrees not to grant, issue or otherwise allocate any Lazard Group Common Interests (including any Lazard Group Common Units), or any securities exchangeable for or convertible into any Lazard Group Common Interests, other than (1) the issuance to LAZ-MD of a Lazard Group Common Interest in connection with the recapitalization of the limited liability

 

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company interests of Lazard Group at the time of effectiveness of the New Lazard Group Operating Agreement, (2) the issuance of Lazard Group Common Interests to the Contributing Subsidiaries pursuant to the Common Stock Offering Transaction, or (3) the issuance of Lazard Group Common Interests to the Contributing Subsidiaries as set forth in Article IX.

 

(b) Transfers of Exchangeable Interests. No Exchangeable MD Member may transfer, sell, convey, assign, gift, hypothecate, pledge or otherwise dispose of, or encumber, any of its Exchangeable Interest except as permitted by the applicable Operating Agreement or pursuant to an exchange contemplated by this Article VIII. LAZ-MD shall have the right to effect a Lazard Group Exchange with respect to the Lazard Group Common Interest that it holds at any time in accordance with this Article VIII.

 

LAZ-MD hereby agrees that, notwithstanding anything herein to the contrary, it shall not transfer, sell, convey, assign, gift, hypothecate, pledge or otherwise dispose of all or any portion of the Lazard Group Common Interest it from time to time holds or agree to subject such Lazard Group Common Interest to a lien, pledge, security interest, right of first refusal, option or other similar limitation, except as contemplated or permitted by this Article VIII or as required by law.

 

(c) Repurchases of Exchangeable Interests. LAZ-MD may repurchase any LAZ-MD Class II Interest, and Lazard Group may repurchase any Lazard Group MD Common Interest, pursuant to a written agreement with the Exchangeable MD Member to transfer such Exchangeable Interest to LAZ-MD or Lazard Group, as applicable, and otherwise in accordance with Section 8.4(b). Any repurchase of a LAZ-MD Class II Interest shall require the simultaneous sale by LAZ-MD, and repurchase by Lazard Group, of a portion of LAZ-MD’s Lazard Group Common Interest consisting of the number of Lazard Group Common Units into which the LAZ-MD Class II Interest being repurchased would then be exchangeable pursuant to a LAZ-MD Exchange.

 

SECTION 8.5 No Fractional Shares. Notwithstanding anything to the contrary herein, Lazard Ltd Sub A and Lazard Ltd Sub B will not transfer any fractional shares of Lazard Ltd Common Stock upon any Lazard Group Exchange. In lieu thereof, in each Lazard Group Exchange, Lazard Ltd Sub A and Lazard Ltd Sub B will transfer shares of Lazard Ltd Common Stock rounded to the nearest whole share.

 

SECTION 8.6 Taxes. (a) In any MD Exchange, Lazard Group shall pay any documentary, stamp or similar issue or transfer tax due on the issue of Lazard Group Interests or shares of Lazard Ltd Common Stock, as applicable, upon such MD Exchange; provided, that the holder of the Exchangeable Interest being so exchanged shall pay any such tax which is due because the holder requests the shares of Lazard Ltd Common Stock to be issued in a name other than the holder’s name. Lazard Ltd Sub A and Lazard Ltd Sub B may refuse to deliver the certificate representing the Lazard Ltd Common Stock being transferred to a person other than the Exchanging Member until Lazard Group receives a sum sufficient to pay any tax which will be due because the shares are to be transferred to a person other than the Exchanging Member. Nothing herein shall preclude any tax withholding required by law or regulation.

 

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(b) By effecting an MD Exchange, a holder of an Exchangeable Interest agrees to treat the U.S. Federal income tax consequences of its MD Exchange in a manner consistent with the U.S. Federal income tax characterization described in the Tax Receivable Agreement.

 

SECTION 8.7 Lazard Ltd Common Stock. (a) Lazard Ltd covenants and agrees that it shall from time to time as may be necessary reserve, out of its authorized but unissued Lazard Ltd Common Stock, a sufficient number of shares of Lazard Ltd Common Stock solely to sell or otherwise transfer to Lazard Ltd Sub A and Lazard Ltd Sub B to effect the exchange of all outstanding Exchangeable Interests into shares of Lazard Ltd Common Stock pursuant to the MD Exchanges; provided that nothing contained herein shall preclude Lazard Ltd from satisfying its obligations in respect of the sale or other transfer of shares of Lazard Ltd Common Stock to Lazard Ltd Sub A and Lazard Ltd Sub B by delivery of (1) purchased shares which are held by any of its other Subsidiaries or (2) shares issued to any other Subsidiary of Lazard Ltd.

 

(b) In the event of any Lazard Group Exchange, Lazard Ltd Sub A and Lazard Ltd Sub B shall transfer the requisite shares of Lazard Ltd Common Stock to the Exchanging Member, in such proportions from each of Lazard Ltd Sub A and Lazard Ltd Sub B as such persons shall determine. All such shares of Lazard Ltd Common Stock will be duly authorized, validly issued, fully paid and nonassessable and will be free from preemptive rights and free of any lien or adverse claim created by Lazard Ltd Sub A, Lazard Ltd Sub B or Lazard Ltd.

 

(c) Lazard Ltd shall use its reasonable best efforts promptly to comply with all federal and state securities laws regulating the offer and delivery of shares of Lazard Ltd Common Stock upon exchange of Exchangeable Interests, if any, and to list or cause to have quoted such shares of Lazard Ltd Common Stock on each national securities exchange or on the Nasdaq National Market or other over-the-counter market or such other market on which the Lazard Ltd Common Stock is then listed or quoted; provided, however, that if rules of such automated quotation system or exchange permit Lazard Ltd to defer the listing of such Lazard Ltd Common Stock until the first exchange of the Exchangeable Interests into Lazard Ltd Common Stock in accordance with the provisions of this Article VIII, Lazard Ltd shall use its reasonable best efforts to list such Lazard Ltd Common Stock issuable upon exchange of the Exchangeable Interests in accordance with the requirements of such automated quotation system or exchange at such time.

 

SECTION 8.8 Adjustments to LAZ-MD Exchange Ratio. The LAZ-MD Exchange Ratio shall be appropriately adjusted in the event of any transfer, sale or other disposition of any Lazard Group Common Interests by LAZ-MD that would result in the number of Lazard Group Common Units held by LAZ-MD being less than the number of outstanding LAZ-MD Class II Units (other than, for the avoidance of doubt, pursuant to any Exchange). Any such transfer, sale or other disposition of any such Lazard Group Common Interests by LAZ-MD shall not affect or otherwise alter or adjust the Lazard Group Exchange Ratio except as provided in Section 8.9.

 

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SECTION 8.9 Adjustments to Lazard Group Exchange Ratio. (a) In the event that Lazard Ltd shall:

 

(i) pay a dividend or make a distribution on shares of Lazard Ltd Common Stock in the form of shares of Lazard Ltd Common Stock;

 

(ii) subdivide the outstanding shares of Lazard Ltd Common Stock into a greater number of shares;

 

(iii) combine the outstanding shares of Lazard Ltd Common Stock into a smaller number of shares;

 

(iv) make a distribution on shares of Lazard Ltd Common Stock in shares of its share capital other than Lazard Ltd Common Stock; or

 

(v) issue by reclassification of the outstanding shares of Lazard Ltd Common Stock any shares of its share capital,

 

then the Lazard Group Exchange Ratio in effect immediately prior to such action shall be adjusted so that the holder of an Exchangeable Interest thereafter exchanged in accordance with this Article VIII may receive the number of shares of share capital of Lazard Ltd that it would have owned immediately following such action if it had exchanged its Exchangeable Interests in full for shares of Lazard Ltd Common Stock immediately prior to such action.

 

(b) In the event that (i) Lazard Ltd shall issue to all or substantially all holders of Lazard Ltd Common Stock any rights, options or warrants (other than pursuant to any dividend reinvestment, share purchase or similar plan) entitling the holders thereof to subscribe for or purchase shares of Lazard Ltd Common Stock (or securities exchangeable for or convertible into such shares) for a period expiring within              days from the date of issuance of such rights, options or warrants at a price per share that shall be at least             % below the Market Price (any such issuance, a “Rights Issuance”), or (ii)             , then the Lazard Group Exchange Ratio in effect immediately prior to such action shall be subject to customary adjustments in order to preserve to the maximum extent practicable the economic rights of the Exchangeable Interests, with such adjustment to be determined in good faith by the Lazard Ltd Board in consultation with the board of managers of LAZ-MD. Notwithstanding the foregoing, no adjustment to the Lazard Group Exchange Ratio shall be required pursuant to this Section 8.9(b) in the event that the holders of LAZ-MD Exchangeable Interests and Lazard Group MD Common Interests may participate in such transaction on a basis and with notice that the Lazard Ltd Board determines to be fair and appropriate in its discretion. For purposes of this Section, “Market Price” means, for each Rights Issuance, the average closing price per share of Lazard Ltd Common Stock on the primary national securities exchange on which the Lazard Ltd Common Stock is traded, as reported by Bloomberg L.P. or, if Bloomberg L.P. is not available, as determined by another reputable third-party information source selected by Lazard Ltd, for the five consecutive trading day period ending on the last trading day prior to the date on which such Rights Issuance is first publicly announced.

 

(c) In the event of (i) any reclassification or change of shares of Lazard Ltd Common Stock issuable upon exchange of the Exchangeable Interests (other than a change in par

 

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value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination, or any other change for which an adjustment is provided in Section 4.09(a); (ii) any consolidation or merger or combination to which Lazard Ltd is a party other than a merger in which Lazard Ltd is the continuing corporation and which does not result in any reclassification of, or change (other than in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination) in, outstanding shares of Lazard Ltd Common Stock; or (iii) any sale, transfer or other disposition of all or substantially all of the assets of Lazard Ltd, directly or indirectly, to any person as a result of which holders of Lazard Ltd Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for Lazard Ltd Common Stock, then Lazard Ltd shall take all necessary action such that the Exchangeable Interests then outstanding shall be exchangeable into the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, change, combination, consolidation, merger, sale or conveyance by a holder of the number of shares of Lazard Ltd Common Stock deliverable upon exchange of such Exchangeable Interests immediately prior to such reclassification, change, combination, consolidation, merger, sale or conveyance. The provisions of this Section 4.09(b) shall similarly apply to successive reclassifications, changes, combinations, consolidations, mergers, sales or conveyances.

 

SECTION 8.10 Beneficiaries of This Article. Notwithstanding anything herein to the contrary, LFCM shall not be deemed to be a party to, or beneficiary of, this Article VIII and shall have no rights, including any claim or cause or right of action, either in law or in equity, under this Article VIII.

 

ARTICLE IX

 

RELATIONSHIP AMONG THE PARTIES

 

SECTION 9.1 Scope of LAZ-MD Operations. LAZ-MD hereby agrees not to conduct any business other than as set forth in Section 2.5 of the LAZ-MD Operating Agreement.

 

SECTION 9.2 Parity of Lazard Group Common Units and Shares of Lazard Ltd Common Stock. It is the non-binding intention of each of Lazard Ltd and Lazard Group that, unless otherwise determined by the Lazard Ltd Board, the number of Lazard Group Common Units held directly or indirectly by Lazard Ltd shall at all time equal the number of outstanding shares of Lazard Ltd Common Stock (such that the number of Lazard Group Common Units held directly or indirectly by Lazard Ltd would be proportionately adjusted in the event of any issuance or repurchase by Lazard Ltd of shares of Lazard Ltd Common Stock by means of a parallel issuance or repurchase transaction between Lazard Ltd and its applicable Subsidiaries and Lazard Group), and each of Lazard Ltd and Lazard Group agree to cooperate to effect the intent of this sentence. Any event that would result in an adjustment to the Lazard Group Exchange Ratio pursuant to Section 8.9(a) shall result in an equivalent and customary adjustment of the ratio of shares of Lazard Ltd Common Stock to Lazard Group Common Units established in the immediately preceding sentence to the extent necessary to preserve the economic rights of LAZ-MD and Lazard Ltd in Lazard Group, with such adjustment to be determined in good faith by the Lazard Ltd Board in consultation with LAZ-MD.

 

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Notwithstanding anything herein to the contrary, LFCM shall not be deemed to be a party to, or beneficiary of, this Section 9.2 and shall have no rights, including any claim or cause or right of action, either in law or in equity, under this Section 9.2.

 

SECTION 9.3 Lazard Ltd Expenses. It is the non-binding intention of Lazard Group and Lazard Ltd that Lazard Group shall reimburse Lazard Ltd for all reasonable third party costs, fees and expenses incurred by Lazard Ltd in the ordinary course of business, including all costs associated with all reports and other filings with the Securities and Exchange Commission. Notwithstanding anything herein to the contrary, LFCM shall not be deemed to be a party to, or beneficiary of, this Section 9.3 and shall have no rights, including any claim or cause or right of action, either in law or in equity, under this Section 9.3.

 

ARTICLE X

 

TERMINATION

 

SECTION 10.1 Termination. This Agreement may be terminated by Lazard Group in its sole discretion at any time prior to the later of the consummation of the Separation and the consummation of the Recapitalization.

 

SECTION 10.2 Effect of Termination. In the event of any termination of this Agreement pursuant to Section 10.1, no Party (or any member of its Group or any of its or its Group’s directors or officers) shall have any Liability or further obligation to the other Party.

 

ARTICLE XI

 

MISCELLANEOUS

 

SECTION 11.1 Representations. Lazard Group represents on behalf of itself and each other member of the Lazard Group Companies, LFCM represents on behalf of itself and each other member of the LFCM Companies, and LAZ-MD represents on behalf of itself, as follows:

 

(a) each such person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform each of this Agreement and each other Ancillary Agreement to which it is a party and to consummate the transactions contemplated by this Agreement and the Ancillary Agreements to which it is a party; and

 

(b) this Agreement has been duly executed and delivered by such person (if such person is a Party) and constitutes a valid and binding agreement of it enforceable in accordance with the terms thereof (assuming the due execution and delivery thereof by the other Party), and each of the other Ancillary Agreements to which it will be a party will be duly executed and delivered by it and will constitute a valid and binding agreement of it enforceable in accordance with the terms thereof (assuming the due execution and delivery thereof by the other party or parties to such Ancillary Agreement).

 

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SECTION 11.2 Entire Agreement. This Agreement, the Exhibits and Schedules hereto and the Ancillary Agreements shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter.

 

SECTION 11.3 Expenses. (a) Except as expressly set forth in this Agreement or in any Ancillary Agreement, and regardless whether or not the Separation or the Recapitalization is consummated, all third party fees, costs and expenses paid or incurred in connection with the transactions contemplated by this Agreement and the Ancillary Agreements will be paid by the Party incurring such fees, costs or expenses.

 

(b) With respect to the Common Stock IPO Transaction, Lazard Ltd shall pay all third party costs, fees and expenses relating to the Common Stock IPO Transaction, all of the reimbursable expenses of the managing underwriters pursuant to the underwriting agreements, all of the costs of producing and filing the applicable Registration Statement (or any comparable foreign securities law filing) and printing, mailing and otherwise distributing the prospectus contained in such Registration Statement (or any comparable foreign securities law filing), as well as the underwriters’ discount as provided in the underwriting agreement.

 

(c) With respect to the Exchangeable Securities IPO Transaction, FinanceCo shall pay all third party costs, fees and expenses relating to the Exchangeable Securities IPO Transaction, all of the reimbursable expenses of the managing underwriters pursuant to the underwriting agreements, all of the costs of producing and filing the applicable Registration Statement (or any comparable foreign securities law filing) and printing, mailing and otherwise distributing the prospectus contained in such Registration Statement (or any comparable foreign securities law filing), as well as the underwriters’ discount as provided in the underwriting agreement

 

(d) With respect to the Debt Securities Offering, Lazard Group shall pay all third party costs, fees and expenses relating to the Debt Securities Offering, all of the reimbursable expenses of the managing underwriters pursuant to the underwriting agreements, all of the costs of producing and filing the Debt Securities Prospectus (or any comparable foreign prospectus) and printing, mailing and otherwise distributing the prospectus contained in such Debt Securities Prospectus (or any comparable foreign prospectus), as well as the underwriters’ discount as provided in the underwriting agreement.

 

SECTION 11.4 Notices. All notices, consents, waivers and other communications required or permitted by this Agreement shall be in writing and shall be deemed given to a Party when (a) delivered to the appropriate address by hand or by nationally recognized overnight courier service (costs prepaid); (b) sent by facsimile with confirmation of transmission by the transmitting equipment; or (c) received or rejected by the addressee, if sent by certified mail, return receipt requested, in each case to the following addresses and facsimile numbers and marked to the attention of the person (by name or title) designated below (or to such other address, facsimile number or person as a party may designate by notice to the other Parties):

 

-50-

If to Lazard Group or any other Lazard Group Company (other than Lazard Ltd):

 

Lazard Group LLC

30 Rockefeller Plaza

New York, New York 10020

Attention: General Counsel

Fax:

 

If to Lazard Ltd:

 

Lazard Ltd

30 Rockefeller Plaza

New York, New York 10020

Attention: General Counsel

Fax:

 

If to LFCM or any other LFCM Company:

 

LFCM Holdings LLC

 

 

Attention:

Fax:

 

If to LAZ-MD:

 

LAZ-MD Holdings LLC

 

 

Attention:

Fax:

 

or at such other address and to the attention of such other person as a Party may designate by written notice to the other Parties.

 

SECTION 11.5 Amendment, Modification or Waiver. This Agreement may be amended, modified, waived or supplemented, in whole or in part, only by a written agreement signed by all of the Parties; provided, that any amendment, modification, waiver or supplement to Article VIII shall only require a written agreement signed by Lazard Ltd, Lazard Group and LAZ-MD and, provided further that any amendment, modification, waiver or supplement to Section 9.2 or Section 9.3 shall only require a written agreement signed by Lazard Group and Lazard Ltd. No failure or delay on the part of any Party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. The waiver by such Parties of any breach of this Agreement shall not be construed as a waiver of any subsequent breach.

 

-51-

SECTION 11.6 Successors and Assigns; No Third Party Beneficiaries. (a) This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties and their successors and permitted assigns, but neither this Agreement nor any of the rights, interests and obligations hereunder shall be assigned or otherwise transferred, in whole or in part, by any Party without the prior written consent of each of the Parties.

 

(b) Except for the provisions of Article IX, which are also for the benefit of the Indemnitees, this Agreement is solely for the benefit of the Parties and is not intended to confer upon any other persons any rights or remedies hereunder.

 

SECTION 11.7 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

SECTION 11.8 Negotiation. In the event of any dispute or disagreement between any of the Parties hereto (or any of their respective Group members) arising out of or in connection with this Agreement or any Ancillary Agreement (including with respect to the interpretation or performance of any provision thereof), the dispute or disagreement, upon written request of a Party, as applicable, shall be referred to representatives of the Parties involved in such dispute for decision, Lazard Ltd and Lazard Group being represented by their respective Chief Executive Officers, LFCM being represented by its Chief Executive Officer, and LAZ-MD being represented by its board of managers. Such applicable representatives of the Parties shall promptly meet in a good faith effort to resolve the dispute or disagreement or determine a means to resolve the dispute or disagreement. If such representatives do not agree upon a decision within 30 days after reference of the matter to them, the Parties shall be free to exercise all rights and remedies available to them under this Agreement or the applicable Ancillary Agreement.

 

SECTION 11.9 Specific Performance. The Parties acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement or any of the Ancillary Agreements to which it is a party were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and such Ancillary Agreement and to enforce specifically the terms and provisions hereof and thereof, this being in addition to any other remedy to which they may be entitled by law or equity.

 

SECTION 11.10 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware (other than the laws regarding choice of laws and conflicts of laws that would apply the substantive laws of any other jurisdiction) as to all matters, including matters of validity, construction, effect, performance and remedies.

 

SECTION 11.11 Delaware Court. Each of the Parties agrees that all actions or proceedings arising out of or in connection with this Agreement or any Ancillary Agreement, or for recognition and enforcement of any judgment arising out of or in connection with this Agreement or any Ancillary Agreement, shall be tried and determined exclusively in the state or

 

-52-

federal courts in the State of Delaware, and each of the Parties hereby irrevocably submits with regard to any such action or proceeding for itself and in respect to its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each of the Parties hereby expressly waives any right it may have to assert, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any such action or proceeding: (a) any claim that it is not subject to personal jurisdiction in the aforesaid courts for any reason; (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts; and (c) that (i) any of the aforesaid courts is an inconvenient or inappropriate forum for such action or proceeding, (ii) venue is not proper in any of the aforesaid courts and (iii) this Agreement or any Ancillary Agreement, or the subject matter hereof or thereof, may not be enforced in or by any of the aforesaid courts.

 

SECTION 11.12 Interpretation; Conflict with Ancillary Agreements. The Article and Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the Parties and shall not in any way affect the meaning or interpretation of this Agreement. The provisions of this Agreement shall govern in the event of any conflict between any provision of this Agreement and that of any Ancillary Agreement, and the Parties shall execute or cause to be executed an amendment, if necessary in their good faith judgment, to such Ancillary Agreement to remove such conflict.

 

SECTION 11.13 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any applicable rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible.

 

SECTION 11.14 Additional Parties. Each of Lazard Ltd Sub A and Lazard Ltd Sub B may be added as parties to this Agreement for the purposes of Article VIII and this Article XI only after the date hereof by execution of a written agreement signed by such person to become a party hereto. It is expressly agreed that this Agreement shall become effective and be in full force and effect immediately upon the execution and delivery hereof by each of the Parties set forth in the Preamble hereto. Until such time as Lazard Ltd Sub A and Lazard Ltd Sub B are added as parties hereto in accordance with this Section 11.14, Lazard Ltd shall cause each of Lazard Ltd Sub A and Lazard Ltd Sub B to comply with its obligations and responsibilities under Article VIII.

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the date first above written.

 

LAZARD LTD

By:

    
   

Name:

    
   

Title:

    

LAZARD LLC

By:

    
   

Name:

    
   

Title:

    

LAZ-MD HOLDINGS LLC

By:

    
   

Name:

    
   

Title:

    

LFCM HOLDINGS LLC

By:

    
   

Name:

    
   

Title:

    

 

Certificate of Incorporation and Memorandum of Association
     Exhibit 3.1
FORM NO. 6    Registration No. 36011

 

LOGO

 

BERMUDA

 

CERTIFICATE OF INCORPORATION

 

I hereby in accordance with section 14 of the Companies Act 1981 issue this Certificate of Incorporation and do certify that on the 25th day of October, 2004

 

Lupa Holdings Ltd.

 

was registered by me in the Register maintained by me under the provisions of the said section and that the status of the said company is that of an exempted company.

 

Given under my hand and the Seal of the REGISTRAR OF COMPANIES this 27th day of October, 2004

 

[SEAL]      

/s/ Maria Boodram

       

for Registrar of Companies

 

FORM NO. 2

 

LOGO

 

BERMUDA

THE COMPANIES ACT 1981

MEMORANDUM OF ASSOCIATION OF

COMPANY LIMITED BY SHARES

(Section 7(1) and (2))

 

MEMORANDUM OF ASSOCIATION

OF

 

Lupa Holdings Ltd.

(hereinafter referred to as “the Company”)

 

1. The liability of the members of the Company is limited to the amount (if any) for the time being unpaid on the shares respectively held by them.

 

2. We, the undersigned, namely,

 

NAME   ADDRESS  

BERMUDIAN

STATUS

(Yes/No)

   NATIONALITY  

NUMBER OF

SHARES

SUBSCRIBED

D.H. Malcolm

  

Clarendon House

2 Church Street Hamilton HM 11 Bermuda

   No   British   One

G.B.R. Collis

               "   Yes   British   One

A.R. Guilfoyle

               "   No   British   One

 

do hereby respectively agree to take such number of shares of the Company as may be allotted to us respectively by the provisional directors of the Company, not exceeding the number of shares for which we have respectively subscribed, and to satisfy such calls as may be made by the directors, provisional directors or promoters of the Company in respect of the shares allotted to us respectively.

 

3. The Company is to be an exempted Company as defined by the Companies Act 1981.

 

4. The Company, with the consent of the Minister of Finance, has power to hold land situate in Bermuda not exceeding          in all, including the following parcels:-

 

N/A

 

5. The authorised share capital of the Company is US$12,000 divided into shares of US$1.00 each. The minimum subscribed share capital of the Company is US$12,000.

 

6. The objects for which the Company is formed and incorporated are -

 

  (i) To act and or to perform all the functions of a holding company in all its branches and to coordinate the policy and administration of (i) any entity or entities wherever incorporated, organized, established or carrying on business which are in any manner directly or indirectly owned or controlled by the Company or by the same entity in any manner directly or indirectly owning or controlling the Company or (ii) any group of which the Company or any such entity owned or controlled by, or under common ownership or control with, the Company is a member;

 

  (ii) To provide and or procure financing and financial investment, management and advisory services and administrative services to any entity in which the Company owns, directly or indirectly an equity interest (regardless of whether the same carries any voting rights or preferred rights or restrictions); and, in connection with any of the foregoing, to provide and or procure credit, credit enhancement, financial accommodation, guarantees, loans and or advances with or without interest or benefit to the Company to any such entity and to lend to, deposit with and or charge or otherwise encumber in favour of any financial institution, fund and or trust, all or any property of the Company and or any interest therein to provide security or collateral for any financing provided to any such entity;

 

  (iii)

To act as an investment company and for that purpose to acquire, hold upon any terms, either in the name of the Company or that of any nominee, personal property of all kinds, including without limitation, shares, stock, debentures, debenture stock, ownership interests, swaps, hedging securities (including put and call options), annuities, notes, mortgages, certificates of deposit, bonds, obligations and other securities, foreign exchange, foreign currency deposits and commodities, issued or guaranteed by any company, partnership or other entity wherever incorporated, organized, established or carrying on business, or by any government, sovereign, ruler, commissioners, public body or authority, supreme, municipal, local or otherwise, by original subscription, tender, purchase, exchange, underwriting, participation in syndicates or in any other manner and whether or not fully paid up, and to

 

 

make payments thereon as called up or in advance of calls or otherwise and to subscribe for the same, whether conditionally or absolutely, and to hold the same with a view to investment, but with the power to vary any investments, and to exercise and enforce all rights and powers conferred by or incident to the ownership thereof, and to invest and deal with the moneys of the Company upon such securities and in such manner as may be from time to time determined (including, without limitation, entering into, investing in and reinvesting in futures and forward contracts, derivative financial investments, foreign exchange contracts and related options thereon);

 

  (iv) To acquire by purchase or otherwise, buy, own, hold, create, market, design, assemble, manufacture, repair, lease, hire, let, sell, dispose of (with or without consideration or benefit), maintain, improve, develop, manage, invent, build, construct, operate, package and otherwise trade, invest or deal in and with products, financial instruments, goods, and real and personal property of all kinds whatsoever and wheresoever situated, and enter into arrangements for or with respect to any of the foregoing;

 

  (v) To perform, provide, procure, market and deal in services and undertakings of all kinds;

 

  (vi) To advise and act as consultants and managers of all kinds and, without limiting the generality of the foregoing, to provide investment and financial advice, consultation and management services;

 

  (vii) To research, create, develop, invent, improve, discover, design, collate and draft original works, software, inventions, designs, concepts, formulas, processes, strategies, methodologies and the like, and acquire, build, own, hold, sell, lease, license, dispose of (with or without consideration or benefit), market, franchise, and otherwise exploit and deal in or with all intellectual and intangible property rights pertaining thereto whether registered or not, including but not limited to trade and service marks, trade names, copyrights, computer software, inventions, designs, patents, provisional patents, utility models, trade secrets, confidential information, know how, get-up and any other rights and privileges vesting in or attaching thereto;

 

  (viii) To explore for, drill for, mine for, quarry for, move, transport, and refine metals, minerals, fossil fuel, petroleum, hydrocarbon products including, without limiting the generality of the foregoing, oil and oil products, and precious stones of all kinds and to prepare the same for sale or use;

 

  (ix) To enter into any guarantee, contract of indemnity or suretyship and to assure, support or secure with or without consideration or benefit the performance of any obligations of any person or persons and to guarantee the fidelity of individuals filling or about to fill situations of trust or confidence;

 

  (x) To own, manage, operate, act as agents with respect to, build, repair, acquire, own, sell, charter, or deal in ships and aircraft;

 

  (xi) To lend to or deposit with any person funds, property or assets and to provide collateral or credit enhancement for loans, leasing or other forms of financing, with or without consideration or benefit;

 

  (xii) To create, enter into, undertake, procure, arrange for, acquire by purchase or otherwise, buy, own, hold, sell or otherwise dispose of (with or without consideration or benefit), trade, invest and or otherwise deal in, whether on a speculative basis or otherwise, all and or any kind of (including without limitation all and or any combinations of and all and or any rights or interests under) instrument, agreement, contract, covenant and undertaking, including without limiting the generality of the foregoing, derivative instrument, agreement or contract, option, swap option contract, bond, warrant, debenture, equity, forward exchange contract, forward rate contract, future, hedge, security, note, certificate of deposit, unit, guarantee and or financial instrument; and

 

  (xiii) To carry on any trade or business which can, in the opinion of the board of directors, be advantageously carried on by the Company.

 

7. Powers of the Company

 

1. The Company shall, pursuant to Section 42 of the Companies Act 1981, have the power to issue preference shares which are, at the option of the holder, liable to be redeemed.

 

2. The Company shall, pursuant to Section 42A of the Companies Act 1981, have the power to purchase its own shares.

 

Signed by each subscriber in the presence of at least one witness attesting the signature thereof

 

/s/ D. H. Malcolm

      

/s/ Rosana S. Vieira

/s/ G.B.R. Collis

      

/s/ Rosana S. Vieira

/s/ A. R. Guilfoyle

      

/s/ Rosana S. Vieira

(Subscribers)       (Witnesses)

 

SUBSCRIBED this 22nd October, 2004.

 

Certificate of Incorporation on Change of Name

Exhibit 3.2

 

Registration No. 36011

 

LOGO

 

BERMUDA

 

CERTIFICATE OF INCORPORATION

ON CHANGE OF NAME

 

I HEREBY CERTIFY that in accordance with section 10 of the Companies Act 1981 Lupa Holdings Ltd. by resolution and with the approval of the Registrar of Companies has changed its name and was registered as Lazard Ltd on the 9th day of December, 2004.

 

Given under my hand and the Seal of the REGISTRAR OF COMPANIES this 13th day of December, 2004.

 

[SEAL]       /s/ Maria Boodram
        for Registrar of Companies

 

Form of Amended and Restated By-laws

Exhibit 3.3

 

 

FORM OF

 

AMENDED AND RESTATED BYE-LAWS

 

OF

 

LAZARD LTD

 

Adopted as of                 , 2005

TABLE OF CONTENTS

 

          Page
ARTICLE I
Interpretation
Section 1.01.    Definitions    1
Section 1.02.    Interpretation    3

ARTICLE II

 

Share Capital

Section 2.01.    Authorized Capital    4
Section 2.02.    Class A Common Shares    4
Section 2.03.    Class B Common Share    5
Section 2.04.    Classes of Shares    5
Section 2.05.    Preference Shares    6
Section 2.06.    Power of the Board to Issue    7
Section 2.07.    Increase of Share Capital    7
Section 2.08.    Alteration of Share Capital    7
Section 2.09.    Reduction of Capital    8
Section 2.10.    Bonus Issues    8
Section 2.11.    Shares in Lieu of Dividends    8
Section 2.12.    Fractional Entitlements    8

ARTICLE III

 

Variation of Rights of Shareholders

Section 3.01.    Procedure in Respect of Shares    9
Section 3.02.    Issue of Equal or Prior Ranking Shares    9

 

-i-

ARTICLE IV

 

Acquisition of Shares

Section 4.01.

    Power to Acquire Shares    9

ARTICLE V

 

Calls on Shares

Section 5.01.

    Board May Make Calls    9

Section 5.02.

    Time of Call    9

Section 5.03.

    Fixed Installments Deemed Calls    9

Section 5.04.

    Notice of Call    10

Section 5.05.

    Differential Calls    10

Section 5.06.

    Manner of Payment    10

Section 5.07.

    Joint Shareholders    10

Section 5.08.

    Default Interest    10

Section 5.09.

    Proceedings for Recovery of Calls    10

Section 5.10.

    Payment in Advance of Calls    10

ARTICLE VI

 

Forfeiture of Shares

Section 6.01.

    Notice Requiring Payment of Call    10

Section 6.02.

    Contents of Notice    11

Section 6.03.

    Shareholder may Surrender Shares    11

Section 6.04.

    Forfeiture for Non-Payment    11

Section 6.05.

    Notice of Forfeiture    11

Section 6.06.

    Cancellation of Forfeiture    11

Section 6.07.

    Effect of Forfeiture    11

 

-ii-

ARTICLE VII

 

Lien on Shares

Section 7.01.

    Lien on Shares    11

Section 7.02.

    Waiver of Lien    12

ARTICLE VIII

 

Sale of Shares Subject to Forfeiture or Lien

Section 8.01.

    Company May Sell Shares    12

Section 8.02.

    Proceeds of Sale    12

Section 8.03.

    Evidence    12

Section 8.04.

    Sale Procedure    12

ARTICLE IX

 

Dividends

Section 9.01.

    Power to Authorize    13

Section 9.02.

    Form of Distribution    13

Section 9.03.

    Entitlement to Dividends    13

Section 9.04.

    Deduction of Amounts Due    13

Section 9.05.

    No Interest on Dividends    13

Section 9.06.

    Method of Payment    13

Section 9.07.

    Unclaimed Dividends    13

ARTICLE X

 

Share Certificates

Section 10.01.

    Form of Share Certificates    14

Section 10.02.

    Entitlement to Share Certificates    14

Section 10.03.

    Replacement Share Certificates    14

 

-iii-

ARTICLE XI

 

Transfer of Shares

Section 11.01.

    Right to Transfer    14

Section 11.02.

    Form of Transfer    14

Section 11.03.

    Delivery to Company    14

Section 11.04.

    Board May Refuse to Register Transfer    15

Section 11.05.

    When Transfer Effective    15

ARTICLE XII

 

Transmission of Shares

Section 12.01.

    Transmission on Death of Shareholder    15

Section 12.02.

    Evidence of Entitlement to Transmission    15

Section 12.03.

    Rights of Personal Representatives    16

ARTICLE XIII

 

Exercise of Powers of Shareholders

Section 13.01.

    Exercise of Power by Meeting or Written Resolution    16

ARTICLE XIV

 

General Meetings of Shareholders

Section 14.01.

    Annual General Meetings    16

Section 14.02.

    Special General Meetings    16

Section 14.03.

    Time and Place of Meetings    16

Section 14.04.

    Alternative Forms of Meetings    17

Section 14.05.

    Meetings of Classes of Shareholders    17

Section 14.06.

    Meeting Called on Requisition of Shareholders and Other Business Proposed by Shareholders    17

 

-iv-

ARTICLE XV

 

Notice of General Meetings

Section 15.01.

    Written Notice    18

Section 15.02.

    Short Notice    19

Section 15.03.

    Contents of Notice    19

Section 15.04.

    Accidental Omission of Notice    19

Section 15.05.

    Notice of Adjourned Meeting    19

ARTICLE XVI

 

Proceedings at General Meetings

Section 16.01.

    Requirement for a Quorum    19

Section 16.02.

    Quorum    19

Section 16.03.

    Lack of Quorum    19

Section 16.04.

    Regulation of Procedure    20

Section 16.05.

    Chairman    20

Section 16.06.

    Adjournment of Meeting    20

ARTICLE XVII

 

Voting

Section 17.01.

    Entitlement to Vote; Required Vote    20

Section 17.02.

    Number of Votes    20

Section 17.03.

    Vote of Protected Persons    21

Section 17.04.

    Production of Evidence to Represent Protected Persons    21

Section 17.05.

    Declaration by Chairman    21

Section 17.06.

    Chairman’s Casting Vote    21

Section 17.07.

    Joint Shareholders    21

Section 17.08.

    Right to Demand a Poll    21

 

-v-

Section 17.09.

    When Poll May be Demanded    22

Section 17.10.

    When Poll Taken    22

Section 17.11.

    Poll Procedure    22

Section 17.12.

    Votes on a Poll    22

Section 17.13.

    Inspectors of Elections; Opening and Closing the Polls    22

ARTICLE XVIII

 

Proxies and Corporate Representatives

Section 18.01.

    Right to Appoint Proxy    23

Section 18.02.

    Appointment of Representatives    23

Section 18.03.

    Notice of Appointment    23

Section 18.04.

    Production of Notice    23

Section 18.05.

    Board May Waive Irregularity    23

Section 18.06.

    Validity of Proxy Vote    23

ARTICLE XIX

 

Appointment and Removal of Directors

Section 19.01.

    Numbers of Directors    24

Section 19.02.

    Classification of Directors    24

Section 19.03.

    Appointment by Shareholders    24

Section 19.04.

    Appointment by Board    24

Section 19.05.

    Re-appointment of Retiring Director    24

Section 19.06.

    Nomination of Directors    25

Section 19.07.

    Consent to Act    26

Section 19.08.

    Alternate Directors    26

Section 19.09.

    Vacation of Office    26

Section 19.10.

    Removal of Directors by Shareholders    26

 

-vi-

ARTICLE XX

 

Directors’ Remuneration and Expenses

Section 20.01.

    Power to Authorize Fees    26

Section 20.02.

    Payment of Expenses    27

ARTICLE XXI

 

Exemption and Indemnification

Section 21.01.

    Indemnification    27

Section 21.02.

    Liability of Directors Excluded    27

Section 21.03.

    Insurance    28

Section 21.04.

    Extended Definition of Director and Officer    28

Section 21.05.

    Provisions to be Given Full Effect    28

Section 21.06.

    Indemnity Only an Obligation to Reimburse    28

Section 21.07.

    Rights Cumulative    28

Section 21.08.

    Determination of Rights    28

ARTICLE XXII

 

Directors’ Interests

Section 22.01.

    Disclosure of Interests    29

Section 22.02.

    Director May Hold Other Offices    29

Section 22.03.

    Director May Act in Professional Capacity    29

Section 22.04.

    Personal Involvement of Directors    29

Section 22.05.

    Voting by Interested Directors    30

ARTICLE XXIII

 

Powers of the Board

Section 23.01.

    Management of Company    30

Section 23.02.

    Exercise of Powers of Board    30

 

-vii-

Section 23.03.

    Delegation of Powers    30

Section 23.04.

    Appointment of Attorney    31

Section 23.05.

    Consideration of Other Interests    31

ARTICLE XXIV

 

Proceedings of the Board

Section 24.01.

    Procedure    32

Section 24.02.

    Convening a Meeting of the Board    32

Section 24.03.

    Notice of Meeting    32

Section 24.04.

    Waiver of Notice Irregularity    33

Section 24.05.

    Quorum    33

Section 24.06.

    Adjournment    33

Section 24.07.

    Insufficient Number of Directors    33

Section 24.08.

    Chairman    33

Section 24.09.

    Voting    33

Section 24.10.

    Written Resolution    34

Section 24.11.

    Alternative Forms of Meeting    34

Section 24.12.

    Committees    34

Section 24.13.

    Validity of Actions    34

ARTICLE XXV

 

Officers

Section 25.01.

    Company to Have a Chairman and Deputy Chairman    34

Section 25.02.

    Executive Officers    35

Section 25.03.

    Secretary and Resident Representative    35

Section 25.04.

    Other Officers    35

Section 25.05.

    Terms of Appointment    35

 

-viii-

Section 25.06.

    Powers and Duties of Officers Determined by Board    35

Section 25.07.

    Resident Representative Entitled to Notice of Board Meetings    36

ARTICLE XXVI

 

The Seal

Section 26.01.

    Form of Seal    36

Section 26.02.

    Manner in which Seal is to be Affixed    36

ARTICLE XXVII

 

Record Dates

Section 27.01.

    Company or Board May Fix Record Date    36

Section 27.02.

    Shareholder of Record    36

ARTICLE XXVIII

 

Records

Section 28.01.

    Accounting Records    37

Section 28.02.

    Place and Inspection of Records of Account    37

Section 28.03.

    Financial Statements    37

Section 28.04.

    Register to be Kept    37

Section 28.05.

    Branch Registers    37

Section 28.06.

    Inspection and Closing of Register    37

Section 28.07.

    No Notice of Trusts    37

Section 28.08.

    No Recognition of Equitable Interests    38

Section 28.09.

    Register of Directors and Officers    38

Section 28.10.

    Minutes to be Made and Kept    38

Section 28.11.

    Inspection of Minutes    38

 

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ARTICLE XXIX

 

Auditor

Section 29.01.

    Appointment of Auditor    38

ARTICLE XXX

 

Service of Notices and Other Documents

Section 30.01.

    Manner of Sending Notices    38

Section 30.02.

    Service and Delivery of Notices    39

Section 30.03.

    Accidental Omissions    39

Section 30.04.

    Joint Shareholders    39

Section 30.05.

    Shareholder Deceased or Bankrupt    39

ARTICLE XXXI

 

Winding Up

Section 31.01.

    Distribution of Assets    39

ARTICLE XXXII

 

Amalgamations, Discontinuance and Sales; Mandatory Repurchases

Section 32.01.

    Approval Required for an Amalgamation    40

Section 32.02.

    Approval Required to Discontinue the Company    40

Section 32.03.

    Approval Required for Sale of Assets    40

Section 32.04.

    Mandatory Repurchases    40

ARTICLE XXXIII

 

Alteration of Bye-Laws and Memorandum of Association

Section 33.01.

    Alteration of Bye-Laws    41

Section 33.02.

    Alteration of Memorandum of Association    41

 

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BYE-LAWS

 

OF

 

LAZARD LTD

 

ARTICLE I

 

Interpretation

 

Section 1.01. Definitions. In these Bye-Laws, unless the context otherwise requires:

 

“Act” means the Companies Act 1981, as amended from time to time.

 

“Bermuda” means the Islands of Bermuda.

 

“Board” means Directors who number not less than the required quorum acting together as the board of directors of the Company.

 

“Bye-Laws” means these bye-laws, as altered from time to time.

 

“Class” means a class of Shares having attached to them identical rights, privileges, limitations and conditions.

 

“Class B Common Share” means the one share of par value US$0.01 per share (or such other par value as may result from any reorganization of capital) in the capital of the Company, having the rights and being subject to the limitations set out in these Bye-Laws.

 

“Common Shares” means Class A common shares of par value US$0.01 per share (or such other par value as may result from any reorganization of capital) in the capital of the Company, having the rights and being subject to the limitations set out in these Bye-Laws.

 

“Company” means Lazard Ltd, an exempted company registered in Bermuda with registration number EC 36011 (following its incorporation in Bermuda on October 25, 2004).

 

“Director” means a person appointed as a director of the Company in accordance with these Bye-Laws.

 

“Group Company” means the Company, any holding company of the Company and any subsidiary of the Company or of any such holding company.

 

“LAZ-MD” means LAZ-MD Holdings LLC, a Delaware limited liability company.

 

“Lazard Group” means Lazard Group LLC, a Delaware limited liability company.

“Officer” means the Secretary or any other officer of the Company appointed in accordance with these Bye-Laws, but does not include any person holding the office of auditor in relation to the Company.

 

“Paid Up” means paid up or credited as paid up.

 

“Personal Representative” means:

 

(a) in relation to a deceased individual Shareholder, the executor, administrator or trustee of the estate of that Shareholder; and

 

(b) in relation to a bankrupt individual Shareholder, the assignee in bankruptcy of that Shareholder.

 

“Preference Shares” means preferred shares of par value US$0.01 per share (or such other par value as may result from any reorganization of capital) in the capital of the Company, having the rights and being subject to the limitations set out in these Bye-Laws.

 

“Records” means the documents, registers and books in each case that are required to be kept by the Company pursuant to the Act.

 

“Register” means the register of Shareholders of the Company and includes any branch register.

 

“Registered Office” means the registered office of the Company.

 

“Representative” means:

 

(a) a person appointed as a proxy in accordance with Section 18.01;

 

(b) a Personal Representative; and/or

 

(c) a representative appointed by a corporation in accordance with Section 18.02.

 

“Resident Representative” means the person or, if permitted by the Act, the company appointed to perform the duties of resident representative of the Company as set out in the Act (and includes any assistant or deputy resident representative appointed by the Board).

 

“Resolution” means a resolution of the Shareholders voting together as a single class or, where required, of a separate class or separate classes of Shareholders, that is approved by a simple majority of votes of those Shareholders entitled to vote thereon and present in person or represented by proxy; provided that in the case of an equality of votes, the resolution shall be deemed to be lost.

 

“Seal” means the common seal of the Company and includes any duplicate seal.

 

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“Secretary” means the secretary of the Company or, if there are joint secretaries, any of the joint secretaries and includes a deputy or assistant secretary and any person appointed by the Board to perform any of the duties of the secretary.

 

“Share” means a share issued, or to be issued, by the Company as the case may require.

 

“Shareholder” means a person whose name is entered in the Register as the holder for the time being of one or more Shares.

 

“Shareholders’ Agreement” means the shareholders’ agreement dated [•] among the Company, LAZ-MD and the other parties thereto, as amended or supplemented from time to time.

 

“US dollars” or “US$” means United States dollars.

 

Section 1.02. Interpretation. In these Bye-Laws, unless the context otherwise requires:

 

(a) the table of contents, headings, and descriptions relating to sections of the Act, are inserted for convenience only and shall be ignored in construing these Bye-Laws;

 

(b) the singular includes the plural and vice versa;

 

(c) one gender includes the other genders;

 

(d) references to a company include any body corporate, company, partnership, limited liability company, trust, corporation, association or other legal entity, whether incorporated or established in Bermuda or elsewhere;

 

(e) references to a person includes an individual, company, firm, partnership, body corporate, corporation, limited liability company, association, organization, trust, a state or government or any agency thereof, governmental or public authority, and any other entity or organization, whether incorporated or not (in each case whether or not having a separate legal personality) whether of Bermuda or elsewhere;

 

(f) “subsidiary” and “holding company” have the same meanings as in section 86 of the Act, except that references in that section to a company shall include any body corporate, company, partnership, limited liability company, trust, corporation, association or other legal entity, whether incorporated or established in Bermuda or elsewhere.

 

(g) “written” or “in writing” includes any means of representing or reproducing words, figures and symbols in a tangible and visible form;

 

(h) any words or expressions defined or explained in the Act shall have the same meaning in these Bye-Laws;

 

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(i) any reference to any statute or statutory provision (whether of Bermuda or elsewhere) includes a reference to any modification, re-enactment or substitution of it for the time being in force and to every rule, regulation or order made under it (or under any such modification, re-enactment or substitution) and for the time being in force and any reference to any rule, regulation or order made under any such statute or statutory provision includes a reference to any modification, replacement or substitution of such rule, regulation or order for the time being in force;

 

(j) references to Articles and Sections (other than sections of the Act) are references to Articles and Sections of these Bye-Laws, unless stated otherwise; and

 

(k) where any word or expression is defined in these Bye-Laws, any other grammatical form of that word or expression has a corresponding meaning.

 

ARTICLE II

 

Share Capital

 

Section 2.01. Authorized Capital. At the time of adoption of these amended and restated Bye-Laws, the authorized share capital of the Company is US$5,150,000.01, divided into 500,000,000 Common Shares, one Class B Common Share and 15,000,000 Preference Shares.

 

Section 2.02. Class A Common Shares. Subject to the rights attaching to, or the terms of issue of, any Class or the provisions of these Bye-Laws, each Common Share entitles the holder thereof to:

 

(a) one vote per Common Share;

 

(b) share equally and ratably in such dividends as the Board may from time to time declare (provided, however, that if (i) the Company is required to withhold any United States tax on such dividends or (ii) any subsidiary of the Company is required to withhold any United States tax on a distribution made to the Company that is allocable to a holder, and, in each case, the Company or such subsidiary pays such withheld amount to the United States Internal Revenue Service (or any successor organization), then such withholding payment shall be treated as a dividend to the holder with respect to whom the payment was made and will reduce the amount of dividends to which such holder would otherwise be entitled);

 

(c) in the event of a winding-up or dissolution of the Company, whether voluntary or involuntary or for the purpose of an amalgamation, a reorganization or otherwise or upon any distribution of capital, share equally and ratably in the surplus assets of the Company, if any, remaining after the liquidation preference of any issued and outstanding Shares ranking ahead of the Common Shares; and

 

(d) generally to enjoy all of the rights attaching to Shares.

 

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Section 2.03. Class B Common Share. Subject to the rights attaching to, or the terms of issue of, any Class, the Act and the other provisions of these Bye-Laws, the holder of the Class B Common Share:

 

(a) shall not be entitled to any dividends;

 

(b) shall not be entitled to any surplus assets of the Company in the event of a winding-up or dissolution of the Company, whether voluntary or involuntary or for the purpose of an amalgamation, a reorganization or otherwise or upon any distribution of capital; and

 

(c) shall be entitled to the number of votes at any meeting or action (as of the record date for that meeting or action) equal to the number of Common Shares into which the LAZ-MD Common Units are then exchangeable pursuant to the Master Separation Agreement; provided, that for any meeting or other action having a record date on or prior to December 31, 2007, if the votes represented by the Class B Common Share are less than 50.1% of aggregate votes of all Shares entitled to vote on any matter submitted to such meeting or action, then the Class B Common Share shall be entitled to the number of votes that shall entitle it to vote 50.1% of the aggregate votes entitled to vote on such matter.

 

Subject to the above, when casting its votes at any meeting of the Company, the holder of the Class B Common Share shall be entitled to cast all or any portion of the number of votes to which the Class B Common Share shall be entitled for or against, or to abstain all or any portion of the number of votes to which the Class B Common Share shall be entitled from voting on, any proposed resolution, and shall be entitled in voting on any single resolution to vote a portion of such votes for, a portion of such votes against and/or abstain a portion of such votes from voting on, such resolution, in such number and proportions as the holder sees fit.

 

For the purposes of this Section 2.03:

 

(a) “LAZ-MD Common Units” mean the common units of Lazard Group then held by (1) LAZ-MD (directly or indirectly through any subsidiary (excluding for this purpose the Company, Lazard Group and their respective subsidiaries)) and (2) all current or former Class II Members (and such person’s permitted estate transferees).

 

(b) “Class II Member” means a Class II Member of LAZ-MD.

 

(c) “Master Separation Agreement” means the Master Separation Agreement, dated as of the date hereof, by and among the Company, Lazard Group, LAZ-MD and LFCM Holdings LLC, a Delaware limited liability company, as amended or supplemented from time to time.

 

Section 2.04. Classes of Shares. Subject to the Act and to the rights conferred on the holders of any other Class of Shares, the Company may issue different Classes of Shares. Without limiting the Classes which may be issued (including any Class of Shares issued pursuant to Section 2.03), any Share may be issued upon the basis that it:

 

(a) confers preferential, deferred, qualified or special rights as to dividends or distributions of capital or income;

 

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(b) confers special, limited or conditional voting rights;

 

(c) does not confer voting rights; or

 

(d) is liable to be redeemed on the happening of a specified event or events, on a given date or dates, at the option of the Company, at the option of the holder and may provide for the whole or any part of the amount due on redemption to be paid or satisfied otherwise than in cash, to the extent permitted by the Act.

 

Section 2.05. Preference Shares. The Board is authorised to provide for the issuance of the Preference Shares in one or more series, and to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations, or restrictions thereof (and, for the avoidance of doubt, such matters and the issuance of such Preference Shares shall not be deemed to vary the rights attached to the Shares). The authority of the Board with respect to each series shall include, but not be limited to, determination of the following:

 

(a) the number of shares constituting that series and the distinctive designation of that series;

 

(b) the dividend rate on the shares of that series, whether dividends shall be cumulative and, if so, from which date or dates, and the relative rights of priority, if any, of the payment of dividends on shares of that series;

 

(c) whether that series shall have voting rights, in addition to the voting rights provided by law and, if so, the terms of such voting rights;

 

(d) whether that series shall have conversion or exchange privileges (including, without limitation, conversion into Common Shares) and, if so, the terms and conditions of such conversion or exchange, including provision for adjustment of the conversion or exchange rate in such events as the Board shall determine;

 

(e) whether or not the shares of that series shall be redeemable or repurchaseable and, if so, the terms and conditions of such redemption or repurchase, including the manner of selecting shares for redemption or repurchase if less than all shares are to be redeemed or repurchased, the date or dates upon or after which they shall be redeemable or repurchaseable, and the amount per share payable in case of redemption or repurchase, which amount may vary under different conditions and at different redemption or repurchase dates;

 

(f) whether that series shall have a sinking fund for the redemption or repurchase of shares of that series and, if so, the terms and amount of such sinking fund;

 

(g) the right of the shares of that series to the benefit of conditions and restrictions upon the creation of indebtedness of the Company or any subsidiary, upon the issue

 

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of any additional shares (including additional shares of such series or any other series) and upon the payment of dividends or the making of other distributions on, and the purchase, redemption or other acquisition by the Company or any subsidiary of any issued shares of the Company;

 

(h) the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Company, and the relative rights of priority, if any, of payment of shares of that series; and

 

(i) any other relative participating, optional or other special rights, preferences, qualifications, limitations or restrictions of that series.

 

Any Preference Shares of any series which have been redeemed (whether through the operation of a sinking fund or otherwise) or which, if convertible or exchangeable, have been converted into or exchanged for shares of any other Class or Classes or other property or rights shall have the status of authorised and unissued Preference Shares of the same series and may be reissued as a part of the series of which they were originally a part or may be reclassified and reissued as part of a new series of Preference Shares to be created by resolution or resolutions of the Board or as part of any other series of Preference Shares, all subject to the conditions and the restrictions on issuance set forth in the resolution or resolutions adopted by the Board providing for the issue of any series of Preference Shares.

 

Section 2.06. Power of the Board to Issue. Subject to the other provisions of these Bye-Laws, the unissued Shares of the Company (whether forming part of the original share capital or any increased capital) shall be at the disposal of the Board, which may by resolution of the Board offer, issue, allot, exchange, adopt rights plans or similar agreements, grant options, option rights, warrants or other rights over or otherwise deal with or dispose of them to such persons, in such number, at such times and for such consideration and generally on such terms and conditions as the Board may from time to time determine. Without limiting the generality of the preceding sentence, the Board may issue securities that are convertible into or exchangeable into Shares.

 

Section 2.07. Increase of Share Capital. The Company may from time to time increase its capital by such sum, to be divided into Shares of such par value, as the Company by Resolution shall determine.

 

Section 2.08. Alteration of Share Capital. The Company may from time to time by Resolution:

 

(a) divide its shares into several Classes and attach to them respectively any preferential, deferred, qualified or special rights, privileges or conditions;

 

(b) consolidate and divide all its Shares or any Class of Shares into Shares having larger par value;

 

(c) subdivide its Shares or any Class of Shares into Shares having a smaller par value; provided, however, that the proportion between the amount paid and the amount, if any, unpaid on each sub-divided Share shall be the same as that of the Share from which the sub-divided Share is derived;

 

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(d) make provision for the issue and allotment of Shares which do not carry any voting rights;

 

(e) cancel Shares which, at the date of the passing of the relevant Resolution, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the Shares so cancelled; and

 

(f) change the currency denomination of its share capital.

 

Section 2.09. Reduction of Capital. The Company may from time to time by Resolution reduce, in any manner permitted by the Act, its issued share capital (but not to a sum less than the minimum share capital prescribed by its memorandum) or any share premium account. In relation to any such reduction, the Company may by Resolution determine the terms upon which the reduction is to be effected, including, in the case of a reduction of part only of a class of shares, those shares to be affected.

 

Section 2.10. Bonus Issues. Subject to these Bye-Laws, the Board may resolve to apply any amount which is legally available to be paid as a dividend either:

 

(a) in paying up in full Shares or other securities of the Company to be issued or credited as fully paid to:

 

(i) the Shareholders who would be entitled to that amount if it were distributed by way of dividend, and in the same proportions; and

 

(ii) if applicable, the holders of any other securities of the Company who are entitled by the terms of issue of such securities to participate in bonus issues by the Company, whether at the time the bonus issue is made to the Shareholders, or at some later time, in accordance with their respective entitlements; or

 

(b) in paying up any amount which is unpaid on any Shares held by the Shareholders referred to in Section 2.10(a)(i),

 

or partly in one way and partly in the other; provided, that any amount in a Share premium account may only be applied in paying up in full Shares to be issued as credited as fully paid that are of the same Class as the Class to which the amount in the Share premium account relates.

 

Section 2.11. Shares in Lieu of Dividends. Subject to these Bye-Laws the Board may issue Shares to any Shareholders who have agreed to accept the issue of Shares, wholly or partly, in lieu of proposed dividends or proposed future dividends.

 

Section 2.12. Fractional Entitlements. The Board may, in exercising any powers pursuant to this Article, deal with fractional entitlements to Shares or other securities in such manner as the Board considers equitable and in the interests of the Company.

 

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ARTICLE III

 

Variation of Rights of Shareholders

 

Section 3.01. Procedure in Respect of Shares. Subject to the Act, the rights attached to any Class of Shares may only, unless the rights attached to, or the terms of issue of, that Class of Shares expressly provides otherwise, be altered (a) with the unanimous written consent of the holders of the outstanding Shares of that Class or (b) by a Resolution of the holders of Shares of that Class passed at a separate general meeting of Shareholders of that Class.

 

Section 3.02. Issue of Equal or Prior Ranking Shares. The rights conferred upon the holders of any Shares or Class of Shares shall not, unless the rights attached to, or the terms of issue of, that Class of Shares expressly provides otherwise, be deemed to be altered or otherwise affected by the creation or issue of further Shares which rank pari passu with, or in priority to, any existing Shares, whether as to voting rights, dividends or otherwise.

 

ARTICLE IV

 

Acquisition of Shares

 

Section 4.01. Power to Acquire Shares. Subject to the Act, the Company may purchase or otherwise acquire its own Shares from one or more Shareholders, and the Board may (without the sanction of a Resolution) authorize any exercise of the Company’s power to purchase its own Shares, in each case whether in the market, by tender or by private agreement, at such prices (whether at par or above or below par) and otherwise on such terms and conditions as the Board may from time to time determine. The whole or any part of the amount payable on any such purchase may be paid or satisfied otherwise than in cash, to the extent permitted by the Act.

 

ARTICLE V

 

Calls on Shares

 

Section 5.01. Board May Make Calls. The Board may, from time to time, make such calls as it thinks fit upon Shareholders solely in respect of any amounts unpaid (whether on account of the par value of the Shares or by way of premium) on any Shares held by them which are not made payable at fixed times by the terms of issue of those Shares. A call may be made payable by installments. The Board may revoke or postpone any call.

 

Section 5.02. Time of Call. A call is deemed to be made at the time when the resolution of the Board making the call is passed.

 

Section 5.03. Fixed Installments Deemed Calls. An amount which, by the terms of issue of a Share, is payable on allotment or at a fixed date is deemed for the purposes of these Bye-Laws to be a call duly made and payable on the date on which the amount is payable.

 

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Section 5.04. Notice of Call. At least 14 days’ notice of any call shall be given to the holder of the Share in respect of which the call is made, specifying the time and place of payment.

 

Section 5.05. Differential Calls. The Board may, on the issue of any Share, differentiate between Shareholders as to the amount to be paid in respect of Shares and the times of payment of such amounts.

 

Section 5.06. Manner of Payment. A Shareholder by whom a call is payable shall pay the amount of the call to the Company at the time and place specified by the Board.

 

Section 5.07. Joint Shareholders. Joint Shareholders are jointly and severally liable to pay all calls in respect of Shares registered in their names.

 

Section 5.08. Default Interest. If a call in respect of a Share is not paid on or before the due date, the person from whom the call is payable shall pay interest on the call from the due date to the time of actual payment at such rate as the Board may determine, unless the Board waives payment of interest wholly or in part.

 

Section 5.09. Proceedings for Recovery of Calls. In any proceedings for recovery of a call:

 

(a) it is sufficient to prove that:

 

(i) the name of the relevant Shareholder is entered in the Register as the holder, or one of the holders, of the Shares to which the call relates; and

 

(ii) except in relation to any amount which, by the terms of issue of a Share, is payable on allotment or at a fixed date, the resolution making the call is entered in the Records and notice of the call has been duly given, and proof of the matters mentioned in this Section is conclusive evidence of the debt; and

 

(b) it is not necessary to prove the appointment or qualification of any member of the Board which made the call or any other matter.

 

Section 5.10. Payment in Advance of Calls. The Company may receive from any Shareholder in advance any amount uncalled and unpaid upon any Shares held by that Shareholder and may, until the date on which the amount becomes payable pursuant to a call, pay interest on the amount at such rate as the Board and Shareholder may agree in advance.

 

ARTICLE VI

 

Forfeiture of Shares

 

Section 6.01. Notice Requiring Payment of Call. If a Shareholder fails to pay any call or installment of a call on the due date, the Company may thereafter by written notice to that Shareholder require payment of the amount unpaid together with any accrued interest and all expenses incurred by the Company by reason of such non-payment.

 

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Section 6.02. Contents of Notice. The notice shall specify a further date (not earlier than 14 days after the date of service of the notice) on or before which, and the place where, the payment is to be made, and shall state that, if payment is not made by the specified date, and at the place appointed, the Share in respect of which the call is made or installment is due, is liable to be forfeited.

 

Section 6.03. Shareholder may Surrender Shares. The Board may accept the surrender of any Share liable to be forfeited, and, in any such case, references in these Bye-Laws to forfeiture include surrender.

 

Section 6.04. Forfeiture for Non-Payment. If the requirements of any notice given under Section 6.02 are not complied with, then any Share in respect of which the notice was given may, at any time thereafter before the payment required by the notice has been made, be forfeited by a resolution of the Board to that effect. The forfeiture shall include all dividends declared in respect of the forfeited Share and not paid before the forfeiture.

 

Section 6.05. Notice of Forfeiture. When a Share has been forfeited, the Company shall give notice of the resolution of the Board to the Shareholder in whose name the Share is registered immediately prior to the forfeiture, and shall enter in the Register details of the forfeiture.

 

Section 6.06. Cancellation of Forfeiture. A forfeiture may be cancelled at any time before the sale of the forfeited Share, on such terms as the Board thinks fit.

 

Section 6.07. Effect of Forfeiture. A person whose Shares have been forfeited shall cease to be a Shareholder in respect of the forfeited Shares, but remains liable to the Company for all moneys payable in respect of the forfeited Shares together with interest at such rate as the Board may determine from the date of forfeiture until payment and the Company may enforce payment without being under any obligation to make any allowance for the value of the Shares forfeited.

 

ARTICLE VII

 

Lien on Shares

 

Section 7.01. Lien on Shares. The Company shall have a first and paramount lien on each Share, the proceeds of sale of the Share, and all dividends made in respect of the Share, for:

 

(a) all unpaid calls owing in respect of the Share and interest thereon (if any);

 

(b) any amount which the Company may be called upon to pay under any law for the time being of any country, state or place in respect of the Share, whether or not the due date for payment thereof has arrived; and

 

(c) all liabilities and obligations of the Shareholder to the Company, whether solely or jointly with any other person, whether incurred or arising before or after notice to the Company of any equitable interest of any person other than the Shareholder, and whether or not the date for payment, fulfillment or discharge thereof has arrived.

 

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Section 7.02. Waiver of Lien. The Board may at any time, either generally or in any particular case, waive any lien that has arisen or declare any Share to be wholly or in part exempt from the provisions of this Article. Unless otherwise agreed between the Company and the relevant Shareholder, the registration of a transfer of a Share shall operate as a waiver of any lien which the Company may have on that Share, except as provided in Section 12.03.

 

ARTICLE VIII

 

Sale of Shares Subject to Forfeiture or Lien

 

Section 8.01. Company May Sell Shares. The Company may sell any forfeited Share, or any Share on which the Company has a lien, in such manner as the Board thinks fit, but the Company shall not sell any Share:

 

(a) unless the amount in respect of which a lien exists is due and payable; and

 

(b) until the expiry of 14 days after written notice demanding payment of the amount presently due and stating the intention to sell in default of such payment, has been given to the person entitled to receive notice of meetings of Shareholders in respect of the Share.

 

Section 8.02. Proceeds of Sale. The net proceeds (after deduction of any expenses) of the sale by the Company of a forfeited Share or of any Share sold for the purposes of enforcing a lien shall be applied in or towards satisfaction of any unpaid calls, interest or other amount in respect of which any lien exists (as the case may require). The residue, if any, shall be paid to the holder of the Share at the time of its forfeiture or, in the case of a Share sold for the purpose of enforcing a lien, the holder immediately prior to the sale or, if applicable in either case, to the Personal Representative of the holder.

 

Section 8.03. Evidence. An affidavit to the effect that the deponent is a Director or the Secretary and that any power of sale has arisen and is exercisable by the Company under these Bye-Laws, or that a Share has been forfeited on the date stated in the affidavit, shall be conclusive evidence of those facts stated in it as against all persons claiming to be entitled to the Share.

 

Section 8.04. Sale Procedure. For giving effect to any sale after forfeiture of any Share or of enforcing a lien over any Share, the Board may authorize any person to transfer the Share to the purchaser. The purchaser shall be registered as the holder of the Share and shall not be bound to see to the application of the purchase money, and title of the purchaser shall not be affected by any irregularity or invalidity in the proceedings relating to the sale.

 

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ARTICLE IX

 

Dividends

 

Section 9.01. Power to Authorize. Subject to the rights attaching to, or the terms of issue of, any Class of Shares, the Act and the other provisions of these Bye-Laws, the Board may authorize dividends by the Company at times, and of amounts, and to any Shareholders, as it thinks fit and may do everything which is necessary or expedient to give effect to any such dividend.

 

Section 9.02. Form of Distribution. Subject to the rights of holders of any Shares in a Class, the Board may make a dividend in such form as it thinks fit, but shall not differentiate between Shareholders as to the form in which a dividend is made without the prior approval of the Shareholders.

 

Section 9.03. Entitlement to Dividends. Except insofar as the rights attaching to, or the terms of issue of, any Shares otherwise provide, the Board shall not authorize a dividend:

 

(a) in respect of some but not all Shares in a Class; or

 

(b) that is of a greater value per Share in respect of some Shares of a Class than it is in respect of other Shares of that Class, unless the amount of the dividend in respect of a Share of that Class is in proportion to the amount paid to the Company in satisfaction of the liability of the Shareholder under these Bye-Laws or under the terms of issue of the Share.

 

Section 9.04. Deduction of Amounts Due. The Board may deduct from a dividend payable to a Shareholder (either alone or jointly with another) any amount which is due and payable by the Shareholder to the Company on account of calls or otherwise in relation to any Shares held by that Shareholder.

 

Section 9.05. No Interest on Dividends. Subject to the rights of holders of any Shares in a Class, the Company is not liable to pay interest in respect of any dividend or distribution.

 

Section 9.06. Method of Payment. A dividend payable in cash may be paid in such manner as the Board thinks fit to the entitled Shareholders or, in the case of joint Shareholders, to the Shareholder named first in the Register, or to such other person and in such manner as the Shareholder or joint Shareholder may in writing direct. Any one of two or more joint Shareholders may give a receipt for any payment in respect of the Shares held by them as joint Shareholders.

 

Section 9.07. Unclaimed Dividends. Dividends or other money distributions unclaimed for more than one year after having been authorised, may be used for the benefit of the Company until claimed. All dividends or other monetary distributions unclaimed for more than 6 years after having been authorized may be forefeited by the Board for the benefit of the Company.

 

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ARTICLE X

 

Share Certificates

 

Section 10.01. Form of Share Certificates. Share certificates shall be in such form as the Board may from time to time prescribe, subject to the requirements of the Act.

 

Section 10.02. Entitlement to Share Certificates. Unless otherwise provided by the rights attaching to, or by the terms of issue of, any Class of Shares, each Shareholder shall, upon becoming the holder of any Share, be entitled to a Share certificate for all the Shares of each Class held by that Shareholder (and, on transferring any Shares held by that Shareholder, to a certificate for the balance), but the Board may decide not to issue certificates for any Shares held by, or by the nominee of, any securities exchange or depository or any operator of any clearance or settlement system except at the request of any such person. In the case of a Share held jointly by several persons, delivery of a certificate in their joint names to one of several joint holders shall be sufficient delivery to all.

 

Section 10.03. Replacement Share Certificates. The Company:

 

(a) may issue a replacement certificate for any Share certificate that is worn out or defaced; or

 

(b) shall issue a replacement Share certificate for one that has been lost or destroyed,

 

subject to satisfactory proof of the fact, payment of the reasonable expenses of the Company and, if so required by the Board, an appropriate indemnity being given to the Company.

 

ARTICLE XI

 

Transfer of Shares

 

Section 11.01. Right to Transfer. Subject to the Act and to any restrictions contained in these Bye-Laws, a Shareholder or Personal Representative may transfer any Share by an instrument of transfer in the usual common form approved by the Company or the agent of the Company who maintains the Register. Shares may be transferred without a written instrument if transferred by an appointed agent or otherwise in accordance with the Act.

 

Section 11.02. Form of Transfer. The instrument of transfer of a Share shall be signed by or on behalf of the transferor and, if registration as holder of the Share imposes a liability on the transferee, be signed or executed by or on behalf of the transferee.

 

Section 11.03. Delivery to Company. An instrument transferring Shares must be delivered to the Company or agent of the Company who maintains the Register, together with the Share certificate (if any) relating to the Shares to be transferred, and the transferee shall provide such evidence as the Company or the agent responsible requires to prove the title of the transferor, or the right of the transferor to transfer, the Shares.

 

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Section 11.04. Board May Refuse to Register Transfer. The Board may, in its absolute discretion and without assigning any reason for its decision, refuse to register a transfer of any Share if:

 

(a) the Share is not fully paid up;

 

(b) the Company has a lien on the Share;

 

(c) the instrument of transfer is not accompanied by the relevant Share certificate (if any) and such other evidence as the Board may reasonably require to prove the title of the transferor to, or right of the transferor to transfer, the Share;

 

(d) it is not satisfied that all applicable consents, authorizations, permissions or approvals of any governmental body or agency in Bermuda or any other applicable jurisdiction required to be obtained under relevant law prior to such transfer have been obtained; or

 

(e) the transfer may violate the terms of any agreement to which the Company (or any of its subsidiaries) and the transferor are party or subject.

 

If the Board refuses to register a transfer of any Share, it shall, within three months after the date on which the instrument of transfer was lodged with the Company or agent of the Company who maintains the Register, send to the transferor and to the transferee notice of such refusal.

 

Section 11.05. When Transfer Effective. A transferor of a Share is deemed to remain the holder of the Share until the name of the transferee is entered in the Register in respect of the Share.

 

ARTICLE XII

 

Transmission of Shares

 

Section 12.01. Transmission on Death of Shareholder. If a Shareholder dies, the survivor or survivors, if the deceased was a joint Shareholder, or the Personal Representative, shall be the only person or persons recognized by the Company as having any title to or interest in the Shares of the deceased Shareholder, but nothing in this Section shall release the estate of a deceased joint Shareholder from any liability in respect of any Share or constitute a release of any lien which the Company may have in respect of any Share.

 

Section 12.02. Evidence of Entitlement to Transmission. In the case of a person becoming entitled to a Share upon the death of a Shareholder or otherwise by operation of applicable law, the Board may require the production to the Company of such evidence of such person’s entitlement as is prescribed by the Act or, to the extent, that no such evidence is prescribed, as may from time to time be required by the Board. Upon production of such evidence, the name and address of the person so entitled shall be noted in the Register.

 

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Section 12.03. Rights of Personal Representatives. A Personal Representative of a Shareholder:

 

(a) is entitled to exercise all rights (including, without limitation, the rights to receive dividends, to attend general meetings of the Company and vote in person or by Representative), and is subject to all limitations, attached to the Shares registered in the name of that Shareholder; and

 

(b) is entitled to be registered as the holder of those Shares or to have some person nominated by the Personal Representative registered as the holder of those Shares, but such registration shall not operate as a release of any rights (including any lien) to which the Company was entitled prior to registration of the Personal Representative or nominee pursuant to this Section.

 

ARTICLE XIII

 

Exercise of Powers of Shareholders

 

Section 13.01. Exercise of Power by Meeting or Written Resolution. A power or right of approval reserved to the Shareholders or any class of Shareholders by the Act or by these Bye-Laws may be exercised either:

 

(a) at a meeting of Shareholders or class of Shareholders, as the case may require; or

 

(b) except in the case of the removal of an auditor or a Director, by a resolution in writing signed by, or in the case of a Shareholder that is a corporation whether or not a company within the meaning of the Act, on behalf of, all the Shareholders who at the date of the resolution would be entitled to attend the meeting and vote on the resolution.

 

ARTICLE XIV

 

General Meetings of Shareholders

 

Section 14.01. Annual General Meetings. The Board shall convene and the Company shall hold annual general meetings in accordance with the requirements of the Act.

 

Section 14.02. Special General Meetings. The Board may, whenever it thinks fit, and shall, on the requisition in writing of Shareholders made in accordance with the Act and holding such number of Shares as is prescribed by the Act, convene a general meeting in the manner required by the Act. All general meetings other than annual general meetings shall be called special general meetings.

 

Section 14.03. Time and Place of Meetings. Each general meeting shall be held at such date, time and place (within or outside of Bermuda) as the Board appoints.

 

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Section 14.04. Alternative Forms of Meetings. A general meeting of Shareholders may be held either:

 

(a) by a number of Shareholders, who constitute a quorum, being assembled together at the place, date and time appointed for the meeting; or

 

(b) if determined by the Board, by means of audio, or audio and visual, communication by which all Shareholders participating and constituting a quorum, can reasonably be expected to be able to hear each other simultaneously throughout the meeting; or

 

(c) if determined by the Board, by a combination of the forms referred to in paragraphs (a) and (b) above.

 

Section 14.05. Meetings of Classes of Shareholders. The provisions of these Bye-Laws relating to general meetings of the Company shall apply mutatis mutandis to any separate general meeting of any class of Shareholders except that:

 

(a) the necessary quorum shall be two or more Shareholders present in person or by Representative together holding or representing a majority of the issued Shares of the relevant class; provided that, if the relevant class of Shareholders has only one Shareholder, one Shareholder present in person or by Representative shall constitute the necessary quorum; and

 

(b) if the Board so elects, one meeting may be held of Shareholders constituting more than one class of Shareholders, so long as voting at the meeting is by way of a poll, and proper arrangements are made to distinguish between the votes of Shareholders in each class.

 

Section 14.06. Meeting Called on Requisition of Shareholders and Other Business Proposed by Shareholders. (a) Notwithstanding anything to the contrary in these Bye-Laws, the Board shall, on the requisition of (i) Shareholders holding at the date of the deposit of the requisition not less than one-tenth of such of the paid-up share capital of the Company as at the date of the deposit carries the right to vote at general meetings of the Company or (ii) the holder of the Class B Common Share, forthwith proceed to convene a special general meeting of the Company and the provisions of Section 74 of the Act shall apply.

 

(b) In addition to any rights of Shareholders under the Act, other business (except for nomination of Directors, which must be done in accordance with Section 19.06) may be proposed to be brought before any annual general meeting of the Company, or any special general meeting of the Company by any person who: (i) is a Shareholder and is entitled to attend and vote at such meeting; and (ii) complies with the notice procedures set forth in this Section 14.06.

 

(c) In addition to any other applicable requirements, for other business to be proposed by a Shareholder pursuant to paragraph (b) of this Section, such Shareholder must give timely notice thereof in proper written form to the Secretary.

 

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(d) To be timely, a notice given to the Secretary pursuant to paragraph (c) of this Section must be delivered to or mailed and received at the Registered Office:

 

(i) in the case of an annual general meeting, not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year’s annual general meeting; provided, however, that in the event that the date of the annual general meeting (excluding any adjournment of an annual general meeting) is more than 30 days before or more than 60 days after such anniversary date, notice by the Shareholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual general meeting and not later than the close of business on the later of the 90th day prior to such annual general meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Company. In no event shall the public announcement of an adjournment of an annual general meeting commence a new time period for the giving of a Shareholder’s notice as described above; and

 

(ii) in the case of a special general meeting, no more than 7 days following the day on which notice of the special general meeting was mailed or the date that the special general meeting is publicly announced, whichever occurs first. In no event shall the public announcement of an adjournment of a special general meeting commence a new time period for the giving of a Shareholder’s notice as described above.

 

(e) To be in proper written form, a notice given to the Secretary pursuant to paragraph (c) of this Section must set forth as to each matter such Shareholder proposes to bring before the general meeting: (i) a brief description of the business desired to be brought before the general meeting and the reasons for conducting such business at the general meeting; (ii) the name and record address of such Shareholder; (iii) the Class or series and number of Shares which are registered in the name of such Shareholder; (iv) a description of all arrangements or understandings between such Shareholder and any other person or persons (including their names) in connection with the proposal of such business by such Shareholder and any material interest of such Shareholder in such business; and (v) a representation that such Shareholder intends to appear in person or by Representative at the general meeting to bring such business before the general meeting.

 

ARTICLE XV

 

Notice of General Meetings

 

Section 15.01. Written Notice. Written notice of the time and place of a general meeting of Shareholders shall be given to every Shareholder entitled to receive notice of the meeting, to every Director and to the Resident Representative:

 

(a) in the case of an annual general meeting of Shareholders, not less than 30 days before the meeting; and

 

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(b) in the case of a special general meeting of Shareholders, not less than 10 days before the meeting.

 

Section 15.02. Short Notice. A general meeting of the Company shall, notwithstanding that it is called by shorter notice than that specified in Section 15.01, be deemed to have been duly called if it is so agreed:

 

(a) in the case of an annual general meeting, by all Shareholders entitled to attend and vote thereat; or

 

(b) in the case of any other meeting, by a majority in number of Shareholders having a right to attend and vote at the general meeting, being a majority together holding not less than ninety-five percent in nominal value of the Shares giving a right to attend and vote at the meeting.

 

Section 15.03. Contents of Notice. A notice of a general meeting of Shareholders shall state the general nature of the business to be transacted at the general meeting.

 

Section 15.04. Accidental Omission of Notice. The accidental omission to give notice of a meeting or instrument of proxy to, or the non-receipt or late receipt of notice of a meeting or instrument of proxy by, any person entitled to receive such notice or instrument of proxy, shall not invalidate the proceedings at that meeting.

 

Section 15.05. Notice of Adjourned Meeting. If a meeting of Shareholders or any class of Shareholders is adjourned for less than 30 days, it is not necessary to give notice of the time and place of the adjourned meeting other than by announcement at the meeting which is adjourned. In any other case, notice of the meeting shall be given in accordance with Section 15.01.

 

ARTICLE XVI

 

Proceedings at General Meetings

 

Section 16.01. Requirement for a Quorum. Subject to Section 16.03, no business may be transacted at any general meeting of Shareholders or adjourned meeting if a quorum is not present.

 

Section 16.02. Quorum. Except as otherwise provided by these Bye-Laws, a quorum for a meeting of Shareholders is two Shareholders present in person or by Representative and having the right to attend and vote at the meeting and holding Shares representing more than 50% of the votes that may be cast by all Shareholders having the right to attend and vote at such meeting at the relevant time.

 

Section 16.03. Lack of Quorum. If a quorum is not present within 30 minutes (or such longer time as the chairman of the meeting may determine to wait) after the time appointed for the commencement of a meeting a quorum is not present:

 

(a) in the case of a meeting convened on the requisition of Shareholders, the meeting shall be dissolved; and

 

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(b) in the case of any other meeting, the meeting shall be adjourned to the same day in the following week at the same time and place, or to such other date, time and place as the Board may appoint.

 

Section 16.04. Regulation of Procedure. Except as otherwise provided in these Bye-Laws, the chairman of the meeting may regulate the procedure at meetings of Shareholders.

 

Section 16.05. Chairman. The chairman of the Board shall preside as chairman at every general meeting of the Company or of any class of Shareholders. If there is no such chairman, or if at any meeting the chairman is not present or is unwilling to act as chairman, the Directors present shall appoint one of those Directors who is willing to act as chairman of the meeting or, if only one Director is present, he or she shall preside as chairman, if willing to act. If none of the Directors present is willing to act as chairman, the Director or Directors present may appoint any Officer who is present and willing to act as chairman. In default of any such appointment, the persons present and entitled to vote shall elect any Officer who is present and willing to act as chairman or, if no Officer is present or if none of the Officers present is willing to act as chairman, one of their number to be chairman.

 

Section 16.06. Adjournment of Meeting. The chairman of the meeting may, with the consent of the Shareholders at a meeting at which a quorum is present (and shall, if so directed), adjourn the meeting from time to time and from place to place, but no business may be transacted at an adjourned meeting other than the business left unfinished at the relevant meeting. In addition to any other power of adjournment conferred by law, the chairman of the meeting may at any time without the consent of the Shareholders at the meeting adjourn the meeting (whether or not it has commenced or a quorum is present) to another time and/or place (or indefinitely) if, in the chairman’s opinion, it would facilitate the conduct of the business of the meeting to do so or if the chairman is so directed (prior to or at the meeting) by the Board. When a meeting is adjourned indefinitely, the time and place for the adjourned meeting shall be fixed by the Board.

 

ARTICLE XVII

 

Voting

 

Section 17.01. Entitlement to Vote; Required Vote. A Shareholder may exercise the right to vote either in person or by Representative. Except as otherwise provided by the Act or these Bye-Laws, in all matters other than the election of Directors, the affirmative vote of a majority of the combined voting power of all of the Shares present in person or represented by proxy at the meeting and entitled to vote on the matter, voting together as a single class, shall be the act of the Shareholders.

 

Section 17.02. Number of Votes. Subject to Section 2.03 with respect to the voting rights of the Class B Common Share and any other rights or restrictions for the time being attached to any Share (including any Preference Shares under Section 2.05):

 

(a) where voting is by show of hands or by voice, every Shareholder present in person or by Representative has one vote; and

 

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(b) on a poll, every Shareholder present in person or by Representative has:

 

(i) in respect of each fully paid Share held by that Shareholder, such number of votes attached to the Share;

 

(ii) in respect of each Share held by that Shareholder which is not fully paid, a fraction of a vote or votes which would be exercisable if that Share were fully paid equivalent to the proportion which the amount paid (excluding amounts credited as paid) on that Share bears to the total amount paid and payable thereon (excluding amounts credited as paid and amounts paid in advance of calls).

 

Section 17.03. Vote of Protected Persons. Subject to Section 17.04, a Shareholder who is a patient for any purpose of any statute or applicable law relating to mental health or in respect of whom an order has been made by any court in Bermuda (or elsewhere having jurisdiction) for the protection or management of the affairs of persons incapable of managing their own affairs may vote, by his or her receiver, committee, curator bonus or other person in the nature of a receiver, committee or curator bonus appointed by such court, and such receiver, committee, curator bonus or other person may vote by proxy and may otherwise act and be treated as such Shareholder for the purpose of general meetings.

 

Section 17.04. Production of Evidence to Represent Protected Persons. Evidence to the satisfaction of the Board of the authority of any person claiming the right to vote under Section 17.03 shall be produced at the Registered Office (or at such other place as may be specified for the deposit of instruments of proxy) not later than the last time by which an instrument appointing a proxy must be deposited in order to be valid for use at the meeting or adjourned meeting or on the holding of the poll at or on which that person proposes to vote and, in default, the right to vote shall not be exercisable.

 

Section 17.05. Declaration by Chairman. A declaration by the chairman of a meeting that a resolution is carried by the requisite majority is conclusive evidence of that fact unless a poll is demanded in accordance with Section 17.08.

 

Section 17.06. Chairman’s Casting Vote. The chairman of a meeting of Shareholders or class of Shareholders is not entitled to a casting vote.

 

Section 17.07. Joint Shareholders. Where two or more persons are registered as joint Shareholders, the vote of the person named first in the Register and voting on the matter must be accepted to the exclusion of the votes of the other joint holders.

 

Section 17.08. Right to Demand a Poll. At a meeting of Shareholders, a poll may be demanded by:

 

(a) the chairman of the meeting; or

 

(b) not less than three Shareholders having the right to vote at the meeting; or

 

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(c) a Shareholder or Shareholders representing not less than 10% of the total rights of all Shareholders having the right to vote at the meeting; or

 

(d) a Shareholder or Shareholders holding Shares that confer a right to vote at the meeting on which the aggregate amount paid up is not less than 10% of the total amount paid up on all Shares that confer that right.

 

Section 17.09. When Poll May be Demanded. A poll may be demanded either before or after the vote is taken on a Resolution. The demand for a poll may be withdrawn.

 

Section 17.10. When Poll Taken. A poll demanded on the election of a chairman of a meeting or on a question of adjournment shall be taken immediately. A poll demanded on any other question shall be taken at such time as the chairman directs and any business, other than that upon which a poll is demanded, may proceed pending the taking of the poll.

 

Section 17.11. Poll Procedure. A poll shall be taken in such manner as the chairman directs and the result of the poll is deemed to be a resolution of the meeting at which the poll is demanded.

 

Section 17.12. Votes on a Poll. On a poll:

 

(a) votes may be given either personally or by Representative;

 

(b) votes shall be counted according to the votes attached to the Shares of each Shareholder present in person or by Representative and voting in respect of those Shares; and

 

(c) a Shareholder need not cast all the votes to which the Shareholder is entitled and need not exercise in the same way all the votes which the Shareholder casts.

 

Section 17.13. Inspectors of Elections; Opening and Closing the Polls. The Board of Directors by resolution shall appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Company in other capacities, including, without limitation, as officers, employees, agents or representatives, to act at the meetings of shareholders and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of shareholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by law. The chairman of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the shareholders will vote at the meeting.

 

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ARTICLE XVIII

 

Proxies and Corporate Representatives

 

Section 18.01. Right to Appoint Proxy. A Shareholder may appoint one or more persons as his or her proxy, with or without the power of substitution, to vote on behalf of the Shareholder in respect of all or a portion of the Shares held by that Shareholder at a general meeting (including an adjourned meeting). A proxy need not be a Shareholder and is entitled to attend and be heard at the meeting, and to demand or join in demanding a poll, as if the proxy were the Shareholder.

 

Section 18.02. Appointment of Representatives. A corporation (which, for the avoidance of doubt and for the purposes of this Section 18.02, includes any limited liability company) which is a Shareholder may appoint any person (or two or more persons in the alternative) as its representative, with or without the power of substitution, to represent it and vote on its behalf in respect of all or some of the Shares held by that Shareholder at any general meeting (including an adjourned meeting), and such a corporate representative may exercise the same powers on behalf of the corporation which such representative represents as that corporation could exercise if it were an individual Shareholder.

 

Section 18.03. Notice of Appointment. A proxy shall be appointed by an instrument in writing in any common form or in such other form as the Board may approve, such instrument being executed under the hand of the appointor or of the appointor’s attorney or duly authorized agent or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorized to sign the same. A proxy may also be appointed in such other manner as the Board may from time to time approve.

 

Section 18.04. Production of Notice. No appointment of a proxy is effective in relation to a meeting unless a copy of the notice of appointment is received by the Company at its Registered Office, or by the agent that maintains the Register or such other address as is specified for that purpose in the form of notice of appointment or in the notice convening the meeting, not later than 48 hours before the start of the meeting.

 

Section 18.05. Board May Waive Irregularity. Subject to the Act, the Board may at its discretion waive any of the provisions of these Bye-Laws relating to the execution and deposit of an instrument or other form of communication appointing or evidencing the appointment of a proxy or a corporate representative or any ancillary matter (including, without limitation, any requirement for the production or delivery of any instrument or other communication to any particular place or by any particular time or in any particular way) and, in any case in which it considers it appropriate, may accept such verbal or other assurances as it thinks fit as to the right of any person to attend and vote on behalf of any Shareholder at any general meeting.

 

Section 18.06. Validity of Proxy Vote. A vote given in accordance with the terms of a notice of appointment of a proxy is valid notwithstanding the previous death or mental disorder of the principal, or revocation of the appointment of the proxy or of the authority under which notice of appointment was executed, or the transfer of the Share in respect of which the proxy is appointed, if no written notification of such death, mental disorder, revocation, or transfer is received by the Company at its Registered Office, or by the agent maintaining the Register, before the commencement of the meeting for which the proxy is appointed.

 

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ARTICLE XIX

 

Appointment and Removal of Directors

 

Section 19.01. Numbers of Directors. The number of Directors shall not at any time be more than fifteen (15) nor less than two and, subject to these limitations, the number of Directors to hold office shall be fixed from time to time solely by the Board. For the avoidance of doubt, no decrease in the number of authorized Directors constituting the whole Board shall shorten the term of any incumbent Director.

 

Section 19.02. Classification of Directors. The Directors shall be classified, with respect to the time for which each Director holds office, into three classes, as nearly equal in number as possible, one class to be originally appointed for a term expiring at the conclusion of the first annual general meeting of Shareholders held after the adoption of these amended and restated Bye-Laws, the second class of Directors to be originally appointed for a term expiring at the conclusion of the second annual general meeting of the Shareholders held after the adoption of these amended and restated Bye-Laws and the third class to be originally appointed for a term expiring at the conclusion of the third annual general meeting of Shareholders held after the adoption of these amended and restated Bye-Laws, with each class to hold office until its successors are duly appointed. At each annual general meeting of Shareholders, Directors appointed to succeed those Directors whose terms then expire shall be appointed for a term of office to expire at the third succeeding annual general meeting of Shareholders after their appointment, with each Director to hold office until such person’s successor shall have been duly appointed. A retiring Director is eligible for re-appointment.

 

Section 19.03. Appointment by Shareholders. Subject to these Bye-Laws, Directors shall be appointed at an annual general meeting of Shareholders by a plurality of votes of those Shareholders entitled to vote and voting on the appointment of Directors.

 

Section 19.04. Appointment by Board. Vacancies on the Board, whether created from any increase in the number of Directors or resulting from the death, resignation, disqualification, removal or other cause, may only be filled by the Board and any such appointment shall only be for a term of office equal to the remainder of the full term of the class of Directors in which the vacancy was created from any increase in the number of Directors or to which the Director was appointed, as the case may require.

 

Section 19.05. Re-appointment of Retiring Director. A Director retiring upon the expiring of a term of office at an annual general meeting of Shareholders shall, if standing for re-appointment, be deemed to have been re-appointed unless:

 

(a) some other person is appointed by the Board to fill the vacated office;

 

(b) it is resolved by the Board not to fill the vacated office; or

 

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(c) a resolution for the re-appointment of that Director is put to the meeting and lost.

 

Section 19.06. Nomination of Directors. No person may be appointed as a Director at a general meeting of Shareholders (other than a Director retiring at an annual general meeting), unless:

 

(a) in the case of an annual or special general meeting, such person is recommended by the Board; or

 

(b) in the case of an annual general meeting, such person has been nominated by a Shareholder entitled to attend and vote at the meeting by giving timely notice thereof in proper written form to the Secretary. To be timely, a notice given to the Secretary pursuant to this Section must be delivered or mailed and received at the Registered Office not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year’s annual general meeting; provided, however, that in the event that the date of the annual general meeting (excluding any adjournment of an annual general meeting) is more than 30 days before or more than 60 days after such anniversary date, notice by the Shareholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual general meeting and not later than the close of business on the later of the 90th day prior to such annual general meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Company. In no event shall the public announcement of an adjournment of an annual general meeting commence a new time period for the giving of a Shareholder’s notice as described above. To be in proper written form, a notice given to the Secretary pursuant to this Section must set forth (i) the name and record address of such Shareholder, (ii) the Class or series and number of Shares which are registered in the name of such Shareholder and (iii) in relation to each person the Shareholder proposes to nominate for appointment or re-appointment as a Director:

 

(i) the name, age, business address and residence address of such person;

 

(ii) the principal occupation or employment of such person;

 

(iii) the number and Classes of Shares which are beneficially owned by such person;

 

(iv) particulars which would, if such person were so appointed, be required to be included in the Company’s register of Directors and Officers; and

 

(v) all other information relating to such person that is required to be disclosed in solicitations for proxies for the election of Directors pursuant to the Rules and Regulations of the Securities and Exchange Commission under Section 14 of the Securities Exchange Act of 1934 of the United States of America (as amended), together with notice executed by such person of his or her willingness to serve as a Director if so appointed; provided, however, that no Shareholder shall be entitled to propose any person to be appointed or re-appointed Director at any special general meeting.

 

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Section 19.07. Consent to Act. A Director upon being appointed (but not upon being re-appointed) must provide written acceptance of their appointment, in such form as the Board may think fit, by notice in writing to the Registered Office within 30 days of their appointment.

 

Section 19.08. Alternate Directors. Directors are not entitled to appoint alternate directors.

 

Section 19.09. Vacation of Office. A Director ceases to be a Director if he or she:

 

(a) is removed from office in accordance with Section 19.10;

 

(b) dies;

 

(c) resigns by written notice delivered to the Company at its Registered Office or tendered at a meeting of the Board (such notice to be effective at the time when it is so received unless a later time is specified in the notice); or

 

(d) is prohibited by law from being a Director.

 

Section 19.10. Removal of Directors by Shareholders. The provisions of section 93 of the Act will not apply to the Company. Shareholders may only remove a Director for cause at a special general meeting convened and held in accordance with these Bye-Laws, by a resolution of the Shareholders that is approved by the affirmative vote of a majority of the Shares then entitled to vote thereon; provided that notice of any such meeting convened for the purpose of removing a Director shall contain a statement to that effect and be given to such Director not less than 14 days before the general meeting, and at such general meeting such Director shall be entitled to be heard on the motion for such Director’s removal. Cause for removal shall be deemed to exist only if the Director whose removal is proposed has been convicted of a felony by a court of competent jurisdiction or has been adjudged by a court of competent jurisdiction to be liable for gross negligence or misconduct in the performance of such Director’s duty to the Company and such adjudication is no longer subject to direct appeal.

 

ARTICLE XX

 

Directors’ Remuneration and Expenses

 

Section 20.01. Power to Authorize Fees. Each Director (other than a Director who is also an employee of a Group Company) shall be entitled to receive such fees for services as a Director, if any, as the Board may from time to time determine. Directors who are also employees of a Group Company will not be paid any such fees by the Company in addition to their remuneration as an employee.

 

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Section 20.02. Payment of Expenses. Directors are entitled to be paid for traveling, accommodation and other expenses properly incurred by them in attending meetings of the Board, or any committee of the Board, or meetings of Shareholders, or in connection with the business of the Company.

 

ARTICLE XXI

 

Exemption and Indemnification

 

Section 21.01. Indemnification. Subject always to Section 21.05, every person who is or was a Director or Officer or, while a Director or Officer of the Company, is or was serving at the request of the Company as a Director, Officer, employee or agent of any other corporation or partnership, limited liability company, joint venture, trust or other legal entity of any kind, including service with respect to employee benefit plans, and their heirs, executors and administrators (each, an “Indemnified Person”) shall be indemnified and held harmless by the Company to the fullest extent permitted by law from and against all actions, liabilities, losses, damages or expenses (including attorneys’ fees, judgments, fines and amounts paid or to be paid in settlement) which they or any of them, their heirs, executors or administrators, shall or may incur or sustain by or by reason of any act done, concurred in or omitted in or about the execution of their duty, or supposed duty, or in their respective offices, and none of them shall be answerable for the acts, receipts, neglects or defaults of the others of them or for joining in any receipts for the sake of conformity, or for any bankers or other persons with whom any moneys or effects belonging to the Company shall or may be lodged or deposited for safe custody, or for insufficiency or deficiency of any security upon which any moneys of or belonging to the Company shall be placed out on or invested, or for any other loss, misfortune or damage which may happen in or arising out of the actual or purported execution or discharge of their respective offices or trusts, or in relation thereto, to the fullest extent permitted by law and this indemnity shall continue in force, despite any subsequent revocation or amendment to this Section, in relation to any matter occurring, or any cause of action, suit or claim that accrues or arises prior to the date of such revocation or amendment. The right to indemnification conferred by this Section shall be a contract right and, in the case of Directors and Officers (in their capacity as such), shall and, in other cases, may, if approved by the Chief Executive Officer, General Counsel or the Board, include the right to be paid by the Company the expenses incurred in defending any such proceeding in advance of its final disposition. An advancement of expenses incurred by a party entitled to indemnification shall be conditioned upon delivery to the Company of an undertaking by such person to repay all amounts so advanced if it is ultimately determined by final judicial decision that such person is not entitled to be indemnified for such expenses under this Section.

 

Section 21.02. Liability of Directors Excluded. Subject always to Section 21.05, no Director shall be liable to the Company, any of its Shareholders or any other person for the acts, receipts, neglects or defaults of any other Director, or for joining in any receipt or other act for conformity, or for any loss or expense happening to the Company through the insufficiency or deficiency of title to any property acquired by order of the Directors for or on behalf of the Company, or for the insufficiency or deficiency of any security in or upon which any of the moneys of the Company shall be invested, or for any loss or damage arising from the bankruptcy, insolvency, or tortuous act of any person with whom any moneys, securities or effects

 

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shall be deposited, or for any loss occasioned by any error of judgment, omission, default, or oversight on his part, or for any other loss, damage, or misfortune whatever which shall happen in relation to the execution of the duties of his office or in relation thereto.

 

Section 21.03. Insurance. The Board shall have power to purchase and maintain insurances for the benefit of any persons who are or were at any time Officers or employees of the Company, or of any other company which is its holding company or of any other company which is a subsidiary of the Company or such holding company or in which the Company or such holding company has any direct or indirect interest, including (without limitation) insurance against any liability incurred by such persons in respect of any act or omission in the actual or purported performance of their duties or powers or offices in relation to the Company or such other company.

 

Section 21.04. Extended Definition of Director and Officer. In this Article the term “Director” includes, in addition to the persons specified in the definition of such term in Section 1.01, a former Director of the Company, a member of a committee constituted under Section 23.03, and any person acting as a Director or member of a committee in the reasonable belief that such person has been so appointed or elected, notwithstanding any defect in such appointment or election, and where the context so admits, references to a Director include the estate and personal representatives of a deceased Director or any such other person. In this Article the term “Officer” includes, in addition to the persons specified in the definition of such term in Section 1.01, a former Officer of the Company, the Resident Representative and any person acting as an Officer or Resident Representative in the reasonable belief that such person has been so appointed or elected, notwithstanding any defect in such appointment or election, and where the context so admits, references to a Officer include the estate and personal representatives of a deceased Officer or any such other person.

 

Section 21.05. Provisions to be Given Full Effect. The provisions for exemption from liability and indemnity contained in this Article shall have effect to the fullest extent permitted by law, but shall not, extend to any matter which would render any of them void pursuant to the Act.

 

Section 21.06. Indemnity Only an Obligation to Reimburse. To the extent that any person is entitled to claim an indemnity pursuant to this Article in respect of an amount paid or discharged by such person, the relevant indemnity shall take effect as an obligation of the Company to reimburse the person making such payment (including advance payments of fees or other costs) or effecting such discharge.

 

Section 21.07. Rights Cumulative. The rights to indemnification and reimbursement of expenses provided by this Article are in addition to any other rights to which a person may be entitled.

 

Section 21.08. Determination of Rights. The rights to indemnification and reimbursement of expenses provided by this Article, unless ordered by a court, shall be made by the Company with respect to a person who is a Director or Officer at such time only as authorized in the specific case (i) if requested by the claimant, by Independent Counsel, or (ii) if no request is made by the claimant for a determination by Independent Counsel, by the Chief Executive Officer

 

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or General Counsel of the Company, whose determination shall be subject to the approval of the Board (by a majority vote of a quorum consisting of Disinterested Directors), provided, that (a) if a quorum of the Board consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, such determination shall be approved by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to the claimant, or (b) if a quorum of Disinterested Directors so directs, such determination shall be approved by a Resolution of the Shareholders. “Disinterested Board of Directors” shall mean the Board sitting or meeting as a board but not in the presence of any Director or Officer who is a party to the litigation, action, suit or proceedings the subject of the indemnity in question; the expression “Disinterested Director” shall be construed accordingly; and “Independent Counsel” means a law firm, a member of a law firm, or an independent practitioner, that is experienced in matters of corporation law and shall include any person who, under the applicable standards of professional conduct then prevailing, would not have a conflict of interest in representing either the Company or the claimant in an action to determine the claimant’s rights under this Article 21.

 

ARTICLE XXII

 

Directors’ Interests

 

Section 22.01. Disclosure of Interests. A Director who is in any way, whether directly or indirectly, interested in a contract or proposed contract or arrangement with the Company or any other Group Company shall declare the nature of such interest as required by the Act.

 

Section 22.02. Director May Hold Other Offices. A Director may hold any other office or place of profit with the Company (except that of auditor) in addition to the office of Director for such period and upon such terms as the Board may determine and may be paid such extra remuneration for so doing (whether by way of salary, commission, participation in profits or otherwise) as the Board may determine, in addition to any remuneration or other amounts payable to a Director pursuant to these Bye-Laws.

 

Section 22.03. Director May Act in Professional Capacity. A Director, or a Director’s firm, partner or any company with whom any Director is associated, may act in a professional capacity for the Company, and such Director or such Director’s firm, partner or such company shall be entitled to remuneration for professional services as if such Director were not a Director; provided that nothing in this Section shall authorize a Director or Director’s firm, partner or such company to act as an auditor of the Company.

 

Section 22.04. Personal Involvement of Directors. Notwithstanding any rule of law or equity to the contrary, but subject to the provisions of the Act, a Director may:

 

(a) contract with the Company in any capacity;

 

(b) be a party to any transaction with the Company;

 

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(c) have any direct or indirect personal involvement or interest in any transaction or arrangement to which the Company is a party or in which it is otherwise directly or indirectly interested or involved;

 

(d) become a director or other officer of, or otherwise interested in, any corporation promoted by the Company or in which the Company may be directly or indirectly interested as a shareholder or otherwise; and

 

(e) retain any remuneration, profit or benefits in relation to any of the foregoing,

 

and no contract or arrangement of any kind referred to in this Section may be avoided by reason of the Director’s interest.

 

Section 22.05. Voting by Interested Directors. Subject to these Bye-Laws a Director who is interested in a transaction entered into, or to be entered into, by the Company may:

 

(a) vote on any matter relating to the transaction;

 

(b) attend a meeting of the Board at which any matter relating to the transaction arises and be included among the Directors present at the meeting for the purposes of a quorum;

 

(c) sign a document relating to the transaction on behalf of the Company; and

 

(d) do any other thing in his or her capacity as a Director in relation to the transaction, as if the Director were not interested in the transaction.

 

ARTICLE XXIII

 

Powers of the Board

 

Section 23.01. Management of Company. The business and affairs of the Company shall be managed by, or under the direction or supervision of, the Board. No alteration of these Bye-Laws shall invalidate any prior act of the Board which would have been valid if that alteration had not been made.

 

Section 23.02. Exercise of Powers of Board. In addition to the powers and authorities expressly conferred upon the Board by these Bye-Laws, the Board may exercise all the powers of the Company which are not required, either by the Act or these Bye-Laws, to be exercised by Shareholders.

 

Section 23.03. Delegation of Powers. The Board may delegate any of its powers, authorities and discretions (with power to sub-delegate) to any Director or Officer or any committee, consisting of such person or persons (whether Directors or not) as it thinks fit. The Board may make any such delegation on such terms and conditions with such restrictions as it thinks fit and either collaterally with, or to the exclusion of, its own powers and may from time to time revoke or vary such delegation, but no person dealing in good faith and without notice of

 

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such revocation or variation shall be affected by any revocation or variation. Any committee so formed shall, in the exercise of the powers, authorities and discretions so delegated, conform to any regulations which may be imposed on it by the Board. Subject to the last paragraph of this Section, the power to delegate to a committee extends to all the powers, authorities and discretions of the Board generally, and shall not be limited by the fact that in certain provisions of these Bye-Laws, but not in others, express reference is made to a committee or to particular powers, authorities or discretions being exercised by the Board or by a committee of the Board.

 

Without limiting the foregoing, the Board (i) may designate an Executive Committee (which shall consist of two or more Directors) to exercise, subject to applicable law and the last paragraph of this Section, all of the powers of the Board between meetings of the Board and (ii) shall designate an Audit Committee, a Compensation Committee and a Nominating and Governance Committee, with each such committee to consist solely of Directors and to have such powers, authorities and discretions as the Board shall delegate to them; provided, that the Nominating and Governance Committee shall consist of not more than four (4) Directors and shall, in addition to any other powers, authorities or discretions delegated by the Board to such committee, have the power and authority set forth in Section 24.09.

 

Notwithstanding anything in these Bye-Laws to the contrary, neither the Board nor any committee (including the Executive Committee) shall have the power or authority (i) to remove, or to request the resignation or retirement of, the Chairman or the Chief Executive Officer of the Company from such office or (ii) to revoke, reduce or limit the powers, authorities or discretions delegated or otherwise granted to the Chairman or the Chief Executive Officer of the Company, except as provided in Article 24.

 

Section 23.04. Appointment of Attorney. The Board may from time to time and at any time by power of attorney appoint any person, whether nominated directly or indirectly by the Board, to be the attorney or agent of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Board) and for such period and subject to such conditions as it may think fit. The Board may revoke or vary any such appointment or delegation. Any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney or agent as the Board may think fit and may also authorize any such attorney to sub-delegate all or any of the powers, authorities and discretions vested in the attorney.

 

Section 23.05. Consideration of Other Interests. So long as the Director acts honestly and in good faith with a view to the best interests of the Company in taking any action, including action that may involve or relate to a change or potential change in the control of the Company, a Director may consider, among other things, both the long-term interests of the Company and its Shareholders and the effects that the Company’s actions may have in the short term or long term upon any one or more of the following matters:

 

(a) the prospects for potential growth, development, productivity and profitability of the Company;

 

(b) the employees and managing directors of the Company and its subsidiaries;

 

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(c) the customers and creditors of the Company and its subsidiaries;

 

(d) the ability of the Company and its subsidiaries to contribute to the communities in which they do business; and

 

(e) such other additional factors as a Director may consider appropriate in such circumstances.

 

Nothing in this Section 23.05 shall create any duty owed by any Director to any person or entity to consider, or afford any particular weight to, any of the foregoing matters or to limit his consideration to the foregoing matters. No such employee, retired former managing director of the Company or any of its subsidiaries, former employee, beneficiary, customer, creditor or community or member thereof shall have any rights against any Director under this Section 23.05.

 

ARTICLE XXIV

 

Proceedings of the Board

 

Section 24.01. Procedure. Except as provided in these Bye-Laws, the Board may regulate its own procedure. Except where a greater majority is required by these Bye-Laws, questions arising at any duly organized meeting of the Board at which a quorum is present shall be determined by the affirmative vote of a majority of the Directors present at such meeting. In the case of an equality of votes, the motion shall be deemed to be lost and the chairman of the meeting shall not be entitled to a second or casting vote.

 

Section 24.02. Convening a Meeting of the Board. A Director, or the Secretary at the request of (i) the Chairman or (ii) a majority of the Directors then in office, may convene a meeting of the Board by giving notice in accordance with Section 24.03.

 

Section 24.03. Notice of Meeting. Notice of a meeting of the Board shall be deemed to be duly given to a Director:

 

(a) in the case of oral communication, at the time of notification;

 

(b) in the case of delivery, by handing the notice to the Director or by delivery of the notice to the address of the Director;

 

(c) in the case of posting, three business days after it is posted;

 

(d) in the case of facsimile transmission, when the Company receives a transmission report by the sending machine which indicates that the facsimile was sent in its entirety to the facsimile telephone number given by the Director; or

 

(e) in the case of electronic means, at the time of transmission;

 

provided, that, notwithstanding anything in these Bye-Laws to the contrary, notice of any meeting of the Board to discuss, resolve or act upon a recommendation of the Nominating and Governance Committee in accordance with clause (i) of the last sentence of Section 24.09 relating to (i) the revocation or termination of the appointment of, or any request for the resignation or retirement of, the Chairman or the Chief Executive

 

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Officer or (ii) any revocation, reduction or limitation of the powers, authorities or discretions delegated or otherwise granted to the Chairman or the Chief Executive Officer shall in each case be deemed adequately delivered only if given to each of the Directors and, if such person is not a Director, the Chief Executive Officer of the Company at least seven (7) business days before the date of such meeting (it being understood that the failure to provide adequate notice in accordance with this sentence shall invalidate any action or resolution of the Board to revoke or terminate the appointment of, or to request the resignation or retirement of, the Chairman or the Chief Executive Officer of the Company or to revoke, reduce or limit the powers, authorities or discretions delegated or otherwise granted to the Chairman or the Chief Executive Officer of the Company passed at such meeting).

 

A Director may waive notice of any meeting either prospectively or retroactively or at the meeting in question.

 

Section 24.04. Waiver of Notice Irregularity. An irregularity in the giving of notice of meeting is waived if each of the Directors either attends the meeting without protest as to the irregularity or agrees (whether before, during, or after the meeting) to the waiver.

 

Section 24.05. Quorum. Subject to Section 24.07 and Section 24.10, a quorum for a meeting of the Board is a majority of Directors then in office or such greater number as the Board may from time to time determine. No business may be transacted at a meeting of Directors if a quorum is not present.

 

Section 24.06. Adjournment. A majority of the Directors present, whether or not a quorum is present, may adjourn any Board meeting to another time and place. Notice of the time and place of an adjourned meeting need not be given to absent Directors if the time and place is fixed at the meeting adjourned.

 

Section 24.07. Insufficient Number of Directors. So long as at least two Directors remain in office, the continuing Directors may act notwithstanding any vacancy in the Board, but, if less than two Directors remain in office, the sole continuing Director may act only for the purposes of calling a general meeting of Shareholders for such purposes such Director thinks fit and of nominating a person or persons for appointment to the Board.

 

Section 24.08. Chairman. The Chairman shall preside as chairman at every meeting of the Board. If there is no such Chairman present or willing to act at the meeting as chairman, the Directors present may choose one of their number to be chairman of the meeting.

 

Section 24.09. Voting. Every Director has one vote. The Chairman does not have a casting vote. A resolution of the Board is passed if a majority of the Directors present at the meeting at which a quorum is present vote in favour of the resolution, and in the case of an equality of votes the resolution shall fail. Notwithstanding anything in these Bye-Laws to the contrary, any resolution of the Board (a) to revoke or terminate the appointment of, or to request the resignation or retirement of, the Chairman or the Chief Executive Officer of the Company or (b) to revoke, reduce or limit the powers, authorities or discretions delegated or otherwise granted to the Chairman or the Chief Executive Officer of the Company shall in each case require (i) the prior affirmative vote of a majority of the members of the Nominating and Governance

 

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Committee then in office to recommend such action to the Board and (ii) after proper notice pursuant to Section 24.03 of such recommendation the affirmative vote of a majority of the Directors then in office in favour thereof.

 

Section 24.10. Written Resolution. A resolution in writing signed or approved by all the Directors then in office shall be as valid and effectual as a resolution passed at a meeting of the Board duly called and constituted. Such a resolution may be contained in one document or in several documents (including facsimile or other similar means of communication) in like form each signed or approved by one or more of the Directors. Notwithstanding anything to the contrary set forth herein, any resolution of the Board (a) to revoke or terminate the appointment of, or to request the resignation or retirement of, the Chairman or the Chief Executive Officer of the Company or (b) to revoke, reduce or limit the powers, authorities or discretions delegated or otherwise granted to the Chairman or the Chief Executive Officer of the Company may in each case only be made or passed at a meeting of the Board in accordance with the other provisions of this Article 24.

 

Section 24.11. Alternative Forms of Meeting. A meeting of the Board may be held either:

 

(a) by a number of the Directors who constitute a quorum, being assembled together at the place, date and time appointed for the meeting;

 

(b) by means of audio, or audio and visual, communication by which all Directors participating and constituting a quorum can simultaneously hear each other throughout the meeting; or

 

(c) by a combination of the forms referred to in paragraph (a) and (b) above.

 

Section 24.12. Committees. A committee of the Board shall, in the exercise of the powers delegated to it, comply with any procedural or other requirements imposed on it by the Board. Subject to any such requirements, the provisions of these Bye-Laws relating to proceedings of the Board apply, with appropriate modification, to meetings of a committee of the Board.

 

Section 24.13. Validity of Actions. All acts done in good faith by the Board or by any committee or by any person acting as a Director or member of a committee or any person authorized by the Board or any committee shall, notwithstanding that it is afterwards discovered that there was some defect in the appointment of any member of the Board or such committee or person acting as aforesaid or that they or any of them were disqualified or had vacated their office, be as valid as if every such person had been duly appointed and was qualified and had continued to be a Director, member of such committee or person so authorized.

 

ARTICLE XXV

 

Officers

 

Section 25.01. Company to Have a Chairman and Deputy Chairman. The Company shall have a chairman (the “Chairman”) and a deputy chairman, as the Board may

 

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from time to time determine (subject, in the case of the Chairman, to the provisions of Article 24), who shall be Directors and shall be elected by the Board; provided, that the role of deputy chairman shall not constitute an executive office of the Company. A person appointed to any such office shall vacate that office if that person ceases to be a Director (otherwise than by retirement at a general meeting of the Company at which such person is re-appointed).

 

Section 25.02. Executive Officers. The Board may from time to time appoint one or more of its body to also hold any executive office with the Company for such period and on such terms as the Board may determine and may revoke or terminate any such appointment, subject, in the case of the Chairman and Chief Executive Officer of the Company, to the provisions of Article 24. Any such revocation or termination shall be without prejudice to any claim for damages that such Director may have against the Company or the Company may have against such Director for any breach of any contract of service between that Director and the Company which may be involved in such revocation or termination. Any person so appointed shall receive such remuneration, if any (whether by way of salary, commission, participation in profits or otherwise), as the Board may determine.

 

Section 25.03. Secretary and Resident Representative. The Secretary and, if required by the Act, the Resident Representative shall be appointed by the Board at such remuneration (if any) and on such terms as the Board may think fit and any Secretary and Resident Representative so appointed may be removed by the Board. The duties of the Secretary and those of the Resident Representative shall be those prescribed by the Act, together with such other duties as shall from time to time be determined by the Board.

 

Section 25.04. Other Officers. The Company may have such other Officers in addition to the Directors and the Secretary, as the Board may from time to time determine. Without limiting the foregoing, such other Officers may include a president, Chief Executive Officer, Vice Chairman and one or more vice-presidents (if a chairman and deputy chairman are appointed under Section 25.01), to the extent that such Officers are not appointed pursuant to Section 25.01. A person appointed to any such other office need not be a Director and the same person may hold more than one office.

 

Section 25.05. Terms of Appointment. Any person elected or appointed pursuant to this Article 25 shall hold office for such period and on such terms as the Board may determine, and the Board may revoke or vary any such appointment at any time for any reason, subject, in the case of the Chairman and Chief Executive Officer of the Company, to the provisions of Article 24. Any such revocation or variation shall be without prejudice to any claim for damages that such Officer may have against the Company or the Company may have against such Officer for any breach of any contract of service between such Officer and the Company which may be involved in such revocation or variation. If any such office becomes vacant for any reason, the vacancy may be filled by the Board.

 

Section 25.06. Powers and Duties of Officers Determined by Board. Except as provided in the Act or these Bye-Laws (including Article 24), the powers and duties of any Officer appointed pursuant to this Article 25 shall be such as are determined from time to time by the Board.

 

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Section 25.07. Resident Representative Entitled to Notice of Board Meetings. The Resident Representative shall, upon delivering written notice of an address for the purposes of receiving notice to the Registered Office, be entitled to receive notice of and to attend and be heard at, and to receive minutes of, all meetings of the Board.

 

ARTICLE XXVI

 

The Seal

 

Section 26.01. Form of Seal. The Seal shall be in such form as the Board may from time to time determine. The Board may adopt one or more duplicate seals for use outside Bermuda.

 

Section 26.02. Manner in which Seal is to be Affixed. The Board shall provide for the safe custody of every Seal. A Seal shall only be used by authority of the Board or of a committee of the Board. Subject to the Act, any instrument to which a Seal is affixed shall be signed by a Director or Officer or by any person who has been authorized by the Board either generally or specifically to attest to the use of a Seal.

 

ARTICLE XXVII

 

Record Dates

 

Section 27.01. Company or Board May Fix Record Date. Notwithstanding any other provision of these Bye-Laws, the Board may fix any date as the record date for any dividend or distribution, allotment or issue and for the purpose of identifying the persons entitled to receive notices of general meetings of the Company or of any class of Shareholders or other documents. Any such record date may be on or at any time before or after any date on which such dividend, distribution, allotment or issue is declared, paid or made or such notice or other document is dispatched.

 

Section 27.02. Shareholder of Record. In relation to any general meeting of the Company or of any class of Shareholders or to any adjourned meeting of which notice is given, the Board may specify in the notice of meeting or adjourned meeting or in any document sent to Shareholders by or on behalf of the Board in relation to the meeting a time and date (a “record date”) which is not more than 60 days before the date fixed for the meeting (the “meeting date”), and, notwithstanding any provisions in these Bye-Laws to the contrary, in any such case:

 

(a) each person entered in the Register at the record date as a Shareholder, or a Shareholder of the relevant class of Shareholders (a “record date holder”), shall be entitled to attend and to vote at the relevant meeting and to exercise all of the rights or privileges of a Shareholder, or a Shareholder of the relevant class, in relation to that meeting in respect of the Shares, or Class of Shares, registered in the Shareholder’s name at the record date; and

 

(b) accordingly, a holder of the relevant Shares at the meeting date shall not be entitled to attend or to vote at the relevant meeting, or to exercise any of the rights or privileges of a Shareholder, or a Shareholder of the relevant class, in respect of the relevant Shares at that meeting.

 

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ARTICLE XXVIII

 

Records

 

Section 28.01. Accounting Records. The Board shall cause accounting records of the Company to be kept in accordance with the requirements of the Act.

 

Section 28.02. Place and Inspection of Records of Account. The records of account shall be kept at the Registered Office or at such other place or places as the Board thinks fit; provided, that, if the records of account are kept at some place outside Bermuda, there shall be kept at an office of the Company in Bermuda such records as are required by the Act to be so kept. The records of account shall at all times be open to inspection by the Directors and, to the extent prescribed by the Act, by the Resident Representative. No Shareholder (other than a Director or Officer) shall have any right to inspect any accounting record or book or document of the Company except as conferred by law or authorized by the Board.

 

Section 28.03. Financial Statements. The Board shall procure that financial statements of the Company are prepared and audited in respect of each year or other period from time to time fixed by the Board and that those financial statements are made available to Shareholders and laid before the Company in general meeting in accordance with the requirements of the Act.

 

Section 28.04. Register to be Kept. The Register shall be kept in the manner prescribed by the Act at the Registered Office or at such other place in Bermuda as the Board may from time to time determine.

 

Section 28.05. Branch Registers. The Company may also keep one or more branch registers at such place or places outside Bermuda to the extent and in the manner permitted by the Act, and the Board may make such regulations as it thinks fit regarding the keeping of any branch register and may revoke or vary any such regulations. The Board may authorize any Share on the Register to be included in a branch register or any Share registered on a branch register to be registered on another branch register, provided that at all times the Register is maintained in accordance with the Act.

 

Section 28.06. Inspection and Closing of Register. The Register or any branch register may be closed at such times and for such periods as the Board may from time to time decide, subject to the Act. Except during such time as the Register or any branch register is closed, the Register and each branch register shall be open to inspection in the manner prescribed by the Act between 10:00 a.m. and 12:00 noon Atlantic Standard Time (or between such other times as the Board from time to time determines) on every working day.

 

Section 28.07. No Notice of Trusts. Unless the Board agrees otherwise, no notice of a trust, whether express, implied, or constructive, may be entered on the Register.

 

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Section 28.08. No Recognition of Equitable Interests. Except only as otherwise provided in these Bye-Laws, as ordered by a court of competent jurisdiction or as otherwise required by law, the Company shall be entitled to treat the registered holder of any Share as the absolute owner of it, and, accordingly, no person shall be recognized by the Company as holding any Share upon trust, and the Company shall not be bound by, nor be compelled to recognize (even after notice), any equitable, contingent, future or partial interest in any Share, or any interest in any fraction or part of a Share or (except as provided in these Bye-Laws or by law) any other rights in respect of any Share, except an absolute right of the registered holder to the entire Share.

 

Section 28.09. Register of Directors and Officers. The Secretary shall maintain a register of the Directors and Officers of the Company at the registered office of the Company as required by the Act. The register of Directors and Officers shall be open to inspection in the manner prescribed by the Act between 10:00 a.m. and 12:00 noon Atlantic Standard Time (or between such other times as the Board from time to time determines) on every working day.

 

Section 28.10. Minutes to be Made and Kept. The Board shall cause minutes to be made and books kept for the purpose of recording all the proceedings at meetings of the Board and of any committee of the Board and at general meetings of the Company and of any class of Shareholders of the Company. Minutes prepared in accordance with the Act and these Bye-Laws shall be kept at the registered office of the Company.

 

Section 28.11. Inspection of Minutes. The minutes of general meetings of the Company and of any class of Shareholders of the Company (but not minutes of meetings of the Board or any committee of it) shall be open to inspection in the manner prescribed by the Act between 10:00 a.m. and 12:00 noon Atlantic Standard Time (or between such other times as the Board from time to time determines) on every working day. Minutes prepared in accordance with the Act and these Bye-Laws shall be kept at the registered office of the Company.

 

ARTICLE XXIX

 

Auditor

 

Section 29.01. Appointment of Auditor. Subject to the Act, the Company shall at each annual general meeting appoint an auditor or auditors whose appointment and duties shall be governed by the Act, any other applicable law and such requirements not inconsistent with the Act as the Board may from time to time determine.

 

ARTICLE XXX

 

Service of Notices and Other Documents

 

Section 30.01. Manner of Sending Notices. A notice, statement, report, financial statements or other document to be sent to a Shareholder may be:

 

(a) delivered to that shareholder;

 

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(b) posted or couriered to that Shareholder’s address in the Register or to such other address given for the purpose; or

 

(c) sent by facsimile machine or other electronic means to that Shareholder to the number or address given by that Shareholder for the transmission of documents by facsimile or other electronic means.

 

Section 30.02. Service and Delivery of Notices. Any notice or other document which is sent by post (or airmail) shall be deemed to have been served or delivered on the second day after it was put in the post and, in proving such service or delivery, it shall be sufficient to prove that the notice or document was properly addressed, stamped and put in the post. Any notice or other document not sent by post but left at a registered address shall be deemed to have been served or delivered on the day it was so left. Any notice sent by electronic means during normal business hours on any business day shall be deemed to have been served on the day on which it is sent and any notice so sent at any other time shall be deemed to have been served on the next day which is a normal business day (normal business hours and business days being ascertained for this purpose by reference to such hours and days in the place or territory to which the notice is so sent).

 

Section 30.03. Accidental Omissions. The failure to send an annual report, notice, or other document to a Shareholder in accordance with the Act or these Bye-Laws does not invalidate the proceedings.

 

Section 30.04. Joint Shareholders. A notice may be given by the Company to the joint holders of a Share by giving the notice to the joint holder named first in the Register in respect of that Share.

 

Section 30.05. Shareholder Deceased or Bankrupt. If the holder of a Share dies or is adjudicated bankrupt, notice may be given in any manner in which notice might have been given if the death or bankruptcy had not occurred, or by giving notice in the manner provided in Section 30.01 to the Personal Representative of the holder at the address supplied to the Company for that purpose.

 

ARTICLE XXXI

 

Winding Up

 

Section 31.01. Distribution of Assets. If the Company is wound up, the liquidator may, with the sanction of a Resolution and any other sanction required by the Act:

 

(a) divide among the Shareholders in cash or in kind the whole or any part of the assets of the Company (whether they consist of property of the same kind or not) and may for such purposes fix such value as the liquidator deems fair in respect of any property to be so divided, and determine how such division shall be carried out as between the Shareholders or different Classes; and

 

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(b) vest the whole or any part of such assets in trustees upon such trusts for the benefit of the persons so entitled as the liquidator thinks fit, but so that no Shareholder is compelled to accept any shares or other assets upon which there is any liability.

 

ARTICLE XXXII

 

Amalgamations, Discontinuance and Sales; Mandatory Repurchases

 

Section 32.01. Approval Required for an Amalgamation. Any amalgamation, merger, consolidation or similar transaction of the Company and another company shall require the approval of:

 

(a) the Board; and

 

(b) after approval by the Board and its recommendation of such transaction to the Shareholders, the Company by a resolution passed in general meeting by a majority of the combined voting power of all of the Shares entitled to vote thereon voting together as a single class.

 

Section 32.02. Approval Required to Discontinue the Company. The Board may exercise all the powers of the Company to discontinue the Company to a jurisdiction outside Bermuda pursuant to the Act without the need for Shareholder approval.

 

Section 32.03. Approval Required for Sale of Assets. Any sale, lease or exchange by the Company of all or substantially all of its property or assets, including its goodwill and its corporate franchises, shall require the approval of:

 

(a) the Board; and

 

(b) after approval by the Board and its recommendation of such transaction to the Shareholders, the Company by a resolution passed in general meeting by a majority of the combined voting power of all of the Shares entitled to vote thereon voting together as a single class.

 

Section 32.04. Mandatory Repurchases. In the event that the Board determines that the Company or any of its subsidiaries does not meet or will, in the absence of repurchases of Common Shares, fail to meet the ownership requirements of a limitation on benefits article of a bilateral income tax treaty with the United States that would provide material benefits to the Company or any of its subsidiaries (an “Applicable Treaty”), the Company shall have the right, but not the obligation, to repurchase at fair market value, as determined in the good faith discretion of the Board, Common Shares (other than Exempt IXIS-CIB Shares) from any Shareholder (an “Included Shareholder”) who beneficially owns more than 0.25% of the Common Shares outstanding and who fails to demonstrate to the satisfaction of the Company that such Shareholder is either (a) a U.S. citizen or (b) a qualified resident of the United States or the other contracting state of the Applicable Treaty (as determined for purposes of the relevant provision of the limitation on benefits article of the Applicable Treaty). The number of Common Shares that may be repurchased from any such Included Shareholder shall equal the product of the total number of Common Shares that the Company reasonably determines to purchase to ensure ongoing

 

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satisfaction of the limitation on benefits article of the Applicable Treaty multiplied by a fraction, the numerator of which is the number of Common Shares beneficially owned by such Included Shareholder (other than Exempt IXIS-CIB Shares) and the denominator of which is the total number of Common Shares (other than Exempt IXIS-CIB Shares) beneficially owned by all Included Shareholders. In lieu of the exercise of the right to repurchase as aforesaid, the Company shall have the right, but not the obligation, to cause the transfer to, and procure the purchase by, any United States citizen or a qualified resident of the United States or the other contracting state of the Applicable Treaty (as determined for purposes of the relevant provision of the limitation on benefits article of the Applicable Treaty) of outstanding Common Shares beneficially owned by any Included Shareholder that are otherwise subject to repurchase hereunder, at fair market value, as determined in the good faith discretion of the Board. As used herein, the term “Exempt IXIS-CIB Shares” means the aggregate number of Common Shares acquired and then held by IXIS-Corporate & Investment Bank, an entity organized under the laws of the Republic of France (“IXIS-CIB”), pursuant to the Purchase Agreement (the “Purchase Agreement”), dated as of March 15, 2005, by and among IXIS-CIB, Lazard Group and the Company, as amended from time to time (including any Common Shares that may be acquired by IXIS-CIB under the equity security units sold to IXIS-CIB pursuant to the Purchase Agreement).

 

ARTICLE XXXIII

 

Alteration of Bye-Laws and Memorandum of Association

 

Section 33.01. Alteration of Bye-Laws. Subject to Section 3.01, these Bye-Laws may be revoked, altered or amended only by the approval of: (a) the Board; and (b) after approval by the Board and its recommendation of such transaction to the Shareholders, the Company by a resolution passed in general meeting by a majority of the combined voting power of all of the Shares entitled to vote thereon voting together as a single class; provided, that in order for an alteration or amendment of Sections 2.03, 2.04, 2.05 or 2.06, Section 14.06, Article 19, Article 21, Article 32 or this Article 33, the revocation, alteration or amendment will not be effective unless approved by the Company by a resolution passed in general meeting by at least 66 2/3% of the combined voting power of all of the Shares entitled to vote thereon voting together as a single class.

 

Section 33.02. Alteration of Memorandum of Association. The memorandum of association of the Company may be altered or amended only by the approval of: (a) the Board; and (b) after approval by the Board and its recommendation of such alteration or amendment to the Shareholders, the Company by a resolution passed in general meeting by a majority of the combined voting power of all of the Shares entitled to vote thereon voting together as a single class.

 

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Form of opinion of Conyers Dill & Pearman, Bermuda

 

Exhibit 5.1

 

[FORM OF OPINION]

 

                    , 2005

 

Lazard Ltd

Clarendon House

2 Church Street

Hamilton HM 11

BERMUDA

   

DIRECT LINE:  

E-MAIL:

OUR REF:

   

441-299 4923

CGGARROD@CDP.BM

CGG/MGB/329413/CORP.D.135675

 

Dear Sirs,

 

Lazard Ltd (the “Company”)

 

We have acted as special legal counsel in Bermuda to the Company in connection with a registration statement on form S-1 (Registration No. 333-121407) filed with the U.S. Securities and Exchange Commission (the “Commission”) on 17 December, 2004 as amended (the “Registration Statement”, which term does not include any other document or agreement whether or not specifically referred to therein or attached as an exhibit or schedule thereto) relating to the registration under the U.S. Securities Act of 1933, as amended, (the “Securities Act”) of an aggregate of Class A common shares, par value US$0.01 each, including an additional Class A common shares, par value US$0.01 if the underwriters’ over-allotment is fully exercised (the “Common Shares”).

 

For the purposes of giving this opinion, we have examined a copy of the Registration Statement. We have also reviewed the memorandum of association and the bye-laws of the Company, each certified by the Secretary of the Company on                     , 2005, copies of unanimous written resolutions or minutes of a meeting of the members of the Company                     , 2005 and unanimous written resolutions or minutes of a meeting of the board of directors of the Company dated                     , 2005 (together, the “Minutes”) and such other documents and made such enquiries as to questions of law as we have deemed necessary in order to render the opinion set forth below.

 

We have assumed (a) the genuineness and authenticity of all signatures and the conformity to the originals of all copies (whether or not certified) examined by us and the authenticity and completeness of the originals from which such copies were taken, (b) that where a document has been examined by us in draft form, it will be or has been executed and/or filed in the form of that draft, and where a number of drafts of a document have been examined by us all changes thereto have been marked or otherwise drawn to our attention, (c) the accuracy and completeness of all factual representations made in the Registration Statement and other documents reviewed by us, (d) that the resolutions contained in the Minutes remain in full force and effect and have not been rescinded or amended, and (e) that there is no provision of the law of any jurisdiction, other than Bermuda, which would have any implication in relation to the opinions expressed herein.

 

Lazard Ltd    
            , 2005    
Page 2    

 

We have made no investigation of and express no opinion in relation to the laws of any jurisdiction other than Bermuda. This opinion is to be governed by and construed in accordance with the laws of Bermuda and is limited to and is given on the basis of the current law and practice in Bermuda. This opinion is issued solely for the purposes of the filing of the Registration Statement and the offering of the Common Shares by the Company and is not to be relied upon in respect of any other matter.

 

On the basis of and subject to the foregoing, we are of the opinion that:

 

1. The Company is duly incorporated and existing under the laws of Bermuda in good standing (meaning solely that it has not failed to make any filing with any Bermuda government authority or to pay any Bermuda government fees or tax which would make it liable to be struck off the Register of Companies and thereby cease to exist under the laws of Bermuda).

 

2. When issued and paid for as contemplated by the Registration Statement at a price per share equal to at least the par value thereof, the Common Shares will be validly issued, fully paid and non-assessable (which term means when used herein that no further sums are required to be paid by the holders thereof in connection with the issue of such shares).

 

3. The statements contained in the prospectus forming a part of the Registration Statement under the captions “Material U.S. Federal Income Tax and Bermuda Tax Considerations—Taxation of Lazard and its Subsidiaries—Bermuda” and “Material U.S. Federal Income Tax and Bermuda Tax Considerations—Taxation of Stockholders— Bermuda”, to the extent that they constitute statements of Bermuda law, are accurate in all material respects and that such statements constitute our opinion.

 

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to our firm under the captions “Material U.S. Federal Income Tax and Bermuda Tax Considerations” and “Legal Matters”, in the prospectus forming a part of the Registration Statement. In giving this consent, we do not hereby admit that we are experts within the meaning of Section 11 of the Securities Act or that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the Rules and Regulations of the Commission promulgated thereunder.

 

Yours faithfully,

 

 

 

CONYERS DILL & PEARMAN

 

Form of opinion of Wachtell, Lipton, Rosen & Katz

Exhibit 8.1

 

[WLRK Form of Opinion]

 

 

                , 2005

 

Lazard Ltd

Clarendon House

2 Church Street

Hamilton HM 11, Bermuda

 

Ladies and Gentlemen:

 

Reference is made to the Registration Statement on Form S-1 (as amended through the date hereof, the “Registration Statement”) of Lazard Ltd, a Bermuda company (“Lazard”), relating to the proposed initial public offering of shares of Class A common stock of Lazard.

 

We have participated in the preparation of the discussion set forth in the sections entitled “MATERIAL U.S. FEDERAL INCOME TAX AND BERMUDA TAX CONSIDERATIONS—Taxation of Lazard and its Subsidiaries—United States” and “MATERIAL U.S. FEDERAL INCOME TAX AND BERMUDA TAX CONSIDERATIONS—Taxation of Stockholders—U.S. Federal Income Taxation” in the Registration Statement. Subject to the limitations and qualifications set forth therein, such discussion, insofar as it summarizes United States federal income tax law, is our opinion as to the material United States federal income tax consequences of the ownership of shares of Class A common stock of Lazard.

 

We hereby consent to the filing of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement, and to the references therein to us. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended.

 

 

 

Very truly yours,

Form of the LAZ-MD Holdings Stockholders' Agreement

Exhibit 10.1

 

FORM OF STOCKHOLDERS’ AGREEMENT

 

This STOCKHOLDERS’ AGREEMENT (including Appendix A hereto, as such Appendix A may be amended from time to time pursuant to the provisions hereof, this “Agreement”), is made and entered into as of                 , 2005, by and among LAZ-MD Holdings LLC, a Delaware limited liability corporation (“LAZ-MD”), the individuals listed on the signature page hereto, and, solely for the purposes of Articles I, II, IV and V hereto, Lazard Ltd, an exempted Bermuda limited company (“Lazard Ltd”).

 

 

W I T N E S S E T H:

 

WHEREAS, the Covered Persons (as defined below) are beneficial owners of Class II Interests (as defined below) of LAZ-MD; and

 

WHEREAS, LAZ-MD holds the outstanding share of Class B Common Stock, par value $0.01 per share, of Lazard Ltd (“Class B Common Stock”); and

 

WHEREAS, LAZ-MD and Lazard Ltd are parties to that certain Master Separation Agreement (the “Master Separation Agreement”), dated as of the date hereof, with Lazard Group (as defined below) and LFCM Holdings LLC, a Delaware limited liability company, pursuant to which, inter alia, the parties thereto have agreed to the exchange of Class II Interests effectively for Class A Common Stock, par value $0.01 per share, of Lazard Ltd (the “Common Stock”); and

 

WHEREAS, the Covered Persons desire to set forth herein agreements with respect to the voting of the Class B Common Stock and various other matters; and

 

WHEREAS, Lazard Ltd desires to provide the Covered Persons with registration rights with respect to shares of Common Stock underlying their Class II Interests.

 

NOW, THEREFORE, in consideration of the premises and of the mutual agreements, covenants and provisions herein contained, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS AND OTHER MATTERS

 

Section 1.1 Definitions. Capitalized terms used in this Agreement without other definition shall, unless expressly stated otherwise, have the meanings specified in this Section 1.1:

 

(a) “Agreement” has the meaning ascribed to such term in the Recitals.

 

(b) A “beneficial owner” of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares: (i) voting power, which includes the

 

power to vote, or to direct the voting of, such security and/or (ii) investment power, which includes the power to dispose, or to direct the disposition of, such security, but for purposes of this Agreement a person shall not be deemed a beneficial owner of (A) Covered Interests solely by virtue of the application of Exchange Act Rule 13d-3(d) or Exchange Act Rule 13d-5 as in effect on the date hereof, (B) Covered Interests solely by virtue of the possession of the legal right to vote securities under applicable state or other law (such as by proxy or power of attorney), or (C) Covered Interests held of record by a “private foundation” subject to the requirements of Section 509 of the Code. “Beneficially own” and “beneficial ownership” shall have correlative meanings.

 

(c) “Board” means the Board of Directors of LAZ-MD.

 

(d) “Class B Common Stock” has the meaning ascribed to such term in the Recitals.

 

(e) “Class II Interest” means, with respect to any Covered Person, such Covered Person’s “Class II Interest” as defined in the Operating Agreement.

 

(f) “Common Stock” has the meaning ascribed to such term in the Recitals.

 

(g) “Continuing Provisions” has the meaning ascribed to such term in Section 5.1(b).

 

(h) “Covered Persons” means those persons from time to time listed on Appendix A hereto, and all persons who may become parties to this Agreement and whose name is required to be listed on Appendix A hereto, in each case in accordance with the terms hereof.

 

(i) “Covered Interest” means, with respect to a Covered Person, such Covered Person’s Class II Interest or Lazard Group Common Interest, as the case may be.

 

(j) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, and as each of the foregoing may be further amended from time to time.

 

(k) “Exchange Date” has the meaning set forth in the Master Separation Agreement.

 

(l) “Exchange Shares” has the meaning set forth in the Master Separation Agreement.

 

(m) “Governmental Authority” means any national, local or foreign (including U.S. federal, state or local) or supranational (including

 

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European Union) governmental, judicial, administrative or regulatory (including self-regulatory) agency, commission, department, board, bureau, entity or authority of competent jurisdiction.

 

(n) “IPO Date” means the closing date of the initial public offering of the Common Stock.

 

(o) “LAZ-MD” has the meaning ascribed to such term in the Recitals.

 

(p) “Lazard Ltd” has the meaning ascribed to such term in the Recitals.

 

(q) “Lazard Group” means Lazard Group LLC, a Delaware limited liability company.

 

(r) “Lazard Group Common Interests” means the Common Interests in Lazard Group.

 

(s) “Lazard Group Operating Agreement” means the Operating Agreement of Lazard Group LLC, as amended and restated as of the date hereof, as it may be amended from time to time.

 

(t) “LFCM” means LFCM Holdings LLC, a Delaware limited liability company.

 

(u) “LFCM Operating Agreement” means the Operating Agreement of LFCM Holdings LLC, as of the date hereof, as it may be amended from time to time.

 

(v) “Master Separation Agreement” has the meaning ascribed to such term in the Recitals.

 

(w) “Minimum Demand Number” means, as of any particular date, that number of shares of Common Stock equal to the quotient obtained by dividing (i) $50,000,000 by (ii) the Stock Price as of such date; provided, however, that on and after the six months following the nine-year anniversary of the IPO Date, “$50,000,000” in this definition shall be replaced with “$20,000,000”.

 

(x) “Minimum Share Number” means              shares of Common Stock (as adjusted for any stock dividend, split or combination, recapitalization, merger, amalgamation, consolidation, other reorganization or otherwise).

 

(y) “Operating Agreement” means the Operating Agreement of LAZ-MD Holdings LLC, as amended and restated as of the date hereof, as it may be amended from time to time.

 

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(z) “Periodic Filing Date” means the date of the first to occur following the Exchange Date of the filing of the Form 10-K or Form 10-Q of Lazard Ltd with the SEC under the Exchange Act.

 

(aa) “Permitted Basket Transaction” means the purchase or sale of, or the establishment of a long or short position in, a basket or index of securities (or of a derivative financial instrument with respect to a basket or index of securities) that includes securities of LAZ-MD, in each case if such purchase, sale or establishment is permitted under LAZ-MD’s policy on hedging with respect to securities of LAZ-MD as announced from time to time.

 

(bb) “Public Offering” means an underwritten public offering pursuant to an effective registration statement under the Securities Act, other than pursuant to a registration statement on Forms S-4 or S-8 or any similar or successor form.

 

(cc) “Registration Expenses” means any and all expenses incident to the performance of or compliance with any registration or marketing of securities, including all (i) registration and filing fees, and all other fees and expenses payable in connection with the listing of securities on any securities exchange or automated interdealer quotation system, (ii) fees and expenses of compliance with any securities or “blue sky” laws (including reasonable fees and disbursements of counsel in connection with “blue sky” qualifications of the securities registered), (iii) expenses in connection with the preparation, printing, mailing and delivery of any registration statements, prospectuses and other documents in connection therewith and any amendments or supplements thereto, (iv) security engraving and printing expenses, (v) internal expenses of Lazard Ltd (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (vi) reasonable fees and disbursements of counsel for Lazard Ltd and customary fees and expenses for independent certified public accountants retained by Lazard Ltd (including the expenses relating to any comfort letters or costs associated with the delivery by independent certified public accountants of any comfort letters requested pursuant to Section 4.5(h)), (vii) reasonable fees and expenses of any special experts retained by Lazard Ltd in connection with such registration, (viii) reasonable fees, out-of-pocket costs and expenses of the Covered Persons, including one counsel for all of the Covered Persons participating in the offering selected by the Covered Persons holding the majority of the Registrable Securities to be sold for the account of all Covered Persons in the offering, (ix) fees and expenses in connection with any review by the NASD of the underwriting arrangements or other terms of the offering, and all fees and expenses of any “qualified independent underwriter,” including the fees and expenses of any counsel thereto, (x) fees and disbursements underwriters customarily paid by issuers or sellers of securities, but excluding any underwriting fees, discounts and commissions attributable to the sale of Registrable Securities, (xi) costs of printing and producing any agreements among underwriters, underwriting agreements, any

 

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“blue sky” or legal investment memoranda and any selling agreements and other documents in connection with the offering, sale or delivery of the Registrable Securities, (xii) transfer agents’ and registrars’ fees and expenses and the fees and expenses of any other agent or trustee appointed in connection with such offering, (xiii) expenses relating to any analyst or investor presentations or any “road shows” undertaken in connection with the registration, marketing or selling of the Registrable Securities, (xiv) fees and expenses payable in connection with any ratings of the Registrable Securities, including expenses relating to any presentations to rating agencies and (xv) all out-of-pocket costs and expenses incurred by Lazard Ltd or its appropriate officers in connection with their compliance with Section 4.5(l).

 

(dd) “Registrable Securities” means all shares of Common Stock (and any securities issued or issuable in respect of such Common Stock by way of conversion, exchange, stock dividend, split or combination, recapitalization, merger, amalgamation, consolidation, other reorganization or otherwise) that are received by Covered Persons in exchange for (1) Class II Interests of Covered Persons or (2) Lazard Group Common Interests of Covered Persons that are received in exchange for such Covered Persons’ Class II Interests, in each case, pursuant to Section 7.04 of the Operating Agreement (“Covered Shares”) and that may be deemed “restricted securities” as defined in Rule 144(a)(3) under the Securities Act; provided, that Covered Shares that are eligible for sale under Rule 144(k) of the Securities Act shall cease to be Registrable Securities; provided, however, that in the event that a Covered Person beneficially owns Covered Shares that, in the aggregate, total a number of shares of Common Stock equal to or greater than the quotient obtained by dividing (x) $25,000,000 by (y) the Stock Price as of five Business Days prior to the expected effectiveness of the applicable registration statement, any such Covered Shares that would have ceased to be Registrable Securities pursuant to the immediately foregoing proviso shall continue to be Registrable Securities so long as such Covered Person beneficially owns Covered Shares totaling at least such percentage of outstanding shares of Common Stock. A share of Common Stock shall cease to be a Registrable Security upon any sale of such share of Common Stock to the public pursuant to, and in accordance with, a registration statement, including any registration statements contemplated hereby, or pursuant to Rule 144 under the Securities Act, Regulation S under the Securities Act or Section 4(1) of the Securities Act.

 

(ee) “Restricted Person” means any person that is not (i) a Covered Person or (ii) a director, officer or employee of LAZ-MD acting in such person’s capacity as a director, officer or employee.

 

(ff) “SEC” means the Securities and Exchange Commission.

 

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(gg) “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, and as each of the foregoing may be further amended from time to time.

 

(hh) “Stock Price” means, as of any particular date, the closing price as of such date of a share of Common Stock on the primary national securities exchange on which the Common Stock is traded, as reported by Bloomberg L.P. or, if Bloomberg L.P. is not available, as determined by another reputable third-party information source selected by Lazard Ltd.

 

(ii) “Subsidiary” means, with respect to any person, any corporation, limited liability company, company, partnership, trust, association or other legal entity or organization of which such person (either directly or through one or more subsidiaries of such person) (a) owns, directly or indirectly, a majority of the capital stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation, limited liability company, partnership, trust, association or other legal entity or organization, or (b) is otherwise entitled to exercise (1) a majority of the voting power generally in the election of the board of directors or other governing body of such corporation, limited liability company, partnership, trust, association or other legal entity or organization or (2) control of such corporation, limited liability company, partnership, trust, association or other legal entity or organization.

 

(jj) “Transfer” means, with respect to any Covered Interests, (i) when used as a verb, to sell, assign, dispose of, exchange, pledge, encumber, hypothecate or otherwise transfer such Covered Interests or any participation or interest therein, whether directly or indirectly, or agree or commit to do any of the foregoing, and (ii) when used as a noun, a direct or indirect sale, assignment, disposition, exchange, pledge, encumbrance, hypothecation, or other transfer of such Covered Interests or any participation or interest therein or any agreement or commitment to do any of the foregoing.

 

Section 1.2 Definitions Generally. Wherever required by the context of this Agreement, the singular shall include the plural and vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa, and references to any agreement, document or instrument shall be deemed to refer to such agreement, document or instrument as amended, supplemented or modified from time to time. When used herein:

 

(a) the word “or” is not exclusive;

 

(b) the words “including,” “includes,” “included” and “include” are deemed to be followed by the words “without limitation”;

 

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(c) the terms “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision;

 

(d) the word “person” means any individual, corporation, limited liability company, trust, joint venture, association, company, partnership or other legal entity or a government or any department or agency thereof or self-regulatory organization; and

 

(e) all section, paragraph or clause references not attributed to a particular document shall be references to such parts of this Agreement, and all exhibit, annex and schedule references not attributed to a particular document shall be references to such exhibits, annexes and schedules to this Agreement.

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES

 

Section 2.1 Representations and Warranties of Covered Persons.

 

(a) Each Covered Person severally represents and warrants to each of LAZ-MD and Lazard Ltd, as of the date of the registration of any of such Covered Person’s Registrable Securities and as of the date of any Demand Notice delivered by or on behalf of such Covered Person, that: such Covered Person has good, valid and marketable title to the Covered Interests and Registrable Securities, as applicable, in each case free and clear of any pledge, lien, security interest, charge, claim, equity or encumbrance of any kind, other than (A) pursuant to this Agreement or another agreement with the issuer of the Covered Interest or Registrable Securities, as the case may be, by which such Covered Person is bound and to which the Covered Interest or Registrable Securities, as applicable, are subject, and (B) in the case of Covered Interests, the Operating Agreement or Lazard Group Operating Agreement, as applicable; and

 

(b) Each Covered Person severally represents and warrants to each of LAZ-MD and Lazard Ltd, as of the date hereof and as of the date of the registration of any of such Covered Person’s Registrable Securities and as of the date of any Demand Notice delivered by or on behalf of such Covered Person, if the Covered Person is other than a natural person, with respect to subsections (i) through (x), and if the Covered Person is a natural person, with respect to subsections (iv) through (x) only: (i) such Covered Person is duly organized and validly existing in good standing under the laws of the jurisdiction of such Covered Person’s formation; (ii) such Covered Person has full right, power and authority to enter into and perform this Agreement; (iii) the execution and delivery of this Agreement and the performance of the transactions contemplated herein have been duly authorized, and no further proceedings on the part of such Covered Person are necessary to authorize the

 

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execution, delivery and performance of this Agreement; and this Agreement has been duly executed by such Covered Person; (iv) the person signing this Agreement on behalf of such Covered Person has been duly authorized by such Covered Person to do so; (v) this Agreement constitutes the legal, valid and binding obligation of such Covered Person, enforceable against such Covered Person in accordance with its terms (subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles); (vi) neither the execution and delivery of this Agreement by such Covered Person nor the consummation of the transactions contemplated herein conflicts with or results in a breach of any of the terms, conditions or provisions of any agreement or instrument to which such Covered Person is a party or by which the material assets of such Covered Person are bound (including the organizational documents of such Covered Person, if such Covered Person is other than a natural person), or constitutes a default under any of the foregoing, or violates any law or regulation; (vii) such Covered Person has obtained all authorizations, consents, approvals and clearances of all courts, governmental agencies and authorities, and any other person, if any (including the spouse of such Covered Person with respect to the interest of such spouse in the Covered Interests or Covered Shares of such Covered Person if the consent of such spouse is required), required to permit such Covered Person to enter into this Agreement and to consummate the transactions contemplated herein; (viii) there are no actions, suits or proceedings pending, or, to the knowledge of such Covered Person, threatened against or affecting such Covered Person or such Covered Person’s assets in any court or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality which, if adversely determined, would impair the ability of such Covered Person to perform this Agreement; (ix) the performance of this Agreement will not violate any order, writ, injunction, decree or demand of any court or federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality to which such Covered Person is subject; and (x) no statement, representation or warranty made by such Covered Person in this Agreement, nor any information provided by such Covered Person for inclusion in a report filed pursuant to Section 4.5 hereof or in a registration statement filed by Lazard Ltd, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements, representations or warranties contained herein or information provided therein not misleading.

 

Each Covered Person shall promptly notify LAZ-MD and Lazard Ltd of any breaches of such representations or covenants.

 

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ARTICLE III

VOTING AGREEMENT

 

Section 3.1 Preliminary Vote of Covered Persons. Prior to any vote of the stockholders of Lazard Ltd, there shall be a separate, preliminary vote, on each matter upon which a stockholder vote of Lazard Ltd is then proposed to be taken (each, a “Preliminary Vote”), of the Covered Interests beneficially owned by the Covered Persons (such Covered Interests at any such time, the “Voting Interests”). The Preliminary Vote shall be conducted pursuant to procedures established by LAZ-MD, including meetings or by proxy or written instruction by or of the Covered Persons.

 

Section 3.2 Voting of the Voting Interests. Each Covered Person shall be entitled to instruct LAZ-MD to vote the Class B Common Stock in proportion to the number of votes represented by the shares of Common Stock into which such Covered Interests are then exchangeable under the terms of the Operating Agreement and the Agreement on the matter in question by the Voting Interests in the Preliminary Vote; provided, however, that notwithstanding anything herein to the contrary the Board shall have the ability to vote the Class B Common Stock in its discretion (including in a manner different than as instructed by the Covered Persons) if it determines in good faith that such action is in the best interests of LAZ-MD. In the event that a Covered Person fails to participate in the Preliminary Vote, the votes of that Covered Person will be abstained and excluded from the vote for such matters. LAZ-MD shall be obligated (a) to attend as proxy, or cause a person designated by it and acting as lawful proxy to attend as proxy, each meeting of the stockholders of Lazard Ltd and to vote or to cause such designee to vote the Class B Common Stock over which it has the power to vote in accordance with the results of the Preliminary Vote as set forth in this Section 3.2, and (b) to develop procedures governing Preliminary Votes.

 

Section 3.3 Acknowledgements; Determinations.

 

(a) Each Covered Person acknowledges and agrees as follows: (i) in the event that any matters shall come before a meeting of stockholders of Lazard Ltd, or of any class of stockholders of Lazard Ltd, or any adjournment or postponement thereof (including matters related to adjournment or postponement thereof), that were not voted upon in a Preliminary Vote, LAZ-MD may vote on such matters as LAZ-MD sees fit in its sole discretion, (ii) LAZ-MD shall be the sole record holder and legal and beneficial owner of the Class B Common Stock and, notwithstanding anything herein to the contrary, this Agreement shall not confer any right, title or interest in, to or under the Class B Common Stock to any Covered Person, and (iii) except as expressly provided in this Article III with respect to the voting of the Class B Common Stock, LAZ-MD shall have the right to take all action, and exercise all rights, with respect to the Class B Common Stock in its sole discretion if it determines in good faith that such action is in the best interest of LAZ-MD, and, notwithstanding anything herein to the contrary, no Covered Person shall, by virtue of being a party to this Agreement, have any right to direct LAZ-MD to exercise, or otherwise directly or indirectly exercise, any rights relating to the Class B Common Stock, whether arising under the

 

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Companies Act 1981 of Bermuda and Bye-Laws of Lazard Ltd or otherwise, including the right to nominate directors of Lazard Ltd, propose business for meetings of stockholders of Lazard Ltd or otherwise submit stockholder proposals, call any special meetings of stockholders (or any class thereof) of Lazard Ltd, tender or otherwise transfer the Class B Common Stock or to take any other action in respect of the Class B Common Stock.

 

(b) Each Covered Person acknowledges and agrees that all determinations necessary or advisable under this Article III shall be made by the Board, whose determinations shall be final and binding. The Board’s determinations and actions (including waivers) under this Article III need not be uniform and may be made selectively among Covered Persons that are not similarly situated.

 

(c) Each Covered Person acknowledges and agrees that the members of the Board in acting under this Agreement shall at all times be acting in their individual capacities and not as directors or officers of LAZ-MD, Lazard Group or Lazard Ltd and in so acting or failing to act under this Agreement shall not have any fiduciary duties to the Covered Persons as a member of the Board by virtue of the fact that one or more of such members may also be serving as a director or officer of LAZ-MD, Lazard Group, Lazard Ltd or otherwise.

 

Section 3.4 Voting Related Expenses. LAZ-MD shall be responsible for all expenses of LAZ-MD and the Board incurred in the operation and administration of Article III, including expenses of proxy solicitation for and tabulation of the Preliminary Vote, expenses incurred in preparing appropriate filings of LAZ-MD and correspondence with the SEC, lawyers’, accountants’, agents’, consultants’, experts’, investment banking and other professionals’ fees, expenses incurred in enforcing the provisions of this Agreement and expenses incurred in maintaining any necessary or appropriate books and records relating to this Agreement.

 

Section 3.5 Governmental Authorities. Each Covered Person hereby acknowledges and agrees that, unless otherwise directed by LAZ-MD or Lazard Ltd in writing, such Covered Person shall be solely responsible for making, and shall in a timely manner make, any and all reports, filings or other notifications with any Governmental Authorities, including any reports of beneficial ownership on Schedule 13D or 13G under the Exchange Act, with respect to any rights or interests of such Covered Person under this Article III (each a “Filing”). Such Covered Person understands and agrees that neither LAZ-MD nor Lazard Ltd has any related obligations relating to or responsibility for any such Filings. Such Covered Person shall cooperate fully with the other Covered Persons to achieve the timely filing of any such Filings and any amendments thereto as may be required, and such Covered Person agrees that any information concerning such Covered Person which such Covered Person furnishes in connection with the preparation and filing of any such Filing will be complete and accurate. No fewer than five business days prior to the submission of a Filing, each Covered Person submitting such Filing shall furnish to LAZ-MD and Lazard Ltd copies of such Filing as proposed to be filed.

 

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LAZ-MD and Lazard Ltd shall each have the right to request that the filing Covered Person modify any information contained in such Filing or amendment or supplement thereto, and such Covered Person shall use his reasonable best efforts to comply with such request; provided that compliance with such request shall not cause any Covered Person to violate applicable law or regulation.

 

Section 3.6 Adjustment upon Changes in Capitalization; Adjustments upon Changes of Control. In the event of any business combination, restructuring, recapitalization or other extraordinary transaction involving LAZ-MD or Lazard Group as a result of which securities of a person other than LAZ-MD or Lazard Group that are exchangeable for Common Stock shall be issued or distributed in exchange for or in replacement of Covered Interests, LAZ-MD and the Covered Persons agree that this Agreement shall also continue in full force and effect with respect to such securities of such other person, and the terms “Covered Interests,” “Class II Interests,” “Lazard Group Common Interests,” “Voting Interests,” “LAZ-MD” and “Lazard Group” shall refer to, as applicable, such securities and such person, respectively. If the Board deems it desirable, any such adjustments may take effect from the record date or another appropriate date. In the event of any business combination, restructuring, recapitalization or other extraordinary transaction involving Lazard Ltd that affects the capital stock of Lazard Ltd, the Board may, in its sole discretion, (a) terminate the provisions of this Article III or (b) adjust the voting structure set forth in this Article III as necessary to preserve the initial intent of such provisions.

 

Section 3.7 Further Assurances. Each Covered Person agrees to execute such additional documents and take such further action as may be reasonably necessary to effect the provisions of this Article III.

 

ARTICLE IV

REGISTRATION RIGHTS

 

Section 4.1 Annual Registration.

 

(a) With respect to each of the third through the ninth anniversaries of the IPO Date, Lazard Ltd shall use its reasonable best efforts to effect the registration under the Securities Act of sales by Covered Persons of the following Registrable Securities: Registrable Securities to be issued to Covered Persons in respect of the exchange of Covered Interests in connection with such anniversary date pursuant to the Master Separation Agreement for such period and all other Registrable Securities of any Covered Persons which Registrable Securities are reasonably expected to continue to be Registrable Securities at the expected filing date for the registration statement with respect to such registration who have provided Lazard Ltd with a written request for registration at least 20 business days prior to the applicable anniversary date requesting registration of such Registrable Securities (each such registration, an “Annual Registration”); provided, however, that Lazard Ltd shall not be obligated to file any such registration statement or effect such registration if the amount of such Registrable Securities does not equal or exceed the Minimum

 

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Share Number as of the date of such filing or registration. Lazard Ltd shall use its reasonable best efforts, subject to the restrictions in Section 4.1(d), to file a registration statement under the Securities Act with respect to each Annual Registration as promptly as reasonably practicable following the applicable Periodic Filing Date.

 

(b) Lazard Ltd shall have the right to require that sales or other dispositions in connection with any Annual Registration are subject to reasonable limitations or restrictions on size and manner of sale.

 

(c) Lazard Group shall be liable for and pay all Registration Expenses in connection with any Annual Registration, regardless of whether such Registration is effected.

 

(d) Upon notice to each Covered Person participating in the applicable Annual Registration, Lazard Ltd may postpone effecting a registration pursuant to this Section 4.1 on one occasion during any period of six consecutive months for a reasonable time specified in the notice but not exceeding 120 days (which period may not be extended or renewed), if (i) Lazard Ltd shall determine in good faith that effecting the registration would materially and adversely affect an offering of securities of such company the preparation of which had then been commenced or (ii) Lazard Ltd is in possession of material non-public information the disclosure of which during the period specified in such notice Lazard Ltd believes in good faith would not be in the best interests of Lazard Ltd.

 

Section 4.2 Demand Registration.

 

(a) If at any time following the third IPO Anniversary Date, Lazard Ltd shall receive a written request (a “Demand Notice”) from a Covered Person or group of Covered Persons (a “Demand Requesting Covered Person”) that Lazard Ltd effect the registration under the Securities Act of all or any portion of such Covered Person’s or Covered Persons’ Registrable Securities representing Registrable Securities requested to be included in such registration equal to or in excess of the Minimum Demand Number as of the date on which the Demand Registration is made (a “Demand Registration”), specifying the intended method of disposition thereof, then Lazard Ltd shall use its reasonable best efforts to effect, as expeditiously as reasonably practicable, subject to the restrictions in Section 4.2(d), the registration under the Securities Act of the Registrable Securities for which such Demand Requesting Covered Person has requested registration under this Section 4.2, all to the extent necessary to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered. Notwithstanding the foregoing, (i) a Demand Requesting Covered Person shall be entitled to no more than one demand registration during any six-month period, and (ii) Lazard Ltd shall not be obligated make a Demand Registration with respect to a Demand Requesting Covered Person in the event

 

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that an Annual Registration or Piggyback Registration (as defined below) had been available to any such Demand Requesting Covered Person within the 180 days preceding the date of the Demand Notice.

 

(b) At any time prior to the effective date of the registration statement relating to such registration, the Demand Requesting Covered Person may revoke such Demand Registration request by providing a notice to Lazard Ltd revoking such request. Lazard Group shall be liable for and pay all Registration Expenses in connection with any Demand Registration.

 

(c) If a Demand Registration involves an underwritten Public Offering and the managing underwriter advises Lazard Ltd and the Demand Requesting Covered Person that, in its view, the number of shares of Registrable Securities requested to be included in such registration exceeds the largest number of shares that can be sold without having an adverse effect on such offering, including the price at which such shares can be sold (the “Maximum Offering Size”), Lazard Ltd shall include in such registration, in the priority listed below, up to the Maximum Offering Size:

 

(i) first, all Registrable Securities requested to be registered in the Demand Registration by the Demand Requesting Covered Person and all other Registrable Securities requested to be included in such registration by any Covered Persons (allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among such Covered Persons on the basis of the relative number of shares of Registrable Securities so requested to be included in such registration by each);

 

(ii) second, any securities proposed to be registered by Lazard Ltd or any securities proposed to be registered for the account of any other persons, with such priorities among them as Lazard Ltd shall determine.

 

(d) Upon notice to the Demand Requesting Covered Person, Lazard Ltd may postpone effecting a registration pursuant to this Section 4.1 on one occasion during any period of six consecutive months for a reasonable time specified in the notice but not exceeding 120 days (which period may not be extended or renewed), if (i) Lazard Ltd shall determine in good faith that effecting the registration would materially and adversely affect an offering of securities of such company the preparation of which had then been commenced or (ii) Lazard Ltd is in possession of material non-public information the disclosure of which during the period specified in such notice Lazard Ltd believes in good faith would not be in the best interests of Lazard Ltd.

 

Section 4.3 Piggyback Registration.

 

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(a) Subject to any contractual obligations to the contrary, if Lazard Ltd proposes to register any of the equity securities issued by it under the Securities Act (other than a registration on Form S-8 or S-4, or any successor forms, relating to shares of Common Stock issuable upon exercise of employee stock options or in connection with any employee benefit or similar plan of Lazard Ltd or in connection with a direct or indirect acquisition by Lazard Ltd of another Person or as a recapitalization or reclassification of securities of Lazard Ltd), whether or not for sale for its own account, Lazard Ltd shall each such time give prompt notice at least 15 business days prior to the anticipated filing date of the registration statement relating to such registration to the Covered Person, which notice shall set forth such Covered Person’s rights under this Section 4.3 and shall offer such Covered Person the opportunity to include in such registration statement the number of Registrable Securities of the same class or series as those proposed to be registered as such Covered Person may request (a “Piggyback Registration”), subject to the provisions of Section 4.3(b) and the Public Offering Limitations. Upon the request of such Covered Person made within five business days after the receipt of notice from Lazard Ltd (which request shall specify the number of Registrable Securities intended to be registered by such Covered Person), Lazard Ltd shall use its reasonable best efforts to effect the registration under the Securities Act of all Registrable Securities that Lazard Ltd has been so requested to register by all such other Covered Persons, to the extent necessary to permit the disposition of the Registrable Securities so to be registered, provided that (i) if such registration involves an underwritten Public Offering, all such Covered Persons requesting to be included in Lazard Ltd’s registration must sell their Registrable Securities to the underwriters selected by Lazard Ltd in on the same terms and conditions as apply to Lazard Ltd or the Requesting Covered Persons, as applicable, and (ii) if, at any time after giving notice of its intention to register any securities pursuant to this Section 4.3(a) and prior to the effective date of the registration statement filed in connection with such registration, Lazard Ltd shall determine for any reason not to register such securities, Lazard Ltd shall give notice to all such Covered Persons and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration. No registration effected under this Section 4.3 shall relieve Lazard Ltd of its obligations to effect an Annual Registration or Demand Registration to the extent required by Section 4.1 or Section 4.2, respectively. Lazard Group shall pay all Registration Expenses in connection with each Piggyback Registration.

 

(b) Subject to any contractual obligations to the contrary, if a Piggyback Registration involves an underwritten Public Offering (other than any Demand Registration, in which case the provisions with respect to priority of inclusion in such offering set forth in Section 4.2(c) shall apply) and the managing underwriter advises Lazard Ltd that, in its view, the number of Registrable Securities that Lazard Ltd and such Covered Persons intend to include in such registration exceeds the Maximum Offering Size, Lazard Ltd

 

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shall include in such registration, in the following priority, up to the Maximum Offering Size:

 

(i) first, so much of Lazard Ltd securities proposed to be registered for the account of Lazard Ltd;

 

(ii) second, to Lazard Ltd securities proposed to be registered pursuant to any demand registration rights of third parties;

 

(iii) third, all Registrable Securities requested to be included in such registration by any Covered Persons (allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among such Covered Persons on the basis of the relative number of shares of Registrable Securities so requested to be included in such registration by each); and

 

(iv) fourth, any securities proposed to be registered for the account of any other Persons with such priorities among them as Lazard Ltd shall determine.

 

Section 4.4 Lock-Up Agreements. If any registration of Registrable Securities shall be effected in connection with a Public Offering, neither Lazard Ltd nor the Covered Person shall effect any public sale or distribution, including any sale pursuant to Rule 144, of any shares of Common Stock or other security of Lazard Ltd (except as part of such Public Offering) during the period beginning 14 days prior to the effective date of the applicable registration statement until the earlier of (i) such time as Lazard Ltd and the lead managing underwriter shall agree and (ii) 180 days (such period, the “Lock-Up Period” for the applicable registration statement).

 

Section 4.5 Registration Procedures. Whenever a Covered Person requests that any Registrable Securities be registered pursuant to Section 4.2 or 4.3 or in respect of any Annual Registration pursuant to Section 4.1, subject to the provisions of such Sections, Lazard Ltd shall use its reasonable best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof as promptly as practicable, and, in connection with any such request:

 

(a) Lazard Ltd shall as expeditiously as reasonably practicable prepare and file with the SEC and the Registrar of Companies in Bermuda a registration statement on any form for which Lazard Ltd then qualifies or that counsel for Lazard Ltd shall deem appropriate and which form shall be available for the sale of the Registrable Securities to be registered thereunder in accordance with the intended method of distribution thereof, and use its reasonable best efforts to cause such filed registration statement to become and remain effective for a period of not less than 40 days, or in the case of a shelf registration statement, 60 days (or such shorter period in which all of the Registrable Securities of the Registering Covered Persons included in such registration statement shall have actually been sold thereunder).

 

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(b) Prior to filing a registration statement or prospectus or any amendment or supplement thereto, Lazard Ltd shall, if requested, furnish to each participating Covered Person and each underwriter, if any, of the Registrable Securities covered by such registration statement copies of such registration statement as proposed to be filed, and thereafter Lazard Ltd shall furnish to such Covered Person and underwriter, if any, such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 or Rule 430A under the Securities Act and such other documents as such Covered Person or underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Covered Person. The Covered Person shall have the right to request that Lazard Ltd modify any information contained in such registration statement, amendment and supplement thereto pertaining to such Covered Person and Lazard Ltd shall use its all reasonable best efforts to comply with such request, provided, however, that Lazard Ltd shall not have any obligation so to modify any information if Lazard Ltd reasonably expects that so doing would cause the prospectus to contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading.

 

(c) After the filing of the registration statement, Lazard Ltd shall (i) cause the related prospectus to be supplemented by any required prospectus supplement, and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act and the Companies Act 1981 of Bermuda, (ii) comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement during the applicable period in accordance with the intended methods of disposition by the Registering Covered Persons thereof set forth in such registration statement or supplement to such prospectus and (iii) promptly notify each Registering Covered Person holding Registrable Securities covered by such registration statement of any stop order issued or threatened by the SEC or any state securities commission and take all reasonable best efforts to prevent the entry of such stop order or to remove it if entered.

 

(d) Lazard Ltd shall use its reasonable best efforts to (i) register or qualify the Registrable Securities covered by such registration statement under such other securities or “blue sky” laws of such jurisdictions in the United States as any Registering Covered Person holding such Registrable Securities reasonably (in light of such Covered Person’s intended plan of distribution) requests and (ii) cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of Lazard Ltd and do any and all other acts and things that may be reasonably necessary or advisable to enable such Covered Person to consummate the disposition of the Registrable

 

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Securities owned by such Covered Person, provided that Lazard Ltd shall not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 4.5(d), (B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction.

 

(e) Lazard Ltd shall immediately notify each Registering Covered Person holding such Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the occurrence of an event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and promptly prepare and make available to each such Covered Person and file with the SEC and the Registrar of Companies in Bermuda any such supplement or amendment.

 

(f) Lazard Ltd shall select an underwriter or underwriters in connection with any Public Offering. In connection with any Public Offering, Lazard Ltd shall enter into customary agreements (including an underwriting agreement in customary form) and take such all other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities in any such Public Offering, including the engagement of a “qualified independent underwriter” in connection with the qualification of the underwriting arrangements with the NASD.

 

(g) Subject to execution of confidentiality agreements satisfactory in form and substance to Lazard Ltd in the exercise of its good faith judgment, Lazard Ltd will give to each Registering Covered Person, its counsel and accountants (i) reasonable and customary access to its books and records and (ii) such opportunities to discuss the business of Lazard Ltd with its directors, officers, employees, counsel and the independent public accountants who have certified its financial statements, as shall be appropriate, in the reasonable judgment of counsel, to such Registering Covered Person, to enable them to exercise their due diligence responsibility.

 

(h) Lazard Ltd shall use its reasonable best efforts to furnish to each Registering Covered Person and to each such underwriter, if any, a signed counterpart, addressed to such Covered Person or underwriter, of (i) an opinion or opinions of counsel to Lazard Ltd and (ii) a comfort letter or comfort letters from Lazard Ltd’s independent public accountants, each in customary form and covering such matters of the kind customarily covered by opinions or comfort letters, as the case may be, as a majority of the Registering Covered Persons therefor reasonably requests.

 

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(i) Each such Covered Person registering securities under this Article IV shall promptly furnish in writing to Lazard Ltd such information regarding the distribution of the Registrable Securities as Lazard Ltd may from time to time reasonably request and such other information as may be legally required or advisable in connection with such registration.

 

(j) The Covered Person agrees that, upon receipt of any notice from Lazard Ltd of the happening of any event of the kind described in Section 4.5(e), such Covered Person shall forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Covered Person’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 4.5(e), and, if so directed by Lazard Ltd, such Covered Person shall deliver to Lazard Ltd all copies, other than any permanent file copies then in such Covered Person’s possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. If Lazard Ltd shall give such notice, Lazard Ltd shall extend the period during which such registration statement shall be maintained effective (including the period referred to in Section 4.5(a)) by the number of days during the period from and including the date of the giving of notice pursuant to Section 4.5(e) to the date when Lazard Ltd shall make available to such Covered Person a prospectus supplemented or amended to conform with the requirements of Section 4.5(e).

 

(k) Lazard Ltd shall use its reasonable efforts to list all Registrable Securities covered by such registration statement on any securities exchange or quotation system on which any of the Registrable Securities are then listed or traded.

 

(l) Lazard Ltd shall have appropriate officers of Lazard Ltd (i) prepare and make presentations at any “road shows” and before analysts and rating agencies, as the case may be, (ii) take other actions to obtain ratings for any Registrable Securities and (iii) otherwise use their reasonable best efforts to cooperate as reasonably requested by the underwriters in the offering, marketing or selling of the Registrable Securities.

 

Section 4.6 Indemnification by Lazard Ltd. Lazard Ltd agrees to indemnify and hold harmless the Registering Covered Person holding Registrable Securities covered by a registration statement, its officers, directors, employees, partners and agents, and each Person, if any, who controls such Covered Person within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities and expenses (including reasonable expenses of investigation and reasonable attorneys’ fees and expenses) (“Damages”) caused by or relating to any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Registrable Securities (as amended or supplemented if Lazard Ltd shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by or relating to any omission or alleged omission to state therein a material fact required to be

 

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stated therein or necessary to make the statements therein not misleading, except insofar as such Damages are caused by or related to any such untrue statement or omission or alleged untrue statement or omission so made based upon information furnished in writing to Lazard Ltd by such Covered Person or on such Covered Person’s behalf expressly for use therein, provided that, with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus, or in any prospectus, as the case may be, the indemnity agreement contained in this paragraph shall not apply to the extent that any Damages result from the fact that a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) was not sent or given to the Person asserting any such Damages at or prior to the written confirmation of the sale of the Registrable Securities to such Person if it is determined that Lazard Ltd provided such prospectus to such Covered Person and it was the responsibility of such Covered Person to provide such Person with a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) and such current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) would have cured the defect giving rise to such Damages.

 

Section 4.7 Indemnification by Participating Covered Persons. Each Covered Person who holds Registrable Securities covered by any registration statement agrees to indemnify and hold harmless Lazard Ltd, its affiliates and their respective officers, directors and agents and each Person, if any, who controls Lazard Ltd within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from Lazard Ltd to such Covered Person, but only (i) with respect to information furnished in writing by such Covered Person or on such Covered Person’s behalf expressly for use in any registration statement or prospectus relating to the Registrable Securities, or any amendment or supplement thereto, or any preliminary prospectus or (ii) to the extent that any Damages result from the fact that a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) was not sent or given to the Person asserting any such Damages at or prior to the written confirmation of the sale of the Registrable Securities concerned to such Person if it is determined that it was the responsibility of such Covered Person to provide such Person with a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) and such current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) would have cured the defect giving rise to such loss, claim, damage, liability or expense. The Covered Person also agrees to indemnify and hold harmless underwriters of the Registrable Securities, their officers and directors and each Person who controls such underwriters within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act on substantially the same basis as that of the indemnification of Lazard Ltd provided in this Section 4.5. As a condition to including Registrable Securities in any registration statement filed in accordance with Article IV, Lazard Ltd may require that it shall have received an undertaking reasonably satisfactory to it from any underwriter to indemnify and hold it harmless to the extent customarily provided by underwriters with respect to similar securities. No Registering Covered Person shall be liable under this Section 4.7 for any Damages in excess of the net proceeds realized by such Covered Person in the sale of Registrable Securities of such Covered Person to which such Damages relate.

 

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Section 4.8 Conduct of Indemnification Proceedings. If any proceeding (including any governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to this Article IV, such Person (an “Indemnified Party”) shall promptly notify the Person against whom such indemnity may be sought (the “Indemnifying Party”) in writing and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party, and shall assume the payment of all fees and expenses, provided that the failure of any Indemnified Party so to notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder except to the extent that the Indemnifying Party is materially prejudiced by such failure to notify. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) in the reasonable judgment of such Indemnified Party representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that, in connection with any proceeding or related proceedings in the same jurisdiction, the Indemnifying Party shall not be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for all such Indemnified Parties, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Indemnified Parties, such firm shall be designated in writing by the Indemnified Parties. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent, or if there be a final judgment for the plaintiff, the Indemnifying Party shall indemnify and hold harmless such Indemnified Parties from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. Without the prior written consent of the Indemnified Party, no Indemnifying Party shall effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability arising out of such proceeding.

 

Section 4.9 Contribution. If the indemnification provided for in this Article VI is unavailable to the Indemnified Parties in respect of any Damages, then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Damages (i) as between Lazard Ltd and the Registering Covered Person holding Registrable Securities covered by a registration statement on the one hand and the underwriters on the other, in such proportion as is appropriate to reflect the relative benefits received by Lazard Ltd and such Covered Person on the one hand and the underwriters on the other, from the offering of the Registrable Securities, or if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits but also the relative fault of Lazard Ltd and such Covered Person on the one hand and of such underwriters on the other in connection with the statements or omissions that resulted in such Damages, as well as any other relevant equitable considerations and (ii) as between Lazard Ltd on the one hand and such Covered Person on the other, in such

 

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proportion as is appropriate to reflect the relative fault of Lazard Ltd and of such Covered Person in connection with such statements or omissions, as well as any other relevant equitable considerations. The relative benefits received by Lazard Ltd and such Covered Person, on the one hand, and such underwriters, on the other hand, shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by Lazard Ltd and such Covered Person bear to the total underwriting discounts and commissions received by such underwriters, in each case as set forth in the table on the cover page of the prospectus. The relative fault of Lazard Ltd and such Covered Person on the one hand and of such underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by Lazard Ltd and such Covered Person or by such underwriters. The relative fault of Lazard Ltd on the one hand and of such Covered Person on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

Lazard Ltd and the Covered Person agree that it would not be just and equitable if contribution pursuant to this Section 4.9 were determined by pro rata allocation (even if the underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the Damages referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 4.9, no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any Damages that such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no Registering Covered Person shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Covered Person were offered to the public (less underwriters’ discounts and commissions) exceeds the amount of any Damages that such Covered Person has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

 

Section 4.10 Participation in Public Offering. No Covered Person may participate in any Public Offering hereunder unless such Covered Person (a) agrees to sell such Covered Person’s securities on the basis provided in any underwriting arrangements approved by the Covered Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities,

 

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underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and the provisions of this Agreement in respect of registration rights.

 

Section 4.11 Other Indemnification. Indemnification similar to that specified herein (with appropriate modifications) shall be given by Lazard Ltd and the Registering Covered Person participating therein with respect to any required registration or other qualification of securities under any federal or state law or regulation or governmental authority other than the Securities Act.

 

Section 4.12 Cooperation by Lazard Ltd. If the Covered Person shall transfer any Registrable Securities pursuant to Rule 144, Lazard Ltd shall use its commercially reasonable efforts to cooperate with the Covered Person and shall provide to the Covered Person such information as the Covered Person shall reasonably request.

 

Section 4.13 No Transfer of Registration Rights. Except as set forth in Section 4.14, none of the rights of the Covered Person under this Article VI shall be assignable by any Covered Person to any person acquiring securities unless the person so acquiring such securities shall already be a Covered Person.

 

Section 4.14 Parties in Interest. Each Covered Person shall be entitled to receive the benefits of this Agreement and shall be bound by the terms and provisions of this Agreement by reason of such Covered Person’s election to participate in a registration under this Article IV. All of the terms and provisions of this Article IV shall be binding upon, shall inure to the benefit of and shall be enforceable by the respective successors and permitted assigns of Lazard Ltd and any Covered Person with respect to registrations hereunder. Unless otherwise specified by Lazard Ltd in its sole discretion, any transferee (including, without limitation, any charitable foundation or public charities) of any Covered Person permitted in accordance with the applicable (in the case of Covered Interests) limited liability company agreement and otherwise in accordance with this Agreement that shall acquire Registrable Securities, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, shall, without any further action of any kind, be entitled to receive the benefits of and be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement to the aforesaid extent as if such person was a Covered Person hereunder with respect to the relevant registration. Lazard Ltd may, however, as a condition thereto require any such transferee to be added to Appendix A hereto in accordance with Section 5.2(b) hereof or otherwise sign an agreement acknowledging that is bound by the terms and provisions of the Agreement as if such transferee were a Covered Person with respect to the relevant registration.

 

Section 4.15 Acknowledgement Regarding Lazard Ltd. All determinations necessary or advisable under this Article IV shall be made by Lazard Ltd, the determinations of which shall be final and binding.

 

Section 4.16 Mergers, Recapitalizations, Exchanges or Other Transactions Affecting Registrable Securities. The provisions of this Agreement shall

 

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apply to the full extent set forth herein with respect to the Registrable Securities, to any and all securities or capital stock of LAZ-MD, Lazard Group or Lazard Ltd or any successor or assign of any such company (whether by merger, amalgamation, consolidation, sale of assets or otherwise) that may be issued in respect of, in exchange for, or in substitution of such Registrable Securities, by reason of any dividend, split, issuance, reverse split, combination, recapitalization, reclassification, merger, amalgamation, consolidation or otherwise.

 

ARTICLE V

MISCELLANEOUS

 

Section 5.1 Term of the Agreement; Termination of Certain Provisions.

 

(a) The term of this Agreement shall continue until the first to occur of (i) such time as no Covered Person holds any Covered Interests or Registrable Securities and (ii) such time as this Agreement is terminated by the affirmative vote of Covered Persons that beneficially own not less than 66 2/3% of the outstanding Voting Interests.

 

(b) Unless this Agreement is theretofore terminated pursuant to Section 5.1(a) hereof, a Covered Person shall be bound by the provisions of this Agreement with respect to any Covered Interest or Registrable Security until such time as such Covered Person ceases to hold any Covered Interest or Registrable Security. Thereafter, such Covered Person shall no longer be bound by the provisions of this Agreement other than Sections 4.7, 4.8, 4.9 and 4.11 and Article V (the “Continuing Provisions”), and such Covered Person’s name shall be removed from Appendix A to this Agreement.

 

(c) Any transferee of a Covered Interest pursuant to, and in accordance with, a permitted transfer under the Operating Agreement or the Lazard Group Operating Agreement (each, a “Permitted Transferee”) shall be added to Appendix A as a Covered Person; provided that such Permitted Transferee shall first sign an agreement in the form approved by Lazard Ltd acknowledging that such Permitted Transferee is bound by the terms and provisions of the Agreement.

 

Section 5.2 Amendments; Waiver.

 

(a) The provisions of this Agreement may be amended only by the affirmative vote of a majority of the outstanding Voting Interests and the consent of Lazard Ltd and LAZ-MD; provided, that, (a) any amendment to Section 5.1(a) shall require the affirmative approval of 66 2/3% of the outstanding Voting Interests and (b) with respect to Article III hereof (and the defined terms to the extent used therein), the provisions of such article may be amended only by the affirmative vote of a majority of the outstanding Voting Interests and the consent of LAZ-MD; and, provided, further, that with respect

 

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to Article IV hereof (and the defined terms to the extent used therein), the provisions of such article may be amended only by the affirmative vote of a majority of the outstanding Voting Interests and the consent of Lazard Ltd.

 

(b) In addition to any other vote or approval that may be required under this Section 5.2, any amendment of this Agreement that has the effect of changing the obligations of LAZ-MD or Lazard Ltd hereunder to make such obligations materially more onerous to LAZ-MD or Lazard Ltd shall require the approval of LAZ-MD or Lazard Ltd, as the case may be.

 

(c) Each Covered Person understands that it is intended that each Class II Member on the date hereof will be a Covered Person under this Agreement, and each Covered Person further understands that from time to time certain other persons may become Covered Persons and certain Covered Persons will cease to be bound by the provisions of this Agreement pursuant to the terms hereof. This Agreement may be amended from time to time by LAZ-MD (without the approval of any other person), but solely for the purposes of (i) adding to Appendix A Permitted Transferees of the Covered Interests as provided in Section 5.1(c) who sign this Agreement and (ii) removing from Appendix A such persons as shall cease to be bound by the provisions of this Agreement pursuant to Sections 5.1(b) hereof, which additions and removals shall be given effect from time to time by appropriate changes to Appendix A.

 

(d) No provision of this Agreement may be waived except by an instrument in writing executed by the party against whom the waiver is to be effective.

 

Section 5.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.

 

Section 5.4 Resolution of Disputes.

 

(a) Lazard Ltd shall have the sole and exclusive power to seek enforcement of the provisions contained in Articles IV of this Agreement on behalf of the Covered Persons. Lazard Ltd may in its sole discretion request LAZ-MD to conduct such enforcement, and LAZ-MD agrees to conduct such enforcement as requested and directed by Lazard Ltd.

 

(b) All disputes arising under this Agreement (each a “Disputes”) shall be determined in accordance with this Section 5.4. Each Dispute shall first be reviewed by the Board (“Board Review”). Any party to a Dispute may invoke Board Review by written notice to the other party or parties thereto and the Board. As soon as practicable and in any event within thirty (30) days after receipt of notice of a Dispute, the Board shall attempt in good faith to resolve such Dispute. In the event that any Dispute remains

 

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unresolved forty-five (45) days after notice thereof to the Board, such Dispute shall be finally determined by an arbitral tribunal under the Rules of Arbitration (the “ICC Rules”) of the International Chamber of Commerce (the “ICC”) and in accordance with Section 5.4(c).

 

(c) The arbitral tribunal determining any Dispute shall be comprised of three arbitrators. Each party to a Dispute shall designate one arbitrator. If a party fails to designate an arbitrator within a reasonable period, the ICC shall designate an arbitrator for such party, including upon a request by another party. The two arbitrators designated by the parties to a Dispute (or, if applicable, the ICC) shall designate a third arbitrator. In the event that the two arbitrators designated by the parties to a Dispute (or, if applicable, the ICC) are unable to agree upon a third arbitrator within a reasonable period, the third arbitrator shall be selected in accordance with the ICC Rules by the ICC. The language, place and procedures of the arbitration of any Dispute shall be as agreed upon by the parties to such Dispute or, failing such agreement within a reasonable period, as determined in accordance with the ICC Rules in order to ensure a speedy, efficient and just resolution of such Dispute. If neither the parties nor the arbitral tribunal can agree upon procedures, the arbitration shall be conducted in accordance with the ICC’s procedures. The hearings and taking of evidence of any Dispute may be conducted at any locations that will, in the judgment of the arbitral tribunal, result in a speedy, efficient and just resolution of such Dispute. The parties to any dispute shall use their best efforts to cooperate with each other and the arbitral tribunal in order to obtain a resolution as quickly as possible, including by adopting the ICC’s “fast-track” procedure (as provided for in Article 32(1) of the ICC Rules) if appropriate.

 

(d) Notwithstanding any provision of the Agreement to the contrary, this Section 5.4(c) shall be construed to the maximum extent possible to comply with the laws of the State of Delaware, including the Uniform Arbitration Act (10 Del. C. § 5701 et seq.) (the “Delaware Arbitration Act”). If, nevertheless, it shall be determined by a court of competent jurisdiction that any provision or wording of this Section 5.4(c), including the ICC Rules and any rules of the American Arbitration Association, shall be invalid or unenforceable under the Delaware Arbitration Act, or other applicable law, such invalidity shall not invalidate all of this Section 5.4(c). In that case, this Section 5.4(c) shall be construed so as to limit any term or provision so as to make it valid or enforceable within the requirements of the Delaware Arbitration Act or other applicable law, and, in the event such term or provision cannot be so limited, this Section 5.4(c) shall be construed to omit such invalid or unenforceable provision.

 

(e) Notwithstanding the provisions of paragraphs (a) and (b) above, Lazard Ltd may bring, or may cause LAZ-MD to bring, on behalf of Lazard Ltd or on behalf of one or more Covered Persons, an action or special proceeding in a state or federal court of competent jurisdiction sitting in the State of Delaware, whether or not an arbitration proceeding has theretofore

 

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been or is ever initiated, for the purpose of temporarily, preliminarily or permanently enforcing the provisions of Article IV and, for the purposes of this paragraph (c), each Covered Person (i) expressly consents to the application of paragraph (d) to any such action or proceeding, (ii) agrees that proof shall not be required that monetary damages for breach of the provisions of this Agreement would be difficult to calculate and that remedies at law would be inadequate and (iii) irrevocably appoints                  of LAZ-MD, c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801 as such Covered Person’s agent for service of process in connection with any such action or proceeding, who shall promptly advise such Covered Person of any such service of process.

 

(f) EACH COVERED PERSON HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE STATE OF DELAWARE OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO OR CONCERNING THIS AGREEMENT THAT IS NOT OTHERWISE ARBITRATED ACCORDING TO THE PROVISIONS OF PARAGRAPH (B) HEREOF. This includes any suit, action or proceeding to compel arbitration or to enforce an arbitration award. The parties acknowledge that the forum designated by this paragraph (d) has a reasonable relation to this Agreement, and to the parties’ relationship with one another. Notwithstanding the foregoing, nothing herein shall preclude the LAZ-MD or Lazard Ltd from bringing any action or proceeding in any other court for the purpose of enforcing the provisions of this Section 5.4.

 

(g) The agreement of the parties as to forum is independent of the law that may be applied in the action, and they each agree to such forum even if the forum may under applicable law choose to apply non-forum law. The parties hereby waive, to the fullest extent permitted by applicable law, any objection which they now or hereafter may have to personal jurisdiction or to the laying of venue of any such suit, action or proceeding brought in any court referred to in paragraph (d)(i). The parties undertake not to commence any action arising out of or relating to or concerning this Agreement in any forum other than a forum described in paragraph (d)(i). The parties agree that, to the fullest extent permitted by applicable law, a final and non-appealable judgment in any such suit, action or proceeding in any such court shall be conclusive and binding upon the parties.

 

Section 5.5 Relationship of Parties; Acknowledgements.

 

(a) The terms of this Agreement are intended not to create a separate entity for U.S. federal income tax purposes, and nothing in this Agreement shall be read to create any partnership, joint venture or separate entity among the parties or to create any trust or other fiduciary relationship between them.

 

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(b) Each Covered Person, by executing this Agreement, acknowledges and agrees that such person is a member of each of LAZ-MD and LFCM and bound by the terms of the Operating Agreement and the LFCM Operating Agreement, respectively.

 

Section 5.6 Transfer Restrictions; Legends.

 

(a) General Restrictions on Transfer. Each Covered Person acknowledges and agrees that the Covered Interests have not been registered under the Securities Act. Each Covered Person agrees that such person shall not Transfer any Covered Interests (or solicit any offers in respect of any Transfer of any Covered Interests), except in compliance with the Securities Act, any other applicable securities or “blue sky” laws, and the terms and conditions of this Agreement and the Operating Agreement. Any attempt to Transfer any Covered Interests not in compliance with this Agreement or the Operating Agreement shall be null and void, and neither LAZ-MD nor Lazard Ltd, as the case may be, shall, and shall cause any transfer agent not to, give any effect in the applicable company’s stock records to such attempted Transfer.

 

(b) Legends. Each Covered Person acknowledges that the following legend shall appear on the certificates for Covered Shares reflecting the restrictions set forth in Section 5.6(a). Lazard Ltd shall, at the request of any Covered Person, remove from each certificate evidencing Covered Shares the following legend if Lazard Ltd is reasonably satisfied (based upon an opinion of counsel) that the securities evidenced thereby may be publicly sold without registration under the Securities Act:

 

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY FOREIGN OR STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR OTHERWISE DISPOSED OF EXCEPT (1) IN COMPLIANCE THEREWITH OR (2) UPON THE FURNISHING TO LAZARD LTD BY THE HOLDER OF THIS CERTIFICATE AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO LAZARD LTD THAT SUCH TRANSACTION IS NOT REQUIRED TO BE REGISTERED UNDER APPLICABLE SECURITIES LAWS.

 

Section 5.7 Notices.

 

(a) Any communication, demand or notice to be given hereunder will be duly given (and shall be deemed to be received) when delivered in writing by hand or first class mail or by telecopy to a party at its address as indicated below:

 

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If to a Covered Person,

 

[Name of Covered Person]

c/o LAZ-MD Holdings LLC

30 Rockefeller Plaza

New York, New York 10020

Telecopy: (212) 632-2000

Attention: Board of Directors

 

If to LAZ-MD, at

 

LAZ-MD Holdings LLC

30 Rockefeller Plaza

New York, New York 10020

Telecopy: (212) 632-2000

Attention: Board of Directors

 

If to Lazard Ltd, at

 

Lazard Ltd

30 Rockefeller Plaza

New York, New York 10020

Telecopy: (212) 632-2000

Attention: General Counsel

 

LAZ-MD shall be responsible for notifying each Covered Person of the receipt of a communication, demand or notice under this Agreement relevant to such Covered Person at the address of such Covered Person then in the records of LAZ-MD (and each Covered Person shall notify LAZ-MD of any change in such address for communications, demands and notices).

 

(b) Unless otherwise provided to the contrary herein, any notice which is required to be given in writing pursuant to the terms of this Agreement may be given by telecopy.

 

Section 5.8 Severability. If any provision of this Agreement is finally held to be invalid, illegal or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired and (b) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision.

 

Section 5.9 Specific Performance. Each party hereto acknowledges that the remedies at law of the other parties for a breach or threatened breach of this Agreement would be inadequate and, in recognition of this fact, any part to this Agreement, without posting any bond, and in addition to all other remedies that may be available, shall, subject to Section 5.4, be entitled to obtain equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy that may be then available.

 

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Section 5.10 Assignment; Successors. This Agreement shall be binding upon and inure to the benefit of the respective legatees, legal representatives, successors and assigns of the Covered Persons; provided, however, that a Covered Person may not assign this Agreement or any of his rights or obligations hereunder, and any purported assignment in breach hereof by a Covered Person shall be void; and provided further that no assignment of this Agreement by LAZ-MD, Lazard Ltd or to a successor of LAZ-MD or Lazard Ltd (by operation of law or otherwise) shall be valid unless such assignment is made to a person which succeeds to the business of such Person substantially as an entirety.

 

Section 5.11 No Third-Party Rights. Other than as expressly provided herein, nothing in this Agreement will be construed to give any person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns.

 

Section 5.12 Section Headings. The headings of sections in this Agreement are provided for convenience only and will not affect its construction or interpretation.

 

Section 5.13 Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute but one and the same instrument.

 

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IN WITNESS WHEREOF, the parties hereto have duly executed or caused to be duly executed this Agreement as of the dates indicated.

 

LAZ-MD HOLDINGS LLC

By

    
   

Name:

    
   

Title:

    
LAZARD LTD (solely for the purposes of Articles I, II, IV and V hereto)

By

    
   

Name:

    
   

Title:

    

 

[Signature Page to Stockholders’ Agreement]

 

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Form of Fourth Amended and Restated Limited Liability Company Operating Agm't

Exhibit 10.2

 

FORM OF

 

OPERATING AGREEMENT

 

OF

 

LAZARD GROUP LLC

 

Dated as of                 , 2005

TABLE OF CONTENTS

 

          Page
ARTICLE I     
DEFINITIONS     
SECTION 1.01.    Definitions    4
SECTION 1.02.    Other Definitional Provisions    13
SECTION 1.03.    References to Schedules    13
ARTICLE II
FORMATION, CONTINUATION AND POWERS
SECTION 2.01.    Formation and Continuation    14
SECTION 2.02.    Name    14
SECTION 2.03.    Purpose and Scope of Activity    14
SECTION 2.04.    Principal Place of Business    14
SECTION 2.05.    Registered Agent and Office    14
SECTION 2.06.    Authorized Persons    15
SECTION 2.07.    Specific Authorization    15
ARTICLE III
MANAGEMENT
SECTION 3.01.    Management Generally    15
SECTION 3.02.    Lazard Board    15
SECTION 3.03.    Officers    18
SECTION 3.04.    Resignations    21
SECTION 3.05.    Members    21
ARTICLE IV
MEMBERS AND INTERESTS
SECTION 4.01.    Members    22
SECTION 4.02.    Managing Member    22
SECTION 4.03.    Interests    22
SECTION 4.04.    Admission and Withdrawal of Members    24
SECTION 4.05.    Liability to Third Parties; Capital Account Deficits    26
SECTION 4.06.    Classes    26
SECTION 4.07.    Certificates    27

 

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ARTICLE V
CAPITAL AND ACCOUNTING MATTERS
SECTION 5.01.    Capital    27
SECTION 5.02.    Withdrawals; Return on Capital    27
SECTION 5.03.    Allocation of Profits and Losses    27
SECTION 5.04.    Allocations and Tax Matters    28
SECTION 5.05.    Board Determinations    29
SECTION 5.06.    Books and Accounts    29
SECTION 5.07.    Tax Matters Partner    30
SECTION 5.08.    Tax Information    30
SECTION 5.09.    Withholding    30
ARTICLE VI
DISTRIBUTIONS
SECTION 6.01.    Distributions in Respect of Profit Participation Interests    31
SECTION 6.02.    Distributions in Respect of Common Interests    32
SECTION 6.03.    Limitation on Distributions    32
ARTICLE VII
TRANSFERS OF INTERESTS
SECTION 7.01.    Transfer of Interests    32
SECTION 7.02.    Permitted Transfers    32
SECTION 7.03.    First Redemption    34
SECTION 7.04.    Second Redemption    34
SECTION 7.05.    Lazard Group Exchange    34
SECTION 7.06.    Estate Transfers    35
SECTION 7.07.    Encumbrances    35
SECTION 7.08.    Legend    36
SECTION 7.09.    Effect of Transfer Not in Compliance with This Article    36
ARTICLE VIII
DISSOLUTION
SECTION 8.01.    Dissolution    36
SECTION 8.02.    Liquidation    37
SECTION 8.03.    Distributions    37

 

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ARTICLE IX
INDEMNIFICATION AND EXCULPATION
SECTION 9.01.    Exculpation    38
SECTION 9.02.    Indemnification    38
SECTION 9.03.    Non-Exclusivity of Rights    41
SECTION 9.04.    Insurance    41
SECTION 9.05.    Survival    41
ARTICLE X
MISCELLANEOUS
SECTION 10.01.    Use of Firm Name    41
SECTION 10.02.    Amendments    41
SECTION 10.03.    Benefits of Agreement    42
SECTION 10.04.    Waiver of Notice    42
SECTION 10.05.    Arbitration    42
SECTION 10.06.    Successors and Assigns    43
SECTION 10.07.    Confidentiality    43
SECTION 10.08.    Notices    44
SECTION 10.09.    No Waiver of Rights    44
SECTION 10.10.    Power of Attorney    44
SECTION 10.11.    Severability    45
SECTION 10.12.    Headings    45
SECTION 10.13.    Entire Agreement    45
SECTION 10.14.    Governing Law    45
SECTION 10.15.    Counterparts    45
SECTION 10.16.    Effectiveness    45
SECTION 10.17.    Corporate Opportunity; Fiduciary Duty    45

 

Exhibits
     
Exhibit A    Acknowledgement
Exhibit B    Certain Tax Related Matters

 

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OPERATING AGREEMENT (together with all exhibits, annexes and schedules hereto, this “Agreement”) of LAZARD GROUP LLC (formerly known as Lazard LLC), a Delaware limited liability company (the “Company”), dated as of                 , 2005.

 

WHEREAS, the Amended and Restated Limited Partnership Agreement made as of May 6, 1988, as amended (the “Partnership Agreement”), constituted the partnership agreement of Lazard Partners Limited Partnership, a Delaware limited partnership (the “Partnership”); and

 

WHEREAS, effective as of 5:00 a.m., New York City time, on March 3, 2000, the Partnership was converted into the Company under the Delaware Limited Liability Company Act (6 Del. C. § 18-101, et seq.) (as amended from time to time and any successor statute thereto, the “Act”) and the ownership, capital and profit sharing interests in the Partnership were reorganized into ownership, capital and profit sharing interests in the Company; and

 

WHEREAS, on March 3, 2000, certain members of Lazard Frères & Co. LLC, a New York limited liability company (“LFNY”), and certain shareholders of Lazard Frères S.A.S., a French Société par Actions Simplifiée (“LF”), and Maison Lazard S.A.S., a French Société par Actions Simplifiée (“ML” and, together with LF, “LFP”), transferred their ownership, capital and profit sharing interests in LFNY and LFP to the Company in exchange for ownership, capital and profit sharing interests in the Company; and

 

WHEREAS, as of March 16, 2001, the members of the Company entered into an Amended and Restated Operating Agreement of the Company, dated as of March 16, 2001 (the “First Amended Operating Agreement”), amending and restating in its entirety the Operating Agreement of the Company dated March 3, 2000 (the “Original Operating Agreement”) to reflect certain amendments thereto; and

 

WHEREAS, as of May 30, 2001, the members of the Company entered into a Second Amended and Restated Operating Agreement of the Company, dated as of May 30, 2001 (the “Second Amended Operating Agreement”), amending and restating in its entirety the First Amended Operating Agreement to reflect certain amendments thereto; and

 

WHEREAS, as of January 1, 2002, the members of the Company entered into a Third Amended and Restated Operating Agreement of the Company, dated as of January 1, 2002 (the “Initial Third Amended Operating Agreement”), amending and restating in its entirety the Second Amended Operating Agreement to reflect certain amendments thereto; and

 

WHEREAS, the members of the Company amended the Initial Third Amended Operating Agreement pursuant to Amendment No.1 dated as of January 10, 2003, Amendment No. 2, dated as of December 10, 2003, and Amendment No. 3, dated as of December 15, 2004, to reflect certain amendments thereto; and

 

WHEREAS, on December 16, 2004, the Company entered into that certain Class B-1 and Class C Members Transaction Agreement relating to Lazard LLC (the “Transaction Agreement”); and

WHEREAS, the members of the Company further amended the Initial Third Amended Operating Agreement pursuant to Amendment No. 4, dated as of the date hereof and Amendment No. 5, dated as of the date hereof, to reflect certain amendments thereto (as so amended through Amendment No. 5, the “Third Amended Operating Agreement”); and

 

WHEREAS, on the date hereof after the effectiveness of the amendments to the Third Amended Operating Agreement on the date hereof, the Company entered into that certain Master Separation Agreement (the “Master Separation Agreement”) with Lazard Ltd, a Bermuda company (“Lazard Ltd”), LAZ-MD Holdings LLC, a Delaware limited liability company (“LAZ-MD”), and LFCM Holdings LLC, a Delaware limited liability company and currently wholly owned subsidiary of the Company (“LFCM”); and

 

WHEREAS, pursuant to the Transaction Agreement, on the date hereof and after entry into the Master Separation Agreement, certain Class B-1 Members and Class C Members (each as defined in the Third Amended Operating Agreement) transferred Class B-1 Interests and Class C Interests (each as defined in the Third Amended Operating Agreement) to LAZ-MD, and simultaneously therewith, pursuant to Section 6.02(b) of the Third Amended Operating Agreement, all other Interests (as defined in the Third Amended Operating Agreement) were transferred to LAZ-MD in exchange for limited liability company interests in LAZ-MD (the “Forced Sale”); and

 

WHEREAS, pursuant to and simultaneously with the consummation of the Exchange and the Forced Sale, all members of the Company immediately prior to the Exchange and the Forced Sale ceased to be members of the Company, and LAZ-MD was admitted to the Company as the sole member and is continuing the Company without dissolution; and

 

WHEREAS, LAZ-MD, as the sole member of the Company, is entering into this Agreement to amend and restate in its entirety the Third Amended Operating Agreement, effective immediately, to reflect, among other things, (1) the recapitalization of the Company’s limited liability company interests into new classes of limited liability company interests having the rights and obligations set forth herein, (2) the reconstitution of the management and governance of the Company as set forth herein, and (3) the change in the name of the Company to “Lazard Group LLC”; and

 

WHEREAS, on the date hereof, immediately after the effectiveness of this Agreement, the Company is causing the filing of a Certificate of Amendment to its Certificate of Formation with the Secretary of State of the State of Delaware to reflect the change in the Company’s name from “Lazard LLC” to “Lazard Group LLC”; and

 

WHEREAS, pursuant to, and subject to satisfaction or waiver of the conditions set forth in, the Transaction Agreement and the Master Separation Agreement, on the date hereof, LAZ-MD shall redeem the limited liability company interests in LAZ-MD that were issued in exchange for Class B-1 Interests and Class C Interests (each as defined in the Third Amended Operating Agreement) for the Redeemable Interests (as defined below), effective immediately after effectiveness of this Agreement (the “First Redemption”); and

 

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WHEREAS, pursuant to, and subject to satisfaction or waiver of the conditions set forth in, the Transaction Agreement and the Master Separation Agreement, immediately after consummation of the First Redemption, the Company shall contribute all of its right, title and interests in and to certain businesses and assets of the Company (the “Separated Business”) to LFCM, and the Company shall delegate, and LFCM shall assume, certain liabilities, including liabilities relating to the Separated Business, and the Company shall distribute all of the limited liability company interests in LFCM to LAZ-MD, in each case, on the terms and subject to the conditions set forth in the Master Separation Agreement (collectively, the “Separation”); and

 

WHEREAS, pursuant to, and subject to satisfaction or waiver of the conditions set forth in, the Transaction Agreement and the Master Separation Agreement, immediately after consummation of the Separation, (1) Lazard Ltd shall consummate the initial public offering of shares of Class A common stock, par value $.01 per share, of Lazard Ltd (the “Lazard Ltd Common Stock”), (2) Lazard Ltd shall cause Lazard Ltd Sub A (as defined below) to contribute to the Company a portion of the net proceeds from such initial public offering on the terms and subject to the conditions set forth in the Master Separation Agreement (the “Lazard Ltd Sub A Contribution”), and Lazard Ltd shall cause Lazard Ltd Sub B (as defined below) to contribute to the Company a portion of the net proceeds from such initial public offering on the terms and subject to the conditions set forth in the Master Separation Agreement (the “Lazard Ltd Sub B Contribution”), and (3) in exchange therefor, the Company shall issue to Lazard Ltd Sub A a Common Interest (each as defined herein) and to Lazard Ltd Sub B a Common Interest and admit each of Lazard Ltd Sub A and Lazard Ltd Sub B as Common Members and Lazard Group Finance LLC, a Delaware limited liability company (“FinanceCo”), as the Managing Member, in each case in accordance with the Master Separation Agreement and effective immediately upon consummation of the contributions in accordance with this Agreement (the “Common Stock Offering Transaction”); and

 

WHEREAS, pursuant to, and subject to satisfaction or waiver of the conditions set forth in, the Transaction Agreement and the Master Separation Agreement, immediately after the consummation of the Separation, the Company shall sell debt securities to certain institutional investors and shall sell debt securities to FinanceCo (such sales, together with the Common Stock Offering Transaction, the “Financing Transactions”); and

 

WHEREAS, pursuant to, and subject to satisfaction or waiver of the conditions set forth in, the Transaction Agreement and the Master Separation Agreement, immediately after consummation of the Financing Transactions, the Company shall redeem the Redeemable Interests for the Redemption Consideration (as defined below) (the “Second Redemption”); and

 

WHEREAS, each of the Lazard Board (as defined in the Third Amended Operating Agreement) and LAZ-MD, in its capacity as the sole member of the Company, has approved and adopted this Agreement.

 

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NOW, THEREFORE, the Member hereby amends and restates in its entirety the Third Amended Operating Agreement and adopts the following as the “limited liability company agreement” of the Company within the meaning of the Act:

 

ARTICLE I

 

DEFINITIONS

 

SECTION 1.01. Definitions. As used in this Agreement, the following terms have the meanings set forth below:

 

“Accounting Period” means (i) in the case of the first Accounting Period, the period commencing on the date of this Agreement and ending at the next Closing of the Books Event, and (ii) in the case of each subsequent Accounting Period, the period commencing immediately after a Closing of the Books Event and ending at the next Closing of the Books Event.

 

“Acknowledgment” means a Membership Acknowledgement and Agreement with respect to the Profit Participation Interests in the form attached hereto as Exhibit A.

 

“Act” has the meaning set forth in the recitals to this Agreement.

 

“Adjusted Percentage Interest” means, with respect to a Common Member (other than a Lazard Ltd Member) the product of (i) the Tax Rate (as determined by the Company in its sole discretion) applicable to such Common Member and (ii) a fraction, the numerator of which is the Percentage Interest of such Common Member and the denominator of which is the sum of the Percentage Interests for all Common Members (other than the Lazard Ltd Members).

 

“Affiliate” means, with respect to any person, any other person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such person.

 

“Agreement” has the meaning set forth in the preamble to this Agreement.

 

“Alternative Tax Rate” means the weighted average of the Tax Rates (weighted in proportion to relative Percentage Interests) applicable to Common Members other than the Lazard Ltd Members.

 

“Ancillary Agreements” means “Ancillary Agreements” as defined in that Master Separation Agreement.

 

“Applicable Tax Rate” means the greater of the Lazard Ltd Tax Rate and the Alternative Tax Rate.

 

“Bankruptcy Event” means the occurrence of any of the events described in Section 18-304 of the Act or any similar provision of any successor statute.

 

“Cap” has the meaning set forth in Section 5.04.

 

“Capital” means, with respect to any Member, such Member’s Common Capital and/or Profit Participation Capital, as applicable.

 

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“Capital Account” has the meaning set forth in Section 5.01.

 

“Certificate of Conversion” means the certificate of conversion converting the Partnership into the Company filed with the office of the Secretary of State of the State of Delaware on March 2, 2000.

 

“Certificate of Formation” means the certificate of formation of the Company filed with the office of the Secretary of State of the State of Delaware on March 2, 2000.

 

“Closing of the Books Event” means any of (i) the close of the last day of each calendar year and each calendar quarter, (ii) the close of any date on which there occurs a dissolution of the Company, the admission of a new Common Member or the withdrawal of a Common Member, or (iii) any other time that the Lazard Board determines to be appropriate for an interim closing of the Company’s books.

 

“Code” means the U.S. Internal Revenue Code of 1986, as amended from time to time.

 

“Common Capital” means, with respect to any Common Member, the balance in such Member’s Common Capital Account from time to time.

 

“Common Capital Account” has the meaning set forth in Section 5.01.

 

“Common Interest” means, with respect to any Common Member, such Member’s Common Units and Common Capital and rights and obligations with respect to the Company pursuant to this Agreement and applicable law by virtue of such Member holding such Common Units and having such Common Capital.

 

“Common Member” means any person who, from time to time, is entitled to a Common Interest pursuant to and in compliance with this Agreement and who shall have been admitted to the Company as a Common Member in accordance with this Agreement and shall not have ceased to be a Common Member under the terms of this Agreement.

 

“Common Member’s Proportionate Tax Share” means (i) with respect to a Lazard Ltd Member, the product of (x) the Lazard Ltd Tax Distribution for the fiscal year, fiscal quarter or other period, as applicable, and (y) a fraction, the numerator of which is the Percentage Interest of such Lazard Ltd Member for such fiscal year, fiscal quarter or other period and the denominator of which is the sum of the Percentage Interests for all Lazard Ltd Members for such fiscal year, fiscal quarter or other period and (ii) with respect to a Common Member other than a Lazard Ltd Member, the product of (x) the Remaining Tax Distribution for the fiscal year, fiscal quarter or other period, as applicable, and (y) a fraction, the numerator of which is the Adjusted Percentage Interest of such Common Member for such fiscal year, fiscal quarter or other period and the denominator of which is the sum of the Adjusted Percentage Interests for all Common Members (other than the Lazard Ltd Members) for such fiscal year, fiscal quarter or other period. In the event that the Percentage Interest of a Common Member changes during any fiscal year, fiscal quarter or other period, the Common Member’s Proportionate Tax Share of such Common Member and the other Common Members, as the case may be, for such fiscal year, fiscal quarter or other period shall be appropriately adjusted to take into account the Common Members’ varying interests.

 

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“Common Stock Offering Transaction” has the meaning set forth in the recitals to this Agreement.

 

“Common Tax Distribution” means, for each fiscal year, fiscal quarter or other period of the Company during the term of the Company, the product of (i) the aggregate amount of taxable income or gain allocated to the Common Members pursuant to Section 5.04(a)(ii) for such fiscal year, fiscal quarter or other period and (ii) the Applicable Tax Rate for such fiscal year, fiscal quarter or other period.

 

“Common Units” has the meaning set forth in Section 4.03(b).

 

“Company” has the meaning set forth in the preamble to this Agreement.

 

“Conversion Agreement” means the Conversion Agreement dated as of March 3, 2000, among the requisite percentage of the partners of the Partnership.

 

“Coordination Agreement” means the Amended and Restated Coordination Agreement, to be entered into as of the date hereof, by and among the Company, LFP, LB, LFNY and LAM.

 

“Delaware Arbitration Act” has the meaning set forth in Section 10.05(d).

 

“Directors” has the meaning set forth in Section 3.02(a).

 

“Disputes” has the meaning set forth in Section 10.05.

 

“Dividend Distribution” means, for each Common Member, the product of (1) the number of Common Units held by such Member and (2) the per share cash dividend, if any, to be paid on such date as declared by the Board of Directors of Lazard Ltd.

 

“Elective Lazard Group Exchange” has the meaning set forth in Section 7.05(b).

 

“Encumbrance” has the meaning set forth in Section 7.07.

 

“Estate Transfer” has the meaning set forth in Section 7.06.

 

“Estate Transferee” has the meaning set forth in Section 7.06.

 

“Executive Review” has the meaning set forth in Section 10.05(b).

 

“FinanceCo” has the meaning set forth in the recitals to this Agreement.

 

“Financing Transactions” has the meaning set forth in the recitals to this Agreement.

 

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“First Amended Operating Agreement” has the meaning set forth in the recitals to this Agreement.

 

“First Redemption” has the meaning set forth in the recitals to this Agreement.

 

“Forced Sale” has the meaning set forth in the recitals to this Agreement.

 

“Governing Agreements” means the constitutional or organizational documents (including, if applicable, any limited liability company agreement, certificate of incorporation or formation, articles of incorporation or formation, bylaws, statuts or similar documents or agreements) of each House.

 

“Head of Lazard and Chairman of the Executive Committee” means the Chief Executive Officer of the Company.

 

“Houses” means LB, LFNY, LFP and the Other Houses.

 

“ICC” has the meaning set forth in Section 10.05(b).

 

“ICC Rules” has the meaning set forth in Section 10.05(b).

 

“Immediate Lazard Group Exchange” has the meaning set forth in Section 7.05(a).

 

“Initial Third Amended Operating Agreement” has the meaning set forth in the recitals to this Agreement.

 

“Interest” means a Common Interest, a Profit Participation Interest and, until the consummation of the Second Redemption, a Redeemable Interest.

 

“LAM” means Lazard Asset Management LLC, a Delaware limited liability company and a Subsidiary of the Company.

 

“LAZ-MD” has the meaning set forth in the recitals to this Agreement.

 

“LAZ-MD Common Members” means all of the Common Members other than Lazard Ltd and its Subsidiaries (including Lazard Ltd Sub A and Lazard Ltd Sub B).

 

“LAZ-MD Exchange” means a “LAZ-MD Exchange” as defined in the LAZ-MD Operating Agreement.

 

“LAZ-MD Exchangeable Interest” means a “Class II Interest” of LAZ-MD having the rights and obligations set forth in the limited liability company agreement of LAZ-MD as in effect from time to time.

 

“LAZ-MD Exchanging Member” means a “LAZ-MD Exchanging Member” as defined in the LAZ-MD Operating Agreement.

 

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“LAZ-MD Operating Agreement” means the Operating Agreement of LAZ-MD Holdings LLC, dated as of the date hereof, as it may be amended from time to time.

 

“Lazard Board” has the meaning set forth in Section 3.01.

 

“Lazard Group Exchange” has the meaning set forth in Section 7.05(b).

 

“Lazard Group Exchange Consideration” has the meaning set forth in Section 7.05(a).

 

“Lazard Ltd” has the meaning set forth in the recitals to this Agreement.

 

“Lazard Ltd Affiliate” has the meaning set forth in Section 10.17(a).

 

“Lazard Ltd Board” has the meaning set forth in Section 3.02(f).

 

“Lazard Ltd Bye-Laws” means the Bye-Laws of Lazard Ltd, as amended and restated as of the date hereof and as further amended or supplemented from time to time.

 

“Lazard Ltd Common Stock” has the meaning set forth in the recitals to this Agreement.

 

“Lazard Ltd Member” means Lazard Ltd Sub A and Lazard Ltd Sub B.

 

“Lazard Ltd Nominating Committee” has the meaning set forth in Section 3.02(f).

 

“Lazard Ltd Recipient” has the meaning set forth in Section 7.02(a).

 

“Lazard Ltd Sub A” means the Subsidiary of Lazard Ltd designated as such on Schedule 1.01.

 

“Lazard Ltd Sub A Contribution” has the meaning set forth in the recitals to this Agreement.

 

“Lazard Ltd Sub B” means the Subsidiary of Lazard Ltd designated as such on Schedule 1.01.

 

“Lazard Ltd Sub B Contribution” has the meaning set forth in the recitals to this Agreement.

 

“Lazard Ltd Tax Distribution” means the product of (i) the Common Tax Distribution for the fiscal year, fiscal quarter or other period, as applicable and (ii) the aggregate Percentage Interest of the Lazard Ltd Members.

 

“Lazard Ltd Tax Rate” means the greater of Lazard Ltd Sub A’s Tax Rate and Lazard Ltd Sub B’s Tax Rate.

 

“Lazard Mark” means (a) any service mark or trademark which includes the word “Lazard” or the initials “LF,” including fund names and designations such as “Lazard Asset

 

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Management,” or (b) any other word or design service mark or trademark which (1) has been used or licensed by any of LB (or any of its predecessor companies), LFNY, LF, ML or the Company or (2) has been designated as a Lazard Mark by the Lazard Board on or after the date hereof.

 

“Lazard Name” means any of the firm names Lazard, Lazard Brothers or Lazard Frères or any other firm name which includes the word “Lazard.”

 

“LB” means Lazard & Co., Holdings Limited, an English private limited company.

 

“LF” means Lazard Frères S.A.S., a French Société par Actions Simplifiée.

 

“LFCM” has the meaning set forth in the recitals to this Agreement.

 

“LFNY” means Lazard Frères & Co. LLC, a New York limited liability company.

 

“LFP” means each of LF and ML.

 

“Managing Director” means (a) a managing director or limited managing director of LFNY, (b) an Associé-Gérant of LF, (c) a managing director or limited managing director of LB or (d) a managing director, limited managing director or comparable executive of one of the Other Houses, as applicable; provided, however, that “Managing Director” shall exclude any managing director or limited managing director of LAM, in their capacity as such.

 

“Managing Member” has the meaning set forth in Section 4.02.

 

“Mandatory Lazard Group Exchange” has the meaning set forth in Section 7.05(b).

 

“Mandatory LAZ-MD Exchange” means a “Mandatory Exchange” as defined in the LAZ-MD Operating Agreement.

 

“Master Separation Agreement” has the meaning set forth in the recitals to this Agreement.

 

“MD Common Member” has the meaning set forth in Section 7.05(b).

 

“Members” means the Common Members, Profit Participation Members, the Managing Member and, until the consummation of the Second Redemption, a Redeemable Member, and “Member” means any of the foregoing.

 

“ML” means Maison Lazard S.A.S., a French Société par Actions Simplifiée.

 

“Original Operating Agreement” has the meaning set forth in the recitals to this Agreement.

 

“Other Houses” means LAM and all Subsidiaries of the Company that shall be designated by the Company as a house (but excluding LB, LFNY and LFP).

 

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“Partial LAZ-MD Mandatory Exchange” means a “Partial LAZ-MD Mandatory Exchange” as defined in the Master Separation Agreement.

 

“Partnership” has the meaning set forth in the recitals to this Agreement.

 

“Partnership Agreement” has the meaning set forth in the recitals to this Agreement.

 

“Percentage Interest” means, with respect to a Common Member, the ratio, expressed as a percentage, of the number of Common Units held by such Common Member over the number of Common Units held by all Common Members.

 

“Profit Participation Capital” means, with respect to any Profit Participation Member, the balance in such Member’s Profit Participation Capital Account from time to time.

 

“Profit Participation Capital Account” has the meaning set forth in Section 5.01.

 

“Profit Participation Interest” means, with respect to any Profit Participation Member, such Member’s Profit Participation Percentage and Profit Participation Capital and rights and obligations with respect to the Company pursuant to this Agreement and applicable law by virtue of such Member holding such Profit Participation Percentage and having such Profit Participation Capital.

 

“Profit Participation Member” means any person who has acquired a Profit Participation Interest pursuant to and in compliance with this Agreement and who shall have been admitted to the Company as a Profit Participation Member in accordance with this Agreement and shall not have ceased to be a Profit Participation Member under the terms of this Agreement.

 

“Profit Participation Percentage” means, with respect to any Accounting Period, (1) the profit percentage of a Profit Participation Member under the terms of this Agreement for such Accounting Period determined in accordance with Section 4.03, or (2) the profit percentage constituting the Unallocated Float.

 

“Profit Participation Member’s Proportionate Tax Share” means, with respect to a Profit Participation Member, the product of (x) the Profit Participation Tax Distribution for the fiscal year, fiscal quarter or other period, as applicable, and (y) the Profit Participation Percentage of such Profit Participation Member for such fiscal year, fiscal quarter or other period. In the event that the Profit Participation Percentage of a Profit Participation Member changes during any fiscal year, fiscal quarter or other period, the Profit Participation Member’s Proportionate Tax Share of such Profit Participation Member and the other Profit Participation Members, as the case may be, for such fiscal year, fiscal quarter or other period shall be appropriately adjusted to take into account the Profit Participation Members’ varying interests.

 

“Profit Participation Tax Distribution” means, for each fiscal year, fiscal quarter or other period of the Company during the term of the Company, the product of (i) the aggregate amount of taxable income or gain allocated to the Profit Participation Members pursuant to Section 5.04(a)(i) for such fiscal year, fiscal quarter or other period and (ii) the Applicable Tax Rate for such fiscal year, fiscal quarter or other period.

 

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“Proportionate Distribution Amount” has the meaning set forth in Section 8.03(a).

 

“Quarterly Common Tax Distribution” means, for each Common Member for each of the first three fiscal quarters of the Company during the term of the Company, such Common Member’s Proportionate Tax Share for such fiscal quarter.

 

“Quarterly Profit Participation Tax Distribution” means, for each Profit Participation Member for each of the first three fiscal quarters of the Company during the term of the Company, such Profit Participation Member’s Proportionate Tax Share for such fiscal quarter.

 

“Redeemable Class B-1 Interest” means, with respect to any Redeemable Class B-1 Member, such Member’s interest in the Company designated as a “Redeemable Class B-1 Interest” and such Member’s rights and obligations with respect to the Company pursuant to this Agreement and applicable law by virtue of such Member holding such Redeemable Class B-1 Interest.

 

“Redeemable Class B-1 Member” means any person who has acquired a Redeemable Class B-1 Interest pursuant to and in compliance with this Agreement and who shall have been admitted to the Company as a Redeemable Class B-1 Member in accordance with this Agreement and shall not have ceased to be a Redeemable Class B-1 Member under the terms of this Agreement.

 

“Redeemable Class C Interest” means, with respect to any Redeemable Class C Member, such Member’s interest in the Company designated as a “Redeemable Class C Interest” and such Member’s rights and obligations with respect to the Company pursuant to this Agreement and applicable law by virtue of such Member holding such Redeemable Class C Interest.

 

“Redeemable Class C Member” means any person who has acquired a Redeemable Class C Interest pursuant to and in compliance with this Agreement and who shall have been admitted to the Company as a Redeemable Class C Member in accordance with this Agreement and shall not have ceased to be a Redeemable Class C Member under the terms of this Agreement.

 

“Redeemable Interest” means, with respect to any Redeemable Member, such Member’s Redeemable Class B-1 Interest and Redeemable Class C Interest.

 

“Redeemable Member” means any Redeemable Class B-1 Member or Redeemable Class C Member.

 

“Redemption Consideration” has the meaning set forth in Section 4.03(d).

 

“Remaining Tax Distribution” means the excess of the Common Tax Distribution for the fiscal year, fiscal quarter or other period, as applicable, over the Lazard Ltd Tax Distribution.

 

“Retirement” means, with respect to any Profit Participation Member, (1) the resignation, removal (including, for the avoidance of doubt, for cause) or withdrawal of such

 

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Member from the Company, (2) such Member ceasing to be a Managing Director, (3) the purported Transfer by such Member of his or her Profit Participation Interest in violation of Article VII, (4) the death of such Member, or (5) the occurrence with respect to such Member of any of the events set forth in Section 18-304 of the Act. “Retired” and “Retiring” have meanings correlative thereto.

 

“Second Amended Operating Agreement” has the meaning set forth in the recitals to this Agreement.

 

“Second Redemption” has the meaning set forth in the recitals to this Agreement.

 

“Separated Business” has the meaning set forth in the recitals to this Agreement.

 

“Separation” has the meaning set forth in the recitals to this Agreement.

 

“Subsidiary” means, with respect to any person, any corporation, limited liability company, company, partnership, trust, association or other legal entity or organization of which such person (either directly or through one or more Subsidiaries of such person) (a) owns, directly or indirectly, a majority of the capital stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation, limited liability company, partnership, trust, association or other legal entity or organization, or (b) is otherwise entitled to exercise (1) a majority of the voting power generally in the election of the board of directors or other governing body of such corporation, limited liability company, partnership, trust, association or other legal entity or organization or (2) control of such corporation, limited liability company, partnership, trust, association or other legal entity or organization.

 

“Tax Rate” means, with respect to a Common Member, the highest aggregate marginal statutory federal, state, local and foreign income, franchise and branch profits tax rate (determined taking into account the deductibility of state and local income taxes for federal income tax purposes and the creditability or deductibility of foreign income taxes for federal income tax purposes) applicable to a person or entity, as appropriate, whose principal tax residence is in the same national jurisdiction as such Common Member on income of the same character and source as the income allocated to such Common Member pursuant to Section 5.04(a)(ii) for such fiscal year, fiscal quarter or other period; provided, that in the case of a Common Member that is a partnership, grantor trust or other pass-through entity under United States federal income tax law, such Common Member’s Tax Rate shall be the weighted average of the Tax Rates of such Common Member’s members, grantor-owners or other beneficial owners (weighted in proportion to their relative economic interests in such Common Member) and provided further that if any such member, grantor-owner or other beneficial owner of such Common Member is itself a partnership, grantor trust or other-pass through entity similar principles shall be applied to determine the Tax Rate of such member, grantor-owner or other beneficial owner.

 

“Third Amended Operating Agreement” has the meaning set forth in the recitals to this Agreement.

 

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“Transaction Agreement” has the meaning set forth in the recitals to this Agreement.

 

“Transfer” means any transfer, sale, conveyance, assignment, gift, hypothecation, pledge or other disposition, whether voluntary or by operation of law, of all or any part of an Interest or any right, title or interest therein.

 

“Transferee” means the transferee in a Transfer or proposed Transfer.

 

“Transferor” means the transferor in a Transfer or proposed Transfer.

 

“Unallocated Float” means any Profit Participation Percentage for any Accounting Period that is not allocated to a particular Member.

 

SECTION 1.02. Other Definitional Provisions. Wherever required by the context of this Agreement, the singular shall include the plural and vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa, and references to any agreement, document or instrument shall be deemed to refer to such agreement, document or instrument as amended, supplemented or modified from time to time. When used herein:

 

(a) the word “or” is not exclusive;

 

(b) the word “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any person, means the direct or indirect possession of the power to direct or cause the direction of the management or policies of such person, whether through the ownership of voting securities, by contract or otherwise;

 

(c) the words “including,” “includes,” “included” and “include” are deemed to be followed by the words “without limitation”;

 

(d) the terms “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision;

 

(e) the word “person” means any individual, corporation, limited liability company, trust, joint venture, association, company, partnership or other legal entity or a government or any department or agency thereof or self-regulatory organization; and

 

(f) all section, paragraph or clause references not attributed to a particular document shall be references to such parts of this Agreement, and all exhibit, annex and schedule references not attributed to a particular document shall be references to such exhibits, annexes and schedules to this Agreement.

 

SECTION 1.03. References to Schedules. The Chief Executive Officer and General Counsel shall maintain and revise from time to time all schedules referred to in this Agreement in accordance with this Agreement. Notwithstanding anything in Section 10.02 to the contrary, any such revision shall not be deemed an amendment to this Agreement, and shall

 

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not require any act, vote or approval of any person. The Company shall not be obligated by this Agreement to distribute or otherwise provide to the Members copies of or access to such schedules.

 

ARTICLE II

 

FORMATION, CONTINUATION AND POWERS

 

SECTION 2.01. Formation and Continuation. Effective as of 5:00 a.m., New York City time, on March 3, 2000, the Partnership was converted into a limited liability company pursuant to the provisions of the Act by the filing of the Certificate of Conversion and the Certificate of Formation. Pursuant to the Act, the existence of the Company is deemed to have commenced on June 12, 1984, the date the Partnership was formed. Pursuant to the Conversion Agreement, the Certificate of Conversion and the Certificate of Formation, the business of the Partnership was continued by the Company. The Company became the owner of all the assets of the Partnership and became liable for all the obligations of the Partnership, as provided in the Conversion Agreement. Pursuant to the Act, for all purposes of the laws of the State of Delaware, the Company is deemed to be the same entity as the Partnership. The name of the Company is hereby changed from “Lazard LLC” to “Lazard Group LLC,” and a Certificate of Amendment to the Certificate of Formation is being filed by                 , as a designated “authorized person” within the meaning of the Act, on the date hereof to reflect such change. This Agreement shall be effective upon execution by LAZ-MD as the sole initial Member.

 

SECTION 2.02. Name. The name of the Company is “Lazard Group LLC”.

 

SECTION 2.03. Purpose and Scope of Activity. The Company has been formed for the object and purpose of, and the nature of the business to be conducted by the Company is, engaging in any lawful business purpose or activity for which limited liability companies may be formed under the Act, and engaging in any and all activities necessary or incidental to the foregoing. The Company shall possess and may exercise all the powers and privileges granted by the Act or by any other law or by this Agreement, together with any powers incidental thereto, that are necessary or convenient to the conduct, promotion or attainment of the business, purposes or activities of the Company.

 

SECTION 2.04. Principal Place of Business. For purposes of the Act, the principal place of business of the Company shall be located in New York, New York or at such other place as may hereafter be designated from time to time by the Lazard Board. Company, committee and board meetings shall take place at the Company’s principal place of business unless decided otherwise for any particular meeting.

 

SECTION 2.05. Registered Agent and Office. The registered agent for service of process is, and the mailing address of the registered office of the Company in the State of Delaware is in care of, The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware. At any time, the Company may designate another registered agent and/or registered office.

 

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SECTION 2.06. Authorized Persons. The execution and causing to be filed of the Certificate of Conversion, the Certificate of Formation and the Certificate of Amendment to the Certificate of Formation by the applicable authorized persons are hereby specifically ratified, adopted and confirmed. The officers of the Company are hereby designated as authorized persons, within the meaning of the Act, to act in connection with executing and causing to be filed, when approved by the appropriate governing body or bodies hereunder, any certificates required or permitted to be filed with the Secretary of State of the State of Delaware and any certificates (and any amendments and/or restatements thereof) necessary for the Company to file in any jurisdiction in which the Company is required to make a filing.

 

SECTION 2.07. Specific Authorization. The execution, delivery and performance by the Company and                 , on behalf of the Company, of each of the Transaction Agreement, the Master Separation Agreement and                  are hereby ratified for all purposes hereunder. The Company is hereby authorized to execute, deliver and perform, and each Director and officer on behalf of the Company is hereby authorized to execute and deliver, the Coordination Agreement, each Ancillary Agreement to which the Company is a party and each other document, agreement or notice contemplated by the Master Separation Agreement and the Transaction Agreement and all documents, agreements, certificates, or financing statements contemplated by, or related to, any such agreements or the Transaction Agreement or the Master Separation Agreement.

 

ARTICLE III

 

MANAGEMENT

 

SECTION 3.01. Management Generally. Except as otherwise expressly provided in this Agreement with respect to the Managing Member, the business and affairs of the Company shall be managed under the direction of the board of directors of the Company (the “Lazard Board”). In addition to the powers and authorities by this Agreement expressly conferred upon them, the Lazard Board may exercise all such powers of the Company and do all such lawful acts and things as are not by the Act or by this Agreement required to be exercised or done by the Members or the Managing Member. Certain powers and authorities of the Lazard Board may be concurrently allocated to or executed by the Chief Executive Officer, or one or more other officers, when and to the extent expressly delegated thereto by the Lazard Board in accordance with this Agreement; provided, that, subject to the provisions of Section 3.02, any such delegation may be revoked at any time and for any reason by the Lazard Board. Approval by or action taken by the Lazard Board in accordance with this Agreement shall constitute approval or action by the Company and shall be binding on the Members. Each Director on the Lazard Board shall be a “manager” of the Company within the meaning of the Act.

 

SECTION 3.02. Lazard Board. (a) Composition. The Lazard Board shall consist of                  (            ) managers (the “Directors”); provided that the number of Directors may be increased or decreased from time to time exclusively by the Managing Member. The members of the Lazard Board are set forth on Schedule 3.02(a). Schedule 3.02(a) shall be amended pursuant to Section 1.03 to reflect any change in the identity of the members of, or increase or decrease in the size of, the Lazard Board in accordance with this Agreement. Each Director shall continue in such position until his or her successor shall have been duly elected and shall have

 

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qualified or until the earlier of his or her death, disability, resignation, retirement or removal from such position.

 

(b) Vacancies; Removal. Vacancies resulting from death, resignation, retirement, removal from office or other cause, and newly created directorships resulting from any increase in the authorized number of Directors, may be filled only by the Managing Member. Any Director may be removed at any time, with or without cause, by the Managing Member in its sole discretion.

 

(c) Compensation of Directors. Directors of the Company, in their capacity as such, shall not be entitled to compensation, unless, and to the extent, approved by the Managing Member.

 

(d) Meetings. Meetings of the Lazard Board shall be held at the Company’s principal place of business or such other place, within or without the State of Delaware, that has been designated from time to time by the Lazard Board. Meetings of the Lazard Board for any purpose or purposes may be called at any time by (i) the Managing Member, (ii) the Chief Executive Officer, (iii) the Chairman of the Board, or (iv) a majority of the Directors then in office. Notice of any meeting of the Lazard Board shall be given to each Director at his business or residence in writing by hand delivery, first-class or overnight mail or courier service, electronic mail transmission, telegram or facsimile transmission, or orally by telephone. If mailed by first-class mail, such notice shall be deemed adequately delivered when deposited in the United States mails so addressed, with postage thereon prepaid, at least five (5) days before such meeting. If by telegram, overnight mail or courier service, such notice shall be deemed adequately delivered when the telegram is delivered to the telegraph company or the notice is delivered to the overnight mail or courier service company at least twenty-four (24) hours before such meeting. If by electronic mail transmission, such notice shall be deemed adequately delivered when the notice is transmitted at least twenty-four (24) hours before such meeting. If by facsimile transmission, such notice shall be deemed adequately delivered when the notice is transmitted at least twelve (12) hours before such meeting. If by telephone or by hand delivery, the notice shall be given at least twelve (12) hours prior to the time set for the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Lazard Board need be specified in the notice of such meeting. A meeting may be held at any time without notice if all the Directors are present or if those not present waive notice of the meeting in accordance with Section 3.02(g) of this Agreement. Notwithstanding anything to the contrary set forth herein, notice of any meeting of the Lazard Board to discuss, resolve or act upon (1) the removal of, or any request for the resignation or retirement of, the Chairman of the Board or the Chief Executive Officer from such office or (2) any revocation, reduction or limitation of the powers or authorities delegated or otherwise granted to the Chairman of the Board or the Chief Executive Officer shall in each case be deemed adequately delivered only if given to each of the Directors and, if such person is not a Director, the Chairman of the Board or Chief Executive Officer, as applicable, in each case in accordance with this Section 3.02(d) at least seven (7) business days before the date of such meeting (it being understood that the failure to provide adequate notice in accordance with this sentence shall invalidate any action or resolution of the Lazard Board to remove, or to request the resignation or retirement of, the Chairman of the Board or the Chief Executive Officer from such office or to revoke, reduce or limit the powers or authorities delegated or otherwise granted to the Chairman of the Board or the Chief Executive Officer taken at such meeting).

 

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(e) Quorum; Alternates; Participation in Meetings by Conference Telephone Permitted. The presence of a majority of the Directors then in office shall constitute a quorum for the transaction of business. If at any meeting of the Lazard Board there shall be less than a quorum present, a majority of the Directors present may adjourn the meeting from time to time without further notice. Directors may participate in a meeting of the Lazard Board through use of conference telephone or similar communications equipment, so long as all Directors participating in such meeting can communicate with and hear one another. The Directors present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough Directors to leave less than a quorum.

 

(f) Vote Required for Action. The act of the majority of the Directors present at a meeting of the Lazard Board at which a quorum is present shall be the act of the Lazard Board; provided, however, that, notwithstanding anything herein to the contrary, any action or resolution of the Lazard Board (i) to remove, or to request the resignation or retirement of, the Chairman of the Board or the Chief Executive Officer from such office or (ii) to revoke, reduce or limit the powers or authorities delegated or otherwise granted to the Chairman of the Board or the Chief Executive Officer shall in each case require (1) the approval of each of the Nominating and Governance Committee of the Board of Directors of Lazard Ltd (the “Lazard Ltd Nominating Committee”) and the Board of Directors of Lazard Ltd (the “Lazard Ltd Board”) in accordance with Article 24 of the Lazard Ltd Bye-Laws and (2) after each of the approvals set forth in clause (1) of this proviso have been so obtained, the affirmative vote of a majority of the Directors then in office, to be an act of the Lazard Board.

 

(g) Waiver of Notice; Consent to Meeting. Notice of a meeting need not be given to any Director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such Director. All such waivers, consents and approvals shall be filed with the Company’s records and made a part of the minutes of the meeting.

 

(h) Action by Lazard Board Without a Meeting. Any action required or permitted to be taken by the Lazard Board may be taken without a meeting and without prior notice if a majority of the Directors then in office shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Lazard Board. Such action by written consent shall have the same force and effect as a vote of the Lazard Board in favor of such action. Notwithstanding anything to the contrary set forth herein, any action or resolution of the Lazard Board (i) to remove, or request the resignation or retirement of, the Chairman of the Board or the Chief Executive Officer from such office or (ii) to revoke, reduce or limit the powers or authorities delegated or otherwise granted to the Chairman of the Board or the Chief Executive Officer may in each case only be taken or made at a meeting of the Lazard Board held in accordance with Section 3.02(d) (including the last sentence thereof).

 

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(i) Executive and Other Committees. The Lazard Board may, by resolution adopted by a majority of the Lazard Board then in office, designate an Executive Committee to exercise, subject to applicable provisions of law, all the powers of the Lazard Board in the management of the business and affairs of the Company when the Lazard Board is not in session, including without limitation the power to make distributions, to authorize the issuance of Interests if and to the extent permitted by this Agreement and to approve mergers of the Company, and may, by resolution similarly adopted, designate one or more other committees. The Executive Committee and each such other committee shall consist of two or more Directors of the Company. The Lazard Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, other than the Executive Committee (the powers of which are expressly provided for herein), may to the extent permitted by law exercise such powers and shall have such responsibilities as shall be specified in the designating resolution. In the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Lazard Board to act at the meeting in the place of any such absent or disqualified member. Each committee shall keep written minutes of its proceedings and shall report such proceedings to the Lazard Board when required. A majority of any committee may determine its action and fix the time and place of its meetings, unless the Lazard Board shall otherwise provide. Notice of such meetings shall be given to each member of the committee in the manner provided for in Section 3.02(d). The Lazard Board shall have power at any time to fill vacancies in, to change the membership of, or to dissolve any such committee. Nothing herein shall be deemed to prevent the Lazard Board from appointing one or more committees consisting in whole or in part of persons who are not Directors of the Company; provided, however, that no such committee shall have or may exercise any authority of the Lazard Board. Notwithstanding anything herein to the contrary, no committee (including the Executive Committee) shall have the power or authority (i) to remove, or to request the resignation or retirement of, the Chairman of the Board or the Chief Executive Officer from such office or (ii) to revoke, reduce or limit the powers or authorities delegated or otherwise granted to the Chairman of the Board or the Chief Executive Officer, which actions may only be taken by the Lazard Board in accordance with this Section 3.02.

 

(j) Records. The Lazard Board shall cause to be kept a record containing the minutes of the proceedings of the meetings of the Lazard Board and of the Members, appropriate books and registers and such books of records and accounts as may be necessary for the proper conduct of the business of the Company.

 

(k) Agents. To the extent of their powers set forth in this Agreement, the Directors are agents of the Company for the purpose of the Company’s business, and the actions of the Directors taken in accordance with such powers set forth in this Agreement shall bind the Company. Notwithstanding the last sentence of Section 18-402 of the Act, except as provided in this Agreement or in a resolution of the Directors, a Director may not bind the Company.

 

SECTION 3.03. Officers. (a) The elected officers of the Company shall be a Chairman of the Board of Directors, a Chief Executive Officer, a Vice Chairman, a President, a Chief Financial Officer, a General Counsel, a Treasurer, and such other officers as the Lazard Board from time to time may deem proper. The Chairman of the Board shall be chosen from

 

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among the Directors. All officers elected by the Lazard Board shall each have such powers and duties as generally pertain to their respective offices if the Company were a Delaware corporation, subject to the specific provisions of this Section 3.03. Such officers shall also have such powers and duties as from time to time may be conferred by the Lazard Board or by any committee thereof. The Lazard Board or any committee thereof may from time to time elect, or the Chairman of the Board or Chief Executive Officer may appoint, such other officers (including one or more Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers, and Assistant Controllers) and such agents, as may be necessary or desirable for the conduct of the business of the Company. Such other officers and agents shall have such duties and shall hold their offices for such terms as shall be provided in this Agreement or as may be prescribed by the Lazard Board or such committee or by the Chairman of the Board or Chief Executive Officer, as the case may be; provided that, notwithstanding anything in this Section 3.03 to the contrary, such powers and duties may not impair, and shall be subordinate to, the powers and duties of the Lazard Board set forth in Section 3.01 hereof. The identity and office of the Officers are set forth on Schedule 3.03(a). Schedule 3.03(a) shall be amended pursuant to Section 1.03 to reflect any change in the identity or office of the Officers in accordance with this Agreement.

 

(b) Term of Office. Each officer shall hold office until his or her successor shall have been duly elected and shall have qualified or until his or her death or until he or she shall resign or retire, but any officer may be removed from office with or without cause at any time by the Lazard Board (subject to the provisions of Section 3.02 in the case of the Chairman of the Board and the Chief Executive Officer) or, except in the case of an officer or agent elected by the Lazard Board, by the Chairman of the Board or Chief Executive Officer. Such removal shall be without prejudice to the contractual rights, if any, of the person so removed.

 

(c) Chairman of the Board. The Chairman of the Board shall preside at all meetings of the Members (if any shall be called) and of the Lazard Board. The Chairman of the Board may also serve as Chief Executive Officer, if so elected by the Lazard Board.

 

(d) Chief Executive Officer. The Chief Executive Officer shall act in a general executive capacity and shall be responsible for the general management of the affairs of the Company and shall perform all duties incidental to his or her office that may be required by law and all such other duties as are properly required of him by the Lazard Board. He or she shall make reports to the Lazard Board and the Members, and shall see that all orders and resolutions of the Lazard Board and of any committee thereof are carried into effect. The Chief Executive Officer shall, in the absence of or because of the inability to act of the Chairman of the Board, perform all duties of the Chairman of the Board and preside at all meetings of Members (if any shall be called) and of the Lazard Board.

 

(e) Vice Chairman. The Vice Chairman shall be the chief administrative officer of the Company. He or she shall assist the Chief Executive Officer in the general supervision of the Company’s administration and operations; and, in general, he or she shall perform all the duties incident to the office of Vice Chairman and such other duties as from time to time may be assigned to him by the Lazard Board, the Chairman of the Board or the Chief Executive Officer.

 

(f) President. The President shall assist the Chief Executive Officer with respect to strategic matters involving the Company; and, in general, he or she shall perform all the duties incident to the office of President and such other duties as from time to time may be assigned to him by the Lazard Board, the Chairman of the Board or the Chief Executive Officer.

 

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(g) Chief Financial Officer. The Chief Financial Officer shall be the chief financial officer of the Company and act in an executive financial capacity. He or she shall assist the Chief Executive Officer in the general supervision of the Company’s financial policies and affairs; and, in general, he or she shall perform all the duties incident to the office of Chief Financial Officer and such other duties as from time to time may be assigned to him by the Lazard Board, the Chairman of the Board or the Chief Executive Officer.

 

(h) General Counsel. The General Counsel shall keep or cause to be kept in one or more books provided for that purpose, the minutes of all meetings of the Lazard Board, the committees of the Lazard Board and the Members (if any shall be called); he or she shall see that all notices are duly given in accordance with the provisions of this Agreement and as required by law; he or she shall be custodian of the records; and he or she shall see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and, in general, he or she shall perform all the duties incident to the office of General Counsel and such other duties as from time to time may be assigned to him by the Lazard Board, the Chairman of the Board or the Chief Executive Officer.

 

(i) Treasurer. The Treasurer shall exercise general supervision over the receipt, custody and disbursement of corporate funds. The Treasurer shall cause the funds of the Company to be deposited in such banks as may be authorized by the Lazard Board, or in such banks as may be designated as depositaries in the manner provided by resolution of the Lazard Board. He or she shall have such further powers and duties and shall be subject to such directions as may be granted or imposed upon him from time to time by the Lazard Board, the Chairman of the Board or the Chief Executive Officer.

 

(j) Executive Vice Presidents. Each Executive Vice President shall have such powers and shall perform such duties as shall be assigned to him by the Lazard Board.

 

(k) Other Officers. The Lazard Board may from time to time as it deems advisable appoint other officers of the Company and assign titles and functional titles to any such individual. Such officers shall have such functions, powers and obligations, including such power to bind the Company as the Lazard Board shall delegate to them.

 

(l) Contracts. Notwithstanding any other provision contained in this Agreement and except as required by law, any contracts or other instruments may be executed and delivered in the name and on the behalf of the Company by such officer or officers of the Company as the Lazard Board may from time to time direct. Such authority may be general or confined to specific instances as the Lazard Board may determine. The Chairman of the Board, the Chief Executive Officer, the Vice Chairman, the President, Chief Financial Officer, General Counsel or any Executive Vice President may execute bonds, contracts, deeds, leases and other instruments to be made or executed for or on behalf of the Company. Subject to any restrictions imposed by the Lazard Board, the Chairman of the Board, the Chief Executive Officer, the Vice Chairman, the President, Chief Financial Officer, General Counsel or any Executive Vice President may delegate contractual powers to others under his jurisdiction, it being understood, however, that any such delegation of power shall not relieve such officer of responsibility with respect to the exercise of such delegated power.

 

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(m) Proxies. Unless otherwise provided by resolution adopted by the Lazard Board, the Chairman of the Board, the Chief Executive Officer, the Vice Chairman, the President, Chief Financial Officer, General Counsel or any Executive Vice President may from time to time appoint an attorney or attorneys or agent or agents of the Company, in the name and on behalf of the Company, to cast the votes which the Company may be entitled to cast as the holder of stock or other securities in any other person, any of whose stock or other securities may be held by the Company, at meetings of the holders of the stock or other securities of such other person, or to consent in writing, in the name of the Company as such holder, to any action by such other person, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the Company and under its corporate seal or otherwise, all such written proxies or other instruments as he or she may deem necessary or proper in the premises.

 

(n) Removal. Any officer elected, or agent appointed, by the Lazard Board may be removed by the affirmative vote of a majority of the Lazard Board then in office with or without cause, subject, in the case of the Chairman of the Board or the Chief Executive Officer, to the provisions of Section 3.02. Any officer or agent appointed by the Chairman of the Board or the Chief Executive Officer may be removed by such person with or without cause. No elected officer shall have any contractual rights against the Company for compensation by virtue of such election beyond the date of the election of his successor, his death, his resignation or his removal, whichever event shall first occur, except as otherwise provided in an employment contract or under an employee deferred compensation plan.

 

(o) Vacancies. A newly created elected office and a vacancy in any elected office because of death, resignation, or removal may be filled by the Lazard Board for the unexpired portion of the term at any meeting of the Lazard Board. Any vacancy in an office appointed by the Chairman of the Board or the Chief Executive Officer because of death, resignation, or removal may be filled by the Chairman of the Board or the Chief Executive Officer.

 

SECTION 3.04. Resignations. Any Director or any officer, whether elected or appointed, may resign at any time by giving written notice of such resignation to the Chairman of the Board, the Chief Executive Officer or General Counsel, and such resignation shall be deemed to be effective as of the close of business on the date said notice is received by the Chairman of the Board, the Chief Executive Officer or General Counsel, or at such later time as is specified therein. No formal action shall be required of the Lazard Board or the Members (including the Managing Member) to make any such resignation effective.

 

SECTION 3.05. Members. (a) No Member Voting Rights. The Members shall not have voting rights under the Act, this Agreement or otherwise, and shall not be entitled to consent to, approve or authorize any actions by the Company, except (1) in the case of the Managing Member, as set forth herein, and (2) in the case of the Common Members, as explicitly provided in Section 10.02. Without in any way limiting the foregoing, the Members shall not have voting rights with respect to the matters set forth in Sections 18-209, 18-213, 18-216,

 

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18-702, 18-704, 18-801 and 18-803 of the Act, all of which voting and approval rights shall be vested in the Lazard Board, except as expressly set forth herein with respect to the Managing Member.

 

(b) Authority of Members. Except as expressly set forth herein with respect to the Managing Member, no Member shall have any power or authority, in such Member’s capacity as a Member, to act for or bind the Company except to the extent that such Member is so authorized in writing prior thereto by the Lazard Board. Without limiting the generality of the foregoing, except as expressly set forth herein with respect to the Managing Member, no Member, as such, shall, except as so authorized, have any power or authority to incur any liability or execute any instrument, agreement or other document for or on behalf of the Company, whether in the Company’s name or otherwise.

 

ARTICLE IV

 

MEMBERS AND INTERESTS

 

SECTION 4.01. Members. The Company shall have a Managing Member, Common Members, Profit Participation Members and, until the consummation of the Second Redemption, Redeemable Members. Schedule 4.01 sets forth the name and address of the Members. Schedule 4.01 shall be amended pursuant to Section 1.03 to reflect any change in the identity or address of the Members in accordance with this Agreement. Each person admitted to the Company as a Member pursuant to this Agreement shall be a member of the Company until such person ceases to be a Member in accordance with the provisions of this Agreement.

 

SECTION 4.02. Managing Member. The Company shall have a managing member (the “Managing Member”) who shall have the rights, powers, duties and obligations set forth in this Agreement and no other rights, powers, duties or obligations. The Managing Member shall be a member of the Company that does not hold an Interest in its capacity as the Managing Member. Schedule 4.01 sets forth the name and address of the Managing Member. Schedule 4.01 shall be amended pursuant to Section 1.03 to reflect any change in the identity or address of the Managing Member in accordance with this Agreement. The Managing Member shall not be allocated, distributed or entitled to receive any interest in the profits, losses, assets or capital of the Company by reason of being designated as the Managing Member.

 

SECTION 4.03. Interests. (a) The Recapitalization of the Interests of the Company. Pursuant to the amendments effected by this Agreement, effective immediately, all of the limited liability company interests in the Company outstanding immediately prior to the effectiveness of this Agreement shall be cancelled, and replaced in their entirety as follows: (1) the Class A Interests and the Class B-2 Interests (each as defined in the Third Amended Operating Agreement) shall be cancelled and replaced in their entirety with the Common Interests set forth on Schedule 4.03, (2) the Class B-1 Interests (as defined in the Third Amended Operating Agreement) shall be cancelled and replaced in their entirety with the Redeemable Class B-1 Interests, (3) the Class C Interests (as defined in the Third Amended Operating Agreement) shall be cancelled and replaced in their entirety with the Redeemable Class C Interests, and (4) all other limited liability company interests in the Company shall be cancelled. The Company shall have three classes of Interests: Common Interests, Profit Participation Interests and, until the consummation of the Second Redemption, Redeemable Interests.

 

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(b) Common Interests. (i) The Common Interests shall consist of, and be issued as, units (“Common Units”) and Common Capital. The total number of authorized Common Units is 500,000,000, which is the total number of authorized shares of Lazard Ltd Common Stock on the date hereof. The number of authorized Common Units shall not be changed, modified or adjusted; provided, that in the event that the total number of authorized shares of Lazard Ltd Common Stock shall be increased or decreased after the date hereof in accordance with the Bye-Laws of Lazard Ltd, then the total number of authorized Common Units shall be correspondingly adjusted to the same number. Interests representing fractional Units may be issued. The number of Common Units issued to each Common Member is set forth on Schedule 4.03. Schedule 4.03 shall be amended pursuant to Section 1.03 to reflect any change in the number or the issuance or allocation of the Common Units in accordance with this Agreement.

 

(ii) Any authorized but unissued Common Units may be issued (1) by the Lazard Board, or (2) as provided in Section 4.04(a)(i) below, in each case without any further action or approval of any other person (except that each person issued Common Units must as a condition to such issuance be admitted to the Company as a Member).

 

(c) Profit Participation Interests. (i) The Profit Participation Interests shall consist of, and be allocated as, Profit Participation Percentages and Profit Participation Capital. The aggregate of all Profit Participation Percentages shall total 100%. The Profit Participation Percentages allocated to each of the Profit Participation Members and the Profit Participation Percentage contained in the Unallocated Float are set forth on Schedule 4.03. Schedule 4.03 shall be amended pursuant to Section 1.03 to reflect any change in identity of the Profit Participation Members and the Profit Participation Percentages in accordance with this Agreement.

 

(ii) In any Accounting Period, the Company (by action of the Chief Executive Officer or the Lazard Board) may from time to time change or otherwise modify any or all of the Profit Participation Percentages in his or her sole discretion, including by changing any Member’s Profit Participation Percentage to zero, allocating additional Profit Participation Interests from the Unallocated Float to new or existing Profit Participation Members or increasing or decreasing the aggregate Profit Participation Percentages allocated to the Members (with a corresponding decrease or increase in the Profit Participation Percentage contained in the Unallocated Float); provided that the aggregate of all Profit Participation Percentages allocated to the Members and the Profit Participation Percentages contained in the Unallocated Float shall total 100%.

 

(iii) Notwithstanding anything herein to the contrary, the Lazard Board shall have the power, in its sole discretion, to terminate the Profit Participation Interests, effective at the time specified in the resolutions of the Lazard Board approving such termination or, if not so specified in such resolutions, at the time that the resolutions approving such termination were approved by the Lazard Board. Upon termination of the Profit Participation Interests, all Profit Participation Interests shall immediately cease to be outstanding and shall no longer be allocable by the Company, and such termination shall have the effects set forth in Section 4.04(b)(ii).

 

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(d) Redeemable Interests. (i) The Redeemable Interests shall consist of Redeemable Class B-1 Interests and Redeemable Class C Interests. The Redeemable Class B-1 Interests shall consist solely of the right to receive the type and amount of consideration set forth opposite the applicable Redeemable Class B-1 Member’s name set forth on Schedule 4.03(d). The Redeemable Class C Interests shall consist solely of the right to receive the type and amount of consideration set forth opposite the applicable Redeemable Class C Member’s name set forth on Schedule 4.03(d) (the consideration to be paid in respect of the Redeemable Class B-1 Interests and Redeemable Class C Interests pursuant to this Section 4.03(d), the “Redemption Consideration”). The Redeemable Interests shall not have or consist of any capital accounts or rights in respect of the profits, gain or capital of the Company. Schedule 4.03(d) shall be amended pursuant to Section 1.03 to reflect any change in the identity of the Redeemable Members in accordance with this Agreement.

 

(ii) The Company shall have the right to effect the Second Redemption by redeeming the Redeemable Interests for the Redemption Consideration at any time after the First Redemption. Upon the redemption of the Redeemable Interests, all Redeemable Interests shall immediately cease to be outstanding and shall no longer be allocable by the Company, and such termination shall have the effects set forth in Section 4.04(c)(ii) and Section 4.04(c)(iii), as applicable.

 

SECTION 4.04. Admission and Withdrawal of Members. (a) Common Members. (i) Effective immediately upon the consummation of, in the case of Lazard Ltd Sub A, the Lazard Ltd Sub A Contribution or, in the case of Lazard Ltd Sub B, the Lazard Ltd Sub B Contribution, Lazard Ltd Sub A or Lazard Ltd Sub B, as applicable, shall be admitted to the Company as a Common Member and shall be issued a Common Interest pursuant to the Master Separation Agreement and this Agreement, and Lazard Ltd Sub A shall be issued an additional amount of Common Units and Common Capital pursuant to (A) any exercise of the Over-allotment Option (as defined in the Master Separation Agreement) in the amounts, on the terms and subject to the conditions set forth in the Master Separation Agreement and this Agreement, (B) the Third Party Investment (as defined in the Master Separation Agreement) in the amounts, on the terms and subject to the conditions set forth in the Master Separation Agreement and this Agreement, and (C) the Second Redemption as contemplated by Schedule 4.03(d) in the amounts, on the terms and subject to the conditions set forth in the Master Separation Agreement and this Agreement.

 

(ii) Any recipient of Common Units pursuant to any issuance under Section 4.03(b)(ii)(1) who is not a Common Member at the time of such issuance shall be admitted as an additional Common Member, and the issuance of the Common Interest shall be only effective, upon the execution, and delivery to the Company, by such recipient of an agreement in which such person agrees to be bound by this Agreement and any other agreements, documents or instruments specified by the Lazard Board. The admission of a Transferee as a Common Member pursuant to any Transfer permitted by Section 7.02(a) shall be governed by Section 7.02.

 

(iii) Effective immediately upon the Transfer of a Common Member’s entire Common Interest as provided in Section 7.02(a), such Member (or his estate) shall cease to have any interest in the profits, losses, assets, properties or capital of the Company (other than, in the event such Member is a Profit Participation Member, such Member’s Profit Participation Interest) and shall cease to be a Common Member.

 

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(b) Profit Participation Members. (i) Each of the Managing Directors as of immediately after the consummation of the Separation and the Recapitalization (each as defined in the Master Separation Agreement) who are set forth on Schedule 4.04(b) shall be admitted to the Company as a Profit Participation Member and issued a Profit Participation Interest immediately upon the execution, and delivery to the Lazard Board, by such person of an Acknowledgement; provided that in the event that a Managing Director shall not execute and deliver to the Lazard Board an Acknowledgement within sixty (60) days after the date hereof, such Managing Director shall not be admitted as a Profit Participation Member. The admission of a Transferee as a Profit Participation Member pursuant to any Transfer permitted by Section 7.02(b) shall be governed by Section 7.02.

 

(ii) Effective immediately upon the earliest of (1) Retirement of a Profit Participation Member or (2) termination of the Profit Participation Interests as provided in Section 4.03(c)(iii), such Member (or his estate) shall cease to have any interest in the profits, losses, assets, properties or capital of the Company (other than, in the event such Member is a Common Member, such Member’s Common Interest) and shall cease to be a Profit Participation Member; provided that, for the avoidance of doubt, under no circumstances shall any Profit Participation Member be entitled to receive or otherwise be distributed any of the Profit Participation Capital associated with such Member’s Profit Participation Interest in the event of the occurrence of any of the events set forth in clauses (1) – (2) of this sentence, which Profit Participation Capital shall be cancelled and cease to exist. Upon the Retirement of a Profit Participation Member, the Profit Participation Percentage associated with such Member’s Profit Participation Interest shall cease to be allocated and become part of the Unallocated Float.

 

(c) Redeemable Members. (i) The initial Redeemable Member is set forth on Schedule 4.03(d). The admission of a Transferee as a Redeemable Member pursuant to any Transfer permitted by Section 7.02(c) shall be governed by Section 7.02.

 

(ii) Effective immediately upon the payment or delivery of a Redeemable Class B-1 Member’s Redemption Consideration with respect to such Member’s Redeemable Class B-1 Interest, such Member shall cease to have any interest in the profits, losses, assets, properties or capital of the Company (other than, in the event such Member is a Common Member and/or a Profit Participation Member, such Member’s Common Interest and/or Profit Participation Interest, as applicable, and, if such Member is a Redeemable Class C Member, such Member’s Redeemable Class C Interest (unless redeemed as provided in clause (iii) below)), shall cease to have any right to receive any amounts in respect of its Redeemable Class B-1 Interest, and shall cease to be a Redeemable Class B-1 Member.

 

(iii) Effective immediately upon the payment or delivery of a Redeemable Class C Member’s Redemption Consideration with respect to such Member’s Redeemable Class C Interest, such Member shall cease to have any interest in the profits, losses, assets, properties or capital of the Company (other than, in the event such Member is a Common Member and/or a Profit Participation Member, such Member’s Common Interest and/or Profit Participation Interest, as applicable, and, if such Member is a Redeemable Class B-1 Member, such Member’s

 

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Redeemable Class B-1 Interest (unless redeemed as provided in clause (ii) above)), shall cease to have any right to receive any amounts in respect of its Redeemable Class C Interest, and shall cease to be a Redeemable Class C Member.

 

(d) Managing Member. (i) The initial Managing Member is LAZ-MD. Effective immediately upon consummation of the Common Stock Offering Transaction, LAZ-MD shall automatically cease to be the Managing Member (but shall otherwise remain a Member with respect to its Interests), and FinanceCo shall be admitted as, and become, the Managing Member. Notwithstanding anything in this Agreement to the contrary, the Managing Member may resign from the Company, and Lazard Ltd shall be entitled to remove the Managing Member for any reason (with or without cause), and in each case Lazard Ltd shall be entitled to appoint a new Managing Member. If the Managing Member shall resign pursuant to this Section or Lazard Ltd elects to remove the Managing Member, an additional member selected by Lazard Ltd in its sole discretion shall be admitted to the Company as the Managing Member upon its execution and delivery of an agreement to bound by the terms of this Agreement. Such admission shall be deemed effective immediately prior to the resignation or removal, and, immediately following such admission, the resigning or removed Managing Member shall cease to be a member of the Company (but, if applicable, shall otherwise remain a Member with respect to its Interests).

 

(ii) Notwithstanding anything herein to the contrary, upon the occurrence of a Bankruptcy Event with respect to FinanceCo, FinanceCo shall immediately cease to be the Managing Member of the Company, without any further action required on the part of FinanceCo or the Company, and Lazard Ltd (or, upon execution by such person of an agreement to be admitted to the Company as the Managing Member and be bound by this Agreement, any designee of Lazard Ltd) shall be admitted to the Company as the Managing Member, and such admission shall be deemed effective immediately upon such Bankruptcy Event.

 

(e) No Additional Members. No additional Members shall be admitted to the Company except in accordance with this Article IV.

 

SECTION 4.05. Liability to Third Parties; Capital Account Deficits. Except as may otherwise be expressly provided by the Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and the Members (including the Managing Member) and Directors shall not be obligated personally for any such debt, obligation or liability of the Company solely by reason of being Members or acting as managers or the Managing Member of the Company. The Members shall not be liable to make up any deficit in their Capital Accounts.

 

SECTION 4.06. Classes. As used in this Agreement, all Common Members, Profit Participation Members and Redeemable Members shall be deemed to be separate Members even if any Member holds more than one class of Interest. References to a certain class of Interest (or Unit or Capital) with respect to any Member shall refer solely to that class of Interest (or Unit or Capital) of such Member and not to any other class of Interest (or Unit or Capital), if any, held by such Member.

 

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SECTION 4.07. Certificates. The Company shall issue all Common Interests, and may in its discretion issue other Interests, in certificated form in accordance with Section 18-702(c) of the Act, which certificates shall be held by the Company as custodian for the applicable Members. The form of any such certificates shall be approved by the Lazard Board and include the legend required by Section 7.08.

 

ARTICLE V

 

CAPITAL AND ACCOUNTING MATTERS

 

SECTION 5.01. Capital. (a) Capital Accounts. There shall be established on the books and records of the Company a capital account for each Common Member (a “Common Capital Account”) and a capital account for each Profit Participation Member (a “Profit Participation Capital Account”; any of a Profit Participation Capital Account or a Common Capital Account, a “Capital Account”). Schedule 5.01 sets forth the names, Common Capital Accounts and Profit Participation Capital Accounts of the Members as of the date hereof. Such Schedule shall be deemed to be amended from time to time to reflect any change in the identity, Common Capital Accounts or Profit Participation Capital Accounts in accordance with this Agreement.

 

(b) Capital Contributions. (i) Pursuant to the Common Stock Offering Transaction, (A) Lazard Ltd Sub A shall make a capital contribution to the Company of an amount in cash equal to the Lazard Ltd Sub A Contribution, and, upon consummation of such capital contribution and admission as a Common Member as provided in Section 4.04(a), Lazard Ltd Sub A’s Common Capital Account shall accordingly be credited by an amount equal to the Lazard Ltd Sub A Contribution, and (B) Lazard Ltd Sub B shall make a capital contribution to the Company of an amount in cash equal to the Lazard Ltd Sub B Contribution, and, upon consummation of such capital contribution and admission as a Common Member as provided in Section 4.04(a), Lazard Ltd Sub B’s Common Capital Account shall accordingly be credited by an amount equal to the Lazard Ltd Sub B Contribution.

 

(ii) Except as otherwise provided in Section 5.01(b)(i), no capital contributions shall be required (1) unless otherwise determined by the Lazard Board and agreed to by the contributing Member, (2) unless otherwise determined by the Lazard Board in connection with the admission of a new Member or the issuance of additional Interests to a Member, or (3) except as provided in the Master Separation Agreement.

 

(iii) The Company may invest or cause to be invested all amounts received by the Company as capital contributions in its sole discretion.

 

SECTION 5.02. Withdrawals; Return on Capital. No Member shall be entitled to withdraw or otherwise receive any distributions in respect of any Capital, except (a) in the case of Common Interests, as provided in Section 8.03 or as approved by the Lazard Board, or (b) in the case of Profit Participation Interests, as provided in Section 6.01. The Members shall not be entitled to any return on their Capital.

 

SECTION 5.03. Allocation of Profits and Losses. As of the end of each Accounting Period, the balance in each Member’s Capital Account shall be adjusted by

 

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(x) increasing such balance by (i) such Member’s allocable share of each item of the Company’s income and gain for such Accounting Period (allocated in accordance with Section 5.04(a)) and (ii) the amount of cash or the fair market value of other property (determined in accordance with Section 5.05) contributed to the Company by such Member in respect of such class of Capital during such Accounting Period, net of liabilities assumed by the Company with respect to such other property, and (y) decreasing such balance by (i) the amount of cash or the fair market value of other property (determined in accordance with Section 5.05) distributed to such Member in respect of such class of Capital or Interest pursuant to this Agreement, net of liabilities (if any) assumed by such Member with respect to such other property and (ii) such Member’s allocable share of each item of the Company’s deduction and loss for such Accounting Period (allocated in accordance with Section 5.04(a)). The balances in each Members’ Capital Account shall also be adjusted at the time and in the manner permitted by the capital accounting rules of the U.S. Treasury Regulation section 1.704-1(b)(2)(iv)(f). The foregoing and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Treasury Regulation section 1.704-1(b), and shall be interpreted and applied in a manner consistent therewith.

 

SECTION 5.04. Allocations and Tax Matters. (a) Book Allocations. After giving effect to the allocations set forth in Section 2 of Exhibit B hereto, for purposes of computing Capital Accounts and allocating any items of income, gain, loss or deduction thereto, with respect to each Accounting Period:

 

(i) first, an amount of income or gain equal to the Profit Participation Amount for such Accounting Period shall be allocated among the Profit Participation Capital Accounts of the Profit Participation Members in proportion to their respective Profit Participation Percentages as of the end of such Accounting Period; and

 

(ii) thereafter, all other items of income, gain, loss or deduction of the Company (calculated in the manner contemplated by the capital accounting rules of the Treasury Regulations promulgated under Section 704(b) of the Code) shall be allocated among the Common Capital Accounts of the Common Members in proportion to their respective Common Units as of the end of such Accounting Period.

 

For the purposes of this Agreement:

 

(A) “Fixed Percentage” means           %; provided, however, that in the event that the Profit Participation Amount would in any Accounting Period exceed the product of (1)           % and (2) the Operating Revenue for such Accounting Period (such product, the “Cap”), the Fixed Percentage shall, for such Accounting Period, be an amount (expressed as a percentage) equal to a fraction, the numerator of which shall be the Cap and the denominator of which shall be the Operating Income, in each case for such Accounting Period;

 

(B) “Operating Expenses” means, with respect to any Accounting Period, an amount equal to the excess, if any, of (1) the consolidated expenses of the Company over (2) the sum of (a) the aggregate amount of compensation paid or payable to Managing Directors, (b) all minority interest, (c) all interest expense (but excluding all “operating”

 

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interest expense, including in respect of Lazard Frères Banque S.A.), (d) all income taxes, and (e) all extraordinary losses, in each case as determined in accordance with generally accepted accounting principles in the United States of America and otherwise in accordance with Section 5.05. For the avoidance of doubt, “Operating Expense” shall exclude amounts allocable to Profit Participation Members in respect of their Profit Participation Interests;

 

(C) “Operating Income” means, with respect to any Accounting Period, an amount equal to the excess, if any, of (1) the Operating Revenue over (2) the Operating Expenses, in each case for such Accounting Period.

 

(D) “Operating Revenue” means, with respect to any Accounting Period, an amount equal to the excess, if any, of (1) the sum of (a) the consolidated net revenue of the Company and (b) all interest expense (but excluding all “operating” interest expense, including in respect of Lazard Frères Banque S.A.), over (2) all extraordinary gains, in each case as determined in accordance with generally accepted accounting principles in the United States of America and otherwise in accordance with Section 5.05; and

 

(E) “Profit Participation Amount” means, with respect to any Accounting Period, an amount equal to the product of (1) the Fixed Percentage and (2) the Operating Income, in each case for such Accounting Period.

 

In any calculation of Operating Income, all gains and losses arising from the sale of a business segment or a significant asset outside the ordinary course of business shall be excluded from Operating Revenue and Operating Expense, as applicable.

 

(b) Tax Allocations. Except as otherwise required under Section 704(c) of the Code and the Treasury Regulations promulgated thereunder, the Company shall cause each item of income, gain, loss or deduction recognized by the Company to be allocated among the Members for U.S. federal, state and local income and, where relevant, non-U.S. tax purposes in the same manner that each such item is allocated to the Members’ Capital Accounts or as otherwise provided herein. Allocations required by Section 704(c) of the Code shall be made using any reasonable method permitted by the Treasury Regulations promulgated under Section 704(c) of the Code that is selected by the tax matters partner.

 

SECTION 5.05. Board Determinations. All determinations, valuations and other matters of judgment required to be made for purposes of this Article V, including with respect to calculations of Profit Participation Amount, Ordinary Revenue and Ordinary Expenses and accounting procedures and tax matters not expressly provided for by the terms of this Agreement, or for determining the value of any type or form of proceeds, contribution or distributions hereunder shall be made by the Lazard Board. In the event an additional Member is admitted to the Company and contributes property to the Company, or an existing Member contributes additional property to the Company, pursuant to this Agreement, the value of such contributed property shall be the fair market value of such property as determined by the Lazard Board.

 

SECTION 5.06. Books and Accounts. (a) The Company shall at all times keep or cause to be kept true and complete records and books of account, which records and book

 

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shall be maintained in accordance with U.S. generally accepted accounting principles. Such records and books of account shall be kept at the principal place of business of the Company. The Managing Member and the Lazard Board shall have access thereto and the right to receive copies thereof. As permitted by Section 18-305(g) of the Act, no Member shall be entitled to review such records and books of account (including any of the Schedules hereto) unless the Lazard Board, in its sole discretion, shall permit such review. The Company’s accounts shall be maintained in United States dollars.

 

(b) The Company’s fiscal year shall begin on the first day of January and end on the thirty-first day of December of each year, or shall be such other period designated by the Board. At the end of each fiscal year the Company’s accounts shall be prepared, presented to the Board and submitted to the Company’s auditors for examination.

 

(c) The Company’s auditors shall be an independent accounting firm of international reputation to be appointed from time to time by the Lazard Board or the Managing Member. The Company’s auditors shall be entitled to receive promptly such information, accounts and explanations from the Lazard Board, each officer and each Member that they deem reasonably necessary to carry out their duties. The Members shall provide such financial, tax and other information to the Company as may be reasonably necessary and appropriate to carry out the purposes of the Company.

 

SECTION 5.07. Tax Matters Partner. Lazard Ltd Sub A is hereby designated as the tax matters partner of the Company, in accordance with the Treasury Regulations promulgated pursuant to Section 6231 of the Code and any similar provisions under any other state or local or non-U.S. tax laws. Lazard Ltd Sub A shall have the authority, in its sole discretion, to (a) make an election under Section 754 of the Code on behalf of the Company, and each Member agrees to provide such information and documentation as Lazard Ltd Sub A may reasonably request in connection with any such election, (b) determine the manner in which “excess nonrecourse liabilities” (within the meaning of Treasury Regulation section 1.752-3(a)(3)) are allocated among the Members and (c) make any other election or determination with respect to taxes (including with respect to depreciation, amortization and accounting methods).

 

SECTION 5.08. Tax Information. The Company shall use commercially reasonable efforts to prepare and mail as soon as reasonably practicable after the end of each taxable year of the Company, or as soon as practicable thereafter, to each Member other than the Managing Member (and each other Person that was such a Member during such taxable year or its legal representatives), U.S. Internal Revenue Service Schedule K-1, “Partner’s Share of Income, Credits, Deductions, Etc.,” or any successor schedule or form, for such Person.

 

SECTION 5.09. Withholding. The Company is authorized to withhold from distributions and allocations to the Members, and to pay over to any federal, state, local or foreign governmental authority any amounts believed in good faith to be so withheld pursuant to the Code or any provision of any other federal, state, local or foreign law and, for all purposes under this Agreement, shall treat such amounts as distributed to those Members with respect to which such amounts were withheld.

 

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ARTICLE VI

 

DISTRIBUTIONS

 

SECTION 6.01. Distributions in Respect of Profit Participation Interests. (a) Subject to the last sentence of this Section 6.01(a), the Company shall distribute to each Profit Participation Member from such Member’s Profit Participation Capital Account as promptly as practicable after the end of each of the first three (3) fiscal quarters of each fiscal year of the Company an amount equal to such Profit Participation Member’s Quarterly Profit Participation Tax Distribution for such fiscal quarter. In addition, the Company shall distribute to each Profit Participation Member from such Member’s Profit Participation Capital Account as promptly as practicable after the end of each fiscal year an amount equal to the excess, if any, of such Profit Participation Member’s Proportionate Tax Share for such fiscal year over the aggregate amount of Quarterly Profit Participation Tax Distributions made to such Profit Participation Member with respect to such fiscal year. If, at the end of any fiscal year of the Company, the aggregate amount of Quarterly Profit Participation Tax Distributions made to a Profit Participation Member exceeds such Profit Participation Member’s Proportionate Tax Share, in each case with respect to such fiscal year, then (i) in the case of any Profit Participation Member who is an executive officer of the Company or Lazard Ltd or any other Affiliate of the Company designated by the Company, the amount of such excess shall reduce the amount of any future distributions that would otherwise be made to such Profit Participation Member, including any distributions pursuant to this Section 6.01(a) or Section 6.01(b) and (ii) in the case of any other Profit Participation Member, the amount of such excess shall be treated as an advance, and, at the election of the Company, shall be repaid to the Company by such Profit Participation Member or shall reduce the amount of any future distributions that would otherwise be made to such Profit Participation Member, including any distributions pursuant to this Section 6.01(a) or Section 6.01(b).

 

(b) The Company shall, after the end of each fiscal year, distribute to each Profit Participation Member from such Member’s Profit Participation Capital Account an amount (if positive) equal to the aggregate of all Profit Participation Amounts allocated to such Member’s Profit Participation Capital Account pursuant to Section 5.04(a) during such fiscal year (reduced by the amount of any distributions pursuant to Section 6.01(a)), with such distribution to occur on such date and time as determined by the Company; provided that no distribution shall be made to such person pursuant to this Section 6.01(b) unless such person shall continue to be a Profit Participation Member as of the date and time of distribution; provided further that distributions pursuant to this Section 6.01(b) shall be made to a Profit Participation Member only to the extent of the positive balance in such Member’s Profit Participation Capital Account unless otherwise determined by the Lazard Board. Notwithstanding the foregoing, the Company may (i) withhold all or a portion of the distributions otherwise payable to any Profit Participation Member pursuant to the immediately foregoing sentence, or (ii) distribute to any Profit Participation Member all or a portion of the positive balance, if any, in such Member’s Profit Participation Capital Account as of the end of the applicable fiscal year (after giving effect to (A) the allocations pursuant to Section 5.04(a) with respect to the Accounting Period ending on December 31 of such fiscal year and (B) any distributions pursuant to the first sentence of this Section 6.01(b)).

 

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SECTION 6.02. Distributions in Respect of Common Interests. (a) Subject to the last sentence of this Section 6.02(a), the Company shall distribute to each Common Member from such Member’s Common Capital Account as promptly as practicable after the end of each of the first three (3) fiscal quarters of each fiscal year of the Company an amount equal to such Common Member’s Quarterly Common Tax Distribution for such fiscal quarter. In addition, the Company shall distribute to each Common Member from such Member’s Common Capital Account as promptly as practicable after the end of each fiscal year an amount equal to the excess, if any, of such Common Member’s Proportionate Tax Share for such fiscal year over the aggregate amount of Quarterly Common Tax Distributions made to such Common Member with respect to such fiscal year. If, at the end of any fiscal year of the Company, the aggregate amount of Quarterly Common Tax Distributions made to a Common Member exceeds such Common Member’s Proportionate Tax Share, in each case with respect to such fiscal year, then (i) in the case of any Common Member who is an executive officer of the Company or Lazard Ltd or any other Affiliate of the Company designated by the Company, the amount of such excess shall reduce the amount of any future distributions that would otherwise be made to such Common Member, including any distributions pursuant to this Section 6.02(a) or Section 6.02(b) and (ii) in the case of any other Common Member, the amount of such excess shall be treated as an advance, and, at the election of the Company, shall be repaid to the Company by such Common Member or shall reduce the amount of any future distributions that would otherwise be made to such Common Member, including any distributions pursuant to this Section 6.02(a) or Section 6.02(b).

 

(b) Lazard Ltd shall have the right to cause Lazard Group to distribute to each Common Member from such Member’s Common Capital Account amounts in connection with any dividends on Lazard Ltd Common Stock or as otherwise determined by Lazard Ltd, in each case at such times, and in such amounts per Common Unit, as determined by Lazard Ltd in its sole discretion; provided that such other distributions are pro rata according to the number of Common Units held (subject to Section 7.05(c)(iii)).

 

SECTION 6.03. Limitation on Distributions. Notwithstanding any provision to the contrary contained in this Agreement, the Company, and the Lazard Board on behalf of the Company, shall not be required to make a distribution to a Member on account of its interest in the Company if such distribution would violate the Act or any other applicable law.

 

ARTICLE VII

 

TRANSFERS OF INTERESTS

 

SECTION 7.01. Transfer of Interests. No Member may Transfer or agree or otherwise commit to Transfer all or any portion of, or any of rights, title and interest in and to, its Interest, except as permitted by the terms and conditions set forth in this Article VII. The Schedules shall be deemed to be amended from time to time to reflect any change in the Members or Interests to reflect any Transfer permitted by this Article VII.

 

SECTION 7.02. Permitted Transfers. (a) Common Interests. No Common Member may Transfer or agree or otherwise commit to Transfer all or any portion of, or any of rights, title and interest in and to, its Common Interest, except (i) any Transfer for which the

 

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Lazard Board shall have given its prior approval; (ii) LAZ-MD may Transfer all or a portion of its Common Interest pursuant to a LAZ-MD Exchange; (iii) any Common Member who received its Common Interest pursuant to a LAZ-MD Exchange may Transfer all or any portion of such Common Interest to an Estate Transferee pursuant to an Estate Transfer; (iv) any Common Member who received its Common Interest pursuant to a LAZ-MD Exchange or any Estate Transferee may Transfer all or any portion of such Common Interest to Lazard Ltd Sub A and Lazard Ltd Sub B as directed by Lazard Ltd (such recipient, the “Lazard Ltd Recipient”) pursuant to a Lazard Group Exchange; and (v) LAZ-MD may Transfer all or a portion of its Common Interests pursuant to Section 8.4(c) of the Master Separation Agreement.

 

(b) Profit Participation Interests. No Profit Participation Member may Transfer or agree or otherwise commit to Transfer all or any portion of, or any of its rights, title and interest in and to, its Profit Participation Interest.

 

(c) Redeemable Interests. No Redeemable Member may Transfer or agree or otherwise commit to Transfer all or any portion of, or any of its rights, title and interest in and to, any of its Redeemable Interests, except (i) LAZ-MD may Transfer all of its Redeemable Interests pursuant to the First Redemption, (ii) a Redeemable Member shall Transfer its Redeemable Interest to the Company pursuant to the Second Redemption, and (iii) the stockholders of Lazard Ltd Sub A may indirectly Transfer all of Lazard Ltd Sub A’s Redeemable Interest by the Transfer of the entire capital stock of Lazard Ltd Sub A to Lazard Ltd in exchange for shares of Lazard Ltd Common Stock pursuant to the Master Separation Agreement.

 

(d) Admission as a Member. Notwithstanding anything to the contrary set forth herein, a Transferee pursuant to this Section 7.02 shall become a Member, and shall be listed as a “Common Member” or “Profit Participation Member,” as applicable, on Schedule 4.01, and shall be deemed to receive the Interest being Transferred, in each case at such time as such Transferee executes and delivers to the Company an agreement in which the Transferee agrees to be admitted as a Member and bound by this Agreement and any other agreements, documents or instruments specified by the Company; provided that a Transferee who shall (A) at the time of such Transfer be a Member of the applicable class of Interests being Transferred or (B) have previously entered into an agreement pursuant to which the Transferee shall have agreed to become a Member and be bound by this Agreement (which agreement is in effect at the time of such Transfer), shall not be required to enter into a new agreement to be bound by this Agreement with respect to such Interests or such other agreement, documents or instruments as a condition to receiving the Interest and being admitted or continuing as a Member, in each case unless otherwise determined by the Company; and provided further that a Transferee pursuant to the First Redemption shall for the avoidance of doubt not be required to execute and deliver any additional agreements as a condition to receiving the Interest and being admitted as a Member.

 

(e) Transfer of Capital. (a) Notwithstanding anything herein to the contrary, each Member who Transfers an Interest (or a portion thereof) shall be deemed to have Transferred (a) in the case of a Common Interest, the entire Common Interest, including the Common Units and Common Capital with respect to such Interest (or, if a portion of a Common Interest is being Transferred, such number of Common Units and a proportionate amount of Common Capital with respect to such Common Units) to the Transferee, (b) in the case of a Profit

 

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Participation Interest, the entire Profit Participation Interest, including the Profit Participation Percentage and Profit Participation Capital with respect to such Interest (or, if a portion of a Profit Participation Interest is being Transferred, such portion of Profit Participation Profit Percentage and a proportionate amount of Profit Participation Capital with respect to such Profit Participation Percentage) to the Transferee, and (c) in the case of a Redeemable Interest, the entire Redeemable Interest, including all rights to the Redemption Consideration (or if a portion of a Redeemable Interest is being Transferred, such portion of the right to receive the Redemption Consideration) to the Transferee.

 

SECTION 7.03. First Redemption. Each of the transferees set forth on Schedule 4.03(d) shall upon consummation of the First Redemption be admitted as a Redeemable Member and deemed to receive the Redeemable Interest being transferred to such person, subject to, in the case of any transferees who shall not be Class III Redeemable Members or Class IV Redeemable Members (each as defined in the LAZ-MD Operating Agreement), the execution, and delivery to the Company, by such transferee of an agreement by such transferee to become a Member and be bound by the terms of this Agreement and any other agreements, documents or instruments specified by the Company.

 

SECTION 7.04. Second Redemption. Notwithstanding anything herein to the contrary, upon the consummation of the Second Redemption, (i) all of the Redeemable Interests (including all of the Members’ rights, title and interests in and to such Interests) shall be automatically and immediately transferred to, and redeemed by, the Company free and clear of all liens or other encumbrances, without any action required on the part of any Member or any further action on the part of the Company, as applicable, and (ii) in exchange therefor each former Redeemable Member shall only have the right to receive the applicable Redemption Consideration from the Company with respect to such person’s redeemed Redeemable Interest(s).

 

SECTION 7.05. Lazard Group Exchange. (a) Immediate Exchange. Subject to Section 7.05(b), in the event of a LAZ-MD Exchange in which the transferee of a Common Interest from LAZ-MD shall be the LAZ-MD Exchanging Member, immediately after the receipt of such Common Interest by the LAZ-MD Exchanging Member, such Common Interest shall be automatically transferred free and clear of all liens and encumbrances to the applicable Lazard Ltd Recipient, without any action required on the part of any person to effect such transfer (an “Immediate Lazard Group Exchange”), and, in exchange therefor, the applicable Lazard Ltd Recipient shall transfer to the LAZ-MD Exchanging Member the amount of Lazard Ltd Common Stock (or other consideration) required by the Master Separation Agreement (the “Lazard Group Exchange Consideration”) on the terms, and subject to the conditions, set forth in this Article VII and in the Master Separation Agreement. In the event of a LAZ-MD Exchange pursuant to the proviso to Section 7.4(b) of the LAZ-MD Operating Agreement, the Common Interest shall be automatically transferred free and clear of all liens and encumbrances to the applicable Lazard Ltd Recipient, without any action required on the part of any person to effect such transfer, immediately upon the cancellation of the LAZ-MD Class II Interest at the time set forth in such proviso, and, in exchange therefor, the applicable Lazard Ltd Recipient shall transfer to [•] the applicable Lazard Group Exchange Consideration.

 

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(b) Partial LAZ-MD Mandatory Exchange. In the event of a Partial LAZ-MD Mandatory Exchange, then (i) the provisions of Section 7.05(a) shall not apply to the Common Interest transferred to the LAZ-MD Exchanging Member, (ii) the LAZ-MD Exchanging Member shall be admitted as a Common Member as provided in Section 7.02(d) (a “MD Common Member”) and shall have the right to transfer all or a portion of its Common Interest for the applicable Lazard Group Exchange Consideration at such times, on the terms, and subject to the conditions, set forth in the Master Separation Agreement (an “Elective Lazard Group Exchange”) in exchange for the applicable Lazard Group Exchange Consideration, and (iii) the Company shall have the right to cause all of the MD Common Members to transfer their entire Common Interests in accordance with the Master Separation Agreement (a “Mandatory Lazard Group Exchange,” and any of a Mandatory Lazard Group Exchange, an Immediate Lazard Group Exchange and an Elective Lazard Group Exchange, an “Lazard Group Exchange”) in exchange for the applicable Lazard Group Exchange Consideration.

 

(c) Additional Limitations on Partial LAZ-MD Mandatory Exchanges. Notwithstanding anything herein to the contrary, the Company shall have the right to subject any Common Interest transferred to an MD Common Member pursuant to a Partial LAZ-MD Mandatory Exchange to limitations and other restrictions in respect of distributions pursuant to Section 6.02(b) as the Lazard Board shall determine to be appropriate to put such MD Common Member in a substantially similar position with respect to distributions had such Partial LAZ-MD Mandatory Exchange not occurred and such Member had continued to hold limited liability company interests at LAZ-MD; provided that the Company shall give written notice of such limitations and obligations to the MD Common Members subject thereto (it being understood that the failure to give such notice shall not affect the validity or enforceability of any such limitations and obligations); and, provided further, that, effective immediately upon the transfer of all or a portion of such Common Interest to a Lazard Ltd Recipient, all such limitations and obligations with respect to such Common Interest (or portion thereof) being transferred shall immediately expire.

 

(d) Acknowledgement. Each MD Common Member acknowledges and agrees to the terms of exchange of such Member’s Common Interest set forth in Article VIII of the Master Separation Agreement.

 

SECTION 7.06. Estate Transfers. A Member may transfer its Common Interest to any trust for the benefit of such Member, his direct descendants or a spouse (an “Estate Transferee”); provided that (i) such transfer receives the prior approval of the Company (which approvals may be given in the sole discretion of the Company), (ii) the trustee and any successor trustees for any such trust are approved by the Company and (iii) the transferee executes and delivers to the Company an agreement in which the transferee agrees to be bound by this Agreement and any other agreements, documents or instruments specified by the Company. In addition, a Member who is an individual may transfer his Common Interest by operation of law by virtue of the death of such Member to such Member’s estate, direct descendants or spouse. Any transfer in accordance with this Section 7.06 is referred to herein as an “Estate Transfer.”

 

SECTION 7.07. Encumbrances. No Member (other than Lazard Ltd or one of its controlled Subsidiaries) may without the consent of the Company charge or encumber his Interest or subject his Interest to a lien, pledge, security interest, right of first refusal, option or

 

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other similar limitation (an “Encumbrance”) except in each case for those created by this Agreement. Notwithstanding anything to the contrary set forth in this Article VII, the incurrence of any Encumbrance permitted by this Section 7.07 shall not be deemed to be a Transfer.

 

SECTION 7.08. Legend. Each Member agrees that any certificate issued to it to evidence its Interests shall have inscribed conspicuously on its front or back the following legend:

 

THE LIMITED LIABILITY COMPANY INTEREST IN LAZARD GROUP LLC REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE OR FOREIGN JURISDICTION, AND THIS LIMITED LIABILITY COMPANY INTEREST MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR OTHERWISE DISPOSED OF, IN WHOLE OR IN PART, EXCEPT (A) EITHER (1) WHILE A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND SUCH OTHER APPLICABLE REGISTRATIONS AND QUALIFICATIONS ARE IN EFFECT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (INCLUDING, IF APPLICABLE, REGULATION S THEREUNDER) AND SUCH OTHER APPLICABLE LAWS AND (B) IF PERMITTED BY THE OPERATING AGREEMENT OF LAZARD GROUP LLC AS IT MAY BE AMENDED FROM TIME TO TIME, WHICH CONTAINS STRICT PROHIBITIONS ON TRANSFERS, SALES, ASSIGNMENTS, PLEDGES, HYPOTHECATIONS, ENCUMBRANCES OR OTHER DISPOSITIONS OF THIS LIMITED LIABILITY COMPANY INTEREST.

 

SECTION 7.09. Effect of Transfer Not in Compliance with This Article. Any purported Transfer of all or any part of a Member’s Interest, or any interest therein, that is not in compliance with this Article VII shall, to the fullest extent permitted by law, be void and shall be of no effect.

 

ARTICLE VIII

 

DISSOLUTION

 

SECTION 8.01. Dissolution. The Company shall be dissolved and its affairs shall be wound up upon (a) a decision made at any time by the Lazard Board to dissolve the Company, (b) the termination of the legal existence of the last remaining member of the Company or the occurrence of any other event which terminates the continued membership of the last remaining member of the Company in the Company unless the Company is continued without dissolution in a manner permitted by this Agreement or the Act, or (c) the entry of a decree of judicial dissolution under Section 18-802 of the Act. Subject to clause (b) of the immediately preceding sentence, the Company shall not be dissolved solely by reason of, and shall continue notwithstanding, the death, Retirement, resignation, bankruptcy or dissolution of any Member (including any Managing Member). None of the Members shall have any right to

 

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terminate, dissolve or have redeemed their class of Interests (other than in respect of Redeemable Interests pursuant to the Second Redemption) or, to the fullest extent permitted by law, to terminate, wind up or dissolve the Company.

 

SECTION 8.02. Liquidation. Upon a dissolution pursuant to Section 8.01, the Company’s business and assets shall be wound up promptly in an orderly manner. The Lazard Board shall be the liquidator to wind up the affairs of the Company. In performing its duties, the Lazard Board is authorized to sell, exchange or otherwise dispose of the Company’s business and assets in accordance with the Act in any reasonable manner that the Lazard Board determines to be in the best interests of the Members. Upon completion of the winding-up of the Company, the Lazard Board shall prepare and submit to each Common Member a final statement with respect thereto.

 

SECTION 8.03. Distributions. (a) In the event of a dissolution of the Company pursuant to Section 8.01, the Company shall apply and distribute the proceeds of the dissolution as provided below:

 

(i) first: to the creditors of the Company, including Members that are creditors of the Company to the extent permitted by law, in satisfaction of the liabilities of the Company (by payment or by the making of reasonable provision for payment thereof, including the setting up of any reserves which the Managing Member determines, in its sole discretion, are necessary therefor);

 

(ii) second: to each Common Member in proportion to (and to the extent of) the positive balances in their respective Common Capital Accounts; and

 

(iii) thereafter: to the Common Members in proportion to the number of Common Units held by each such Common Member;

 

provided, however, that notwithstanding the foregoing, if the amount received by the Lazard Ltd Members pursuant clauses (ii) and (iii) above is less than the amount that the Lazard Ltd Members would have received had the Company distributed the proceeds of the dissolution in proportion to the number of Common Units held by each Common Member (the “Proportionate Distribution Amount”), then (x) the Lazard Ltd Member shall receive the Proportionate Distribution Amount and (y) the remaining proceeds of the dissolution shall be distributed to the Common Member other than the Lazard Ltd Members in accordance with the clauses (ii) and (iii) above.

 

(b) Cancellation of Certificate of Formation. Upon completion of a liquidation and distribution pursuant to Section 8.03(a) following a dissolution of the Company pursuant to Section 8.01, the Managing Member shall execute, acknowledge and cause to be filed a certificate of cancellation of the Certificate of Formation of the Company in the office of the Secretary of State of the State of Delaware.

 

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ARTICLE IX

 

INDEMNIFICATION AND EXCULPATION

 

SECTION 9.01. Exculpation. A Director shall not be personally liable to the Company or its Members for monetary damages for breach of fiduciary duty as a Director, except to the extent such exemption from liability or limitation thereof is not permitted under the Act as the same exists or may hereafter be amended. Any repeal or modification of the immediately preceding sentence shall not adversely affect any right or protection of a Director existing hereunder with respect to any act or omission occurring prior to such repeal or modification.

 

SECTION 9.02. Indemnification. (a) Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit, or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was (i) a Director or officer of the Company, (ii) a director or officer of Lazard Ltd or (iii) serving at the request of the Company (including as evidenced in a written letter signed by a proper officer of the Company) as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise or person, including service with respect to employee benefit plans maintained or sponsored by the Company, in each case whether the basis of such proceeding is alleged action in an official capacity as a Director, director, officer, employee or agent or in any other capacity while serving as a Director, director, officer, employee or agent, shall be indemnified and held harmless by the Company to the fullest extent authorized by the General Corporation Law of the State of Delaware (the “DGCL”) as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said law permitted the Company to provide prior to such amendment), if the Company were a corporation organized under the DGCL, against all expense, liability and loss (including attorneys’ fees, judgments, fines, excise taxes or penalties arising under the Employee Retirement Income Security Act of 1974, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a Director, director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that except as provided in Section 9.02(c), the Company shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Lazard Board. The right to indemnification conferred in this Section 9.02 shall be a contract right. The right to indemnification conferred in this Section in the case of any Director or officer of the Company or any director or officer of Lazard Ltd shall include (and, in the case of any other person entitled to indemnification hereunder, may at the option of the Chief Executive Officer, General Counsel or the Lazard Board include) the right to be paid by the Company the expenses incurred in defending any such proceeding in advance of its final disposition, such advances to be paid by the Company within 20 days after the receipt by the Company of a statement or statements from the claimant requesting such advance or advances from time to time; provided, however, that the payment of such expenses incurred by any such person in advance of the final disposition of a proceeding shall be made only upon delivery to the Company of an undertaking by or on behalf of such person to repay all amounts so advanced if it shall ultimately be determined that such person is not entitled to be indemnified under this Section 9.02 or otherwise.

 

(b) To obtain indemnification under this Section 9.02, a claimant shall submit to the Company a written request, including therein or therewith such documentation and

 

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information as is reasonably available to the claimant and is reasonably necessary to determine whether and to what extent the claimant is entitled to indemnification. Upon written request by a claimant for indemnification pursuant to the first sentence of this Section 9.02(b), a determination, if required by the DGCL if the Company were a corporation organized under the DGCL, with respect to the claimant’s entitlement thereto shall be made as follows: (1) if requested by the claimant, by Independent Counsel (as hereinafter defined), or (2) if no request is made by the claimant for a determination by Independent Counsel, by the Chief Executive Officer or General Counsel of the Company, whose determination shall be approved by the Lazard Board (by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined)), provided, that (i) if a quorum of the Lazard Board consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, such determination shall be approved by Independent Counsel in a written opinion to the Lazard Board, a copy of which shall be delivered to the claimant, or (ii) if a quorum of Disinterested Directors so directs, such determination shall be approved by the Common Members. In the event the determination of entitlement to indemnification is to be made by Independent Counsel at the request of the claimant, the Independent Counsel shall be selected by the Lazard Board unless there shall have occurred within two years prior to the date of the commencement of the action, suit or proceeding for which indemnification is claimed a “Change of Control” as defined in the Lazard Ltd 2005 Equity Incentive Plan, in which case the Independent Counsel shall be selected by the claimant unless the claimant shall request that such selection be made by the Lazard Board. If it is so determined that the claimant is entitled to indemnification, payment to the claimant shall be made within 10 days after such determination.

 

(c) If a claim under Section 9.02(a) is not paid in full by the Company within thirty days after a written claim pursuant to Section 9.02(b) has been received by the Company, the claimant may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Company) that the claimant has not met the standard of conduct that makes it permissible under the DGCL as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said law permitted the Company to provide prior to such amendment) for the Company to indemnify the claimant for the amount claimed if the Company were a corporation organized under the DGCL, but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including the Lazard Board, Independent Counsel or Common Members) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Company (including its Lazard Board, Independent Counsel or Common Members) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

 

(d) If a determination shall have been made pursuant to Section 9.02(b) that the claimant is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to Section 9.02(c).

 

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(e) The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to Section 9.02(c) that the procedures and presumptions of this Section 9.02 are not valid, binding and enforceable and shall stipulate in such proceeding that the Company is bound by all the provisions of this Section 9.02.

 

(f) The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section 9.02 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of this Agreement, agreement, vote of the Common Members or Disinterested Directors or otherwise. No amendment or other modification of this Section 9.02 shall in any way diminish or adversely affect the rights of any Director, officer, employee or agent of the Company hereunder in respect of any occurrence or matter arising prior to any such repeal or modification.

 

(g) The Company may, to the extent authorized from time to time by the Lazard Board, grant rights to indemnification, and rights to be paid by the Company the expenses incurred in defending any proceeding in advance of its final disposition, to any employee or agent of the Company to the fullest extent of the provisions of this Section 9.02 with respect to the indemnification and advancement of expenses of Directors and officers of the Company.

 

(h) If any provision or provisions of this Section 9.02 shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the validity, legality and enforceability of the remaining provisions of this Section 9.02 (including, without limitation, each portion of any subsection of this Section 9.02 containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (2) to the fullest extent possible, the provisions of this Section 9.02 (including, without limitation, each such portion of any subsection of this Section 9.02 containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

 

(i) For purposes of this Article IX:

 

(i) “Disinterested Director” means a Director of the Company who is not and was not a party to the matter in respect of which indemnification is sought by the claimant.

 

(ii) “Independent Counsel” means a law firm, a member of a law firm, or an independent practitioner, that is experienced in matters of corporation law and shall include any person who, under the applicable standards of professional conduct then prevailing, would not have a conflict of interest in representing either the Company or the claimant in an action to determine the claimant’s rights under this Section 9.02.

 

(j) Any notice, request or other communication required or permitted to be given to the Company under this Section 9.02 shall be in writing and either delivered in person or sent by telecopy, telex, telegram, overnight mail or courier service, or certified or registered mail, postage prepaid, return receipt requested, to the General Counsel of the Company and shall be effective only upon receipt by the General Counsel.

 

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(k) Notwithstanding any other provision contained in this Agreement, the parties hereto hereby acknowledge that in accordance with Section 8.04 of the Third Amended Operating Agreement, Article 8 of the Third Amended Operating Agreement shall survive the adoption of this Agreement with respect to any Liability (as defined in the Third Amended Operating Agreement) arising prior to the adoption of this Agreement.

 

SECTION 9.03. Non-Exclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of this Agreement, agreement, vote of Disinterested Directors or otherwise.

 

SECTION 9.04. Insurance. The Company may maintain insurance, at its expense, to protect itself and any Director, officer, employee or agent of the Company or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the DGCL if the Company were a corporation organized under the DGCL.

 

SECTION 9.05. Survival. This Article IX shall survive any termination of this Agreement.

 

ARTICLE X

 

MISCELLANEOUS

 

SECTION 10.01. Use of Firm Name. The right to use the firm name, Lazard Group LLC, shall belong to the Company; provided that the use, sale or other disposition of any Lazard Name or any Lazard Mark shall be governed by the terms of the Coordination Agreement.

 

SECTION 10.02. Amendments. Except as provided in Section 1.03 with respect to this Agreement or Section 2.01 with respect to the Certificate of Formation, the Certificate of Formation and this Agreement may not be amended except with (and any such amendment shall be authorized upon obtaining) the approval of the Lazard Board and the Managing Member, and the approval of any other Member or other person shall not be required; provided that any amendment to Sections 4.03(b) (other than any amendment to such Section that shall increase or decrease the number of authorized Common Units in an equal amount to any increase or decrease in the number of authorized shares of Lazard Ltd Common Stock), 4.04(a)(ii), 4.05, 5.04(a)(i), 6.02, 7.02(a), 7.05, 7.06, 8.03(a) or any of the defined terms contained in such Section in each case that is materially adverse to the LAZ-MD Common Members, or any amendment to this proviso, shall require the additional prior approval of the LAZ-MD Common Members (by the affirmative vote of LAZ-MD Common Members holding a majority of the Common Units held by all LAZ-MD Common Members); provided further that any amendment to Section 3.01,

 

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the last sentence of Section 3.02(d), the proviso to Section 3.02(f), the last sentence of 3.02(h), the last sentence of Section 3.02(i), Section 3.03(b), Section 3.03(n) or any of the defined terms contained in such Sections, or any amendment to this proviso, shall require the additional prior approval of each of the Lazard Ltd Nominating Committee and the Lazard Ltd Board in accordance with Article 24 of the Lazard Ltd Bye-Laws; provided, however, that the Lazard Board may authorize, without further approval of another person or group, (a) any amendment to this Agreement to correct any technicality, incorrect statement or error apparent on the face hereof in order to further the intent of the parties hereto or (b) correction of any formality or error apparent on the face hereof or incorrect statement or defect in the execution hereof. Any merger or consolidation of the Company with any third party that shall amend or otherwise modify the terms of this Agreement shall require the approval of the persons referred to above to the extent the approval of such persons would have been required had such amendment or modification been effected by an amendment to this Agreement.

 

SECTION 10.03. Benefits of Agreement. Except as provided in Article IX, none of the provisions of this Agreement shall be for the benefit of or enforceable by any creditor of the Company or by any creditor of any of the Members. Except as provided in Article IX, nothing in this Agreement shall be deemed to create any right in any person not a party hereto, and this instrument shall not be construed in any respect to be a contract in whole or in part for the benefit of any third person. Without limiting the generality of the foregoing, except as provided in Article IX, no person not a party hereto shall have any right to compel performance by a manager of its obligations hereunder.

 

SECTION 10.04. Waiver of Notice. Whenever any notice is required to be given to any Member or Director under the provisions of the Act or this Agreement, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any meeting of the Members (if any shall be called) or the Lazard Board or committee thereof need be specified in any waiver of notice of such meeting.

 

SECTION 10.05. Arbitration. (a) All disputes, controversies and claims arising out of or relating to the Coordination Agreement, any Governing Agreement, the Company’s affairs, the rights or interests of the Members or the estate of any deceased Member (to the extent that they are related to any of the foregoing), or any breach or termination or alleged breach or termination of the Coordination Agreement or any Governing Agreement (“Disputes”), whether arising during or after the Company’s term or liquidation, shall be determined in accordance with this Section 10.05.

 

(b) All Disputes shall first be reviewed by the Chief Executive Officer (“Executive Review”). Any party to a Dispute may invoke Executive Review by written notice to the other party or parties thereto and the Chief Executive Officer. As soon as practicable and in any event within 30 days after receipt of notice of a Dispute, the Chief Executive Officer shall attempt in good faith to resolve such Dispute. In the event that any Dispute remains unresolved 45 days after notice thereof to the Chief Executive Officer, such Dispute shall be finally determined by an arbitral tribunal under the Rules of Arbitration (the “ICC Rules”) of the International Chamber of Commerce (the “ICC”) and in accordance with Section 10.05(c).

 

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(c) The arbitral tribunal determining any Dispute shall be comprised of three arbitrators. Each party to a Dispute shall designate one arbitrator. If a party fails to designate an arbitrator within a reasonable period, the ICC shall designate an arbitrator for such party, including upon a request by another party. The two arbitrators designated by the parties to a Dispute (or, if applicable, the ICC) shall designate a third arbitrator. In the event that the two arbitrators designated by the parties to a Dispute (or, if applicable, the ICC) are unable to agree upon a third arbitrator within a reasonable period, the third arbitrator shall be selected in accordance with the ICC Rules by the ICC. The language, place and procedures of the arbitration of any Dispute shall be as agreed upon by the parties to such Dispute or, failing such agreement within a reasonable period, as determined in accordance with the ICC Rules in order to ensure a speedy, efficient and just resolution of such Dispute. If neither the parties nor the arbitral tribunal can agree upon procedures, the arbitration shall be conducted in accordance with the ICC’s procedures. The hearings and taking of evidence of any Dispute may be conducted at any locations that will, in the judgment of the arbitral tribunal, result in a speedy, efficient and just resolution of such Dispute. The parties to any dispute shall use their best efforts to cooperate with each other and the arbitral tribunal in order to obtain a resolution as quickly as possible, including by adopting the ICC’s “fast-track” procedure (as provided for in Article 32(1) of the ICC Rules) if appropriate.

 

(d) Notwithstanding any provision of this Agreement to the contrary, this Section 10.05 shall be construed to the maximum extent possible to comply with the laws of the State of Delaware, including the Uniform Arbitration Act (10 Del. C. § 5701 et seq.) (the “Delaware Arbitration Act”). If, nevertheless, it shall be determined by a court of competent jurisdiction that any provision or wording of this Section 10.05, including the ICC Rules, shall be invalid or unenforceable under the Delaware Arbitration Act or other applicable law, such invalidity shall not invalidate all of this Section 10.05. In that case, this Section 10.05 shall be construed so as to limit any term or provision so as to make it valid or enforceable within the requirements of the Delaware Arbitration Act or other applicable law, and, in the event such term or provision cannot be so limited, this Section 10.05 shall be construed to omit such invalid or unenforceable provision.

 

SECTION 10.06. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective estates, heirs, legal representatives, successors and permitted assigns, any additional Member admitted in accordance with the provisions hereof and any successor to a trustee of a trust that is or becomes a party hereto.

 

SECTION 10.07. Confidentiality. Each Member that is not a controlled Affiliate of Lazard Ltd expressly agrees, whether or not at the time a Member of the Company or providing services to the Company and/or any of its Subsidiaries, to maintain the confidentiality of, and not disclose to any Person other than the Company, a Member, a Managing Director (including, for this purpose, any managing director or limited managing director of LAM) or any financial, legal or other advisor to the Company, any information relating to the business, clients, affairs or financial structure, position or results of the Company or its affiliates (including any Affiliate) or any Dispute that shall not be generally known to the public or the securities industry; provided that such Member may disclose any such information (a) to the extent required by any applicable law, rule or regulation in the opinion of counsel or by the order of any

 

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securities exchange, banking supervisory authority or other governmental or self-regulatory organization of competent jurisdiction (provided that such Member notifies the Company of such requirement prior to making such disclosure and cooperates with the Company in seeking to prevent or minimize such disclosure), (b) to his or its legal counsel and financial advisers (who shall agree to abide by the terms of this Section), or (c) with the prior written consent of the Company.

 

Notwithstanding any other provision contained in this Agreement, the Members hereby expressly acknowledge and agree that to the fullest extent permitted by law, with respect to all persons who were members or former members of the Company prior to Exchange and Forced Sale, the obligations of such members and the former members set forth in Section 9.06 of the Third Amended Operating Agreement shall continue in full force and effect, and is not invalidated or otherwise altered by Section 10.07 of this Agreement.

 

SECTION 10.08. Notices. Except as provided in Section 3.02(d), all notices and other communications required or permitted by this Agreement shall be made in writing and any such notice or communication shall be deemed delivered when delivered in person, properly transmitted by telecopier or one business day after it has been sent by an internationally recognized overnight courier to the address for notices shown in the Company’s records (or any other address provided to the Company in writing for this purpose) or, if given to the Company, to the principal place of business of the Company in New York, New York. Communications by telecopier also shall be sent concurrently by overnight courier, but shall in any event be effective as stated above. Each Member and Director may from time to time change its address for notices under this Section by giving at least five days’ prior written notice of such changed address to the Company.

 

SECTION 10.09. No Waiver of Rights. No failure or delay on the part of any Member in the exercise of any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or of any other right or power. The waiver by any Member or manager of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other or subsequent breach hereunder. All rights and remedies existing under this Agreement are cumulative and are not exclusive of any rights or remedies otherwise available.

 

SECTION 10.10. Power of Attorney. Each Member agrees that, by its execution of this Agreement, such Member irrevocably constitutes and appoints the Chief Executive Officer and the General Counsel, each acting alone, as its true and lawful attorney-in-fact coupled with an interest, with full power and authority, in its name, place and stead to make, execute, acknowledge and record (a) all certificates, instruments or documents, including fictitious name or assumed name certificates, as may be required by, or may be appropriate under, the laws of any state or jurisdiction in which the Company is doing or intends to do business and (b) all agreements, documents, certificates or other instruments amending this Agreement or the Certificate of Formation that may be necessary or appropriate to reflect or accomplish (i) a change in the name or location of the principal place of business of the Company or a change of name or address of a Member, (ii) the disposal or increase by a Member of his Interest in the Company or any part thereof, (iii) a distribution and reduction of the capital contribution of a Member or any other changes in the capital of the Company, (iv) the dissolution

 

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or termination of the Company, (v) the addition or substitution of a person becoming a Member of the Company and (vi) any amendment to this Agreement, in each case only to the extent expressly authorized and conducted in accordance with the preceding sections of this Agreement. The power granted hereby is coupled with an interest and shall survive the subsequent disability or incapacity of the principal.

 

SECTION 10.11. Severability. If any one or more of the provisions contained in this Agreement shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired.

 

SECTION 10.12. Headings. The Article, Section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

 

SECTION 10.13. Entire Agreement. This Agreement amends and restates in its entirety the Third Amended Operating Agreement. This Agreement, including the exhibits, annexes and schedules hereto and the Acknowledgements, and the Master Separation Agreement, Section 3(a) of the Transaction Agreement and [•], constitute the entire agreement among the parties hereto and supersede all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof and thereof. In the event of any inconsistency between the provisions of this Agreement and the provisions of the Coordination Agreement and [•], the provisions of this Agreement shall prevail.

 

SECTION 10.14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflicts of law principles.

 

SECTION 10.15. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement.

 

SECTION 10.16. Effectiveness. The Original Operating Agreement was effective for all financial and accounting purposes as of January 3, 2000. This Agreement shall be effective immediately upon execution hereof by each of [•], on behalf of the Lazard Board, and LAZ-MD on the date hereof.

 

SECTION 10.17. Corporate Opportunity; Fiduciary Duty. (a) To the greatest extent permitted by law, none of Lazard Ltd, any Affiliate of Lazard Ltd (excluding for this purpose the Company and its Subsidiaries, LAZ-MD and LFCM and its Subsidiaries) (each such Affiliate of Lazard Ltd, a “Lazard Ltd Affiliate”) and none of their respective officers, directors, employees or agents shall owe any fiduciary duty to, nor shall any of Lazard Ltd or any Lazard Ltd Affiliate be liable for breach of fiduciary duty to, the Company, any Subsidiary of the Company or any other holder of Interests or Affiliate of such holder (or any of their respective officers, directors, employees or agents). To the greatest extent permitted by law, in taking any action, making any decision or exercising any discretion with respect to the Company, each of Lazard Ltd and each Lazard Ltd Affiliate shall be entitled to consider such interests and factors as it desires, including its own interests and those of other Lazard Ltd Affiliates, and shall have

 

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no duty or obligation (1) to give any consideration to the interests of or factors affecting the Company, the holders of Interests or any other person, or (2) to abstain from participating in any vote or other action of the Company or any Affiliate thereof, the Lazard Board or any committee or similar body of any of the foregoing. Lazard Ltd and any Lazard Ltd Affiliate (and their respective officers, directors, employees or agents) shall not violate a duty or obligation to the Company merely because such person’s conduct furthers such person’s own interest, except as specifically set forth in clause (c) of this Section. Such persons may lend money to and transact other business with the Company. The rights and obligations of any such person who lends money to, contracts with, borrows from or transacts business with the Company are the same as those of a person who is not involved with the Company, subject to other applicable law. To the greatest extent permitted by law, no transaction with the Company shall be voidable solely because any such person has a direct or indirect interest in the transaction. Nothing herein contained shall prevent any such person from conducting any other business, including, without limitation, serving as an officer, director, employee, or stockholder of any corporation, a trustee of any trust, an executor or administrator of any estate, or an administrative official of any other business or not-for-profit entity, or from receiving any compensation in connection therewith.

 

(b) Except as may be otherwise provided in a written agreement between the Company and Lazard Ltd, none of Lazard Ltd or any Lazard Ltd Affiliate shall owe any duty to refrain from engaging in the same or similar activities or lines of business as the Company. In the event that Lazard Ltd or any Lazard Ltd Affiliate acquires knowledge of a potential transaction or matter which may be a corporate opportunity for Lazard Ltd or any Lazard Ltd Affiliate, on the one hand, and the Company, on the other hand, Lazard Ltd or such Lazard Ltd Affiliate, as the case may be, shall, to the fullest extent permitted by law, have no duty to communicate or offer such corporate opportunity to the Company.

 

(c) In the event that a Director or officer of the Company who is also a director or officer of Lazard Ltd or any Lazard Ltd Affiliate acquires knowledge of a potential transaction or matter which may be a corporate opportunity for both the Company, on the one hand, and Lazard Ltd or any Lazard Ltd Affiliate, as applicable, on the other hand, such Director or officer of the Company shall, to the fullest extent permitted by law, have fully satisfied and fulfilled any fiduciary duty of such Director or officer to the Company and its Members with respect to such corporate opportunity, if such Director or officer of the Company acts in a manner consistent with the following policy:

 

(i) a corporate opportunity offered to any individual who is an officer of the Company, and who is also a director but not an officer of Lazard Ltd or any Lazard Ltd Affiliate, shall belong to the Company unless such opportunity is expressly offered to such individual in his or her capacity as a director of Lazard Ltd or such Lazard Ltd Affiliate (in which case it shall belong to Lazard Ltd);

 

(ii) a corporate opportunity offered to any individual who is a Director but not an officer of the Company, and who is also a director or officer of Lazard Ltd or any Lazard Ltd Affiliate shall belong to Lazard Ltd or the applicable Lazard Ltd Affiliate unless such opportunity is expressly offered to such individual in his or her capacity as a Director (in which case it shall belong to the Company); and

 

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(iii) a corporate opportunity offered to any individual who is an officer of both the Company and Lazard Ltd or any Lazard Ltd Affiliate shall belong to Lazard Ltd or such Lazard Ltd Affiliate unless such opportunity is expressly offered to such individual in his or her capacity as an officer of the Company (in which case it shall belong to the Company).

 

(d) To the greatest extent permitted by law, neither LAZ-MD nor any of its officers, directors, employees or agents shall owe any fiduciary duty to, nor shall LAZ-MD be liable for breach of fiduciary duty to, the Company, any Subsidiary of the Company or any other holder of Interests or Affiliate of such holder (or any of their respective officers, directors, employees or agents). In taking any action, making any decision or exercising any discretion with respect to the Company, LAZ-MD shall be entitled to consider such interests and factors as it desires, including its own interests, and shall have no duty or obligation (1) to give any consideration to the interests of or factors affecting the Company, the holders of Interests or any other person, or (2) to abstain from participating in any vote or other action of the Company or any Affiliate thereof, the Lazard Board or any committee or similar body of any of the foregoing. LAZ-MD (and its officers, directors, employees or agents) shall not violate a duty or obligation to the Company merely because such person’s conduct furthers such person’s own interest, except as specifically set forth in clause (e) of this Section. Such persons may lend money to and transact other business with the Company. The rights and obligations of any such person who lends money to, contracts with, borrows from or transacts business with the Company are the same as those of a person who is not involved with the Company, subject to other applicable law. No transaction with the Company shall be voidable solely because any such person has a direct or indirect interest in the transaction. To the greatest extent permitted by law, nothing herein contained shall prevent any such person from conducting any other business, including, without limitation, serving as an officer, director, employee, or stockholder of any corporation, a trustee of any trust, an executor or administrator of any estate, or an administrative official of any other business or not-for-profit entity, or from receiving any compensation in connection therewith.

 

(e) In the event that a Director or officer of the Company who is also a director or officer of LAZ-MD acquires knowledge of a potential transaction or matter which may be a corporate opportunity for both the Company, on the one hand, and LAZ-MD, on the other hand, such Director or officer of the Company shall, to the fullest extent permitted by law, have fully satisfied and fulfilled any fiduciary duty of such Director or officer to the Company and its Members with respect to such corporate opportunity, if such director or officer acts in a manner consistent with the following policy: a corporate opportunity offered to any individual who is an officer of the Company or a Director, and who is also a director or officer of LAZ-MD, shall belong to the Company unless such opportunity is first expressly offered to the Company, affirmatively rejected by the Lazard Board and then offered to LAZ-MD by the Lazard Board.

 

(f) Any person purchasing or otherwise acquiring any Interest shall be deemed to have notice of and to have consented to the provisions of this Section.

 

(g) For purposes of this Section only, a director of the Company who is chairman of the Lazard Board or of a committee thereof shall not be deemed to be an officer of the Company by reason of holding such position, unless such individual is an employee of the Company.

 

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(h) Except to the extent otherwise modified herein, each Director and officer of the Company shall have fiduciary duties identical to those of directors and officers of business corporations organized under the DGCL. The provisions of this Agreement, to the extent that they restrict or eliminate the duties (including fiduciary duties) of a Director, officer or other person otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties of such person.

 

(i) Neither the alteration, amendment, termination, expiration or repeal of this Section nor the adoption of any provision of this Agreement inconsistent with this Section shall eliminate or reduce the effect of this Section in respect of any matter occurring, or any cause of action, suit or claim that, but for this Section, would accrue or arise, prior to such alteration, amendment, termination, expiration, repeal or adoption.

 

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IN WITNESS WHEREOF, the undersigned, acting pursuant to the resolutions of the Lazard Board adopted on the date hereof, has duly executed this Agreement to reflect approval by the Lazard Board as of the date first above written.

 

By:  

 

    Name:
    Title:

 

Accepted and agreed (with such acceptance and agreement to constitute approval of this Agreement for all purposes under Section 9.02 of the Third Amended Operating Agreement) as of the date hereof:
LAZ-MD HOLDINGS LLC
By:  

 

    Name:
    Title:

AGREEMENT TO BECOME MEMBERS

 

Each of the undersigned hereby agrees to be admitted to the Company as a Member as set forth in, and to be bound by, this Agreement, as of the date first above written.

 

LAZARD LTD (solely for the purposes of, and upon the occurrence of the events set forth in, Section 4.04(d))

 

By:  

 

    Name:
    Title:
LAZARD GROUP FINANCE LLC
By:  

 

    Name:
    Title:
LLTD CORP II
By:  

 

    Name:
    Title:
LLTD 2 S.AR.L.
By:  

 

    Name:
    Title:
Form of Insurance Matters Agreement

Exhibit 10.5

 

FORM OF

 

INSURANCE MATTERS AGREEMENT

 

This INSURANCE MATTERS AGREEMENT (this “Agreement”), dated as of                 , 2005, by and between Lazard Group LLC, a Delaware limited liability company (“Lazard Group”), and LFCM Holdings LLC, a Delaware limited liability company (“LFCM,” and together with Lazard Group, the “Parties” and each a “Party”).

 

RECITALS

 

WHEREAS, Lazard Group intends to effect the Separation (as defined below) effective as of the Separation Time (as defined below), on the terms, and subject to the conditions, set forth in the Master Separation Agreement dated as of the date hereof, by and among Lazard Ltd, a Bermuda company (“Lazard Ltd”), Lazard Group, LAZ-MD Holdings LLC, a Delaware limited liability company, and LFCM (as amended from time to time, the “Master Separation Agreement”); and

 

WHEREAS, pursuant to the Master Separation Agreement, the Parties have agreed to enter into this Agreement prior to the Separation (as defined below) to set forth certain agreements regarding insurance matters with respect to the Separation.

 

NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements set forth herein, and intending to be legally bound hereby, the Parties hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

SECTION 1.1 Definitions. As used in this Agreement, the following terms shall have the meanings set forth below (such meanings to be equally applicable to both the singular and plural forms of the terms defined). Terms used but not defined herein shall have the meanings assigned to them in the Master Separation Agreement.

 

“Agreement” has the meaning assigned to such term in the Preamble hereto.

 

“Ancillary Agreement” has the meaning set forth in the Master Separation Agreement.

 

“Coverage Amount” has the meaning set forth in Section 2.5(a) hereto.

 

“Current Lazard Group Companies Policies” means the Insurance Policies that (a) insure Lazard Group or one or more of the other members of the Lazard Group Public Companies or the LFCM Companies, (b) have policy periods that begin before and end after the Separation Time and (c) are set forth on Schedule A hereto.

 

“D&O Policies” has the meaning set forth in Section 2.1(b) hereto.

 

“Excess” has the meaning set forth in Section 2.5(b) hereto.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and any successor thereto.

 

“First Distribution” has the meaning set forth in the Master Separation Agreement.

 

“Group” has the meaning set forth in the Master Separation Agreement.

 

“Insurance Policies” means insurance policies in existence before the Separation pursuant to which a person makes a true risk transfer to an insurer, including Lazard Group Companies Policies.

 

“Insurance Proceeds” has the meaning set forth in the Master Separation Agreement.

 

“Insured LFCM Liability” means any LFCM Liability to the extent that (i) it is covered under the terms of the Lazard Group Companies Policies, and (ii) neither LFCM nor any other member of the LFCM Companies is a named insured under, or otherwise entitled to the benefits of, any Insurance Policies of the LFCM Companies that provide coverage for such LFCM Liability.

 

“Lazard Group” has the meaning assigned to such term in the Preamble hereto.

 

“Lazard Group Companies” has the meaning set forth in the Master Separation Agreement.

 

“Lazard Group Companies Policies” means Current Lazard Group Companies Policies and Prior Lazard Group Companies Policies.

 

“Lazard Group Indemnitee” has the meaning set forth in the Master Separation Agreement.

 

“Lazard Group Liabilities” has the meaning set forth in the Master Separation Agreement.

 

“Lazard Ltd” has the meaning assigned to such term in the Recitals hereto.

 

“LFCM” has the meaning assigned to such term in the Preamble hereto.

 

“LFCM Companies” has the meaning set forth in the Master Separation Agreement.

 

“LFCM Liabilities” has the meaning set forth in the Master Separation Agreement.

 

“LFCM Policies” has the meaning set forth in Section 2.2 hereto.

 

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“Liabilities” has the meaning set forth in the Master Separation Agreement.

 

“Lloyd’s E&O Policy” has the meaning set forth in Section 2.1(a) hereto.

 

“Master Separation Agreement” has the meaning assigned to such term in the Recitals hereto.

 

“Overallocated Party” has the meaning set forth in Section 2.5(b) hereto.

 

“Party” and “Parties” have the meaning set forth in the Preamble hereto.

 

“Prior Lazard Group Companies Policies” means Insurance Policies that (a) insure or have previously insured Lazard Group or one or more of the other members of the Lazard Group Companies and/or the LFCM Group Companies, and (b) have policy periods that begin and end before the Separation Time.

 

“Separation” has the meaning set forth in the Master Separation Agreement.

 

“Separation Date” means the date on which the First Distribution is consummated.

 

“Separation Time” means the time at which the Second Distribution will be consummated in accordance with the Master Separation Agreement.

 

“Shared Percentage” means, with respect to the Lazard Group Companies, 90% and, with respect to LFCM Companies, 10%.

 

“Subsidiary” has the meaning set forth in the Master Separation Agreement.

 

“Underallocated Party” has the meaning set forth in Section 2.5(b) hereto.

 

“XL Bermuda Policy” has the meaning set forth in Section 2.1(b) hereto.

 

“XL Policy” has the meaning set forth in Section 2.1(b) hereto.

 

SECTION 1.2 General. Wherever required by the context of this Agreement, the singular shall include the plural and vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa, and references to any agreement, document or instrument shall be deemed to refer to such agreement, document or instrument as amended, supplemented or modified from time to time. When used herein:

 

(a) “dollars” or “$” means United States dollars;

 

(b) the word “or” is not exclusive;

 

(c) the word “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any person, means the direct or indirect possession of the power to direct or cause the direction of the management

 

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or policies of such person, whether through the ownership of voting securities, by contract or otherwise;

 

(d) the words “including,” “includes,” “included” and “include” are deemed to be followed by the words “without limitation”;

 

(e) the terms “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision;

 

(f) the word “person” means any individual, corporation, limited liability company, trust, joint venture, association, company, partnership or other legal entity or a government or any department or agency thereof or self-regulatory organization; and

 

(g) all section, paragraph or clause references not attributed to a particular document shall be references to such parts of this Agreement, and all exhibit, annex and schedule references not attributed to a particular document shall be references to such exhibits, annexes and schedules to this Agreement.

 

SECTION 1.3 References to Time. All references in this Agreement to times of day shall be to New York City time.

 

ARTICLE II

 

INSURANCE MATTERS

 

SECTION 2.1 Existing Policies.

 

(a) E&O. With respect to the Errors and Omissions and Bankers’ Blanket Bond policy no. FB 0405788 issued by certain Underwriters at Lloyd’s, London (the “Lloyd’s E&O Policy”), the Parties agree to negotiate with the insurer and use their commercially reasonable efforts to obtain an endorsement to that policy which will provide as follows: (i) the policy is amended to provide that the named insured is Lazard Ltd and its subsidiaries or affiliates; and (ii) the policy, subject to its terms, covers Lazard Ltd and its subsidiaries or affiliates for claims made through June 30, 2005, or such later expiration date as may be agreed upon between Lazard Ltd (in its absolute discretion) and the insurer. Lazard Ltd and LFCM and each of their respective subsidiaries or affiliates acknowledge that in light of the “change of control” provision in the Lloyd’s E&O Policy, LFCM and its subsidiaries or affiliates may be eligible for coverage for claims made through June 30, 2005, or such later expiration date as may be agreed between Lazard Ltd (in its absolute discretion) and the insurer, but only for acts and omissions occurring prior to the Separation Date; provided, however, that LFCM and its subsidiaries or affiliates may only make a claim under the policy with Lazard Ltd’s consent, which will only be granted if Lazard Ltd (in its absolute discretion) is satisfied that the aggregate limit is sufficient to pay any such claim. Lazard Ltd may, in its absolute discretion, agree with the insurers to extend the term of the Lloyd’s E&O Policy beyond June 30, 2005, but is not obligated to do so.

 

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(b) D&O Policies. With respect to Management Liability and Company Reimbursement Insurance Policy No.                  issued by XL Specialty Insurance Company (the “XL Policy”), Directors and Officers Liability Policy No.                  issued by XL Insurance (Bermuda) (the “XL Bermuda Policy”), and any insurance policy which is specifically in excess of those policies (collectively, the “D&O Policies”), the ability of any of the Lazard Group Companies or the LFCM Companies to make any claim on any such policies will be determined by the terms of those policies except as otherwise limited by the terms of this Agreement.

 

(c) Current Lazard Group Companies Policies. With respect to all other Policies listed in Schedule 1, Lazard Ltd and LFCM agree that LFCM and its subsidiaries or affiliates shall cease to be insured under such policies as of the Separation; provided, however, the ability of the Lazard Group Companies and/or the LFCM Companies to make any permitted claim on any such policies will be determined by the terms of such policies except as otherwise limited by the terms of this Agreement. Lazard Ltd and LFCM agree that to the extent such policies are composite policies that the Lazard Group Companies and the LFCM Companies may make claims under such policies for their respective rights and interests irrespective of the Party or Parties named therein as insureds and in accordance with the terms of this Agreement for losses and liabilities arising out of occurrences before the Separation Time.

 

(d) Prior Lazard Group Companies Policies. With respect to all Prior Lazard Group Companies Policies, such policies shall continue to exist in their current form without any change whatsoever by reason of the Separation. The ability of the Lazard Group Companies and/or the LFCM Companies to make any claim on any such policies will be determined by the terms of such policies except as otherwise limited by the terms of this Agreement. Lazard Ltd and LFCM agree that to the extent such policies are composite policies that the Lazard Group Companies and the LFCM Companies may make claims under such policies for their respective rights and interests irrespective of the Party or Parties named therein as insureds and in accordance with the terms of this Agreement.

 

(e) Nothing in this Agreement shall affect any Insurance Policy under which the only named insureds or persons otherwise entitled to the benefits of such Insurance Policy are, on the one hand, one or more Lazard Group Companies or, on the other hand, one or more LFCM Companies.

 

(f) In the event that a claim is covered by (i) any policy referenced in Sections 2.1(a), 2.1(c), 2.1(d), and/or 2.1(e) and (ii) the D&O Policies, the Parties agree that the D&O Policies shall apply only with respect to any Loss which is in excess of the Loss which is covered under any other insurance policy.

 

SECTION 2.2 LFCM Insurance Coverage After the Separation. LFCM shall inform Lazard Group about the replacement policies that it plans to obtain that shall provide coverage of the type provided by Current Lazard Group Companies Policies, or in respect of its decision not to maintain coverage and the limits obtained by LFCM. LFCM shall use reasonable best efforts to obtain the insurance coverage listed on Schedule B for the five years following the date hereof. In addition, LFCM shall otherwise obtain any and all insurance policies required as a matter of law and use its commercially reasonable efforts to obtain insurance policies of the type and scope, and on the terms, that other businesses that conduct similar businesses to LFCM

 

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obtain in the ordinary course of business (collectively, the “LFCM Policies”). With effect from the date of inception of each LFCM Policy, the LFCM Companies shall cease to be assureds under the equivalent Current Lazard Group Companies Policy. Neither Lazard Group nor any of the other Lazard Group Companies shall be directly or indirectly liable for any failure on the part of LFCM or any other member of the LFCM Companies to obtain such coverage.

 

SECTION 2.3 Responsibilities for Deductibles and/or Self-insured Obligations. LFCM shall pay or cause to be paid to any insurer all amounts necessary to exhaust or otherwise satisfy all applicable self-insured retentions, amounts for fronted policies, deductibles and retrospective premium adjustments and similar amounts that apply under Lazard Group Companies Policies in connection with LFCM Liabilities and Insured LFCM Liabilities. With respect to such liabilities, LFCM shall also pay amounts that are not otherwise covered by the Lazard Group Companies Policies.

 

SECTION 2.4 Procedures With Respect to Insured LFCM Liabilities.

 

(a) Notice. LFCM shall give prompt written notice to Lazard Group of all claims or losses that are potentially eligible for coverage under Lazard Group Companies Policies or that have the potential to reduce deductibles or self-insured retentions applicable to such policies.

 

(b) Reimbursement. LFCM shall reimburse Lazard Group for all out-of-pocket costs, expenses and fees, including attorneys’ fees, incurred by Lazard Group and the other members of the Lazard Group Companies for services performed pursuant to this Section, Section 2.1 or Section 2.6 in connection with any LFCM Liabilities.

 

(c) Security and Collateral. To the extent that there is any obligation after the Separation Time to provide or continue to provide security or collateral to any insurer with respect to LFCM Liabilities, LFCM shall provide or cause to be provided such security or collateral and pay or cause to be paid the cost of doing so. To the extent that Lazard Group or any other member of the Lazard Group Companies continues after the Separation Time to provide security or collateral to any insurer with respect to any LFCM Liabilities, LFCM shall: (i) use reasonable best efforts, in cooperation with Lazard Group, to persuade the insurer to release Lazard Ltd and the Lazard Group Companies from such obligation and to substitute security or collateral from LFCM; (ii) to the extent requested to do so by Lazard Ltd, until Lazard Group and the Lazard Group Companies are released from such obligations, provide Lazard Group at the expense of LFCM with equivalent security or collateral; (iii) reimburse Lazard Group for the cost of continuing to provide such security or collateral; and (iv) to the extent not satisfied by the security or collateral contemplated by subsection (ii), at Lazard Group’s option either pay on behalf of Lazard Group any collateral or security amounts that become due with respect to LFCM Liabilities or promptly reimburse Lazard Group for security or collateral amounts paid by Lazard Group with respect to such liabilities.

 

(d) Reinsurance and Indemnification Obligations. With respect to Insured LFCM Liabilities that are insured under Lazard Group Companies Policies issued by commercial insurers who are entitled to reinsurance or indemnification for such LFCM Liabilities in whole or in part from Lazard Group, LFCM shall: (i) use reasonable best efforts, in cooperation with

 

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Lazard Group, to persuade the insurer to release Lazard Group and the other members of the Lazard Group Companies from such reinsurance or indemnification obligation and substitute a reinsurance or indemnification obligation from LFCM; (ii) to the extent requested to do so by Lazard Group, until Lazard Group and the Lazard Group Companies are released from such obligations, provide Lazard Group at the expense of LFCM with commercially reasonable security or collateral for such obligations; (iii) reimburse Lazard Group for the cost of continuing to provide any security or collateral for such obligations; and (iv) to the extent not satisfied by the security or collateral contemplated by subsection (ii), at Lazard Group’s option either pay on behalf of Lazard Group any reinsurance or indemnification amounts that become due with respect to LFCM Liabilities or promptly reimburse Lazard Group for reinsurance or indemnification amounts paid by Lazard Group or the Lazard Group Companies with respect to such liabilities.

 

(e) Management of Claims. (i) With respect to LFCM Liabilities, Lazard Ltd shall have the right but not the obligation to provide appropriate notice to insurers, submit claims to insurers for payment, negotiate coverage questions that may arise, and to arbitrate, litigate and/or compromise coverage disputes under the Lazard Group Companies Policies in its sole discretion, except as prohibited by law or regulation, including but not limited to the Financial Services and Markets Act 2000 of the U.K. and any statutory instruments and rules made thereunder. In the event that Lazard Ltd elects not to exercise their rights or is prohibited by law or regulation from exercising such right under this clause (i) with respect to particular claims or losses after having received notice of such claims or losses from an LFCM Entity, Lazard Ltd shall notify LFCM of that election as soon as practicable thereafter so that LFCM may exercise its rights and responsibilities with respect to such claims or losses under clause (ii) below.

 

(ii) In the event that Lazard Ltd gives notice of its election not to exercise its rights or is prohibited by law or regulation from exercising such right under clause (i) above, LFCM shall have the right and the responsibility with respect to Insured LFCM Liabilities to provide appropriate notice to insurers, administer claims to the extent necessary or appropriate, submit claims to insurers for payment, negotiate coverage questions that may arise, and to arbitrate, litigate and/or compromise coverage disputes under the Lazard Group Companies Policies (in conjunction with, and subject to the control rights of, the insurers, as appropriate); provided, that settlements, compromises or determinations of any such coverage questions or coverage disputes shall be subject to the prior written consent of Lazard Ltd.

 

(f) Lazard Ltd and LFCM agree that neither the Lazard Group Companies Policies nor the Insurance Proceeds of such policies shall be considered to be assets of LFCM.

 

SECTION 2.5 Insufficient Limits of Liability for Lazard Group Liabilities and LFCM Liabilities. Subject to Section 2.1(a), in the event that there are insufficient limits of liability available under the Lazard Group Companies Policies to cover the Lazard Group Liabilities and/or LFCM Liabilities that would otherwise be covered by such Lazard Group Companies Policies, then to the extent that other insurance is not available to the Lazard Group Companies and/or the LFCM Companies for such Liabilities an adjustment will be made in accordance with the following procedures:

 

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(a) Each Party will be allocated an amount of the Insurance Proceeds equal to their Shared Percentage of the lesser of (i) the available limits of liability available under the applicable Lazard Group Companies Policies in effect prior to the Separation Time net of uncollectible amounts attributable to insurer insolvencies, and (ii) the Insurance Proceeds received from the Lazard Group Companies Policies if the Liabilities are the subject of disputed coverage claims and, following consultation with each other, Lazard Group and/or LFCM agree to accept less than full policy limits from Lazard Group’s and LFCM’s insurers (the “Coverage Amount”).

 

(b) A Party (the “Overallocated Party”) who receives more than its Shared Percentage of the Coverage Amount (such amount in excess, the “Excess”) agrees to after receipt pay or reimburse the other Party (the “Underallocated Party”) an amount equal to the Excess.

 

SECTION 2.6 Cooperation. (a) The Parties shall cooperate with each other, and shall use commercially reasonable efforts to take or cause to be taken all appropriate actions required of such Party, and to do or cause to be done all things necessary or appropriate to effectuate the provisions and purposes of this Agreement and the transactions contemplated hereby, including the execution of any additional documents or instruments of any kind, the obtaining of consents which may be reasonably necessary or appropriate to carry out any of the provisions hereof, and the taking of all such other actions as such Party may reasonably be requested to take by the other Party from time to time consistent with the terms of this Agreement; provided, however, that nothing in this Section 2.6 shall (i) preclude any member of the Lazard Group Companies from presenting any claim or from exhausting any policy limit, (ii) require any member of the Lazard Group Companies to pay any premium or other amount or to incur any Liability in respect of any LFCM Liabilities, or (iii) require any member of the Lazard Group Companies to renew or extend any period or term of any Lazard Group Companies Policy.

 

(a) By way of enumeration of and not of limitation, and subject to Section 6.7 of the Master Separation Agreement:

 

(i) each Party shall provide copies of insurance policies (to the extent that copies are available) or evidence of the existence of insurance (where actual copies of the policies are not available), to the other to the extent reasonably required to effectuate the provisions and purposes of this Agreement;

 

(ii) each Party shall provide the other with information reasonably necessary or helpful to either Party in connection with its efforts to obtain insurance coverage pursuant to and in accordance with the terms of this Agreement or to purchase new insurance policies, including information about the relevant portions of prior underwriting submissions, past and current claims and losses, subject to any confidentiality restrictions regarding such information, claims and losses;

 

(iii) each Party shall provide information to the other about exhaustion of policy limits and amounts applied to the limits of policies or self-insured retentions or other limits which are discussed in this Agreement that are potentially applicable to both, and the basis

 

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for the application of such amounts to such limits, so that each Party can monitor the exhaustion of such limits; and

 

(iv) subject to this Section 2.6 and Section 3.6, each Party shall execute further assignments or allow the other to pursue claims in its name (subject to appropriate written notice of the fact that it is doing so and a description of the reasons why it is doing so), including by means of arbitration or litigation, to the extent necessary or helpful to the other Party’s efforts to obtain insurance coverage to which it is entitled under this Agreement.

 

SECTION 2.7 No Assignment or Waiver. This Agreement shall not be considered as an attempted assignment of any policy of insurance or as a contract of insurance and shall not be construed to waive any right or remedy of any member of the Lazard Group Companies in respect of any Lazard Group Companies Policy or any other contract or policy of insurance.

 

SECTION 2.8 No Liability. LFCM does hereby, for itself and as agent for each other member of the LFCM Companies, agree that no member of the Lazard Group Companies or any Lazard Group Indemnitee shall have any Liability whatsoever as a result of the insurance policies and practices of Lazard Group and its Subsidiaries as in effect at any time prior to the Separation Time, including as a result of any invalidity of any policy, the level or scope of any such insurance, the creditworthiness of any insurance carrier, the terms and conditions of any policy, the adequacy or timeliness of any notice to any insurance carrier with respect to any claim or potential claim or otherwise.

 

SECTION 2.9 No Restrictions. Nothing in this Agreement shall be deemed to restrict any member of the LFCM Companies from acquiring at its own expense any other insurance policy in respect of any Liabilities or covering any period.

 

SECTION 2.10 Further Agreements. The Parties acknowledge that they intend to allocate financial obligations without violating any laws regarding insurance, self-insurance, insurance mediation or other financial responsibility. If it is determined that any action undertaken pursuant to the Master Separation Agreement, this Agreement or any other Ancillary Agreement is violative of any insurance, self-insurance, insurance mediation or related financial responsibility law or regulation, the Parties agree to work together to do whatever is necessary to comply with such law or regulation while trying to accomplish, as much as possible, the allocation of financial obligations as intended in the Master Separation Agreement, this Agreement and any other Ancillary Agreement.

 

SECTION 2.11 Additional Insurance Policies. With respect to any policy not otherwise addressed herein, each Party may claim in respect of its own losses or liabilities subject to the claims handling provisions set forth in Section 2.4.

 

ARTICLE III

 

MISCELLANEOUS

 

SECTION 3.1 Complete Agreement; Representations. (a) The Master Separation Agreement, this Agreement and the other Ancillary Agreements shall constitute the

 

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entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter.

 

(b) Lazard Group represents to LFCM, and LFCM represents to Lazard Group, as follows:

 

(i) such person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform this Agreement; and

 

(ii) this Agreement has been duly executed and delivered by such person and constitutes a valid and binding agreement of it enforceable in accordance with the terms thereof (assuming the due execution and delivery thereof by the other Party).

 

SECTION 3.2 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware (other than the laws regarding choice of laws and conflicts of laws that would apply the substantive laws of any other jurisdiction) as to all matters, including matters of validity, construction, effect, performance and remedies.

 

SECTION 3.3 Obligations. The Parties’ obligations under this Agreement are conditional upon the Separation, the occurrence of which is subject to various conditions set forth in the Master Separation Agreement. This Agreement shall become operative if and when the Separation occurs and shall be null and void if the Separation does not occur for any reason. Nothing contained in this Agreement shall constitute a representation or promise that any Party or any related person will proceed with the Separation, or obligate any Party or any related person to do so.

 

SECTION 3.4 Notices. All notices, consents, waivers and other communications required or permitted by this Agreement shall be in writing and shall be deemed given to a Party when (a) delivered to the appropriate address by hand or by nationally recognized overnight courier service (costs prepaid); (b) sent by facsimile with confirmation of transmission by the transmitting equipment; or (c) received or rejected by the addressee, if sent by certified mail, return receipt requested, in each case to the following addresses and facsimile numbers and marked to the attention of the person (by name or title) designated below (or to such other address, facsimile number or person as a Party may designate by notice to the other Parties):

 

If to Lazard Group or any member of the Lazard Group Companies:

 

Lazard Group LLC

30 Rockefeller Plaza

New York, New York 10020

Attention: General Counsel

Facsimile: (212) 632-6655

 

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If to LFCM or any member of the LFCM Companies:

 

LFCM Holdings LLC

Attention:

Facsimile:

 

SECTION 3.5 Amendment, Modification or Waiver. This Agreement may be amended, modified, waived or supplemented, in whole or in part, only by a written agreement signed by all of the Parties. No failure or delay on the part of either Party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. The waiver by such Parties of any breach of this Agreement shall not be construed as a waiver of any subsequent breach.

 

SECTION 3.6 Successors and Assigns; No Third Party Beneficiaries. (a) This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties and their successors and permitted assigns, but neither this Agreement nor any of the rights, interests and obligations hereunder shall be assigned or otherwise transferred, in whole or in part, by any Party without the prior written consent of the other Party.

 

(b) This Agreement is solely for the benefit of the Parties and is not intended to confer upon any other persons any rights or remedies hereunder.

 

SECTION 3.7 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

SECTION 3.8 Delaware Court. Each of the Parties agrees that all actions or proceedings arising out of or in connection with this Agreement, or for recognition and enforcement of any judgment arising out of or in connection with this Agreement, shall be tried and determined exclusively in the state or federal courts in the State of Delaware, and each of the Parties hereby irrevocably submits with regard to any such action or proceeding for itself and in respect to its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each of the Parties hereby expressly waives any right it may have to assert, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any such action or proceeding: (a) any claim that it is not subject to personal jurisdiction in the aforesaid courts for any reason; (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts; and (c) that (i) any of the aforesaid courts is an inconvenient or inappropriate forum for such action or proceeding, (ii) venue is not proper in any of the aforesaid courts and (iii) this Agreement or the subject matter hereof or thereof, may not be enforced in or by any of the aforesaid courts.

 

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SECTION 3.9 Interpretation; Conflict. The Article and Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the Parties and shall not in any way affect the meaning or interpretation of this Agreement. The provisions of the Master Separation Agreement shall govern in the event of any conflict between any provision of this Agreement and that of the Master Separation Agreement or any Ancillary Agreement, and the Parties shall execute or cause to be executed an amendment, if necessary in their good faith judgment, to this Agreement to remove such conflict.

 

SECTION 3.10 Right of Setoff. Lazard Group may deduct from, set off, hold back or otherwise reduce in any manner whatsoever against any such amounts that (a) Lazard Group or any other member of the Lazard Group Companies may owe to or hold for the benefit of LFCM or any other member of the LFCM Companies or (b) LFCM or any other member of the LFCM Companies may be entitled to receive from any insurer under this Agreement, the aggregate amount then owed by LFCM or any other member of the LFCM Companies to Lazard Group or any other member of the Lazard Group Companies.

 

SECTION 3.11 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any applicable rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the date first above written.

 

LAZARD GROUP LLC
By:    
   

Name:

   

Title:

LFCM HOLDINGS LLC
By:    
   

Name:

   

Title:

 

[Signature Page to Insurance Matters Agreement]

 

Form of Lazard License Agreement

Exhibit 10.6

 

FORM OF

LICENSE AGREEMENT

 

This LICENSE AGREEMENT (this “Agreement”), dated as of                 , 2005, is by and among:

 

LAZARD STRATEGIC COORDINATION COMPANY LLC, a limited liability company organized under the laws of the State of Delaware (“LSCC”);

 

LAZARD FRÈRES & CO. LLC, a limited liability company organized under the laws of the State of New York (“LFNY”);

 

LAZARD FRÈRES S.A.S., a Sociète par Actions Simplifèe organized under the laws of France (“LF”);

 

LAZARD & CO., HOLDINGS LIMITED, a private limited company organized under the laws of the England and Wales (“LB Holdings,” together with LSCC, LFNY and LF, the “Licensors,” and each, a “Licensor”); and

 

LFCM HOLDINGS LLC, a limited liability company organized under the laws of the State of Delaware (“Licensee”).

 

W I T N E S S E T H:

 

WHEREAS, pursuant to that certain Second Amended and Restated Coordination and Service Agreement, dated as of January 1, 2002, by and among Lazard LLC, a Delaware limited liability company and parent company of Licensors that will be renamed “Lazard Group LLC” (“Lazard Group”), and the other parties thereto (as amended from time to time, the “Coordination Agreement”), Licensors are the owners of the trade name and service mark “LAZARD”, “LF” and [“Capital Partners”] (collectively, the “Licensed Marks”) in their respective Relevant Territories (as defined in the Coordination Agreement); and

 

WHEREAS, pursuant to that certain Master Separation Agreement, entered into on the date hereof (the “Master Separation Agreement”), by and among Lazard Ltd, a Bermuda limited company, Lazard Group, LAZ-MD Holdings LLC, a Delaware limited liability company, and Licensee, from and after the Contribution Effective Time (as defined in the Master Separation Agreement), Licensee will hold the LFCM Assets and LFCM Liabilities, and conduct the Capital Markets Business (as defined in the Master Separation Agreement), the Alterative Investments Business (as defined in the Master Separation Agreement) and serve as a holding company for such businesses under the name “LFCM Holdings LLC”; and

 

WHEREAS, Licensors desire to grant Licensee a non-exclusive license (the “Capital Markets License”) to use the Licensed Mark, to the extent that Licensee uses the Licensed Mark immediately prior to the Separation (as defined in the Master Separation Agreement), in order to carry on the Capital Markets Business (the “Capital Markets Licensed Service”); and

 

WHEREAS, Licensors desire to grant Licensee a non-exclusive license (the “Alternative Investments License”) to use the Licensed Mark, to the extent that Licensee uses the Licensed Mark immediately prior to the Separation (as defined in the Master Separation Agreement), in order to carry on the Alternative Investments Business (the “Alternative Investments Licensed Service”); and

 

WHEREAS, Licensors desire to grant Licensee a non-exclusive license (the “LFCM License” and together with the Capital Markets License and the Alternative Investments License, the “Lazard Licenses”) to use “LF” in the name “LFCM Holdings LLC” solely for purposes of the holding company that will hold the Capital Markets Business, the Alternative Investments Business and the LFCM Assets and LFCM Liabilities (the “LFCM Licensed Service” and together with the Capital Markets Licensed Service and the Alternative Licensed Service, the “Licensed Services”); and

 

WHEREAS, Licensee desires to obtain from Licensors, and Licensors desire to provide to Licensee, the Lazard Licenses, on the terms and subject to the conditions herein.

 

NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement, and for the mutual benefits to be derived from this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties, intending to be legally bound hereby, agree as follows:

 

1. License.

 

(a) Grant of License; Scope. Licensors hereby grant to Licensee the Lazard Licenses solely in connection with the Licensed Services in Licensors’ respective Relevant Territories to the extent that Licensee uses the Licensed Marks immediately prior to the Separation (as defined in the Master Separation Agreement). Except with the prior written consent of Lazard Group, which consent may be withheld in Lazard Group’s sole discretion, none of the Lazard Licenses shall extend for use for any purpose other than the Licensed Services conducted as of the date hereof. For the avoidance of doubt, without the prior written consent of Lazard Group, which consent may be withheld in Lazard Groups sole discretion, the Lazard Licenses shall not extend to any entities in the Capital Markets Business other than “Lazard Capital Markets LLC” or any Funds (as defined in that certain Business Alliance Agreement, dated as of the date hereof, by and between Licensee and Lazard Group LLC (the “Business Alliance Agreement”) formed or established after the date hereof and managed or marketed by the Alternative Investments Business (including successor Funds to Funds existing as of the date of hereof).

 

(b) Royalty Fee. In exchange for the Lazard License, Licensee shall pay a fee equal to $100,000 per annum (the “Royalty Fee”), which shall be paid to Lazard Group in advance no later than January 15th of each year. The Royalty Fee shall be divided among Licensors as

 

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Lazard Group shall from time to time determine. The initial Royalty Fee shall be pro rated for the period commencing on the date hereof and ending on December 31, 2005 and shall be paid no later than 10 Business Days after the date hereof. Notwithstanding the foregoing, the Royalty Fee shall be reduced by (a) $25,000 per annum if either the Capital Markets License or the Alternative Investments License shall have been revoked or terminated and (b) $75,000 per annum if both the Capital Markets License and the Alternative Investments License shall be revoked or terminated. Such reduction shall be effective as of the next full calendar year following the date of the applicable revocation and termination.

 

(c) Territorial Limitation. Licensee may use the Licensed Marks, subject to the terms of this Agreement, throughout the Relevant Territories of Licensors solely to the extent that Licensee uses the Licensed Marks in such Relevant Territories as of the date hereof.

 

(d) Revocation. Except as provided in this Agreement, the Lazard Licenses shall not be revocable by any Licensor.

 

2. Quality of Services.

 

(a) All Licensee’s services and other activities conducted under the Licensed Marks while the Lazard Licenses are in effect shall be of at least the same high quality as that of the services heretofore rendered by the Houses (as defined in the Coordination Agreement), which have been commensurate with the highest standards of quality prevailing in the financial community.

 

(b) Licensee shall not use the Licensed Mark in such a way, or omit any act, or pursue any course of conduct, which might tend to bring the Licensed Mark into disrepute, or use the same in any way likely to damage the goodwill and reputation attaching thereto or in a manner likely to dilute the value or strength of the Licensed Mark.

 

(c) Licensee shall be required to use the Licensed Mark in the same manner as such Licensed Marks are used as of the date hereof in the Capital Markets Business and the Alternative Investments Business, including with respect to the color, shape and logo of the Licensed Marks as such Licensed Marks appear on stationery and letterhead as of the date hereof.

 

(d) In the conduct of the Licensee Business, Licensee shall comply with all applicable foreign or domestic (federal, state or local) laws, statutes, orders, decrees, judgments, ordinances, licenses, rules or regulations of any Governmental Authority, including the Foreign Corrupt Practices Act (15 U.S.C. §§ 78m(b), 78dd-1, et seq.).

 

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3. Oversight by Licensor.

 

(a) Licensor and its duly authorized representatives shall each have the right, during normal business hours, to visit and inspect all offices, facilities and premises maintained by Licensee at which the Licensee Business are rendered under the Licensed Mark. Those persons shall have the right to take any action that, in the opinion of Licensor, is necessary and proper to assure those representatives and Licensor that the nature and quality of the Licensee Business are in accordance with the requirements of this Agreement.

 

(b) Licensee shall comply as promptly as reasonably practicable with all requests by Licensor for the submission to Licensor of copies of all materials bearing or displaying the Licensed Mark, including, without limitation, correspondence, reports, analyses, brochures, advertising and promotional materials and stationery.

 

(c) Licensee shall not perform or offer under the Licensed Marks any existing or proposed services or other activities whose nature or quality Licensor has objected to as not adhering to the requirements of this Agreement. Licensee shall not use any materials bearing, displaying, or mentioning the Licensed Marks if Licensor has previously objected to the use of such materials as not adhering to the requirements of this Agreement.

 

4. Right to Sub-License. Licensee shall not have the right to grant any sub-license of its rights under this Agreement to use the Licensed Mark nor shall Licensee be permitted to assign any of its rights or obligations under this Agreement; provided, that, with the prior written consent of Licensor, Licensee may sublicense the rights to use the Licensed Mark granted hereunder to a Controlled Subsidiary of Licensee or Fund (as defined in the Business Alliance Agreement) managed by a Controlled Subsidiary of Licensee to the extent that such Controlled Subsidiary or Fund used the Licensed Mark immediately prior to the Separation; provided, further, that (1) such permitted sub-licensee agrees in writing to be bound by the terms and restrictions contained within this Agreement, for the avoidance of doubt, including, but not limited to, the right of Licensor to visit and inspect during normal business hours such permitted sub-licensee’s offices, facilities and premises pursuant to Section 3(a) of this Agreement; and (2) in the event such permitted sub-licensee ceases to be a Controlled Subsidiary of Licensee or Fund managed by a Controlled Subsidiary of Licensee, the sub-license granted to such permitted sub-licensee shall automatically terminate. “Control” with respect to any person means the power to direct the management and policies of such person, directly or indirectly, by or through stock ownership, agency or otherwise, or pursuant to or in connection with an agreement, arrangement or understanding (written or oral) with one or more other persons; and the terms “controlling” and “controlled” shall have meanings correlative to the foregoing.

 

5.

Assistance with Claims. Licensee shall, promptly upon learning thereof, furnish Licensor in writing with the name, address, and such other pertinent information as may be available,

 

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with respect to any third party who may be infringing or otherwise violating any of Licensor’s rights in the Licensed Mark or with respect to any third party who may make a claim that the use of the Licensed Mark infringes upon or otherwise violates any rights of any nature of said third party. Licensee shall cooperate in all respects, as required by Licensor, with regard to any action which Licensor deems advisable either to protect Licensor’s right in the Licensed Mark or to contest a claim by a third party that the use of the Licensed Mark infringes upon or otherwise violates any rights of any nature of said third party. Upon prior written authorization from Licensor, Licensee may take judicial actions on Licensee’s own behalf against potential offenders of the Licensed Mark.

 

6. Acknowledgements. Licensee hereby acknowledges that (a) any and all goodwill and proprietary rights in the Licensed Marks (including any derivatives thereof) remain entirely vested in Licensors and (b) that Licensee derives from this Agreement no rights in or to use the Licensed Mark other than under and in accordance with the terms of this Agreement.

 

7. Termination of Lazard Licenses.

 

(a) The Capital Markets License shall automatically be revoked and terminated, without any action on the part of Licensors or Licensee, upon the expiration or termination of the Alliance Term (as defined in the Business Alliance Agreement);

 

(b) The Alternative Investments Business License shall automatically be revoked and terminated, without any action on the part of Licensors or Licensee, upon the latest to occur of (i) the expiration of the North American Option, (ii) the occurrence of the North America Closing, (iii) the expiration of the European Option and (iv) the occurrence of the Europe Closing (each as defined in the Business Alliance Agreement); and

 

(c) On and after revocation and termination of both (i) the Capital Markets License and (ii) the Alternative Investments License, each of Licensor and Licensee may terminate the LFCM License at any time.

 

8. Consequences of Termination. Immediately following termination or revocation of the Lazard Licenses pursuant to Section 7:

 

(a) Within 30 days of termination, Licensee shall, and shall cause all permitted sub-licensees under Section 4 of this Agreement to, no longer use any business stationery containing the Licensed Marks, including but not limited to headed note paper, faxes, envelopes and business cards and signage including the Licensed Marks, and shall no longer use the Licensed Marks in any electronic form, including but not limited to, electronic mail and the internet; and

 

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(b) Licensee shall, and shall cause all permitted sub-licensees under Section 4 of this Agreement to, cease to use, and shall not use in the future, the Licensed Marks or any confusingly similar name or mark for any purpose.

 

9. Miscellaneous.

 

(a) No Additional Rights. Nothing contained in this Agreement shall in any way confer on the Licensee any right not specifically set forth herein including, without limitation, the legal or equitable right to the Licensed Marks. Licensee acknowledges Licensors’ ownership of, and the validity of, the Licensed Marks in their respective Relevant Territories and shall not contest during the term of this Agreement, or at any time thereafter, Licensors’ ownership of the Licensed Marks in Licensors’ respective Relevant Territories. If, at any time after the date hereof, Licensee or any of its subsidiaries challenges or contests Licensor’s ownership of, or validity of, the Licensed Marks, Licensors may revoke any or all Lazard Licenses. Nothing in this Agreement shall be construed as or constitute an appointment of either Party as the agent of the other.

 

(b) Indemnification. Licensee agrees to indemnify Licensor and hold Licensor harmless against any liability, loss, cost, damages, attorneys’ fees, and expenses of whatever kind or nature that Licensor may incur by reason of any claim arising from the sale, advertising or use of the Licensed Mark by Licensee or any of the sublicensees of Licensee or, unless such Business has been acquired by Licensors, by the Capital Markets Business, the Alternative Investments Business or the LFCM Businesses.

 

(c) Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to each of the other parties.

 

(d) Specific Performance. The parties acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which they may be entitled by law or equity.

 

(e) Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any applicable rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good

 

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faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible.

 

(f) Entire Agreement. This Agreement constitutes the entire agreement among of the parties and supersede all prior agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof.

 

(g) Headings. The section headings contained in this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement.

 

(h) Notices. All notices, consents, waivers and other communications required or permitted by this Agreement shall be in writing and shall be deemed given to a party when (a) delivered to the appropriate address by hand or by nationally recognized overnight courier service (costs prepaid); (b) sent by facsimile with confirmation of transmission by the transmitting equipment; or (c) received or rejected by the addressee, if sent by certified mail, return receipt requested, in each case to the following addresses and facsimile numbers and marked to the attention of the person (by name or title) designated below (or to such other address, facsimile number or person as a party may designate by notice to the other parties):

 

If to Licensee, to:

 

LFCM Holdings LLC

Attention:

Fax:

 

If to LB Holdings, to:

 

Lazard & Co. Holdings Limited

50 Stratton Street

London W1J 8LL

England

Attention: General Counsel

Facsimile: 44-20-7072-6404

 

If to LF, to:

 

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Lazard Frères S.A.S.

121 Boulevard Haussmann

75008

Paris, France

Attention: General Counsel

Facsimile: 33-1-4413-0150

 

If to LFNY, to:

 

Lazard Frères & Co. LLC

30 Rockefeller Plaza

New York, New York 10020

Attention: General Counsel

Facsimile: 212-332-5972

 

If to LSCC, to:

 

Lazard Strategic Coordination Company LLC

30 Rockefeller Plaza

New York, New York 10020

Attention:

Facsimile:

 

or at such other address and to the attention of such other person as a party may designate by written notice to the other parties.

 

(i) Governing Law. This Agreement and performance hereunder shall be governed by and construed in accordance with the laws of the State of Delaware without reference to the choice of law principles thereof. The parties hereby agree that all actions or proceedings arising out of or in connection with this Agreement or the transactions contemplated hereby, or for recognition and enforcement of any judgment arising out of or in connection with this Agreement shall be tried and determined exclusively in the state or federal courts in the State of Delaware and the parties hereby irrevocably submit with regard to any such action or proceeding for itself and with respect to its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts.

 

(j) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns; provided, however, that this

 

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Agreement and the rights and obligations hereunder shall not be assignable or transferable by any party without the prior written consent of the other party.

 

[Signature Page to License Agreement]

IN WITNESS WHEREOF, the parties have caused this agreement to be duly executed as of the date first above written.

 

LAZARD STRATEGIC COORDINATION COMPANY LLC

By:

    
   

Name:

   

Title:

LAZARD FRÈRES & CO. LLC

By:

    
   

Name:

   

Title:

LAZARD FRÈRES S.A.S.

By:

    
   

Name:

   

Title:

LAZARD & CO., HOLDINGS LIMITED

By:

    
   

Name:

   

Title:

LFCM HOLDINGS LLC

By:

    
   

Name:

   

Title:

 

10

Form of Administrative Services Agreement

Exhibit 10.7

 

 

FORM OF

 

ADMINISTRATIVE SERVICES AGREEMENT

 

by and among

 

LAZ-MD HOLDINGS LLC,

 

LFCM HOLDINGS LLC

 

and

 

LAZARD GROUP LLC

TABLE OF CONTENTS

 

               Page

ARTICLE I

   

DEFINITIONS

    1

ARTICLE II

   

AGREEMENT TO PROVIDE AND ACCEPT SERVICES

    1
     Section 2.01.   

Provision of Services

    1
     Section 2.02.   

Access

    2
     Section 2.03.   

Cooperation

    3
     Section 2.04.   

Performance Review

    3

ARTICLE III

   

TERMS AND CONDITIONS; PAYMENT; INDEPENDENT CONTRACTORS

    3
     Section 3.01.   

Terms and Conditions of Services

    3
     Section 3.02.   

Payments

    6
     Section 3.03.   

Disclaimer of Warranty

    6
     Section 3.04.   

Use of Services

    6
     Section 3.05.   

Records and Audit Rights

    6

ARTICLE IV

   

TERM OF SERVICES

    7

ARTICLE V

   

FORCE MAJEURE

    8

ARTICLE VI

   

LIABILITIES

    8
     Section 6.01.   

Consequential and Other Damages

    8
     Section 6.02.   

Release and Indemnity

    8

ARTICLE VII

   

TERMINATION

    10
     Section 7.01.   

Termination

    10
     Section 7.02.   

Breach of Services Agreement; Change of Control; Termination of Alliance Term

    11
     Section 7.03.   

Sums Due

    11
     Section 7.04.   

Effect of Termination

    11

ARTICLE VIII

   

MISCELLANEOUS

    12
     Section 8.01.   

Assignment

    12
     Section 8.02.   

No Third-Party Beneficiaries

    12
     Section 8.03.   

Amendments

    12
     Section 8.04.   

Waivers

    12
     Section 8.05.   

Notices

    12
     Section 8.06.   

Exhibits and Schedules; Interpretation

    13
     Section 8.07.   

Counterparts

    14
     Section 8.08.   

Entire Agreement

    14
     Section 8.09.   

Severability

    14
     Section 8.10.   

Delaware Court

    14
     Section 8.11.   

Governing Law

    14
     Section 8.12.   

Confidentiality; Title to Data

    15

     Section 8.13.   

Administrative Representatives

    15
     Section 8.14.   

Dispute Resolution

    15

 

3

This ADMINISTRATIVE SERVICES AGREEMENT, dated as of                 , 2005 (this “Services Agreement”), is by and among LAZ-MD Holdings LLC, a Delaware limited liability company (“LAZ-MD Holdings”), LFCM Holdings LLC, a Delaware limited liability company (“LFCM Holdings”), and Lazard Group LLC, a Delaware limited liability company (“Lazard Group”). Each of LAZ-MD Holdings, LFCM Holdings and Lazard Group is sometimes hereinafter referred to as a “Party” and collectively are referred to as the “Parties.”

 

WHEREAS, LAZ-MD Holdings, LFCM Holdings and Lazard Group are parties to that certain Master Separation Agreement, dated as of the date hereof (the “Master Separation Agreement”), with Lazard Ltd, a Bermuda limited company, pursuant to which, on the date hereof, certain assets of Lazard Group and its Subsidiaries were contributed, transferred and assigned to LFCM Holdings and its Subsidiaries, and pursuant to which LFCM Holdings and its Subsidiaries assumed certain liabilities of Lazard Group and its Subsidiaries (the “Contribution” and the businesses so contributed, the “LFCM Businesses”); and

 

WHEREAS, pursuant to the Master Separation Agreement, on the date hereof and after the Contribution, Lazard Group distributed all of the limited liability company interests in LFCM Holdings to LAZ-MD Holdings, and immediately thereafter, LAZ-MD Holdings distributed all of such limited liability company in LFCM Holdings to its members (such distributions, together with the Contribution, the “Separation”); and

 

WHEREAS, the Master Separation Agreement provides that, to facilitate the Separation, the Parties hereto would enter into this Services Agreement upon consummation of the Separation, pursuant to which Lazard Group would provide certain services to each of LAZ-MD Holdings and LFCM Holdings, and LFCM Holdings would provide certain services to Lazard Group, each on the terms and conditions set forth in this Services Agreement.

 

NOW, THEREFORE, the Parties hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

All terms used herein and not defined herein shall have the meanings assigned to them in the Separation Agreement.

 

ARTICLE II

 

AGREEMENT TO PROVIDE AND ACCEPT SERVICES

 

Section 2.01. Provision of Services. (a) Lazard LAZ-MD Services. Subject in all cases to the terms and conditions contained herein and on Schedule 1, Lazard Group shall provide, or shall cause its Subsidiaries or third parties designated by it (such designated Subsidiaries and third parties, together with Lazard Group, being herein collectively referred to as the “Lazard Service Providers”) to provide, to LAZ-MD Holdings or its designated Subsidiaries, the services listed on Schedule 1 (the “Lazard LAZ-MD Services”) in accordance with Section 3.01. Any decisions as to which of the Lazard Service Providers (including the

 

decisions to use third parties) shall provide the Lazard LAZ-MD Services shall be made by Lazard Group in its sole discretion. Except as otherwise agreed in writing by Lazard Group and LAZ-MD Holdings, each Lazard LAZ-MD Service shall be provided in exchange for the Fee with respect to such Lazard LAZ-MD Service, and shall be provided and accepted in accordance with the terms, limitations and conditions set forth herein and on Schedule 1.

 

(b) Lazard LFCM Services. Subject in all cases to the terms and conditions contained herein and on Schedule 2, Lazard Group shall provide, or shall cause the applicable Lazard Service Providers to provide, to LFCM Holdings or its designated Subsidiaries, the services listed on Schedule 2 (the “Lazard LFCM Services”) in accordance with Section 3.01. Any decisions as to which of the Lazard Service Providers (including the decisions to use third parties) shall provide the Lazard LFCM Services shall be made by Lazard Group in its sole discretion. Except as otherwise agreed in writing by Lazard Group and LFCM Holdings, each Lazard LFCM Service shall be provided in exchange for the Fee with respect to such Lazard LFCM Service, and shall be provided and accepted in accordance with the terms, limitations and conditions set forth herein and on Schedule 2.

 

(c) LFCM Services. Subject in all cases to the terms and conditions contained herein and on Schedule 3, LFCM Holdings shall provide, or shall cause its Subsidiaries or third parties designated by it (such designated Subsidiaries and third parties, together with LFCM Holdings, being herein collectively referred to as the “LFCM Service Providers”) to provide, to Lazard Group or its designated Subsidiaries the services listed on Schedule 3 (the “LFCM Services”) in accordance with Section 3.01. Any decisions as to which of the LFCM Service Providers (including the decisions to use third parties) shall provide the LFCM Services shall be made by LFCM Holdings in its sole discretion. Except as otherwise agreed in writing by LFCM Holdings and Lazard Group, each LFCM Service shall be provided in exchange for the Fee with respect to such LFCM Service, and shall be provided and accepted in accordance with the terms, limitations and conditions set forth herein and on Schedule 3.

 

(d) Certain Defined Terms. As used in this Services Agreement, (i) each of Lazard Group (with respect to the Lazard LAZ-MD Services and the Lazard LFCM Services) and LFCM Holdings (with respect to the LFCM Services) is sometimes referred to as a “Service Provider” and collectively are referred to as the “Service Providers”; (ii) each of the Lazard LFCM Services, the Lazard LAZ-MD Services and the LFCM Services is sometimes referred to as a “Service” and collectively are referred to as the “Services”; and (iii) the Party receiving any particular Service is sometimes referred to as the “Receiving Party.”

 

Section 2.02. Access. Each Receiving Party shall (a) make available on a timely basis to the Service Providers all information and materials reasonably requested by such Service Providers to enable such Service Providers to provide the applicable Services to such Receiving Party; and (b) provide to the Service Providers reasonable access to the premises of such Receiving Party to the extent necessary for the Service Providers to provide the applicable Services to such Receiving Party. The Service Provider shall be entitled to rely upon the genuineness, validity or truthfulness of any document, instrument or other writing presented by the Receiving Party in connection with this Services Agreement. The Service Provider shall not be liable for any impairment of any Service caused by its not receiving information, either timely

 

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or at all, or by its receiving inaccurate or incomplete information from the Receiving Party that is required or reasonably requested regarding that Service.

 

Section 2.03. Cooperation. The applicable Service Provider and Receiving Party shall cooperate with each other in all reasonable respects in matters relating to the provision and receipt of the Services. Such cooperation shall include obtaining all consents, licenses or approvals necessary to permit each party to perform its obligations hereunder.

 

Section 2.04. Performance Review. The Parties will meet annually on or about October 31 to review the Service standards, performance measures and activity levels. The Parties will use their good-faith efforts to resolve any issues concerning Service standards, performance measures or changes in Fees during these meetings. Any issues that the Parties are not able to resolve pursuant to the foregoing sentence shall be resolved in accordance with Section 8.14.

 

ARTICLE III

 

TERMS AND CONDITIONS; PAYMENT; INDEPENDENT CONTRACTORS

 

Section 3.01. Terms and Conditions of Services. (a) Unless otherwise expressly agreed by the applicable Service Provider and the Receiving Party or set forth herein, (i) in providing the Lazard LAZ-MD Services, the Lazard Service Providers shall use their commercially reasonable efforts to exercise the same degree of care as Lazard Group and its Subsidiaries have historically exercised in providing such Lazard LAZ-MD Services to Subsidiaries of Lazard Group prior to the date hereof, (ii) in providing the Lazard LFCM Services, the Lazard Service Providers shall use their commercially reasonable efforts to exercise the same degree of care as Lazard Group and its Subsidiaries have historically exercised in providing such Lazard LFCM Services to the LFCM Businesses prior to the date hereof, and (iii) in providing the LFCM Services, the LFCM Service Providers shall use their commercially reasonable efforts to exercise the same degree of care as the LFCM Businesses have historically exercised in providing such LFCM Services to Lazard Group or its applicable Subsidiary prior to the date hereof, in each of cases (i), (ii) and (iii), including with respect to quality, priority, responsiveness and timeliness as has been historically exercised by such Service Provider, subject in each case to adjustments to take into account the Separation and the separate nature of the Parties; provided, however, that in no event shall the scope of the Services required to be performed hereunder exceed that described on Schedules 1, 2 or 3. Each Service Provider shall act under this Services Agreement solely as an independent contractor and not as an agent or employee of the Receiving Party. In no event shall any Service Provider be required to provide any Service that it reasonably believes does not comply with applicable law.

 

(b) The provision of Services by Service Providers shall be subject to Article V hereof.

 

(c) If it is necessary for any Service Provider to increase in any material respect the staffing or acquire any material equipment or make any material investments or material capital or other expenditures in order to accommodate an increase in the use of any Service beyond the level of use of such Service by or to, as applicable, the Separated Business

 

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immediately prior to the date hereof, such Service Provider shall inform the Receiving Party in writing of such increase in staffing level, equipment acquisitions, investments or capital or other expenditures before any such cost or expense is incurred. Upon mutual agreement of the Service Provider and the Receiving Party as to the necessity of any such increase, the Receiving Party shall (unless the Receiving Party and the Service Provider shall otherwise agree in writing) advance to the relevant Service Providers an amount equal to any upfront actual costs and expenses to be incurred in connection therewith. The Receiving Party shall reimburse the Service Provider for the remainder of such actual costs and expenses to be incurred in connection therewith on a monthly basis after such costs and expenses are incurred by the Service Provider. If such mutual agreement is not reached, such Service Provider shall have no obligation to make any such increase in staffing level, equipment acquisitions, investments or capital or other expenditures.

 

(d) If the provision of any Service requires the Receiving Party (or any of its Subsidiaries) to hold third-party licenses or other agreements relating to software, systems and/or processes (“Required Licenses”), the Receiving Party or its applicable Subsidiary shall obtain such Required Licenses at its own expense and at no cost to the Service Provider; provided, that, upon request of the Receiving Party, the Service Provider shall provide reasonable cooperation and assistance to such Receiving Party in the procurement of such Required Licenses. If the Receiving Party or its applicable Subsidiary is unable to obtain any such Required License, the Service Provider and the Receiving Party shall use reasonable efforts to establish alternative arrangements to provide the Service in the absence of such Required License; provided, that the Service Provider shall not be responsible for any interruption in or impairment of the Service relating to the establishment or terms of such alternative arrangements; and provided, further, that any portion of the Service requiring the use of such Required Licenses shall terminate in the event that the Service Provider and the Receiving Party are, in the exercise of their reasonable efforts, unable to establish such alternative arrangements. The Receiving Party shall be responsible for all costs and expenses associated with the establishment of such alternative arrangements or, if the relevant Parties fail to establish such alternative arrangements as specified above, any costs or expenses associated with or arising in connection with early termination of such Service. The Service Provider shall not be obligated under this Services Agreement to provide the Service (or portion thereof) corresponding to such Required License during any period in which the Receiving Party or its applicable Subsidiary does not have such Required License.

 

(e) Under no circumstances shall any Service Provider be obligated to provide any Service requiring an opinion, advice or representation as to which liability may be created for such Service Provider or its Affiliates due to claims from the Receiving Party or any other person or entity, including without limitation any governmental or regulatory authority (e.g., legal opinions or advice, tax opinions or advice, compliance opinions or advice), other than such customary representations as may reasonably be required by accountants in connection with the preparation of audited financial statements.

 

(f) The Parties acknowledge that provision of Services hereunder may require the Service Provider to enter into new or amended agreements with third parties or obtain the consent and approval of third parties. The Service Provider shall use reasonable efforts to enter into such agreements and to obtain such consents and approvals for a time period not to exceed

 

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the applicable termination date of such Service hereunder. The Receiving Party may accept or reject the terms of such agreement or consent and approval; provided that in the event that the Receiving Party rejects the terms of any such agreement or such consent and approval, the Service Provider shall not be obligated to provide that portion of the Service requiring such agreement or such consent and approval and, subject to the immediately following sentence, such portion of the Service shall terminate. If the Receiving Party rejects the terms of any such agreement or consent and approval, the Service Provider and the Receiving Party shall, if requested by the Receiving Party, use reasonable efforts to establish alternative arrangements to provide the Service in the absence of such agreement, consent or approval; provided, that the Service Provider shall not be responsible for any interruption in or impairment of the Service relating to the establishment or terms of such alternative arrangements; and provided, further, that such portion of the Service requiring the third-party agreement, consent or approval shall terminate in the event that the Parties, in the exercise of their reasonable efforts, are unable to establish such alternative arrangements. The Receiving Party shall be responsible for all costs and expenses associated with entry into such new or amended agreements, the establishment of such alternative arrangements or the obtaining of any consent or approval, or, if the Receiving Party does not accept the terms of such agreements, consents or approvals or the Parties fail to establish such alternative arrangements as specified above, any costs or expenses associated with or arising in connection with early termination of such Service.

 

(g) If the provision of any Service requires the use of Service Provider-issued checks or other fund transfers by the Service Provider on behalf of the Receiving Party (or as authorized in advance by the Receiving Party), the Service Provider shall issue such checks or make such fund transfers only to the extent they are adequately funded by the Receiving Party prior to such check issuance or fund transfer in accordance with Section 3.02(a).

 

(h) The Service Provider shall have the right to shut down temporarily for maintenance purposes the operation of the facilities providing any Service whenever, in such Service Provider’s discretion, such action is necessary; provided that such Service Provider shall provide written notice of any such shutdown to the Receiving Party as reasonably in advance of such shutdown as practicable and shall use commercially reasonable efforts to schedule such maintenance in consultation with the Receiving Party so as not to unreasonably interfere with the Receiving Party’s business. Such Service Provider shall be relieved of its obligations to provide the Services affected by such shutdown during the period that its facilities are so shut down but shall use reasonable efforts to minimize each period of shutdown.

 

(i) To the extent that it is not practicable to have the Receiving Party as the contracting party for any third-party license or agreement relating to the provision of any Service to the Receiving Party or its applicable Subsidiary and such third-party license or agreement is necessary for the provision hereunder of such Service after the date hereof, the Service Provider shall (or shall cause its relevant Subsidiary to) use commercially reasonable efforts to cause all such third-party contracts to extend to and be enforceable by the Receiving Party, or to assign such contracts to the Receiving Party (at the sole expense of the Receiving Party). In the event that such contracts are not extendable or assignable, the Service Provider shall, to the extent feasible: (i) act as agent for the Receiving Party for purposes of providing such Service hereunder and in the pursuit of any claims, issues, demands or actions against such third-party

 

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provider, in the Service Provider’s name but at the Receiving Party’s expense and (ii) provide or make available to the Receiving Party copies of all such licenses or agreements.

 

Section 3.02. Payments. (a) Each month, each Service Provider shall deliver a statement to the Receiving Party for Services provided to such Receiving Party and its Subsidiaries during the preceding month, and each such statement shall set forth a brief description of each such Service and the amounts charged therefor (the “Fee”) calculated in accordance with Section 3.02(b) for such Service, and the aggregate of such amounts shall be due and payable by the Receiving Party within thirty (30) days after the date of such statement. Statements not paid within such thirty-(30)-day period shall be subject to late charges, calculated based on a rate per annum equal to the “prime rate” as set forth from time to time in The Wall Street Journal, Eastern Edition, “Money Rates” column (or the maximum legal rate, whichever is lower), for each month or portion thereof that the statement is overdue. Notwithstanding the foregoing, with respect to any Service requiring the use of Service Provider-issued checks or other fund transfers by the Service Provider on behalf of the Receiving Party as specified in Section 3.01(g), if requested by the Service Provider in writing to the Receiving Party, the Receiving Party shall either (i) provide the Service Provider with immediately available funds equal to the amount of such check or other fund transfer or (ii) cause an account designated for such purpose by the Service Provider to be funded with such amounts, as requested by the Service Provider, in each case on or prior to the date specified by the Service Provider in such written request.

 

(b) Schedule 1, 2 or 3, as applicable, specifies the Fee applicable to each Service, which Fee is based on historical allocation practices among Lazard Group for such Services prior to the Separation.

 

Section 3.03. Disclaimer of Warranty. EXCEPT AS EXPRESSLY SET FORTH IN THIS SERVICES AGREEMENT, THE SERVICES TO BE PURCHASED UNDER THIS SERVICES AGREEMENT ARE FURNISHED AS IS, WHERE IS, WITH ALL FAULTS AND WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.

 

Section 3.04. Use of Services. The Receiving Party shall not, and shall cause their respective Affiliates not to, resell any Services to any person whatsoever or permit the use of any Service by any person other than the Receiving Party or its applicable Subsidiary.

 

Section 3.05. Records and Audit Rights. During the term hereof, each Service Provider shall use commercially reasonable efforts to maintain records relating to its Services in a manner similar to retention with respect to other administrative services previously provided by such Service Provider, including data relating to the determination of Fees payable by the Receiving Party of such Service, and otherwise in accordance with the record management practices and with at least the same degree of care and completeness as applicable to such Service Provider at such time. Upon reasonable advance written notice to the Service Provider, during the term hereof, the Receiving Party shall have the right from time to time to request the Service Provider to give (and/or to cause all Subsidiaries that are providing Services to the Receiving Party to give) the Receiving Party or an agent of the Receiving Party whom the

 

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Receiving Party shall cause to agree with the Service Provider to abide by the confidentiality terms set forth in Section 8.12 hereof reasonable access to relevant books and records, data centers, processing facilities and relevant staff members of the Service Provider and/or such Subsidiaries, to enable the Receiving Party to audit, at the Receiving Party’s sole expense, any aspects of the provision of Services by the Service Provider to the Receiving Party (including the Fees invoiced by the Service Provider to the Receiving Party and the Service Provider’s processing facilities, operating practices, policies, processes and procedures relating to the Services); provided, however, that the Receiving Party shall not have the right to conduct such audit more frequently than once in any twenty four (24)-month rolling window. In the event that the results of such audit reasonably indicate that the aggregate amounts paid by the Receiving Party for the Services pursuant to Section 3.02 for such audited period were greater or less than the aggregate Fees that were due for such Services pursuant to Section 3.02, the applicable Parties will submit such matters to the dispute resolution mechanisms set forth in Section 8.14 unless the applicable Parties otherwise agree.

 

ARTICLE IV

 

TERM OF SERVICES

 

The provision of any Service shall commence on the date hereof and shall terminate on (a) in the case of any Lazard LAZ-MD Service, December 31, 2014 (other than any administrative assistance with the preparation of U.S. Internal Revenue Service Schedule K-1, “Partner’s Share of Income, Credits, Deductions, Etc.”, or any successor schedule or form, for the members of LAZ-MD for the fiscal year ended December 31, 2014, which Schedule shall be mailed to such members as soon as practicable thereafter) and (b) in the case of any Lazard LFCM Service or LFCM Service, December 31, 2008 or, in each case, if earlier, the termination date specified on Schedule 1, 2 or 3, as applicable, with respect to such Service; provided, that, unless otherwise specified on Schedule 1, 2 or 3, as applicable, such Service shall automatically renew for successive one-year terms unless either party provides at least 180 days’ prior written notice to the other party that such automatic renewal shall not occur. Notwithstanding the foregoing sentence, any Service may be cancelled or reduced in amount or any portion thereof on an earlier date (a) by mutual written agreement of the Service Provider and the Receiving Party, (b) as provided in Article VII or (c) by any Receiving Party upon 180 days’ prior written notice thereof; provided, however, that, in the case of (b) and (c) (other than any early termination of a Service because of a breach of this Agreement by the Service Provider, a Change of Control of the Service Provider or a termination of the Alliance Term), the Receiving Party shall pay to the Service Provider a fee equal to the aggregate Fee for such cancelled or reduced Service for the three most recently completed months prior to the date of cancellation or reduction. Unless agreed otherwise by the relevant Parties, after any early termination of a Service (or a portion of a Service) in accordance with the proviso to the immediately preceding sentence, the Service Provider shall not be obligated to reinstate such Service (or such portion) at a time subsequent to the effective date of such termination.

 

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ARTICLE V

 

FORCE MAJEURE

 

No Service Provider shall be liable for any expense, loss or damage whatsoever arising out of any interruption of Service or delay or failure to perform under this Services Agreement that is due to acts of God, acts of a public enemy, acts of terrorism, acts of a nation or any state, territory, province or other political division thereof, fires, floods, epidemics, riots, theft, quarantine restrictions, freight embargoes or other similar causes beyond the reasonable control of such Service Provider. In any such event, any Service Provider’s obligations hereunder shall be postponed for such time as its performance is suspended or delayed on account thereof. Each Service Provider will promptly notify the recipient of the Service, either orally or in writing, upon learning of the occurrence of such event of force majeure. Upon the cessation of the force majeure event, such Service Provider will use commercially reasonable efforts to resume, or to cause any other relevant Service Provider to resume, its performance with the least practicable delay.

 

ARTICLE VI

 

LIABILITIES

 

Section 6.01. Consequential and Other Damages. None of the Service Providers shall be liable to any Receiving Party or any of its Subsidiaries or Affiliates or any of its, its Subsidiary’s or its Affiliate’s employees, agents, members, managers, officers and directors (collectively, “Representatives”), whether in contract, tort (including negligence and strict liability) or otherwise, at law or equity, for any special, indirect, incidental or consequential damages whatsoever (including lost profits or damages calculated on multiples of earnings approaches) which in any way arise out of, relate to or are a consequence of, the performance or nonperformance by the Service Provider (or its applicable Subsidiary or third-party service provider) hereunder or the provision of, or failure to provide, any Service hereunder, including with respect to loss of profits, business interruptions or claims of customers.

 

Section 6.02. Release and Indemnity. (a) LAZ-MD Holdings Release. Except as specifically set forth in this Services Agreement, LAZ-MD Holdings hereby releases each Lazard Service Provider and each of its Representatives (collectively, the “Lazard Indemnitees”), from and against any and all claims, demands, complaints, liabilities, losses, damages, costs and expenses (collectively, “Damages”) arising from, relating to or in connection with the provision of any Lazard LAZ-MD Service to, or the use of any Lazard LAZ-MD Service by, LAZ-MD Holdings or any of its Affiliates or any other person using such Lazard LAZ-MD Service, except to the extent that such Damages were caused by acts or omissions of the applicable Lazard Service Provider or Representative, which acts or omissions are finally determined by a court of competent jurisdiction to be the result of the willful misconduct of such person (subject to Section 6.01), in which case, such Lazard Indemnitee shall not be entitled to the benefits of this Section 6.02(a) to the extent that such Damages were caused by such willful misconduct.

 

(b) LAZ-MD Holdings Indemnity. Except as specifically set forth in this Services Agreement, LAZ-MD Holdings hereby agrees to indemnify, defend and hold harmless the

 

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Lazard Indemnitees from and against any and all Damages arising from, relating to or in connection with any demand, claim, proceeding or complaint by a third party (each, a “Third-Party Claim”) in respect of the provision of any Lazard LAZ-MD Service to, or the use of any Lazard LAZ-MD Service by, LAZ-MD Holdings or any of its Affiliates or any other person using such Lazard LAZ-MD Service, except to the extent that such Damages were caused by acts or omissions of the applicable Lazard Service Provider or Representative, which acts or omissions are finally determined by a court of competent jurisdiction to be the result of the willful misconduct of such person (subject to Section 6.01), in which case, such Lazard Indemnitee shall not be entitled to the benefits of this Section 6.02(b) to the extent that such Damages were caused by such willful misconduct.

 

(c) LFCM Holdings Release. Except as specifically set forth in this Services Agreement, LFCM Holdings hereby releases the Lazard Indemnitees from and against any and all Damages arising from, relating to or in connection with the provision of any Lazard LFCM Service to, or the use of any Lazard LFCM Service by, LFCM Holdings or any of its Affiliates or any other person using such Lazard LFCM Service, except to the extent that such Damages were caused by acts or omissions of the applicable Lazard Service Provider or Representative, which acts or omissions are finally determined by a court of competent jurisdiction to be the result of the willful misconduct of such person (subject to Section 6.01), in which case, such Lazard Indemnitee shall not be entitled to the benefits of this Section 6.02(c) to the extent that such Damages were caused by such willful misconduct.

 

(d) LFCM Holdings Indemnity. Except as specifically set forth in this Services Agreement, LFCM Holdings hereby agrees to indemnify, defend and hold harmless the Lazard Indemnitees from and against any and all Damages arising from, relating to or in connection with any Third-Party Claim in respect of the provision of any Lazard LFCM Service to, or the use of any Lazard LFCM Service by, LFCM Holdings or any of its Affiliates or any other person using such Lazard LFCM Service, except to the extent that such Damages were caused by acts or omissions of the applicable Lazard Service Provider or Representative, which acts or omissions are finally determined by a court of competent jurisdiction to be the result of the willful misconduct of such person (subject to Section 6.01), in which case, such Lazard Indemnitee shall not be entitled to the benefits of this Section 6.02(d) to the extent that such Damages were caused by such willful misconduct.

 

(e) Lazard Group Release. Except as specifically set forth in this Services Agreement, Lazard Group hereby releases each LFCM Service Provider and each of its Representatives (collectively, the “LFCM Indemnitees”) from and against any and all Damages arising from, relating to or in connection with the provision of any LFCM Service to, or the use of any LFCM Service by, Lazard Group or any of its Affiliates or any other person using such LFCM Service, except to the extent that such Damages were caused by acts or omissions of the applicable LFCM Service Provider or Representative, which acts or omissions are finally determined by a court of competent jurisdiction to be the result of the willful misconduct of such person (subject to Section 6.01), in which case, such LFCM Indemnitee shall not be entitled to the benefits of this Section 6.02(e) to the extent that such Damages were caused by such willful misconduct.

 

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(f) Lazard Group Indemnity. Except as specifically set forth in this Services Agreement, Lazard Group hereby agrees to indemnify, defend and hold harmless the LFCM Indemnitees from and against any and all Damages arising from, relating to or in connection with any Third-Party Claim in respect of the provision of any LFCM Service to, or the use of any LFCM Service by, Lazard Group or any of its Affiliates or any other person using such LFCM Service, except to the extent that such Damages were caused by acts or omissions of the applicable LFCM Service Provider or Representative, which acts or omissions are finally determined by a court of competent jurisdiction to be the result of the willful misconduct of such person (subject to Section 6.01), in which case, such LFCM Indemnitee shall not be entitled to the benefits of this Section 6.02(f) to the extent that such Damages were caused by such willful misconduct.

 

(g) Indemnification Procedures. If a Third-Party Claim is made against any person entitled to indemnification pursuant to Section 6.02 (an “Indemnified Party”), and if such Indemnified Party intends to seek indemnity with respect thereto under Section 6.02, such Indemnified Party shall promptly notify in writing the party obligated to indemnify such Indemnified Party (the “Indemnifying Party”) of the nature of the claim. The failure by the Indemnified Party to give notice as provided above shall not relieve the Indemnifying Party of its obligations under this Article VI, except to the extent that the Indemnifying Party’s rights are actually prejudiced as a result of such failure to give notice. Upon receipt of notice of the assertion of a claim, the Indemnifying Party shall have the right to assume, reasonably and promptly, the defense of the claim at its own expense. The Indemnified Party shall have the right to employ separate counsel and to participate in (but not control) any such action, but the fees and expenses of such counsel shall be at the expense of the Indemnified Party. If the Indemnifying Party does not reasonably promptly assume the defense in breach of the foregoing, the Indemnified Party shall have the right to employ counsel and to control the defense against the claim, and the reasonable fees and expenses of such counsel shall be at the expense of the Indemnifying Party. The Indemnifying Party shall not enter into any settlement of a claim that includes any term other than just a payment of money, nor any settlement of a claim that does not include as an unconditional term thereof the giving by the claimant or plaintiff to the Indemnified Party a full release from all liability with respect to the claim, in each case, without the written consent of the Indemnified Party (which consent shall not be unreasonably withheld). The Indemnified Party shall provide all reasonable cooperation and assistance, at the Indemnifying Party’s expense, in the defense of any claim for which indemnification is available and shall furnish such records, information, testimony and attend such conferences, discovery proceedings, hearings, trials and appeals as may reasonably be requested.

 

ARTICLE VII

 

TERMINATION

 

Section 7.01. Termination. The obligation of any Service Provider to provide or cause to be provided any Service shall cease on the earliest of (a) the date on which the provision of such Services has terminated or been canceled pursuant to Article IV, or (b) the date on which such Service is terminated by any Party in accordance with the terms of Section 7.02. This Services Agreement shall terminate, and all provisions of this Services Agreement shall become null and void and of no further force and effect, except for the provisions set forth in Section

 

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7.04, on the date on which no Service Provider has any obligation to provide any Service under this Services Agreement.

 

Section 7.02. Breach of Services Agreement; Change of Control; Termination of Alliance Term. (a) Subject to Article VI, in the event of a material breach by any Service Provider or any Receiving Party of any of its material obligation under this Services Agreement, including any failure by a Receiving Party to make payments to the Service Provider when due, that is not cured in all material respects within 30 days after receiving written notice thereof from the non-breaching Party, the non-breaching Party may terminate this Services Agreement immediately with respect to the Services provided between the non-breaching Party and the breaching Party by providing written notice of such termination.

 

(b) In addition to the foregoing, either Lazard Group or LFCM Holdings may, upon at least 180 days’ prior written notice to the other, terminate this Services Agreement with respect to the Lazard LFCM Services or LFCM Services upon a Change of Control of LFCM Holdings or Lazard Group, or upon termination or expiration of the Alliance Term (as defined in that certain Business Alliance Agreement, dated as of the date hereof (the “Business Alliance Agreement”), by and between Lazard and LFCM Holdings). Either Lazard Group or LAZ-MD Holdings may, upon at least 180 days’ prior written notice to the other, terminate this Services Agreement with respect to the Lazard LAZ-MD Services upon a Change of Control of LAZ-MD Holdings or Lazard Group. For purposes of this Section 7.02(b), a “Change of Control” means, with respect to any person (the “Target Person”), the consummation of any transaction or series of related transactions involving: (i) any purchase or acquisition (whether by way of merger, share exchange, consolidation, business combination, consolidation or similar transaction or otherwise) by another person or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) of persons, other than any Affiliate of the Target Person prior to such transaction or series of transactions (an “Acquiring Person”), of either (A) the majority of the securities entitled to elect the board of directors or equivalent governing body of the Target Person or (B) all or substantially all of the assets of the Target Person; or (ii) any sale, lease, exchange, transfer, license or disposition of a majority of the assets of the Target Person and its Subsidiaries, taken together as a whole, to an Acquiring Person; provided, however, that (x) the Separation shall not be deemed to be a Change of Control and (y) any sale, transfer or disposition of all or part of Lazard Alternative Investment Holdings LLC or its Subsidiaries pursuant to the North American Option (as defined in the Business Alliance Agreement) or the European Option (as defined in the Business Alliance Agreement) shall not be deemed to be a Change of Control.

 

Section 7.03. Sums Due. In the event of a termination of this Services Agreement, the Service Providers shall be entitled to the immediate payment of, and the Receiving Party shall, within five (5) Business Days, pay to the Service Providers, all accrued amounts for Services, Taxes and other amounts due under this Services Agreement as of the date of termination. Payments not made within five (5) Business Days of termination of this Services Agreement shall be subject to late charges as provided in Section 3.02.

 

Section 7.04. Effect of Termination. Sections 3.02, 3.05, 6.02, 7.03, this Section 7.04 and Article VI and Article VIII hereof shall survive any termination of this Services Agreement.

 

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ARTICLE VIII

 

MISCELLANEOUS

 

Section 8.01. Assignment. This Services Agreement shall bind and inure to the benefit of and be enforceable by the Parties hereto and their respective successors and assigns. No Party may assign its rights or obligations under this Services Agreement without the prior written consent of the other Party. Any purported assignment or transfer in violation of this Section 8.01 shall be null and void and of no effect.

 

Section 8.02. No Third-Party Beneficiaries. Except as provided in Article 6.02, this Services Agreement is for the sole benefit of the Parties and their permitted successors and assigns, and nothing herein expressed or implied shall give or be construed to give to any person, other than the Parties and their permitted successors and assigns, any legal or equitable rights hereunder, whether as third-party beneficiaries or otherwise.

 

Section 8.03. Amendments. Except as otherwise provided in this Services Agreement, no amendment to this Services Agreement shall be effective unless it shall be in writing and signed by each Party hereto; provided, however, that (a) Lazard Group and LFCM Holdings shall have the right to amend, by mutual written agreement, any provision of this Services Agreement to the extent related solely to the Lazard LFCM Services or the LFCM Services; and (b) Lazard Group and LAZ-MD Holdings shall have the right to amend, by mutual written agreement, any provision of this Services Agreement to the extent related solely to the Lazard LAZ-MD Services.

 

Section 8.04. Waivers. No failure or delay of any Party in exercising any power or right 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 Parties hereunder are cumulative and are not exclusive of any rights or remedies which they would otherwise have hereunder. No provision of this Services Agreement may be waived except pursuant to a writing executed by the waiving Party.

 

Section 8.05. Notices. All notices or other communications required or permitted to be given hereunder shall be in writing and shall be delivered by hand or sent by facsimile or sent, postage prepaid, by registered, certified or express mail or reputable overnight courier service and shall be deemed given when so delivered by hand or facsimile, or if mailed, three days after mailing (one Business Day in the case of express mail or overnight courier service), as follows (or at such other address for a Party as shall be specified by notice given in accordance with this Section 8.05):

 

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  (a) If to Lazard Group:

 

Lazard Group LLC

30 Rockefeller Plaza

New York, New York 10020

Attention:

Fax:

 

If to LAZ-MD Holdings, to:

 

LAZ-MD Holdings LLC

 

 

Attention:

Fax:

 

If to LFCM Holdings, to:

 

LFCM Holdings LLC

 

 

Attention:

Fax:

 

Section 8.06. Exhibits and Schedules; Interpretation. The headings contained in this Services Agreement or in any Schedule are for reference purposes only and shall not affect in any way the meaning or interpretation of this Services Agreement. All Schedules referred to herein are hereby incorporated in and made a part of this Services Agreement as if set forth in full herein. Any capitalized terms used in any Schedule but not otherwise defined therein, shall have the meaning as defined in this Services Agreement. When a reference is made in this Services Agreement to an Article, Section or Schedule, such reference shall be to an Article or Section of, or a Schedule to, this Services Agreement unless otherwise indicated. For all purposes hereof, the terms “include” and “including” shall be deemed followed by the words “without limitation.” The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Services Agreement shall refer to this Services Agreement as a whole and not to any particular provision of this Services Agreement. No provision of this Services Agreement shall be interpreted or construed against any Party hereto solely because such Party or its legal representative drafted such provision.

 

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Section 8.07. Counterparts. This Services Agreement may be executed in two or more counterparts, and by facsimile, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement.

 

Section 8.08. Entire Agreement. This Services Agreement, including the Schedules, the Separation Agreement, the Business Alliance Agreement and the License Agreement (as defined in the Business Alliance Agreement) constitute the entire agreement and understanding between the Parties with respect to the subject matter hereof and supersedes all prior agreements and understandings and negotiations, both written and oral, between the Parties with respect to the subject matter of this Services Agreement. No representation, inducement, promise, understanding, condition or warranty not set forth herein has been made or relied upon by any Party hereto.

 

Section 8.09. Severability. If any term or other provision of this Services Agreement is invalid, illegal or incapable of being enforced by any applicable rule of law or public policy, all other conditions and provisions of this Services Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Services Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible.

 

Section 8.10. Delaware Court. Each of the Parties agrees that all actions or proceedings arising out of or in connection with this Services Agreement, or for recognition and enforcement of any judgment arising out of or in connection with this Services Agreement, shall be tried and determined exclusively in the state or federal courts in the State of Delaware, and each of the Parties hereby irrevocably submits with regard to any such action or proceeding for itself and in respect to its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each of the Parties hereby expressly waives any right it may have to assert, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any such action or proceeding: (a) any claim that it is not subject to personal jurisdiction in the aforesaid courts for any reason; (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts; and (c) that (i) any of the aforesaid courts is an inconvenient or inappropriate forum for such action or proceeding, (ii) venue is not proper in any of the aforesaid courts and (iii) this Services Agreement, or the subject matter hereof or thereof, may not be enforced in or by any of the aforesaid courts.

 

Section 8.11. Governing Law. THIS SERVICES AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES OF SUCH STATE WHICH WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANY OTHER STATE.

 

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Section 8.12. Confidentiality; Title to Data. (a) Each of the Parties agrees that any confidential information of the other Party received in the course of performance under this Services Agreement shall be kept strictly confidential by the Parties, except that Lazard Group may, for the purpose of providing Services pursuant to this Services Agreement, disclose such information to any of its Subsidiaries or to third-party Service Providers; provided that any such third party shall have agreed to be bound by this Section 8.12; and either Party may disclose such information to the extent reasonably necessary in connection with the enforcement of this Services Agreement or as required by law or legal process, including any tax audit or litigation. The obligations under this Section 8.12 shall not apply to (i) information that becomes generally available to the public other than as a result of a disclosure, directly or indirectly, by the disclosing Party or its Affiliates; (ii) information that becomes available to a party on a non-confidential basis from a source other than the other Party, provided that such source is not known by such party to be bound by a confidentiality agreement with or other obligation of secrecy to the other Party; (iii) information to the extent required by a court of competent jurisdiction or other governmental authority or otherwise as required by law, including without limitation disclosure obligations imposed under the United States federal securities laws; or (iv) information on a “need-to-know” basis under an obligation of confidentiality to its, its Affiliates, and its and its Affiliates’ consultants, legal counsel, employees, directors, officers, accountants, banks and other financing sources and their advisors.

 

(b) LAZ-MD Holdings and LFCM Holdings acknowledge that none of them will acquire any right, title or interest (including any license rights or rights of use) in any firmware or software, and the licenses therefor that are owned by any Lazard Service Provider, by reason of the provision of the Lazard LAZ-MD Services or the Lazard LFCM Services provided hereunder.

 

Section 8.13. Administrative Representatives. (a) The Chief Financial Officer of Lazard Group, a Director designated by the Board of Directors of LAZ-MD Holdings, and the Chief Financial Officer of LFCM Holdings shall serve as administrative representatives (“Administrative Representative(s)”) of Lazard Group, LAZ-MD Holdings and LFCM Holdings, respectively, to facilitate day-to-day communications and performance under this Services Agreement. Each Party may treat an act of an Administrative Representative of any other Party as being authorized by such other Party to act for and bind such Party. Each Party may replace its Administrative Representative by giving written notice of the replacement to the other Party.

 

(b) No additional schedules, modifications to the existing Schedule or modifications or amendments to this Services Agreement shall be effective unless and until executed by the Administrative Representatives of each of the Service Provider and the Receiving Party with respect to such Service.

 

Section 8.14. Dispute Resolution. If the Parties are unable to resolve any service or performance issues or if there is a material breach of this Services Agreement that has not been corrected within thirty (30) days of receipt of notice of such breach, the Representative of Lazard Group, on behalf of Lazard Group, the Representative of LAZ-MD Holdings and the Representative of LFCM Holdings, as applicable, shall meet promptly to review and resolve such issues and breaches in good faith (the date on which such persons first so meet, the “Discussion Date”). If such persons are unable to fully resolve any such issues and breaches in

 

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good faith promptly after the Discussion Date, any remaining disputes shall be resolved in accordance with Section 8.10.

 

[Rest of the page intentionally left blank]

 

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IN WITNESS WHEREOF, the Parties have executed this Services Agreement as of the date first written above.

 

LAZ-MD HOLDINGS LLC
By:     
   

Name:

   

Title:

LFCM HOLDINGS LLC
By:     
   

Name:

   

Title:

LAZARD GROUP LLC
By:     
   

Name:

   

Title:

 

[Signature Page to Administrative Services Agreement]

Form of Business Alliance Agreement

Exhibit 10.8

 

FORM OF

 

BUSINESS ALLIANCE AGREEMENT

 

by and between

 

LAZARD GROUP LLC

 

and

 

LFCM HOLDINGS LLC

 

Dated as of                              , 2005

 

 

TABLE OF CONTENTS

 

          Page
ARTICLE I    DEFINITIONS    1

Section 1.1

   

Certain Defined Terms

    1

Section 1.2

   

General

    5

ARTICLE II    ALLIANCE

    5

Section 2.1

   

Alliance Management

    5

Section 2.2

   

Lazard Group Referral Agreement

    6

Section 2.3

   

LFCM Holdings Referral Agreement

    8

Section 2.4

   

Brokerage Accounts and Transactions

    8

Section 2.5

   

Alliance Term

    9

Section 2.6

   

Termination of Alliance

    9

Section 2.7

   

Effect of Termination of Alliance Term

    10

ARTICLE III    OPTIONS TO PURCHASE

    10

Section 3.1

   

Option to Purchase LAI North America

    10

Section 3.2

   

Closing of the Purchase and Sale of LAI North America

    10

Section 3.3

   

Option to Purchase LAI Europe

    11

Section 3.4

   

Closing of the Purchase and Sale of LAI Europe

    12

Section 3.5

   

Further Assurances

    13

Section 3.6

   

Costs and Expenses

    13

Section 3.7

   

Covenants Regarding the Merchant Banking Business

    13

Section 3.8

   

Lazard Group Non-Compete

    19

Section 3.9

   

Acknowledgement of Existing Obligations

    20

Section 3.10

   

No Obligation to Provide Capital or Funding

    21

ARTICLE IV    LFCM NON-COMPETE

    21

Section 4.1

   

LFCM Non-Compete

    21

ARTICLE V    GENERAL TERMS AND CONDITIONS

    22

Section 5.1

   

Complete Agreement

    22

Section 5.2

   

Expenses

    22

Section 5.3

   

Governing Law

    22

Section 5.4

   

Notices

    23

Section 5.5

   

Amendment, Modification or Waiver

    23

Section 5.6

   

Successors and Assigns; No Third Party Beneficiaries

    23

Section 5.7

   

Counterparts

    23

Section 5.8

   

Delaware Court

    24

Section 5.9

   

Interpretation

    24

Section 5.10

   

Severability

    24

Section 5.11

   

No Joint Venture

    24

Section 5.12

   

No Individual Authority

    24

Section 5.13

   

Non-Exclusivity

    24

Section 5.14

   

Force Majeure

    25

Section 5.15

   

Regulatory Obligations

    25

 

EXHIBIT A – Alliance Managers

EXHIBIT B – Members of the Underwriting Committee

 

SCHEDULES

 

-i-

 

BUSINESS ALLIANCE AGREEMENT

 

This BUSINESS ALLIANCE AGREEMENT (this “Agreement”), dated as of                 , 2005, is made and entered into by and between Lazard Group LLC, a Delaware limited liability company (“Lazard Group”), and LFCM Holdings LLC, a Delaware limited liability company (“LFCM Holdings”). Lazard Group and LFCM Holdings are sometimes referred to herein individually as a “Party” and collectively as the “Parties”.  Capitalized terms used in this Agreement that are not otherwise defined herein shall have the meanings ascribed to them in the Separation Agreement (as defined herein).

 

RECITALS

 

WHEREAS, Lazard Group and LFCM Holdings have entered into a certain Master Separation Agreement, dated as of the date hereof (as it may be amended from time to time, the “Separation Agreement”), which sets forth the principal corporate transactions required to effect the separation of Lazard Group’s businesses into two separate companies and to recapitalize Lazard Group through a series of transactions; and

 

WHEREAS, pursuant to the provisions of the Separation Agreement, from and after the consummation of the Separation as provided in the Separation Agreement, (a) the LFCM Companies will be engaged in the LFCM Businesses, (b) the Lazard Group Companies will be engaged in the Lazard Group Businesses, (c) the LFCM Companies will own and control the LFCM Assets and assume and be responsible for the LFCM Liabilities, and (d) the Lazard Group Companies will own and control the Lazard Group Assets and retain and be responsible for the Lazard Group Liabilities; and

 

WHEREAS, Section 2.6(a) of the Separation Agreement provides that, after the Contribution and prior to the First Distribution, each of Lazard Group and LFCM Holdings shall enter into this Agreement, which is the Business Alliance Agreement referred to in the Separation Agreement; and

 

WHEREAS, the Parties desire to enter into this Agreement to set forth the terms of their agreement regarding certain business alliances, arrangements, understandings and relationships between them and among the other members of each of their respective Groups following the completion of the Separation (the “Alliance”).

 

NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements set forth herein, and intending to be legally bound hereby, the Parties hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.1 Certain Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

 

“Affiliate” means, with respect to any specified person, a person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, such specified person.

 

“Capital Support” means, with respect to any Fund, committing at least an amount of funds sufficient to pay the capital commitment of the general partner or similar managing entity required by investors of such Fund at the applicable time and places.

 

“Change of Control” means, with respect to any person (the “Target Person”), the consummation of any transaction or series of related transactions involving: (i) any purchase or acquisition (whether by way of merger, share exchange, consolidation, business combination, consolidation or similar transaction or otherwise) by another person or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) of persons, other than any Affiliate of the Target Person prior to such transaction or series of transactions (an “Acquiring Person”), of either (A) the majority of the securities entitled to elect the board of directors or equivalent governing body of the Target Person, (B) the majority of the limited liability company interests or limited partnership interests of the Target Person, (C) the general partnership interest or managing member interest of the Target Person, or (D) all or substantially all of the assets of the Target Person; or (ii) any sale, lease, exchange, transfer, license or disposition of a majority of the assets of the Target Person and its Subsidiaries, taken together as a whole, to an Acquiring Person; provided, however, that (x) any sale, transfer or disposition of all of the outstanding limited liability company interests in LAI North America to Lazard Group pursuant to the exercise of the North American Option shall not be deemed to be a Change of Control of LFCM Holdings, LAI Holdings, LAI North America or any Subsidiary of LAI North America and (y) any sale, transfer or disposition of all of the outstanding limited liability company interests in LAI Europe to Lazard Group pursuant to the exercise of the European Option shall not be deemed to be a Change of Control of LFCM Holdings, LAI Holdings, LAI Europe or any Subsidiary of LAI Europe.

 

“Control” or “Controlled” 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 ownership of voting securities, by contract or otherwise.

 

“Controlled Affiliate” means, with respect to any person, any Affiliate of such person Controlled by such person or any Subsidiary of such person.

 

“Equity Rights” means any securities, options, warrants, calls, rights, conversion rights, preemptive rights, rights of first refusal, redemption rights, repurchase rights, plans, “tag-along” or “drag-along” rights, commitments, agreements, arrangements or undertakings.

 

“European Competitive Business” means the management, sponsorship or formation of private alternative investment Funds (including related joint ventures and alliances and including management, general partner and investment activities) whose primary objective is to make privately negotiated investments in companies or entities primarily doing business in Europe; provided, however, that the term “European Competitive Business” shall not include (a) any business or activity conducted by Lazard Group or any of its Subsidiaries immediately

 

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after the Separation or conducted by Wasserstein & Co., L.P. or (b) any business or activity that is primarily conducted in France.

 

“European Merchant Banking Business” means (a) the management, sponsorship or formation of private alternative investment Funds (including related joint ventures and alliances and including management, general partner and investment activities) whose primary objective is to make privately negotiated investments in companies or entities primarily doing business in Europe.

 

“Financial Advisory Opportunity” means any opportunity to provide financial advisory and investment banking services or asset management services (other than any services within the scope of the North American Merchant Banking Business or the European Merchant Banking Business); provided, however, that for purposes of clarity, the term “Financial Advisory Opportunity” shall not include underwriting and/or public distribution of equity, debt or convertible securities.

 

“Fund” means any fund or similar investment vehicle through which commingled capital is managed, including any co-investment vehicle, alternative investment vehicle, side-by-side vehicle or managed accounts incidental thereto; provided, however, that the term “Fund” shall not include any investment of the foregoing or any portfolio company of the foregoing.

 

“Lazard Competitive Business” means any business of the type or nature engaged in or operated by Lazard Group and the Lazard Group Companies; provided, however, that the term “Lazard Competitive Business” shall not include (a) the North American Merchant Banking Business, (b) the European Merchant Banking Business or (c) the Capital Markets Business; provided, further, however, that the term “Lazard Competitive Business” shall include (i) the North American Merchant Banking Business as of and if the North American Closing shall have occurred; and (ii) the European Merchant Banking Business as of and if the Europe Closing shall have occurred.

 

“Lazard Group Representative” means                 ; provided, however, that Lazard Group shall have the right to add or remove any Lazard Group Representative by providing LFCM Holdings with at least 5 Business Days’ prior written notice.

 

“LFCM Representative” means                 ; provided, however, that LFCM Holdings shall have the right to add or remove any LFCM Representative by providing Lazard Group with at least 5 Business Days’ prior written notice.

 

“License Agreement” means that certain License Agreement, dated as of the date hereof, by and among Lazard Strategic Coordination Company LLC, Lazard Frères & Co. LLC, Lazard Frères S.A.S., Lazard & Co., Holdings Limited and LFCM Holdings LLC.

 

“Non-Compete Term” means the later of (a) the expiration or termination of the Alliance Term, (b) the expiration of the North American Option, (c) the North American Closing, (d) the expiration of the European Option, (e) the European Closing or (f) the termination or revocation of all of the Lazard Licenses (as defined in the License Agreement).

 

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“North America” means the United States, Canada, Bermuda and the Cayman Islands.

 

“North American Competitive Business” means the management, sponsorship or formation of private alternative investment Funds (including related joint ventures and alliances and including management, general partner and investment activities) whose primary objective is to make privately negotiated investments in companies, real estate, or loans relating to real estate, in each case primarily doing business in North America; provided, however, that the term “North American Competitive Business” shall not include any business or activity conducted by Lazard Group or any of its Subsidiaries immediately after the Separation or conducted by Wasserstein & Co., L.P.

 

“North American Merchant Banking Business” means (a) the management, sponsorship or formation of private alternative investment Funds (including related joint ventures and alliances and including management, general partner and investment activities) whose primary objective is to make privately negotiated investments in companies, entities, real estate or loans relating to real estate, primarily doing business in North America.

 

“Revenue” means all fees, compensation, commissions and similar payments, including, without limitation, engagement fees, transaction and “success” fees, “break up” fees, referral fees, commitment fees, management fees, underwriting fees, selling concessions and other derivative fees; provided that the amount of any such Revenue shall be reduced by the aggregate amount of out-of-pocket costs and expenses (including reasonable attorneys’ fees) reasonably incurred by any LFCM Company or any Lazard Group Company in connection with the activities described in Sections 2.2(a) and 2.2(b).

 

“Securities Act” means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Subsidiary” means, with respect to any person, any corporation, limited liability company, company, partnership, trust, association or other legal entity or organization of which such person (either directly or through one or more Subsidiaries of such person) (a) owns, directly or indirectly, a majority of the capital stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation, limited liability company, partnership, trust, association or other legal entity or organization, or (b) is otherwise entitled to exercise (1) a majority of the voting power generally in the election of the board of directors or other governing body of such corporation, limited liability company, partnership, trust, association or other legal entity or organization or (2) Control of such corporation, limited liability company, partnership, trust, association or other legal entity or organization; provided, however, that “Subsidiary” shall not include any Fund or any investment or portfolio company of any Fund.

 

“Underwriting and Distribution Opportunity” means the underwriting and/or public distribution of equity, debt or convertible securities in the United States and/or the United Kingdom.

 

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Section 1.2 General. Wherever required by the context of this Agreement, the singular shall include the plural and vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa, and references to any agreement, document or instrument shall be deemed to refer to such agreement, document or instrument as amended, supplemented or modified from time to time. When used herein:

 

(a) the word “or” is not exclusive;

 

(b) the word “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any person, means the direct or indirect possession of the power to direct or cause the direction of the management or policies of such person, whether through the ownership of voting securities, by contract or otherwise;

 

(c) the words “including”, “includes”, “included” and “include” are deemed to be followed by the words “without limitation”;

 

(d) the terms “herein”, “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision;

 

(e) the word “person” means any individual, corporation, limited liability company, trust, joint venture, association, company, partnership or other legal entity or a government or any department or agency thereof or self-regulatory organization; and

 

(f) all section, paragraph or clause references not attributed to a particular document shall be references to such parts of this Agreement, and all exhibit, annex and schedule references not attributed to a particular document shall be references to such exhibits, annexes and schedules to this Agreement.

 

ARTICLE II

 

ALLIANCE

 

Section 2.1 Alliance Management.

 

(a) Alliance Managers. Each Party shall name one or more representatives to be its Alliance manager for this Agreement (collectively, the “Alliance Managers”). The initial Alliance Managers for each Party are listed in Exhibit A hereto. Either Party may replace any of its Alliance Managers at its sole discretion at any time upon reasonable advance notice to the other.

 

(b) Meetings. Meetings of the Alliance Managers shall be held from time to time as agreed by the Alliance Managers and shall occur at least annually. Such meetings may be conducted either in person, by video conference or by telephone.

 

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(c) Responsibilities. The Alliance Managers shall be responsible for engaging the appropriate representatives of their respective companies to facilitate the ability of the Parties to meet their obligations hereunder. The responsibilities of the Alliance Managers shall include, but shall not be limited to, the following:

 

(i) Overall management of the collaborative Alliance of the Parties as contemplated by this Agreement and the Separation Agreement; and

 

(ii) Providing a forum for the expeditious resolution of conflicts or disputes between or among the Parties and/or other members of each Group arising out of this Agreement.

 

Section 2.2 Lazard Group Referral Agreement.

 

(a) Lazard Group Referrals. If Lazard Group or any Lazard Group Company becomes aware of any Underwriting and Distribution Opportunity through its activities in the Lazard Competitive Business, and seeks or plans to seek to participate in such Underwriting and Distribution Opportunity, the Lazard Group Representative shall deliver notice (a “Lazard Referral Notice”) to LFCM Representative informing LFCM Holdings of such Underwriting and Distribution Opportunity and offering to refer such Underwriting and Distribution Opportunity to LFCM Holdings, subject in each case to applicable law, the applicable client’s consent, any existing contractual or fiduciary obligations of any Lazard Group Company and the arrangements set forth on Schedule 2.2(a). During the period beginning on the date of receipt by the LFCM Representative of the Lazard Referral Notice and expiring on the date (the “Lazard Referral Expiration Date”) that is ten (10) Business Days thereafter, LFCM Holdings shall have the right to participate with Lazard Group in seeking such Underwriting and Distribution Opportunity with Lazard Group by having the LFCM Representative deliver notice (the “LFCM Acceptance Notice”) to the Lazard Group Representative of such decision, subject in each case to applicable law, the applicable client’s consent and any existing contractual or fiduciary obligations of any Lazard Group Company. Lazard Group shall not, and shall cause the Lazard Group Companies not to, refer any Underwriting and Distribution Opportunity to any person other than an LFCM Company unless (i) otherwise requested by the applicable client or required by any existing contractual obligation or fiduciary obligation, (ii) LFCM Holdings shall not accept the offer set forth in the Lazard Referral Notice or (iii) the LFCM Representative shall fail to deliver an LFCM Acceptance Notice to the Lazard Group Representative on or prior to the Lazard Referral Expiration Date. For purposes of clarity, nothing in this Agreement shall require any LFCM Company to effect or participate in any underwriting or public distribution of equity, debt or convertible securities in respect of any Underwriting and Distribution Opportunity.

 

(b) Assistance. If the applicable client agrees to engage any LFCM Company in any Underwriting and Distribution Opportunity referred to it by Lazard Group pursuant to Section 2.2(a) (each, a “Lazard Referred Opportunity”), Lazard Group shall, or shall cause the appropriate Lazard Group Company, to provide commercially reasonable assistance with respect to due diligence and other customary corporate finance activities, consistent with past practice, to such LFCM Company in connection with such Underwriting and Distribution Opportunity; provided, however, that no Lazard Group Company shall be obligated to provide financing or to lend any funds to any LFCM Company, or guarantee any obligations or otherwise place any of

 

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its capital at risk, in connection therewith or take such actions that in its view could reasonably be expected to result in an adverse regulatory or other risk to such Lazard Group Company or violate any applicable law.

 

(c) Referral Fee; Expense Reimbursement. In consideration of the referrals described in Section 2.2(a) and any assistance described in Section 2.2(b), LFCM Holdings shall (i) pay to Lazard Group a fee (the “Lazard Referral Fee”) equal to one-half of the aggregate Revenue paid by a Client in respect of a Lazard Referred Opportunity; and (ii) reimburse Lazard Group for all unreimbursed out-of-pocket costs and expenses (including reasonable attorneys’ fees) incurred by any Lazard Group Company in connection with the activities described in Sections 2.2(a) and 2.2(b) (the “Unreimbursed Lazard Referral Expenses”).

 

(d) Payment. LFCM Holdings shall pay to Lazard Group the Lazard Referral Fee and Unreimbursed Lazard Referral Expenses by wire transfer of immediately available funds in United States dollars to an account specified by Lazard Group promptly (and in no event later than five (5) Business Days) after any LFCM Company is paid the Revenue by a Client in respect of a Lazard Referred Opportunity.

 

(e) Underwriting Committee. The Parties agree to establish an underwriting committee (the “Underwriting Committee”), which shall be comprised of an even number of members and have at least four (4) members. Half of the members of the Underwriting Committee shall be appointed by LFCM Holdings and the other half of the members of the Underwriting Committee shall be appointed by Lazard Group. The initial members on the Underwriting Committee are listed in Exhibit B hereto. Each of LFCM Holdings and Lazard Group may at any time and for any reason or no reason replace or remove any member appointed by LFCM Holdings or Lazard Group, respectively. Notwithstanding anything to the contrary set forth in Section 2.2(a), (b), (c) or (d), no LFCM Company shall have the right to undertake or engage or participate in any underwriting or distribution of equity, debt or convertible securities without the prior approval of at least two-thirds of the members on the Underwriting Committee.

 

(f) Release. LFCM Holdings hereby releases, on behalf of itself and each LFCM Company, each Lazard Group Company and each of its Subsidiaries or Affiliates or any of its, its Subsidiary’s or its Affiliate’s, employees, agents, members, managers, officers and directors (together, the “Lazard Indemnitees”) from and against any and all claims, demands, complaints, liabilities, losses, damages, costs and expenses (collectively, “Damages”) arising from, relating to or in connection with the provision of any assistance by any Lazard Group Company pursuant to Section 2.2(b), except to the extent that such Damages were caused by acts or omissions of such Lazard Indemnitee, which acts or omissions are finally determined by a court of competent jurisdiction to be the result of the gross negligence or willful misconduct of such Lazard Indemnitee, in which case, such Lazard Indemnitee shall not be entitled to the benefits of this Section 2.2(f) to the extent that such Damages were caused by such gross negligence or willful misconduct.

 

(g) Indemnity. LFCM Holdings hereby agrees to indemnify, defend and hold harmless the Lazard Indemnitees from and against any and all Damages arising from, relating to or in connection with any demand, claim, proceeding or complaint by a third party (each, a “Third-Party Claim”) in respect of the underwriting and/or public distribution of equity, debt or

 

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convertible securities related to any Underwriting and Distribution Opportunity, except to the extent that such Damages were caused by acts or omissions of such Lazard Indemnitee, which acts or omissions are finally determined by a court of competent jurisdiction to be the result of the gross negligence or willful misconduct of such Lazard Indemnitee, in which case, such Lazard Indemnitee shall not be entitled to the benefits of this Section 2.2(g) to the extent that such Damages were caused by such gross negligence or willful misconduct.

 

Section 2.3 LFCM Holdings Referral Agreement. If LFCM Holdings or any LFCM Company becomes aware of or has any Financial Advisory Opportunity, the LFCM Representative shall deliver notice (a “LFCM Referral Notice”) to the Lazard Group Representative informing Lazard Group of such Financial Advisory Opportunity and offering to refer such Financial Advisory Opportunity to Lazard Group, subject in each case to applicable law, the applicable client’s consent and any existing contractual or fiduciary obligations of any LFCM Company. During the period beginning on the date of receipt by the Lazard Group Representative of the LFCM Referral Notice and expiring on the date (the “LFCM Referral Expiration Date”) that is ten (10) Business Days thereafter, Lazard Group shall have the right to accept such Financial Advisory Opportunity by having the Lazard Group Representative deliver notice (the “Lazard Acceptance Notice”) to the Lazard Group Representative of such decision, subject in each case to applicable law, the applicable client’s consent and any existing contractual or fiduciary obligations of any LFCM Company. LFCM Holdings shall not, and shall cause the LFCM Companies not to, refer any Financial Advisory Opportunity to any person other than a Lazard Group Company unless (i) otherwise requested by the applicable client or required by any existing contractual obligation or fiduciary obligation, (ii) Lazard Group shall not accept the offer set forth in the LFCM Referral Notice or (iii) the Lazard Group Representative shall fail to deliver a Lazard Acceptance Notice to the LFCM Representative on or prior to the LFCM Referral Expiration Date. For purposes of clarity, nothing in this Agreement shall require any Lazard Group Company to accept, effect or participate in any Financial Advisory Opportunity.

 

Section 2.4 Brokerage Accounts and Transactions. As long as Lazard Capital Markets LLC (“LCM”) shall be a Controlled Subsidiary of LFCM Holdings, Lazard Group agrees to use its commercially reasonable efforts to cause: (i) Lazard Frères & Co. LLC (“LF&Co”) and its Subsidiaries to maintain proprietary and employee accounts at LCM on the same terms and conditions as of the date hereof (and LFCM Holdings shall cause LCM to maintain proprietary and employee accounts at LCM on such terms and conditions); (ii) Lazard Asset Management Securities LLC (“LAM Securities”) to enter into and maintain a clearing agreement with LCM pursuant to which LAM Securities will introduce customer accounts and transactions to LCM; and (iii) Lazard Asset Management LLC (“LAM”) to refer customer accounts and transactions to LCM in accordance with applicable law, rules and regulation and customer agreements. LCM shall not be obligated to accept any account or transaction referred by LF&Co, LAM or LAM Securities, and Lazard Group shall not be obligated to comply with this Section 2.4, if prohibited by applicable law, rule or regulation. Upon the request of Lazard Group, LFCM Holdings shall cause LCM to provide all information relating to any proprietary and employee account at LCM described in clause (i) of this Section 2.4 if, in the opinion of Lazard Group, such information is necessary to comply with applicable law or regulation. The allocation of fees and costs for such services shall be set forth on Schedule 2.4.

 

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Section 2.5 Alliance Term. Unless earlier terminated by either Party as permitted under the provisions of this Agreement, the obligations set forth in this Article II shall commence on the date hereof and shall continue for five (5) years thereafter (the “Alliance Term”); provided, however, that the Alliance Term shall automatically renew for successive 1-year terms unless either party elects otherwise by providing the other party with prior written notice delivered no later than 150 days prior to the end of such term and no earlier than 210 days prior to the end of such term.

 

Section 2.6 Termination of Alliance.

 

(a) The Alliance Term may be terminated for cause by either Party if the other Party is in breach of any of its material obligations under this Article II and fails to remedy such breach within thirty (30) days of receipt by the other Party of a written notice from the non-breaching Party that specifies the material breach.

 

(b) In addition, either Party may terminate the Alliance Term, which termination shall occur immediately after written notice of such termination is delivered to the other Party, if:

 

(i) the non-terminating Party or any significant Subsidiary of such Party shall make an assignment for the benefit of creditors;

 

(ii) the non-terminating Party or any significant Subsidiary of such Party shall petition or apply to any tribunal for the appointment of a trustee or receiver of it, or of any substantial part of its assets, or commence any proceeding relating to it under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction whether now or hereafter in effect;

 

(iii) any bankruptcy, insolvency, receivership or similar petition or application is filed, or any proceedings are commenced against the non-terminating Party or any significant Subsidiary of such Party and the non-terminating Party or any significant Subsidiary of such Party by any act indicates its approval thereof, consent thereto, or acquiescence therein, or any order is entered appointing a trustee or receiver, adjudicating the non-terminating Party bankrupt or insolvent, or approving the petition in any such proceedings and such order remains unstayed or undischarged for more than sixty (60) days; or

 

(iv) any order is entered in any proceedings against the non-terminating Party or any significant Subsidiary of such Party decreeing the dissolution of the non-terminating Party or such significant Subsidiary and such order remains unstayed or undischarged for more than sixty (60) days.

 

(c) Either Party may terminate the Alliance Term, upon written notice delivered within 90 days of the occurrence of a Change of Control of either Party. Such written notice shall specify the time and date of such termination (or, if not specified, such termination shall be effective 10 days after the delivery of such notice). The Party undergoing the Change of Control shall use its reasonable best efforts to notify the other Party of such event at the earliest time that it is legally permitted and practically able to do so.

 

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Section 2.7 Effect of Termination of Alliance Term. Upon any expiration or earlier termination of the Alliance Term and the obligations of the Parties under this Article II, the rights and obligations of the Parties under Article II shall terminate, except for the rights and obligations under Sections 2.2(c), 2.2(d), 2.2(f) and 2.2(g) and any claims or causes of actions of the Parties with respect to material breaches of this Article II prior to the effective time of such termination, which shall survive such termination.

 

ARTICLE III

 

OPTIONS TO PURCHASE

 

Section 3.1 Option to Purchase LAI North America. Lazard Group shall have the right and option, to be exercised at any time on or prior to the nine-year anniversary of the date hereof and in Lazard Group’s sole and absolute discretion, to purchase and acquire all of the outstanding limited liability company interests in Lazard Alternative Investments LLC, a Delaware limited liability company (“LAI North America”), for an aggregate purchase price of eight million dollars (U.S. $8,000,000) (the “North American Option”). To exercise the North American Option, Lazard Group shall deliver a written notice (the “North American Option Notice”) to LFCM Holdings setting forth (a) that Lazard Group is exercising the North American Option and (b) the date, time and location of the purchase and sale of all of the outstanding limited liability company interests of LAI North America pursuant to the exercise of the North American Option; provided, however, that such date shall be at least 45 Business Days after the North American Option Notice is delivered to LFCM Holdings.

 

Section 3.2 Closing of the Purchase and Sale of LAI North America.

 

(a) The closing of the purchase and sale of all of the outstanding limited liability company interests of LAI North America pursuant to the exercise of the North American Option (the “North America Closing”) shall be held on the date and at the time and location designated in the North American Option Notice, or as otherwise mutually agreed by Lazard Group and LFCM Holdings; provided, however, that the North America Closing shall not occur until the purchase and sale of all of the outstanding limited liability company interests of LAI North America as contemplated by this Agreement shall not (a) be prohibited by applicable law or (b) require any material consent that has not been obtained, unless Lazard Group shall waive the receipt of such material consent.

 

(b) If the North American Option is exercised, each party shall use reasonable best efforts to effectuate the purchase and sale of all of the outstanding limited liability company interests of LAI North America, including (i) promptly making all registrations and filings with, and obtaining all necessary consents from, all governmental authorities and taking all reasonable steps as may be necessary or advisable to obtain an approval or waiver from all applicable governmental authorities, (ii) promptly taking such steps to obtain all required third-party consents for the transaction and (iii) the duly approved and authorized prompt execution and delivery of such further instruments of assignment, transfer, conveyance, endorsement, direction or authorization and other documents as may be reasonably requested to effectuate the purchase and sale.

 

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(c) At the North America Closing, LFCM Holdings shall deliver to Lazard Group or its designated Subsidiaries (i) all duly approved and authorized instruments of assignment, transfer, conveyance, endorsement, direction or authorization and other documents as may be reasonably requested by Lazard Group to effectuate the transfer of all of LFCM Holdings’ and its Subsidiaries’ right, title and interest in, to and under all of the outstanding limited liability company interests in LAI North America, free and clear of all Liens (other than any restrictions on transfer under the Securities Act), (ii) a certificate, dated as of the Closing, as to the non-foreign status of LFCM Holdings, in the form of Exhibit A hereto, as well as any applicable state or local withholding certificate reasonably requested by Lazard Group, (iii) an agreement, executed by LFCM Holdings and Lazard Group and in form reasonably acceptable to LFCM Holdings and Lazard Group, whereby (A) LFCM Holdings shall represent and warrant to Lazard Group that (w) it is duly organized, validly existing, has the necessary corporate or limited liability company power and authority to consummate the subject transactions and requires no consents other than those set forth on a schedule to such agreement, (x) immediately after the North America Closing, Lazard Group or its designated Subsidiary shall own all of the outstanding limited liability company interests in LAI North America, free and clear of all Liens, other than any Liens created by Lazard Group or its Subsidiaries upon acquisition of such interests and other than any restrictions on transfer under the Securities Act, (y) all of the North American Merchant Banking Business of LFCM Holdings and its Subsidiaries shall have been conducted solely within LAI North America and its Subsidiaries and the Funds managed by LAI North America or its Subsidiaries and (z) it has complied with all of its covenants set forth in this Agreement to the extent relating to or affecting the North American Merchant Banking Business; (B) Lazard Group shall represent and warrant to LFCM Holdings that it is duly organized, validly existing, has the necessary corporate or limited liability company power and authority to consummate the subject transactions; (C) LFCM Holdings shall agree to indemnify Lazard Group, its affiliates, representatives and successors for any Losses to the extent resulting from a breach of LFCM Holdings’ representations, warranties or covenants set forth in such agreement (including for any liability or obligation of LAI North America or any of its Subsidiaries that is not primarily related to the North American Merchant Banking Business); and (D) Lazard Group shall agree to indemnify LFCM Holdings, its affiliates, representatives and successors for any Liabilities to the extent resulting from a breach of Lazard Group’s representations, warranties or covenants set forth in such agreement.

 

(d) At the North America Closing, and in consideration of the agreement and deliveries set forth in Section 3.2(c), Lazard Group shall deliver to LFCM Holdings, by wire transfer to an account designated by LFCM Holdings, an amount in immediately available funds equal to eight million dollars (U.S. $8,000,000).

 

Section 3.3 Option to Purchase LAI Europe. Lazard Group shall have the right and option, to be exercised at any time on or prior to the nine-year anniversary of the date hereof and in Lazard Group’s sole and absolute discretion, to purchase and acquire all of the outstanding limited liability company interests in Lazard Alternative Investments (Europe) Limited, a U.K. private limited company (“LAI Europe”), for an aggregate purchase price of two million dollars (U.S. $2,000,000) (the “European Option”). To exercise the European Option, Lazard Group shall deliver a written notice (the “European Option Notice”) to LFCM Holdings setting forth (a) that Lazard Group is exercising the European Option and (b) the date, time and location of the purchase and sale of all of the outstanding limited liability company interests of LAI

 

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Europe pursuant to the exercise of the European Option; provided, however, that such date shall be at least 45 Business Days after the European Option Notice is delivered to LFCM Holdings.

 

Section 3.4 Closing of the Purchase and Sale of LAI Europe.

 

(a) The closing of the purchase and sale of all of the outstanding limited liability company interests of LAI Europe pursuant to the exercise of the European Option (the “Europe Closing”) shall be held on the date and at the time and location designated in the European Option Notice, or as otherwise mutually agreed by Lazard Group and LFCM Holdings; provided, however, that the Europe Closing shall not occur until the purchase and sale of all of the outstanding limited liability company interests of LAI Europe as contemplated by this Agreement shall not (a) be prohibited by applicable law or (b) require any material consent that has not been obtained, unless Lazard Group shall waive the receipt of such material consent.

 

(b) If the European Option is exercised, each party shall use reasonable best efforts to effectuate the purchase and sale of all of the outstanding limited liability company interests of LAI Europe, including (i) promptly making all registrations and filings with, and obtaining all necessary consents from, all governmental authorities and taking all reasonable steps as may be necessary or advisable to obtain an approval or waiver from all applicable governmental authorities, (ii) promptly taking such steps to obtain all required third-party consents for the transaction and (iii) the duly approved and authorized prompt execution and delivery of such further instruments of assignment, transfer, conveyance, endorsement, direction or authorization and other documents as may be reasonably requested to effectuate the purchase and sale.

 

(c) At the Europe Closing, LFCM Holdings shall deliver to Lazard Group or its designated Subsidiaries (i) all duly approved and authorized instruments of assignment, transfer, conveyance, endorsement, direction or authorization and other documents as may be reasonably requested by Lazard Group to effectuate the transfer of all of LFCM Holdings’ and its Subsidiaries’ right, title and interest in, to and under all of the outstanding limited liability company interests in LAI Europe, free and clear of all Liens (other than any restrictions on transfer under the Securities Act), (ii) a certificate, dated as of the Closing, as to the non-foreign status of LFCM Holdings, in the form of Exhibit A hereto, as well as any applicable state or local withholding certificate reasonably requested by Lazard Group, (iii) an agreement, executed by LFCM Holdings and Lazard Group and in form reasonably acceptable to LFCM Holdings and Lazard Group, pursuant to which (A) LFCM Holdings shall represent and warrant to Lazard Group that (w) it is duly organized, validly existing, has the necessary corporate or limited liability company power and authority to consummate the subject transactions and requires no consents other than those set forth on a schedule to the agreement, (x) immediately after the Europe Closing, Lazard Group or its designated Subsidiary shall own all right, title and interest in, to and under all of the outstanding limited liability company interests in LAI Europe, free and clear of all Liens, other than any Liens created by Lazard Group or its Subsidiaries upon acquisition of such interests and other than any restrictions on transfer under the Securities Act, (y) all of the European Merchant Banking Business of LFCM Holdings and its Subsidiaries shall have been conducted solely within LAI Europe and its Subsidiaries and the Funds managed by LAI Europe or its Subsidiaries and (z) it has complied with all of its covenants set forth in this Agreement to the extent relating to or affecting the European Merchant Banking Business; (B) Lazard Group shall represent and warrant to LFCM Holdings that it is duly organized, validly existing, has the necessary

 

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corporate or limited liability company power and authority to consummate the subject transactions; (C) LFCM Holdings shall agree to indemnify Lazard Group, its affiliates, representatives and successors for any Liabilities to the extent resulting from a breach of LFCM Holdings’ representations, warranties or covenants set forth in such agreement (including for any liability or obligation of LAI Europe or any of its Subsidiaries that is not primarily related to the European Merchant Banking Business); and (D) Lazard Group shall agree to indemnify LFCM Holdings, its affiliates, representatives and successors for any Liabilities to the extent resulting from a breach of Lazard Group’s representations, warranties or covenants set forth in such agreement.

 

(d) At the Europe Closing, and in consideration of the agreement and deliveries set forth in Section 3.4(c), Lazard Group shall deliver to LFCM Holdings, by wire transfer to an account designated by LFCM Holdings, an amount in immediately available funds equal to two million dollars (U.S. $2,000,000).

 

Section 3.5 Further Assurances. Each party agrees that, if Lazard Group exercises the North American Option or the European Option, each party shall execute, acknowledge, deliver, file, record and publish such further certificates, amendments to certificates, instruments and documents, and do all such other acts and things as may be required by law, or as may be required to carry out the intent and purposes of this Agreement with respect to the North American Option or the European Option, as applicable.

 

Section 3.6 Costs and Expenses. Each party shall pay its own costs and expenses in connection with the exercise of the North American Option and European Option and the purchase and sale of all of the outstanding limited liability company interests of LAI North America and LAI Europe, respectively, pursuant thereto.

 

Section 3.7 Covenants Regarding the Merchant Banking Business.

 

(a) Covenants Relating to the North American Merchant Banking Business. LFCM Holdings hereby agrees that, on the date hereof and until the earlier of (1) the expiration of the North American Option or (2) the North America Closing, except with the prior written consent of Lazard Group, LFCM Holdings shall, and shall cause its Subsidiaries to:

 

(i) conduct all of the North American Merchant Banking Business of LFCM Holdings and its Subsidiaries, and hold all of the assets, rights, property and interests relating to the North American Merchant Banking Business, in each case solely in and through LAI North America, its wholly owned Subsidiaries, its Controlled Subsidiaries that are general partners, managers or sole voting stockholder of a Fund and the Funds managed by LAI North America or its wholly owned Subsidiaries;

 

(ii) (A) not conduct any business or activity other than the North American Merchant Banking Business in or through LAI North America or its Subsidiaries and the Funds managed by LAI North America or its Subsidiaries, and (B) cause LAI North America and its Subsidiaries not to assume any liabilities or obligations other than those primarily related to the North American Merchant Banking Business;

 

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(iii) use reasonable efforts to cause the North American Merchant Banking Business of LFCM Holdings and its Subsidiaries to be conducted in the ordinary course in all material respects consistent with past practice;

 

(iv) (A) except for distributions to the equityholders of any non-wholly owned Subsidiary of LAI North America, not make any distributions or declare, pay or set aside any dividends with respect to, or split, combine, redeem, reclassify, purchase or otherwise acquire, directly or indirectly, any equity interests or shares of capital stock of, or other equity or voting interest in, LAI North America or any of its Subsidiaries, except for distributions or dividends from any Subsidiary of LAI North America to LAI North America, or (B) except for issuances of non-voting equity securities to investment professionals and officers of the general partner, manager or sole voting stockholder of a Fund managed by LAI North America or its Subsidiaries in return for capital support contributed or services provided by such investment professionals and officers, not make any other changes in the capital structure of LAI North America or any of its Subsidiaries;

 

(v) except for issuances of non-voting equity securities to investment professionals and officers of the general partner, manager or sole voting stockholder of a Fund managed by LAI North America or its Subsidiaries in return for capital support contributed or services provided by such investment professionals and officers, not authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (A) any equity interests or capital stock of or other equity or voting interest in, LAI North America or any of its Subsidiaries or (B) any Equity Rights in respect of, security convertible into, exchangeable for or evidencing the right to subscribe for or acquire either (1) any equity interests or shares of capital stock of, or other equity or voting interest in, LAI North America or any of its Subsidiaries or (2) any securities convertible into, exchangeable for, or evidencing the right to subscribe for or acquire, any shares of the capital stock of, or other equity or voting interest in, LAI North America or any of its Subsidiaries;

 

(vi) not sell, transfer, assign, convey, lease, license, mortgage, pledge or otherwise subject to any Lien any of the material properties or assets, tangible or intangible, relating to the North American Merchant Banking Business or LAI North America or any of its Subsidiaries, except in the ordinary course of business consistent in nature and amount with past practices;

 

(vii) cause LAI North America and its Subsidiaries not to incur, assume or guarantee (including by way of any agreement to “keep well” or of any similar arrangement) or cancel or waive any claims under any indebtedness or other claims or rights of substantial value or amend or modify the terms relating to any such indebtedness, claims or rights, except in the ordinary course of business consistent in nature with past practices (including, for the avoidance of doubt, ordinary course guarantees of “clawback” obligations to return some or all of any carried interest distributions);

 

(viii) cause LAI North America and its Subsidiaries not to acquire any business or person, by merger or consolidation, purchase of substantial assets or equity interests, or by any other manner, in a single transaction or a series of related

 

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transactions, or enter into any contract, letter of intent or similar arrangement (whether or not enforceable) with respect to the foregoing;

 

(ix) other than any agreement, contract or transaction to invest in any Fund for which LAI North America or its Subsidiaries is the general partner, manager or sole voting stockholder, cause LAI North America and its Subsidiaries not to enter into any agreement, contract or transaction between itself, on the one hand, and any Affiliate of LFCM Holdings and its Subsidiaries (other than LAI North America and its Subsidiaries), on the other hand;

 

(x) not enter into any agreement for any transaction or series of related transactions, or engage in any transaction or series of related transactions that, upon the consummation of such transaction or series of related transactions would result in any Change of Control of LAI Holdings, LAI North America or any Subsidiary of LAI North America;

 

(xi) cause LAI Holdings to have a board of directors comprised of five members, at least two of whom shall be designated by Lazard Group (the “Lazard LAI Directors”), which two Lazard LAI Directors shall not be removed without the prior written consent of Lazard Group;

 

(xii) include a provision in the operating agreement of LAI Holdings that would require approval of both Lazard LAI Directors in order for LFCM Holdings, the board of directors of LAI Holdings or any officer of LAI Holdings to approve of any budget (and any material deviations from such budget) of LAI Holdings or its Subsidiaries or any changes to the capital structure of LAI Holdings or its Subsidiaries;

 

(xiii) cause LAI Holdings and its Subsidiaries to accept Capital Support from Lazard Group or its Subsidiaries to new Funds (including successor Funds) prior to accepting such Capital Support from any other person, except for such amounts of Capital Support to be contributed by the applicable investment professionals (or associated persons or vehicles of such investment professionals) or officers of the general partner, manager or sole voting stockholder of such Funds;

 

(xiv) include a provision in the operating agreement of LAI Holdings and its Subsidiaries, as applicable, that would require prior approval of both Lazard LAI Directors to adopt, amend or modify any governance or economic (including allocation of carried interest and management fees) arrangements (including governance and economic arrangements between LFCM Holdings and its Subsidiaries, on the one hand, and Lazard Group and its Subsidiaries, on the other hand) for (1) each Fund existing as of the date hereof managed by LFCM Holdings or any of its Subsidiaries and (2) each Fund formed after the date hereof that is managed by LFCM Holdings or any of its Subsidiaries, subject, in the case of Funds existing as of the date hereof (including Corporate Partners II Limited, a Cayman Islands exempted company, and the new senior housing fund to be formed by an affiliate of Lazard Frères Real Estate Investors), to agreements existing as of the date hereof, including the appointment of investment committees, Bruce

 

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Wasserstein’s veto rights as Head of Lazard and contractual arrangements with Fund managers;

 

(xv) from the date hereof until the earlier of (A) the five year anniversary of the date hereof, (B) the expiration of the North American Option and (C) the purchase and sale of the North American Merchant Banking Business pursuant to the exercise of the North American Option, support, financially or otherwise, the development of the North American Merchant Banking Business in accordance with current business plans and methods of operations, including contemplated staffing plans, and provide LAI Holdings and its Subsidiaries with adequate financial support toward this end, including adequate funding to pay for any losses of the general partner or manager of such Funds;

 

(xvi) pay all of the financial obligations of LAI Holdings or any of its Subsidiaries to the extent not paid and perform all of the covenants and obligations of LAI Holdings or any of its Subsidiaries to the extent not performed, including any and all obligations of LAI Holdings and its Subsidiaries to any third party; and

 

(xvii) provide Lazard Group with the right to receive (a) the aggregate carry for all Funds managed by LAI North America or any of its Subsidiaries less (b) the share of the carry allocated or reserved for allocation to the managers of such Funds, subject in each case to the “clawback” obligations, if any, to return some or all of the carried interest distributions in accordance with the agreements governing such Funds; and

 

(xviii) not enter into any agreement with any investor or group of investors in any Fund for which LAI North America or its Subsidiaries is the general partner, manager or sole voting stockholder that would require approval or consent of such investor or a group of investors in order for Lazard Group to acquire all of the outstanding limited liability company interests in LAI North America pursuant to the North American Option.

 

(b) Covenants Relating to the European Merchant Banking Business. LFCM Holdings hereby agrees that, on the date hereof and until the earlier of (1) the expiration of the European Option or (2) the Europe Closing, except with the prior written consent of Lazard Group, LFCM Holdings shall, and shall cause its Subsidiaries to:

 

(i) except as set forth on Schedule 3.7(b)(i), conduct all of the European Merchant Banking Business of LFCM Holdings and its Subsidiaries, and hold all of the assets, rights, property and interests relating to the European Merchant Banking Business, in each case solely in and through LAI Europe, its wholly owned Subsidiaries, its Controlled Subsidiaries that are general partners, managers or sole voting stockholder of a Fund and the Funds managed by LAI Europe or its wholly owned Subsidiaries;

 

(ii) (A) not conduct any business or activity other than the European Merchant Banking Business in or through LAI Europe or its Subsidiaries and the Funds managed by LAI Europe or its Subsidiaries, and (B) cause LAI Europe and its Subsidiaries not to assume any liabilities or obligations other than those primarily related to the European Merchant Banking Business;

 

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(iii) use reasonable efforts to cause the European Merchant Banking Business of LFCM Holdings and its Subsidiaries to be conducted in the ordinary course in all material respects consistent with past practice;

 

(iv) (A) except for distributions to the equityholders of any non-wholly owned Subsidiary of LAI Europe, not make any distributions or declare, pay or set aside any dividends with respect to, or split, combine, redeem, reclassify, purchase or otherwise acquire, directly or indirectly, any equity interests or shares of capital stock of, or other equity or voting interest in, LAI Europe or any of its Subsidiaries, except for distributions or dividends from any Subsidiary of LAI Europe to LAI Europe, or (B) except for issuances of non-voting equity securities to investment professionals and officers of the general partner, manager or sole voting stockholder of a Fund managed by LAI Europe or its Subsidiaries in return for capital support contributed or services provided by such investment professionals and officers, not make any other changes in the capital structure of LAI Europe or any of its Subsidiaries;

 

(v) except for issuances of non-voting equity securities to investment professionals and officers of the general partner, manager or sole voting stockholder of a Fund managed by LAI Europe or its Subsidiaries in return for capital support contributed or services provided by such investment professionals and officers, not authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (A) any equity interests or capital stock of or other equity or voting interest in, LAI Europe or any of its Subsidiaries or (B) any Equity Rights in respect of, security convertible into, exchangeable for or evidencing the right to subscribe for or acquire either (1) any equity interests or shares of capital stock of, or other equity or voting interest in, LAI Europe or any of its Subsidiaries or (2) any securities convertible into, exchangeable for, or evidencing the right to subscribe for or acquire, any shares of the capital stock of, or other equity or voting interest in, LAI Europe or any of its Subsidiaries;

 

(vi) not sell, transfer, assign, convey, lease, license, mortgage, pledge or otherwise subject to any Lien any of the material properties or assets, tangible or intangible, relating to the European Merchant Banking Business or LAI Europe or any of its Subsidiaries, except in the ordinary course of business consistent in nature and amount with past practices;

 

(vii) cause LAI Europe and its Subsidiaries not to incur, assume or guarantee (including by way of any agreement to “keep well” or of any similar arrangement) or cancel or waive any claims under any indebtedness or other claims or rights of substantial value or amend or modify the terms relating to any such indebtedness, claims or rights, except in the ordinary course of business consistent in nature with past practices (including, for the avoidance of doubt, ordinary course guarantees of “clawback” obligations to return some or all of any carried interest distributions);

 

(viii) cause LAI Europe and its Subsidiaries not to acquire any business or person, by merger or consolidation, purchase of substantial assets or equity interests, or by any other manner, in a single transaction or a series of related transactions, or enter

 

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into any contract, letter of intent or similar arrangement (whether or not enforceable) with respect to the foregoing;

 

(ix) other than any agreement, contract or transaction to invest in any Fund for which LAI North America or its Subsidiaries is the general partner, manager or sole voting stockholder, cause LAI Europe and its Subsidiaries not to enter into any agreement, contract or transaction between itself, on the one hand, and any Affiliate of LFCM Holdings and its Subsidiaries (other than LAI Europe and its Subsidiaries), on the other hand;

 

(x) not enter into any agreement for any transaction or series of related transactions, or engage in any transaction or series of related transactions that, upon the consummation of such transaction or series of related transactions would result in any Change of Control of LAI Holdings, LAI Europe or any Subsidiary of LAI Europe;

 

(xi) cause LAI Holdings to have a board of directors comprised of at five members, at least two of which shall be Lazard LAI Directors, which two Lazard LAI Directors shall not be removed without the prior written consent of Lazard Group;

 

(xii) include a provision in the operating agreement of LAI Holdings that would require approval of both Lazard LAI Directors in order for LFCM Holdings, the board of directors of LAI Holdings or any officer of LAI Holdings to approve of any budget (and any material deviations from such budget) of LAI Holdings or its Subsidiaries or any changes to the capital structure of LAI Holdings or its Subsidiaries;

 

(xiii) cause LAI Holdings and its Subsidiaries to accept Capital Support from Lazard Group or its Subsidiaries to new Funds (including successor Funds) prior to accepting such Capital Support from any other person, except for such amounts of Capital Support to be contributed by the applicable investment professionals (or associated persons or vehicles of such investment professionals) or officers of the general partner, manager or sole voting stockholder of such Funds;

 

(xiv) include a provision in the operating agreement of LAI Holdings and its Subsidiaries, as applicable, that would require prior approval of both Lazard LAI Directors to adopt, amend or modify any governance or economic arrangements (including governance and economic (including allocation of carried interest and management fees) arrangements between LFCM Holdings and its Subsidiaries, on the one hand, and Lazard Group and its Subsidiaries, on the other hand) for (1) each Fund existing as of the date hereof managed by LFCM Holdings or any of its Subsidiaries and (2) each Fund formed after the date hereof that is managed by LFCM Holdings or any of its Subsidiaries, subject, in the case of Funds existing as of the date hereof (including LEPEP), to agreements existing as of the date hereof, including the appointment of investment committees, Bruce Wasserstein’s veto rights as Head of Lazard and contractual arrangements with Fund managers;

 

(xv) from the date hereof until the earlier of (A) the five year anniversary of the date hereof, (B) the expiration of the European Option and (C) the Europe

 

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Closing, support, financially or otherwise, the development of the European Merchant Banking Business in accordance with current business plans and methods of operations, including contemplated staffing plans, and provide LAI Holdings and its Subsidiaries with adequate financial support toward this end, including adequate funding to pay for any losses of the general partner or manager of such Funds;

 

(xvi) pay all of the financial obligations of LAI Holdings or any of its Subsidiaries to the extent not paid and perform all of the covenants and obligations of LAI Holdings or any of its Subsidiaries to the extent not performed, including any and all obligations of LAI Holdings and its Subsidiaries to any third party;

 

(xvii) provide Lazard Group with the right to receive (a) the aggregate carry for all Funds managed by LAI Europe or any of its Subsidiaries less (b) the share of the carry allocated or reserved for allocation to the managers of such Funds, subject in each case to the “clawback” obligations, if any, to return some or all of the carried interest distributions in accordance with the agreements governing such Funds; and

 

(xviii) not enter into any agreement with any investor or group of investors in any Fund for which LAI Europe or its Subsidiaries is the general partner, manager or sole voting stockholder that would require approval or consent of such investor or a group of investors in order for Lazard Group to acquire all of the outstanding limited liability company interests in LAI Europe pursuant to the European Option.

 

Section 3.8 Lazard Group Non-Compete.

 

(a) Subject to Section 3.8(c), Lazard Group agrees that, during the period commencing on the date hereof and until the earlier of (1) the expiration of the North American Option or (2) the North America Closing, Lazard Group shall not, and shall cause its Controlled Affiliates not to, directly or indirectly, conduct, own, manage, have control of, by itself or in combination with other persons (whether as employer, proprietor, owner, shareholder, partner, member, trustee or otherwise), any business that engages in or competes with any North American Competitive Business.

 

(b) Subject to Section 3.8(c), Lazard Group agrees that, during the period commencing on the date hereof and until the earlier of (1) the expiration of the European Option or (2) the Europe Closing, Lazard Group shall not, and shall cause its Controlled Affiliates not to, directly or indirectly, conduct, own, manage, have Control of, by itself or in combination with other persons (whether as employer, proprietor, owner, shareholder, partner, member, trustee or otherwise), any business that engages in or competes with any European Competitive Business.

 

(c) Notwithstanding the foregoing, nothing in this Agreement shall:

 

(i) prohibit Lazard Group or any of its Affiliates from acquiring or holding, as a passive investment, securities of any person listed on a stock exchange or automated quotation system to the extent that such investment does not directly or indirectly confer upon Lazard Group or any of its Affiliates more than 5% of the voting power with respect to, or interests in the profits of, such person;

 

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(ii) prohibit Lazard Group or any of its Affiliates from acquiring or holding securities of any person whose principal business is not the European Competitive Business or the North American Competitive Business;

 

(iii) limit or otherwise restrict the ability of Lazard Group, any Lazard Group Company or any Controlled Affiliate of Lazard Group to conduct any financial advisory or asset management services (including with respect to the placement of securities by, or advisory of, any merchant banking or private investment funds or management companies but excluding the management, sponsorship or formation of private alternative investment Funds whose primary objective is to make privately negotiated investments in companies, entities, real estate, or loans relating to real estate primarily doing business in North America or Europe), including the activities and services incidental thereto; or

 

(iv) limit or otherwise restrict the ability of Lazard Group, any Lazard Group Company or any Controlled Affiliate of Lazard Group to invest in or through, or hold investments in or through, any company or to invest, as a passive investment, in or through, or hold investments in or through, any Fund.

 

(d) Lazard Group acknowledges and agrees that the restrictive covenants and other agreements contained in this Section 3.8 are an essential part of this Agreement, the Separation Agreement and the transactions contemplated thereby, and constitute a material inducement to LFCM Holdings’ entering into and performing their respective obligations under this Agreement and the Separation Agreement. It is the intention of the parties hereto that if any of the restrictions or covenants contained herein is held to cover a geographic area or to be for a length of time that is not permitted by applicable law, or is in any way construed to be too broad or to any extent invalid, such provision shall not be construed to be null, void and of no effect, but to the extent such provision would then be valid or enforceable under applicable law, such provision shall be construed and interpreted or reformed to provide for a restriction or covenant having the maximum enforceable geographic area, time period and other provisions as shall be valid and enforceable under applicable law. Lazard Group acknowledges, stipulates and agrees that a breach or non-compliance of any of its obligations under this Section 3.8 will result in irreparable harm and continuing damage to the LFCM Companies for which there will be no adequate remedy at law, and therefore agree that the LFCM Companies shall be entitled to specific enforcement of the terms hereof and any other equitable remedy to which the LFCM Companies may be entitled, including injunctive relief. In the event of a breach or threatened breach of this Section 3.8, each LFCM Company and its respective successors or assigns may, in addition to other rights and remedies existing in its favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce, or prevent any violations of, the provisions of this Section 3.8 without posting a bond or other security.

 

Section 3.9 Acknowledgement of Existing Obligations.

 

(a) Lazard Group hereby acknowledges that it will comply with its obligations with respect to the Funds managed by LAI Holdings or its Subsidiaries existing as of the date hereof, which obligations are set forth on Schedule 3.9(a).

 

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(b) Notwithstanding Section 3.8(a), Lazard Group hereby agrees that it will, and will cause its applicable Subsidiaries, to comply with the covenants under the agreements for the Funds managed by LAI Holdings or its Subsidiaries, which covenants and agreements and applicable Subsidiaries are set forth on Schedule 3.9(b) and relate to allocation of certain investment opportunities and restrictions on forming funds with the same investment parameters. To the extent that any covenant set forth on Schedule 3.9(b) would require an employee or managing director of Lazard Group or any of its Subsidiaries to comply with such covenant, and LAI Holdings or its Subsidiaries shall have informed Lazard Group of such covenant, Lazard Group shall use commercially reasonable efforts to cause such employees or managing director to comply with such covenants, including by notifying such employee or managing director of such covenant.

 

Section 3.10 No Obligation to Provide Capital or Funding. Except as set forth on Schedule 3.10, the Parties agree that, after the Separation, Lazard Group shall have no obligation to provide capital or other funding or services with respect to any Fund managed by LAI Holdings or any of its Subsidiaries that is formed after the date hereof, unless otherwise agreed in writing by Lazard Group after the date hereof.

 

ARTICLE IV

 

LFCM NON-COMPETE

 

Section 4.1 LFCM Non-Compete.

 

(a) Subject to Section 4.1(b), LFCM Holdings agrees that, during the Non-Compete Term, LFCM Holdings shall not, and shall cause its Controlled Affiliates (other than any Fund or investment or portfolio company of a Fund) not to, directly or indirectly, conduct, own, manage, have control of, by itself or in combination with other persons (whether as employer, proprietor, owner, shareholder, partner, member, trustee or otherwise), any business that engages in or competes with any Lazard Competitive Business.

 

(b) Notwithstanding the foregoing, nothing in this Agreement shall:

 

(i) prohibit LFCM Holdings or any of its Affiliates from acquiring or holding, as a passive investment, securities of any person listed on a stock exchange or automated quotation system to the extent that such investment does not directly or indirectly confer upon LFCM Holdings or any of its Affiliates more than 5% of the voting power with respect to, or interests in the profits of, such person; or

 

(ii) prohibit the formation, sponsorship, investment or management activities of, or investments in, any Fund formed, sponsored or managed by LFCM Holdings or any of its Subsidiaries (or for which LFCM Holdings or any of its Subsidiaries acts in a similar capacity).

 

(c) LFCM Holdings acknowledges and agrees that the restrictive covenants and other agreements contained in this Section 4.1 are an essential part of this Agreement, the Separation Agreement, the License Agreement and the transactions contemplated thereby, and

 

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constitute a material inducement to Lazard Group’s entering into and performing their respective obligations under this Agreement and the Separation Agreement. It is the intention of the parties hereto that if any of the restrictions or covenants contained herein is held to cover a geographic area or to be for a length of time that is not permitted by applicable law, or is in any way construed to be too broad or to any extent invalid, such provision shall not be construed to be null, void and of no effect, but to the extent such provision would then be valid or enforceable under applicable law, such provision shall be construed and interpreted or reformed to provide for a restriction or covenant having the maximum enforceable geographic area, time period and other provisions as shall be valid and enforceable under applicable law. LFCM Holdings acknowledges, stipulates and agrees that a breach or non-compliance of any of its obligations under this Section 4.1 will result in irreparable harm and continuing damage to the Lazard Group Companies for which there will be no adequate remedy at law, and therefore agree that the Lazard Group Companies shall be entitled to specific enforcement of the terms hereof and any other equitable remedy to which the Lazard Group Companies may be entitled, including injunctive relief. In the event of a breach or threatened breach of this Section 4.1, each Lazard Group Company and their respective successors or assigns may, in addition to other rights and remedies existing in its favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce, or prevent any violations of, the provisions of this Section 4.1 without posting a bond or other security.

 

ARTICLE V

 

GENERAL TERMS AND CONDITIONS

 

Section 5.1 Complete Agreement. (a) This Agreement and the Exhibits hereto, the Separation Agreement and the Annexes, Exhibits and Schedules thereto shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter.

 

(b) Each Party represents to the other Party hereto as follows:

 

(i) such Party has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform each of this Agreement and to consummate the transactions contemplated hereby; and

 

(ii) this Agreement has been duly executed and delivered by such Party and constitutes a valid and binding agreement of it enforceable in accordance with the terms hereof (assuming the due execution and delivery hereof by the other Party hereto).

 

Section 5.2 Expenses. Except as expressly set forth in this Agreement, all third party fees, costs and expenses paid or incurred in connection with the transactions contemplated by this Agreement shall be paid by the Party incurring such fees, costs or expenses.

 

Section 5.3 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware (other than the laws regarding choice

 

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of laws and conflicts of laws that would apply the substantive laws of any other jurisdiction) as to all matters, including matters of validity, construction, effect, performance and remedies.

 

Section 5.4 Notices. All notices, consents, waivers and other communications required or permitted by this Agreement shall be in writing and shall be deemed given to a Party when (a) delivered to the appropriate address by hand or by nationally recognized overnight courier service (costs prepaid); (b) sent by facsimile with confirmation of transmission by the transmitting equipment; or (c) received or rejected by the addressee, if sent by certified mail, return receipt requested, in each case to the following addresses and facsimile numbers and marked to the attention of the person (by name or title) designated below (or to such other address, facsimile number or person as a party may designate by notice to the other Parties):

 

If to Lazard Group:

 

Lazard Group LLC

 

 

Attention: General Counsel

Fax:

 

If to LFCM Holdings:

 

LFCM Holdings LLC

 

 

Attention: Chief Executive Officer

Fax:

 

or at such other address and to the attention of such other person as a Party may designate by written notice to the other Parties.

 

Section 5.5 Amendment, Modification or Waiver. This Agreement may be amended, modified, waived or supplemented, in whole or in part, only by a written agreement signed by all of the Parties. The waiver by such Parties of any breach of this Agreement shall not be construed as a waiver of any subsequent breach.

 

Section 5.6 Successors and Assigns; No Third-Party Beneficiaries. (a) This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties and their successors and permitted assigns, but neither this Agreement nor any of the rights, interests and obligations hereunder shall be assigned or otherwise transferred, in whole or in part, by any Party without the prior written consent of each of the Parties.

 

(b) This Agreement is solely for the benefit of the Parties and is not intended to confer upon any other persons any rights or remedies hereunder.

 

Section 5.7 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

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Section 5.8 Delaware Court. Each of the Parties agrees that all actions or proceedings arising out of or in connection with this Agreement, or for recognition and enforcement of any judgment arising out of or in connection with this Agreement, shall be tried and determined exclusively in the state or federal courts in the State of Delaware, and each of the Parties hereby irrevocably submits with regard to any such action or proceeding for itself and in respect to its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each of the Parties hereby expressly waives any right it may have to assert, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any such action or proceeding: (a) any claim that it is not subject to personal jurisdiction in the aforesaid courts for any reason; (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts; and (c) that (i) any of the aforesaid courts is an inconvenient or inappropriate forum for such action or proceeding, (ii) venue is not proper in any of the aforesaid courts and (iii) this Agreement, or the subject matter hereof, may not be enforced in or by any of the aforesaid courts.

 

Section 5.9 Interpretation. The Article and Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the Parties and shall not in any way affect the meaning or interpretation of this Agreement.

 

Section 5.10 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any applicable rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible.

 

Section 5.11 No Joint Venture. Notwithstanding any provision hereof, this Agreement does not create, and is not intended to create, a joint venture, partnership or agency relationship between the Parties. For all purposes of this Agreement, each Party shall be and act as an independent contractor and not as partner, joint venturer or agent of the other and shall not bind nor attempt to bind the other to any contract. Each Party shall be free to manage and control its business as it sees fit, without the management, control or assistance of the other Party, except as otherwise prescribed herein.

 

Section 5.12 No Individual Authority. Neither Party shall, without the express, prior written consent of the other Party, take any action for or on behalf of or in the name of the other Party, assume, undertake or enter into any commitment, debt, duty or obligation binding upon any other Party, except for actions expressly provided for in this Agreement.

 

Section 5.13 Non-Exclusivity. Unless otherwise expressly set forth herein or in any other agreement between the Parties or other members of their respective Groups, the undertaking referenced herein and the relationship between the Parties, and all aspects thereof are and shall be non-exclusive. Provided that such activities do not otherwise constitute a breach of this Agreement or the Separation Agreement, each Party may develop itself, or purchase or otherwise

 

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acquire from third parties, any products or services, and each Party may engage in any business, even if such business is competitive with the business of the other Party.

 

Section 5.14 Force Majeure. Excluding the obligation to make payment when due, in the event that either Party is prevented from performing, or is unable to perform, any of its obligations under this Agreement due to any cause beyond the reasonable control of the Party invoking this provision, the affected Party’s performance will be excused and the time for performance will be extended for the period of delay or inability to perform due to such occurrence.

 

Section 5.15 Regulatory Obligations. Nothing in this Agreement shall require either Party or any of its respective Subsidiaries to violate or breach any applicable law, including any regulatory obligations binding on such person.

 

[Remainder of page left intentionally blank]

 

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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed by its duly authorized representative.

 

LAZARD GROUP LLC
By:    
   

Name:

   

Title:

LFCM HOLDINGS LLC
By:    
   

Name:

   

Title:

 

[Signature Page to Business Alliance Agreement]

 

2005 Equity Incentive Plan

Exhibit 10.22

 

FORM OF

LAZARD LTD

2005 EQUITY INCENTIVE PLAN

 

SECTION 1. Purpose; Definitions

 

The purpose of this Lazard Ltd 2005 Equity Incentive Plan (the “Plan”) is to give the Company a competitive advantage in attracting, retaining and motivating officers, employees, directors, advisors and/or consultants and to provide the Company and its Subsidiaries and Affiliates with a stock plan providing incentives directly linked to shareholder value. Certain terms used herein have definitions given to them in the first instance in which they are used. In addition, for purposes of the Plan, the following terms are defined as set forth below:

 

(a) “Affiliate” means a corporation or other entity controlled by, controlling or under common control with, the Company.

 

(b) “Applicable Exchange” means the New York Stock Exchange or such other securities exchange as may at the applicable time be the principal market for the Common Stock.

 

(c) “Award” means an Option, Stock Appreciation Right, Restricted Stock, Stock Unit, or other stock-based award granted pursuant to the terms of the Plan.

 

(d) “Award Agreement” means a written document or agreement setting forth the terms and conditions of a specific Award.

 

(e) “Board” means the Board of Directors of the Company.

 

(f) “Cause” means, unless otherwise provided in an Award Agreement, (i) “Cause” as defined in any Individual Agreement to which the applicable Participant is a party, or (ii) if there is no such Individual Agreement or if it does not define Cause: (A) commission of (1) a felony (or its equivalent in a non-United States jurisdiction) or (2) other conduct of a criminal nature that has or is likely to have a material adverse effect on the reputation or standing in the community of the Company or an Affiliate or that legally prohibits the Participant from working for the Company and its Affiliates; (B) breach by the Participant of a regulatory rule that adversely affects the Participant’s ability to perform the Participant’s duties to the Company and its Affiliates; (C) dishonesty in the course of fulfilling the Participant’s employment duties; (D) deliberate failure on the part of the Participant (1) to perform the Participant’s principal employment duties, (2) to comply with the policies of the Company and its Affiliates in any material respect, or (3) to follow specific reasonable directions received from the Company and its Affiliates; or (E) before a Change in Control, such other events as shall be determined by the Committee and set forth in a Participant’s Award Agreement. Notwithstanding the general rule of Section 2(c), following a Change in Control, any determination by the Committee as to whether “Cause” exists shall be subject to de novo review.

 

(g) “Change in Control” has the meaning set forth in Section 9(b).

(h) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto, the Treasury Regulations thereunder and other relevant interpretive guidance issued by the Internal Revenue Service or the Treasury Department. Reference to any specific section of the Code shall be deemed to include such regulations and guidance, as well as any successor provision of the Code.

 

(i) “Commission” means the Securities and Exchange Commission or any successor agency.

 

(j) “Committee” has the meaning set forth in Section 2(a).

 

(k) “Common Stock” means Class A common stock, par value $0.01 per share, of the Company.

 

(l) “Company” means Lazard Ltd, a Bermuda exempted company.

 

(m) “Disability” means (i) “Disability” as defined in any Individual Agreement to which the Participant is a party, or (ii) if there is no such Individual Agreement or it does not define “Disability,” (A) permanent and total disability as determined under the Company’s long-term disability plan applicable to the Participant, or (B) if there is no such plan applicable to the Participant, “Disability” as determined by the Committee.

 

(n) “Disaffiliation” means a Subsidiary’s or Affiliate’s ceasing to be a Subsidiary or Affiliate for any reason (including, without limitation, as a result of a public offering, or a spinoff or sale by the Company, of the stock of the Subsidiary or Affiliate) or a sale of a division of the Company and its Affiliates.

 

(o) “Eligible Individuals” means directors, officers, employees, advisors, and consultants of the Company or any of its Subsidiaries or Affiliates, and prospective employees and consultants who have accepted offers of employment or consultancy from the Company or its Subsidiaries or Affiliates.

 

(p) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and any successor thereto.

 

(q) “Fair Market Value” means, if the Common Stock is listed on a national securities exchange, as of any given date, the closing price for the Common Stock on such date on the Applicable Exchange, or if Shares were not traded on the Applicable Exchange on such measurement date, then on the next preceding date on which Shares were traded, all as reported by such source as the Committee may select. If the Common Stock is not listed on a national securities exchange, Fair Market Value shall be determined by the Committee in its good faith discretion.

 

(r) “Free-Standing SAR” has the meaning set forth in Section 5(b).

 

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(s) “Grant Date” means (i) the date on which the Committee by resolution selects an Eligible Individual to receive a grant of an Award and determines the number of Shares to be subject to such Award, or (ii) such later date as the Committee shall provide in such resolution.

 

(t) “Individual Agreement” means an employment, consulting or similar agreement between a Participant and the Company or one of its Subsidiaries or Affiliates that is in effect as of the Grant Date of an Award hereunder.

 

(u) “Option” means an Award granted under Section 5(a).

 

(v) “Participant” means an Eligible Individual to whom an Award is or has been granted.

 

(w) “Performance Goals” means the performance goals established by the Committee in connection with the grant of Restricted Stock, Stock Units, or other stock-based awards.

 

(x) “Plan” has the meaning set forth in the first paragraph of this Section 1.

 

(y) “Restricted Stock” means an Award granted under Section 6.

 

(z) “Retirement” means, unless otherwise determined by the Committee, retirement from active employment with the Company, a Subsidiary or an Affiliate at or after age 65 or after attainment of both age 55 and ten years of continuous service with the Company and its Affiliates.

 

(aa) “Share” means a share of Common Stock.

 

(bb) “Stock Appreciation Right” means an Award granted under Section 5(b).

 

(cc) “Stock Units” means an Award granted under Section 7.

 

(dd) “Subsidiary” means any corporation, partnership, joint venture or other entity during any period in which at least a 50% voting or profits interest is owned, directly or indirectly, by the Company or any successor to the Company.

 

(ee) “Tandem SAR” has the meaning set forth in Section 5(b).

 

(ff) “Term” means the maximum period during which an Option or Stock Appreciation Right may remain outstanding, subject to earlier termination upon Termination of Employment or otherwise, as specified in the applicable Award Agreement.

 

(gg) “Termination of Employment” means the termination of the applicable Participant’s employment with, or performance of services for, the Company and any of its Subsidiaries or Affiliates. Unless otherwise determined by the Committee, if a Participant’s employment with the Company and its Affiliates terminates but such Participant continues to

 

3

provide services to the Company and its Affiliates in a non-employee capacity, such change in status shall not be deemed a Termination of Employment. A Participant employed by, or performing services for, a Subsidiary or an Affiliate or a division of the Company and its Affiliates shall be deemed to incur a Termination of Employment if, as a result of a Disaffiliation, such Subsidiary, Affiliate, or division ceases to be a Subsidiary, Affiliate or division, as the case may be, and the Participant does not immediately thereafter become an employee of, or service provider for, the Company or another Subsidiary or Affiliate. Neither a temporary absence from employment because of illness, vacation or leave of absence nor a transfer among the Company and its Subsidiaries and Affiliates shall be considered a Termination of Employment.

 

SECTION 2. Administration

 

(a) Committee. The Plan shall be administered by the Compensation Committee of the Board or such other committee of the Board as the Board may from time to time designate (the “Committee”), which shall be composed of not less than two directors, and shall be appointed by and serve at the pleasure of the Board. The Committee shall, subject to Section 10, have plenary authority to grant Awards pursuant to the terms of the Plan to Eligible Individuals. Among other things, the Committee shall have the authority, subject to the terms of the Plan:

 

(i) to select the Eligible Individuals to whom Awards may from time to time be granted;

 

(ii) to determine whether and to what extent, Options, Stock Appreciation Rights, Restricted Stock, Stock Units, other stock-based awards, or any combination thereof, are to be granted hereunder;

 

(iii) to determine the number of Shares to be covered by each Award granted hereunder;

 

(iv) to determine the terms and conditions of each Award granted hereunder, based on such factors as the Committee shall determine;

 

(v) subject to Section 12, to modify, amend or adjust the terms and conditions of any Award, at any time or from time to time;

 

(vi) to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable;

 

(vii) to interpret the terms and provisions of the Plan and any Award issued under the Plan (and any agreement relating thereto);

 

(viii) to establish any “blackout” period that the Committee in its sole discretion deems necessary or advisable; and

 

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(ix) to otherwise administer the Plan.

 

(b) Procedures.

 

(i) The Committee may act only by a majority of its members then in office, except that the Committee may, except to the extent prohibited by applicable law or the listing standards of the Applicable Exchange and subject to Section 10, allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it.

 

(ii) Any authority granted to the Committee may also be exercised by the full Board. To the extent that any permitted action taken by the Board conflicts with action taken by the Committee, the Board action shall control.

 

(c) Discretion of Committee. Subject to Section 1(f), any determination made by the Committee or by an appropriately delegated officer pursuant to delegated authority under the provisions of the Plan with respect to any Award shall be made in the sole discretion of the Committee or such delegate at the time of the grant of the Award or, unless in contravention of any express term of the Plan, at any time thereafter. All decisions made by the Committee or any appropriately delegated officer pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company, Participants, and Eligible Individuals.

 

(d) Award Agreements. The terms and conditions of each Award, as determined by the Committee, shall be set forth in a written Award Agreement, which shall be delivered to the Participant receiving such Award upon, or as promptly as is reasonably practicable following, the grant of such Award. The effectiveness of an Award shall not be subject to the Award Agreement’s being signed by the Company and/or the Participant receiving the Award unless specifically so provided in the Award Agreement. Award Agreements may be amended only in accordance with Section 12.

 

SECTION 3. Common Stock Subject to Plan

 

(a) Maximum Number of Shares. The maximum number of Shares that may be delivered pursuant to Awards under the Plan shall be             .

 

(b) Rules for Calculating Shares Delivered.

 

(i) To the extent that any Award is forfeited, or any Option and the related Tandem SAR (if any) or Free-Standing SAR terminates, expires or lapses without being exercised, or any Award is settled for cash, the Shares subject to such Awards not delivered as a result thereof shall again be available for Awards under the Plan.

 

(ii) If the exercise price of any Option and/or the tax withholding obligations relating to any Award are satisfied by delivering Shares to the Company (by either actual

 

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delivery or by attestation), only the number of Shares issued net of the Shares delivered or attested to shall be deemed delivered for purposes of the limits set forth in Section 3(a). To the extent any Shares subject to an Award are withheld to satisfy the exercise price (in the case of an Option) and/or the tax withholding obligations relating to such Award, such Shares shall not be deemed to have been delivered for purposes of the limits set forth in Section 3(a).

 

(c) Adjustment Provision. In the event of (i) a stock dividend, stock split, reverse stock split, share combination, or recapitalization or similar event affecting the capital structure of the Company (each, a “Share Change”), or (ii) a merger, amalgamation, consolidation, acquisition of property or shares, separation, spinoff, other distribution of stock or property (including any extraordinary cash or stock dividend), reorganization, stock rights offering, liquidation, Disaffiliation, or similar event affecting the Company or any of its Subsidiaries (each, a “Corporate Transaction”), the Committee or the Board may in its discretion make such substitutions or adjustments as it deems appropriate and equitable to (A) the aggregate number and kind of Shares or other securities reserved for issuance and delivery under the Plan, (B) the number and kind of Shares or other securities subject to outstanding Awards; and (C) the exercise price of outstanding Options and Stock Appreciation Rights. In the case of Corporate Transactions, such adjustments may include, without limitation, (1) the cancellation of outstanding Awards in exchange for payments of cash, property or a combination thereof having an aggregate value equal to the value of such Awards, as determined by the Committee or the Board in its sole discretion (it being understood that in the case of a Corporate Transaction with respect to which shareholders of Common Stock receive consideration other than publicly traded equity securities of the ultimate surviving entity, any such determination by the Committee that the value of an Option or Stock Appreciation Right shall for this purpose be deemed to equal the excess, if any, of the value of the consideration being paid for each Share pursuant to such Corporate Transaction over the exercise price of such Option or Stock Appreciation Right shall conclusively be deemed valid); (2) the substitution of other property (including, without limitation, cash or other securities of the Company and securities of entities other than the Company) for the Shares subject to outstanding Awards; and (3) in connection with any Disaffiliation, arranging for the assumption of Awards, or replacement of Awards with new awards based on other property or other securities (including, without limitation, other securities of the Company and securities of entities other than the Company), by the affected Subsidiary, Affiliate, or division or by the entity that controls such Subsidiary, Affiliate, or division following such Disaffiliation (as well as any corresponding adjustments to Awards that remain based upon Company securities).

 

(d) Section 409A. Notwithstanding the foregoing: (i) any adjustments made pursuant to Section 3(c) to Awards that are considered “deferred compensation” within the meaning of Section 409A of the Code shall be made in compliance with the requirements of Section 409A of the Code; (ii) any adjustments made pursuant to Section 3(c) to Awards that are not considered “deferred compensation” subject to Section 409A of the Code shall be made in such a manner as to ensure that after such adjustment, the Awards either (A) continue not to be subject to Section 409A of the Code or (B) comply with the requirements of Section 409A of the Code; and (iii) in

 

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any event, neither the Committee nor the Board shall have the authority to make any adjustments pursuant to Section 3(c) to the extent the existence of such authority would cause an Award that is not intended to be subject to Section 409A of the Code at the Grant Date to be subject thereto.

 

SECTION 4. Eligibility

 

Awards may be granted under the Plan to Eligible Individuals.

 

SECTION 5. Options and Stock Appreciation Rights

 

(a) Options. Options to purchase Shares under the Plan may be granted on such terms and in such form as the Committee may from time to time determine in its sole discretion, which shall not be inconsistent with the provisions of the Plan, but which need not be identical from Option to Option.

 

(b) Stock Appreciation Rights. Stock Appreciation Rights under the Plan may be granted on such terms and in such form as the Committee may from time to time determine in its sole discretion, which shall not be inconsistent with the provisions of the Plan, but which need not be identical from Stock Appreciation Right to Stock Appreciation Right. Stock Appreciation Rights may be granted as “Tandem SARs,” which are granted in conjunction with an Option, or “Free-Standing SARs,” which are not granted in conjunction with an Option. Upon the exercise of a Stock Appreciation Right, the Participant shall be entitled to receive an amount in cash, Shares, or both, in value equal to the product of (i) the excess of the Fair Market Value of one Share over the exercise price of the applicable Stock Appreciation Right, multiplied by (ii) the number of Shares in respect of which the Stock Appreciation Right has been exercised. The applicable Award Agreement shall specify whether such payment is to be made in cash or Common Stock or both, or shall reserve to the Committee or the Participant the right to make that determination prior to or upon the exercise of the Stock Appreciation Right.

 

(c) Tandem SARs. A Tandem SAR may be granted at the Grant Date of the related Option or, at any time after the Grant Date thereof while the related Option remains outstanding. A Tandem SAR shall be exercisable only at such time or times and to the extent that the related Option is exercisable in accordance with the provisions of this Section 5, and shall have the same exercise price as the related Option. A Tandem SAR shall terminate or be forfeited upon the exercise or forfeiture of the related Option, and the related Option shall terminate or be forfeited upon the exercise or forfeiture of the Tandem SAR.

 

(d) Exercise Price. The exercise price per Share subject to an Option or Free-Standing SAR shall be determined by the Committee and set forth in the applicable Award Agreement, and shall not be less than the Fair Market Value of a share of the Common Stock on the applicable Grant Date. In no event may any Option or Free-Standing SAR granted under the Plan be amended, other than pursuant to Section 3(c), to decrease the exercise price thereof, be cancelled in conjunction with the grant of any new Option or Free-Standing SAR with a lower exercise price, or otherwise be subject to any action that would be treated, for accounting

 

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purposes, as a “repricing” of such Option or Free-Standing SAR, unless such amendment, cancellation, or action is approved by the Company’s shareholders.

 

(e) Term. The Term of each Option and each Free-Standing SAR shall be fixed by the Committee.

 

(f) Vesting and Exercisability. Except as otherwise provided herein, Options and Free-Standing SARs shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee. If the Committee provides that any Option or Free-Standing SAR will become exercisable only in installments, the Committee may at any time waive such installment exercise provisions, in whole or in part, based on such factors as the Committee may determine. In addition, the Committee may at any time accelerate the exercisability of any Option or Free-Standing SAR.

 

(g) Method of Exercise. Subject to the provisions of this Section 5, Options and Free-Standing SARs may be exercised, in whole or in part, at any time during the applicable Term by giving written notice of exercise to the Company specifying the number of Shares as to which the Option or Free-Standing SAR is being exercised; provided, however, that, unless otherwise permitted by the Committee, any such exercise must be with respect to a portion of the applicable Option or Free-Standing SAR relating to no less than the lesser of the number of Shares then subject to such Option or Free-Standing SAR or 50 Shares. In the case of the exercise of an Option, such notice shall be accompanied by payment in full of the purchase price (which shall equal the product of such number of Shares multiplied by the applicable exercise price) by certified or bank check or such other instrument as the Company may accept. If approved by the Committee, payment, in full or in part, may also be made as follows:

 

(i) Payments may be made in the form of unrestricted Shares (by delivery of such Shares or by attestation) of the same class as the Common Stock subject to the Option already owned by the Participant (based on the Fair Market Value of the Common Stock on the date the Option is exercised).

 

(ii) To the extent permitted by applicable law, payment may be made by delivering a properly executed exercise notice to the Company, together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds necessary to pay the purchase price, and, if requested, the amount of any federal, state, local or foreign withholding taxes. To facilitate the foregoing, the Company may, to the extent permitted by applicable law, enter into agreements for coordinated procedures with one or more brokerage firms. To the extent permitted by applicable law, the Committee may also provide for Company loans to be made for purposes of the exercise of Options.

 

(iii) Payment may be made by instructing the Committee to withhold a number of Shares having a Fair Market Value (based on the Fair Market Value of the Common Stock on the date the applicable Option is exercised) equal to the product of (A) the

 

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exercise price multiplied by (B) the number of Shares in respect of which the Option shall have been exercised.

 

(h) Delivery; Rights of Shareholders. No Shares shall be delivered pursuant to the exercise of an Option until the exercise price therefor has been fully paid and applicable taxes have been withheld. Subject to Section 14(e), the applicable Participant shall have all of the rights of a shareholder of the Company holding the class or series of Common Stock that is subject to the Option or Stock Appreciation Right (including, if applicable, the right to vote the applicable Shares and the right to receive dividends), when the Participant (i) has given written notice of exercise, (ii) if requested, has given the representation described in Section 14(a), (iii) in the case of an Option, has paid in full for such Shares, and (iv) has been entered into the Company’s Register of Members with respect to such Shares.

 

(i) Terminations of Employment. Subject to Section 9(c) and the last paragraph hereof, a Participant’s Options and Stock Appreciation Rights shall be forfeited upon such Participant’s Termination of Employment, except as set forth below:

 

(i) Upon a Participant’s Termination of Employment by reason of death, any Option or Stock Appreciation Right held by the Participant that was exercisable immediately before the Termination of Employment may be exercised at any time until the earlier of (A) the first anniversary of the date of such death and (B) the expiration of the Term thereof;

 

(ii) Upon a Participant’s Termination of Employment by reason of Disability, any Option or Stock Appreciation Right held by the Participant that was exercisable immediately before the Termination of Employment may be exercised at any time until the earlier of (A) the third anniversary of such Termination of Employment and (B) the expiration of the Term thereof;

 

(iii) Upon a Participant’s Termination of Employment by reason of Retirement, any Option or Stock Appreciation Right held by the Participant that was exercisable immediately before the Termination of Employment may be exercised at any time until the earlier of (A) the fifth anniversary of such Termination of Employment and (B) the expiration of the Term thereof;

 

(iv) Upon a Participant’s Termination of Employment for Cause, any Option or Stock Appreciation Right held by the Participant shall be forfeited, effective as of such Termination of Employment;

 

(v) Upon a Participant’s Termination of Employment for any reason other than death, Disability, Retirement or for Cause, any Option or Stock Appreciation Right held by the Participant that was exercisable immediately before the Termination of Employment may be exercised at any time until the earlier of (A) the 90th day following such Termination of Employment and (B) expiration of the Term thereof; and

 

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(vi) Notwithstanding the above provisions of this Section 5(i), if a Participant dies after such Participant’s Termination of Employment but while any Option or Stock Appreciation Right remains exercisable as set forth above, such Option or Stock Appreciation Right may be exercised at any time until the later of (A) the earlier of (1) the first anniversary of the date of such death and (2) expiration of the Term thereof and (B) the last date on which such Option or Stock Appreciation Right would have been exercisable, absent this Section 5(i)(vi).

 

Notwithstanding the foregoing, the Committee shall have the power, in its discretion, to apply different rules concerning the consequences of a Termination of Employment; provided, however, that if such rules are less favorable to the Participant than those set forth above, such rules shall be set forth in the applicable Award Agreement.

 

SECTION 6. Restricted Stock

 

(a) Nature of Awards and Certificates. Shares of Restricted Stock are actual Shares issued to a Participant, and shall be evidenced in such manner as the Committee may deem appropriate, including book-entry registration or issuance of one or more stock certificates. Any certificate issued in respect of Shares of Restricted Stock shall be registered in the name of the applicable Participant and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award, substantially in the following form:

 

“The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Lazard Ltd 2005 Stock Incentive Plan and an Award Agreement, as well as the terms and conditions of applicable law. Copies of such Plan and Agreement are on file at the offices of Lazard Ltd.”

 

The Committee may require that the certificates evidencing title of such shares be held in custody by the Company until the restrictions thereon shall have lapsed and that, as a condition of any Award of Restricted Stock, the applicable Participant shall have delivered a stock power, endorsed in blank, relating to the Common Stock covered by such Award.

 

(b) Terms and Conditions. Shares of Restricted Stock shall be subject to the following terms and conditions:

 

(i) The Committee may condition the grant or vesting of an Award of Restricted Stock upon the attainment of Performance Goals or upon the continued service of the applicable Participant. The conditions for grant or vesting and the other provisions of Restricted Stock Awards (including without limitation any applicable Performance Goals) need not be the same with respect to each recipient. The Committee may at any time, in its sole discretion, accelerate or waive, in whole or in part, any of the foregoing restrictions.

 

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(ii) Subject to the provisions of the Plan and the applicable Award Agreement, during the period, if any, set by the Committee, commencing with the date of such Restricted Stock Award for which such Participant’s continued service is required (the “Restriction Period”), and until the later of (A) the expiration of the Restriction Period and (B) the date the applicable Performance Goals (if any) are satisfied, the Participant shall not be permitted to sell, assign, transfer, pledge or otherwise encumber Shares of Restricted Stock.

 

(iii) Except as provided in this Section 6 and in the applicable Award Agreement, the applicable Participant shall have, with respect to the Shares of Restricted Stock, all of the rights of a stockholder of the Company holding the class or series of Common Stock that is the subject of the Restricted Stock, including, if applicable, the right to vote the Shares and the right to receive any cash dividends. If so determined by the Committee in the applicable Award Agreement and subject to Section 14(f), (A) cash dividends on the class or series of Common Stock that is the subject of the Restricted Stock Award shall be automatically deferred and reinvested in additional Restricted Stock, held subject to the vesting of the underlying Restricted Stock, and (B) subject to any adjustment pursuant to Section 3(c), dividends payable in Common Stock shall be paid in the form of Restricted Stock of the same class as the Common Stock with which such dividend was paid, held subject to the vesting of the underlying Restricted Stock.

 

(iv) Except as otherwise set forth in the applicable Award Agreement, upon a Participant’s Termination of Employment for any reason during the Restriction Period or before the applicable Performance Goals are satisfied, all Shares of Restricted Stock still subject to restriction shall be forfeited by such Participant; provided, however, that the Committee shall have the discretion to waive, in whole or in part, any or all remaining restrictions with respect to any or all of such Participant’s Shares of Restricted Stock.

 

(v) If and when any applicable Performance Goals are satisfied and the Restriction Period expires without a prior forfeiture of the Shares of Restricted Stock for which legended certificates have been issued, unlegended certificates for such Shares shall be delivered to the Participant upon surrender of the legended certificates.

 

SECTION 7. Stock Units

 

(a) Nature of Award. Stock Units are Awards denominated in Shares that will be settled, subject to the terms and conditions of the Stock Units, either by delivery of Shares to the Participant or by the payment of cash based upon the Fair Market Value of a specified number of Shares.

 

(b) Terms and Conditions. Stock Units shall be subject to the following terms and conditions:

 

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(i) The Committee may condition the vesting of Stock Units upon the attainment of Performance Goal or upon the continued service of the Participant. The conditions for grant or vesting and the other provisions of Stock Unit Awards (including without limitation any applicable Performance Goals) need not be the same with respect to each recipient. The Committee may at any time, in its sole discretion, accelerate or waive, in whole or in part, any of the foregoing restrictions. An Award of Stock Units shall be settled as and when the Stock Units vest or at a later time specified by the Committee or in accordance with an election of the Participant, if the Committee so permits.

 

(ii) Subject to the provisions of the Plan and the applicable Award Agreement, during the period, if any, set by the Committee, commencing with the date of such Stock Unit Award for which such Participant’s continued service is required (the “Stock Unit Restriction Period”), and until the later of (A) the expiration of the Stock Unit Restriction Period and (B) the date the applicable Performance Goals (if any) are satisfied, the Participant shall not be permitted to sell, assign, transfer, pledge or otherwise encumber Stock Units.

 

(iii) The Award Agreement for Stock Units shall specify whether, to what extent and on what terms and conditions the applicable Participant shall be entitled to receive current or deferred payments of cash, Common Stock or other property corresponding to the dividends payable on the Common Stock (subject to Section 14(f) below).

 

(iv) Except as otherwise set forth in the applicable Award Agreement, upon a Participant’s Termination of Employment for any reason during the Stock Unit Restriction Period or before the applicable Performance Goals are satisfied, all Stock Units still subject to restriction shall be forfeited by such Participant; provided, however, that the Committee shall have the discretion to waive, in whole or in part, any or all remaining restrictions with respect to any or all of such Participant’s Stock Units.

 

SECTION 8. Other Equity-Based Awards

 

Other Awards of Common Stock and other Awards that are valued in whole or in part by reference to, or are otherwise based upon, Common Stock, including (without limitation), unrestricted stock, dividend equivalents, and convertible debentures, may be granted under the Plan.

 

SECTION 9. Change in Control Provisions

 

(a) Impact of Event. In the event of a Change in Control (as defined below), except to the extent the Committee specifically establishes otherwise for a particular Award, and except as provided in Section 3(d) and in Section 9(d), immediately upon the occurrence of a Change in Control:

 

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(i) any Options and Stock Appreciation Rights outstanding which are not then exercisable and vested shall become fully exercisable and vested;

 

(ii) the restrictions applicable to any Restricted Stock shall lapse, and such Restricted Stock shall become free of all restrictions and become fully vested and transferable;

 

(iii) all Stock Units shall vest in full and be immediately settled; and

 

(iv) the Committee may also make additional adjustments and/or settlements of outstanding Awards as it deems appropriate and consistent with the Plan’s purposes.

 

(b) Definition of Change in Control. For purposes of the Plan, a “Change in Control” shall mean any of the following events:

 

(i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”)) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that, for purposes of this Section 9(b)(i), the following acquisitions shall not constitute a Change in Control: (1) any acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Affiliates or Subsidiaries or (4) any acquisition pursuant to a transaction which complies with clauses (A), (B) and (C) of Section 9(b)(iii); or

 

(ii) Any time at which individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of 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 occurs as a result of an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

 

(iii) Consummation of a reorganization, merger, amalgamation, statutory share exchange or consolidation or similar corporate transaction involving the Company or any

 

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of its Subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its Subsidiaries (a “Business Combination”); excluding, however, such a Business Combination pursuant to which (A) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination will beneficially own, directly or indirectly, more than 50% of, respectively, the outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (other than the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) will beneficially own, directly or indirectly, 20% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors except to the extent that such ownership existed prior to the Business Combination, and (C) individuals who were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination will constitute at least a majority of the members of the board of directors of the corporation resulting from such Business Combination; or

 

(iv) The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

 

Notwithstanding the foregoing, in no event shall the initial public offering (the “IPO”) of Shares or the various corporate transactions in connection with the reorganization of the Company and its Affiliates (and their predecessors) associated with the IPO and described in the Registration Statement on Form S-1 (including all amendments thereto) (the “S-1”) filed with the Securities and Exchange Commission in connection with the IPO, individually or in the aggregate, constitute a Change in Control. For the avoidance of doubt, in no event shall the exchange by former partners of Lazard LLC of interests in LAZ-MD Holdings LLC into Shares (the terms of which exchanges are described in the S-1), individually or in the aggregate, constitute a Change in Control.

 

(c) Special Change in Control Post-Termination Exercise Rights. Unless otherwise provided in the applicable Award Agreement, notwithstanding any other provision of the Plan to the contrary, upon the Termination of Employment of a Participant, other than for Cause, during the 24-month period following a Change in Control, any Option or Stock Appreciation Right held by the Participant as of the date of the Change in Control that remains outstanding as of the

 

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date of such Termination of Employment may thereafter be exercised, until the later of (i) the last date on which such Option or Stock Appreciation Right would be exercisable in the absence of this Section 9(c) and (ii) the earlier of (A) the third anniversary of such Change in Control and (B) expiration of the Term of such Option.

 

(d) Notwithstanding the foregoing, if any Award is subject to Section 409A of the Code, this Section 9 shall be applicable only to the extent specifically provided in the Award Agreement and permitted pursuant to Section 11.

 

SECTION 10. Section 16(b)

 

The provisions of the Plan are intended to ensure that no transaction under the Plan is subject to (and not exempt from) the short-swing recovery rules of Section 16(b) of the Exchange Act (“Section 16(b)”). Accordingly, the composition of the Committee shall be subject to such limitations as the Board deems appropriate to permit transactions pursuant to the Plan to be exempt (pursuant to Rule 16b-3 promulgated under the Exchange Act) from Section 16(b), and no delegation of authority by the Committee shall be permitted if such delegation would cause any such transaction to be subject to (and not exempt from) Section 16(b).

 

SECTION 11. Section 409A of the Code

 

(a) It is the intention of the Company that no Award shall be “deferred compensation” subject to Section 409A of the Code, unless and to the extent that the Committee specifically determines otherwise as provided below, and the Plan and the terms and conditions of all Awards shall be interpreted accordingly.

 

(b) The terms and conditions governing any Awards that the Committee determines will be subject to Section 409A of the Code, including any rules for elective or mandatory deferral of the delivery of cash or shares of Common Stock pursuant thereto and any rules regarding treatment of such Awards in the event of a Change in Control, shall be set forth in the applicable Award Agreement, and shall comply in all respects with Section 409A of the Code.

 

SECTION 12. Term, Amendment and Termination

 

(a) Effectiveness. The Plan shall be effective as of the date (the “Effective Date”) it is adopted by the Board.

 

(b) Termination. The Plan will terminate on the tenth anniversary of the Effective Date. Awards outstanding as of such date shall not be affected or impaired by the termination of the Plan.

 

(c) Amendment of Plan. The Board may amend, alter, or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which would materially impair the rights of the Participant with respect to a previously granted Award without such Participant’s consent,

 

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except such an amendment made to comply with applicable law, tax rules, stock exchange rules or accounting rules. In addition, no such amendment shall be made without the approval of the Company’s stockholders to the extent such approval is required by applicable law or the listing standards of the Applicable Exchange.

 

(d) Amendment of Awards. Subject to Section 5(d), the Committee may unilaterally amend the terms of any Award theretofore granted, prospectively or retroactively, but no such amendment shall without the Participant’s consent materially impair the rights of any Participant with respect to an Award, except such an amendment made to cause the Plan or Award to comply with applicable law, tax rules, stock exchange rules or accounting rules.

 

SECTION 13. Unfunded Status of Plan

 

It is presently intended that the Plan constitute an “unfunded” plan for incentive and deferred compensation. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Common Stock or make payments; provided, however, that unless the Committee otherwise determines, the existence of such trusts or other arrangements is consistent with the “unfunded” status of the Plan.

 

SECTION 14. General Provisions

 

(a) Conditions for Issuance. The Committee may require each person purchasing or receiving Shares pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the Shares without a view to the distribution thereof. The certificates for such Shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer. Notwithstanding any other provision of the Plan or agreements made pursuant thereto, the Company shall not be required to issue or deliver any certificate or certificates for Shares under the Plan prior to fulfillment of all of the following conditions: (i) listing or approval for listing upon notice of issuance, of such Shares on the Applicable Exchange; (ii) any registration or other qualification of such Shares of the Company under any state or federal law or regulation, or the maintaining in effect of any such registration or other qualification which the Committee shall, in its absolute discretion upon the advice of counsel, deem necessary or advisable; and (iii) obtaining any other consent, approval, or permit from any state or federal governmental agency which the Committee shall, in its absolute discretion after receiving the advice of counsel, determine to be necessary or advisable.

 

(b) Additional Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Subsidiary or Affiliate from adopting other or additional compensation arrangements for its employees.

 

(c) No Contract of Employment. The Plan shall not constitute a contract of employment, and adoption of the Plan shall not confer upon any employee any right to continued employment, nor shall it interfere in any way with the right of the Company or any Subsidiary or Affiliate to terminate the employment of any employee at any time. A Participant shall, by

 

16

participating in the Plan, waive all and any rights to compensation or damages in consequence of the termination of such Participant’s employment with the Company or any Subsidiary or Affiliate for any reason whatsoever, whether lawfully or otherwise, insofar as those rights arise or may arise from such Participant ceasing to have rights under the Plan as a result of such termination, or from the loss or diminution in value of such rights or entitlements, including by reason of the operation of the terms of the Plan or the provisions of any statute or law relating to taxation. An Eligible Individual shall have no right to be designated a Participant.

 

(d) Required Taxes. No later than the date as of which an amount first becomes includible in the gross income of a Participant for U.S. federal or other income tax purposes (or similar taxes in the applicable non-U.S. jurisdiction) with respect to any Award under the Plan, such Participant shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any federal, state, local or foreign taxes or social security (or similar) contributions of any kind required by law to be withheld with respect to such amount. Unless otherwise determined by the Company and subject to any applicable laws (including any laws that require that such withholding be effected as a repurchase and be permitted only to the extent such a repurchase would be permitted), withholding obligations may be settled with Common Stock, including Common Stock that is part of the Award that gives rise to the withholding requirement. The obligations of the Company under the Plan shall be conditional on such payment or arrangements, and the Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to such Participant. The Committee may establish such procedures as it deems appropriate, including making irrevocable elections, for the settlement of withholding obligations with Common Stock.

 

(e) Deferral Arrangements. Subject to applicable law, the Committee may from time to time establish procedures pursuant to which a Participant may elect to defer receipt of all or a portion of the cash or Shares subject to an Award, all on such terms and conditions as the Committee shall determine.

 

(f) Limitation on Dividend Reinvestment and Dividend Equivalents. Reinvestment of dividends in additional Restricted Stock at the time of any dividend payment, and the payment of Shares with respect to dividends to Participants holding Awards of Stock Units, shall only be permissible if sufficient Shares are available under Section 3 for such reinvestment or payment (taking into account then outstanding Awards). In the event that sufficient Shares are not available for such reinvestment or payment, such reinvestment or payment shall be made in the form of a grant of Stock Units equal in number to the Shares that would have been obtained by such payment or reinvestment, the terms of which Stock Units shall provide for settlement in cash and for dividend equivalent reinvestment in further Stock Units on the terms contemplated by this Section 14(f).

 

(g) Designation of Death Beneficiary. The Committee shall establish such procedures as it deems appropriate for a Participant to designate a beneficiary to whom any amounts payable in the event of such Participant’s death are to be paid or by whom any rights of such eligible Individual, after such Participant’s death, may be exercised.

 

17

(h) Subsidiary Employees. In the case of a grant of an Award to any employee of a Subsidiary of the Company, the Company may, if the Committee so directs, issue or transfer the Shares, if any, covered by the Award to the Subsidiary, for such lawful consideration as the Committee may specify, upon the condition or understanding that the Subsidiary will transfer the Shares to the employee in accordance with the terms of the Award specified by the Committee pursuant to the provisions of the Plan. The Committee may also adopt procedures regarding treatment of any Shares so transferred to a Subsidiary that are subsequently forfeited or canceled.

 

(i) Governing Law and Interpretation. The Plan and all Awards made and actions taken thereunder shall be governed by and construed in accordance with the laws of the State of New York, without reference to principles of conflict of laws. The captions of the Plan are not part of the provisions hereof and shall have no force or effect.

 

(j) Non-Transferability. Except as otherwise provided by the Committee, Awards under the Plan are not transferable except by will or by laws of descent and distribution.

 

(k) Non-Pensionable. Benefits under the Plan shall not be treated as pensionable earnings for purposes of any pension plan maintained by the Company and its Affiliates, unless explicitly provided otherwise in such plan.

 

(l) Data Protection. By participating in the Plan, the Participant consents to the collection, processing, transmission and storage by the Company, in any form whatsoever, of any data of a professional or personal nature which is necessary for the purposes of administering the Plan. The Company may share such information with any Subsidiary or Affiliate, any trustee, its registrars, brokers, other third party administrator or any person who obtains control of the Company or one of its Subsidiaries or divisions.

 

(m) Right of Offset. The Company or its Subsidiaries and Affiliates shall have the right to offset, against the obligation to pay amounts or issue Shares to any Participant under the Plan, any outstanding amounts (including, without limitation, travel and entertainment expense, advance account balances, loans, tax withholding amounts paid by the employer or amounts repayable to the Company or its Subsidiaries and Affiliates pursuant to tax equalization, housing, automobile or other employee programs) such Participant then owes to the Company or its Subsidiaries and Affiliates and any amounts the Plan Administrator otherwise deems appropriate pursuant to any tax equalization policy or agreement.

 

(n) Foreign Employees and Foreign Law Considerations. The Committee may grant Awards to Eligible Individuals who are foreign nationals, who reside outside the United States or who are not compensated from a payroll maintained in the United States, or who are otherwise subject to (or could cause the Company to be subject to) legal or regulatory provisions of countries or jurisdictions outside the United States, on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to foster and promote achievement of the purposes of the Plan and comply with such legal or regulatory provisions, and, in furtherance of such purposes, the Committee may make such modifications, amendments, procedures, or subplans as may be necessary or advisable to comply

 

18

with such legal or regulatory provisions (including to avoid triggering a public offering or to maximize tax efficiency).

 

19

2005 Bonus Plan

Exhibit 10.23

 

FORM OF

LAZARD LTD 2005 BONUS PLAN

 

Section 1. Purposes. The purposes of the Lazard Ltd 2005 Bonus Plan (the “Plan”) are to attract, retain and motivate selected employees of Lazard Ltd (“Lazard”) and its subsidiaries (including, without limitation, Lazard LLC (anticipated to be re-named Lazard Group LLC in connection with the initial public offering of Lazard shares)) and affiliates (together with Lazard, and their and its successors, the “Firm”) in order to promote the Firm’s long-term growth and profitability.

 

Section 2. Administration.

 

(a) Role of Chief Executive Officer. Subject to Section 2(b) and applicable law and regulation, the Plan shall be administered by the Chief Executive Officer of Lazard (such Chief Executive Officer (or, if applicable, its permitted delegate pursuant to the next following sentence), the “Plan Administrator”). Subject to applicable law and regulation, the Plan Administrator may delegate to any person or group of persons any of its responsibilities and authority hereunder.

 

(b) Role of Compensation Committee. Notwithstanding Section 2(a), the Compensation Committee (the “Committee”) of the Board of Directors of Lazard (the “Board”) shall make all determinations regarding the compensation of the Chief Executive Officer of Lazard hereunder and shall make recommendations to the Plan Administrator with regard to the compensation of other executive officers of Lazard under the Plan. For purposes of the Plan, the term “Plan Administrator” shall be deemed to refer to the Committee to the extent the context or facts and circumstances relate to the compensation of the Chief Executive Officer of Lazard.

 

(c) Administrative Authority. The Plan Administrator shall have the sole discretion to (i) construe, interpret and implement the Plan, (ii) prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations governing its own operations, and (iii) make all determinations necessary or advisable in administering the Plan. The determination of the Plan Administrator on all matters relating to the Plan or any amounts payable thereunder shall be final, binding and conclusive.

 

Section 3. Plan Year. The Plan shall operate for successive fiscal years of Lazard (each, a “Plan Year”). The first Plan Year shall be the 2005 fiscal year.

 

Section 4. Participation. During the first three months of each Plan Year, the Plan Administrator shall designate those individuals who shall be eligible to participate in the Plan for that Plan Year (the “Participants”). The Plan Administrator shall have the authority at any time during the Plan Year to add Participants to or to remove Participants from the Plan for that Plan Year. Designation as a Participant with respect to any Plan Year does not create a right to payment of a bonus hereunder for such Plan Year or to participation in a subsequent Plan Year.

 

Section 5. Determination of Bonus Amounts.

 

(a) Establishment of Bonus Pool. For each Plan Year, a bonus pool (the “Bonus Pool”) shall be established by the Chief Executive Officer, in consultation with the Committee. In determining the amount of the Bonus Pool, the Chief Executive Officer in

consultation with the Committee shall take into account such measures of the Firm’s financial performance as it deems appropriate. Such measures may (but need not) include, but are not limited to, the Firm’s results of operations (based on any factors deemed appropriate by the Plan Administrator, including, without limitation, net income, pre-tax income, EBIT, EBITA, EBITDA, gross profit, operating profit, cash generation, net revenue, gross revenue, operating revenue, market share, earnings per share, return on equity, return on assets, return on capital, return on operating assets, cost saving levels, changes in working capital, transaction values and/or volumes, assets under management, investment performance, funds flow, stock price or Lazard’s stockholder return, and/or other measures of the Firm’s financial performance. In determining the Bonus Pool, the Plan Administrator in consultation with the Committee may also take into account a target maximum ratio of aggregate compensation and benefits expense for the Plan Year (including payments from the Bonus Pool) to annual revenue or income (or to similar measures of corporate profitability).

 

(b) Allocation of Bonus Pool. Except as provided below, the Plan Administrator shall in its sole discretion determine the allocation of the Bonus Pool for each Plan Year among the Participants, which allocation may be made at any time prior to payment of bonuses for such Plan Year pursuant to Section 6. Such determination may take into account any factors deemed appropriate by the Plan Administrator, including, without limitation, assessments of individual, subsidiary or division performance and input of the Firm’s management and of the Committee (which shall make recommendations to the Plan Administrator regarding compensation of Lazard’s executive officers). Notwithstanding the foregoing, the Committee shall determine the portion of the Bonus Pool to be allocated to the Chief Executive Officer of Lazard, and the Plan Administrator’s authority to allocate the Bonus Pool pursuant to this Section 5(b) shall apply to the remainder of the Bonus Pool. There is no requirement that the entire Bonus Pool for any Plan Year be allocated to Participants.

 

(c) Termination During Plan Year. If a Participant’s employment with the Firm terminates for any reason before the end of a Plan Year, unless otherwise determined by the Plan Administrator, such Participant shall not participate in the allocations of the Bonus Pool under the Plan, provided that if such termination is due to death or disability, such Participant shall (unless determined otherwise by the Plan Administrator) receive a prorated portion of the allocation (if any) that the Plan Administrator determines such Participant would have received under the Plan in the absence of such termination of employment.

 

Section 6. Payment of Bonus Amount; Voluntary Deferral. Each Participant’s bonus shall be payable by such Participant’s Participating Employer (as defined in Section 7(k)), or in the case of a Participant employed by more than one Participating Employer, by each such employer as determined by the Plan Administrator, in cash and/or (subject to the approval of the Committee) an equity-based award of equivalent value (as determined by the Committee), with the cash portion paid at such time as bonuses are generally paid by the Participating Employer(s) for the relevant Plan Year. The cash portion shall be payable to a Participant in U.S. dollars or, if the Participant is located outside the United States, in U.S. dollars or local currency (as determined by the Plan Administrator) based upon such conversion rates as the Plan Administrator determines appropriate. Subject to applicable law and to approval by the Plan Administrator and to any requirements imposed by the Plan Administrator in connection with such approval, each Participant may be entitled to defer receipt, under the terms and conditions

 

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of any applicable deferred compensation plan of the Firm, of part or all of any payments otherwise due under this Plan. Any equity-based award shall be subject to such terms and conditions (including vesting requirements and restrictive covenants) as the Committee may determine.

 

Section 7. General Provisions.

 

(a) Amendment; Termination. The Board reserves the right at any time and from time to time to modify, alter, amend, suspend, discontinue or terminate the Plan, including in a manner that adversely affects the rights of Participants.

 

(b) Nonassignability; Designation of Beneficiaries. No rights of any Participant (or of any beneficiary pursuant to this Section 7(b)) under the Plan may be sold, exchanged, transferred, assigned, pledged, hypothecated or otherwise disposed of (including through the use of any cash-settled instrument) other than by will or by the laws of descent and distribution. Any assignment in violation of the provisions of this Section 7(b) shall be void.

 

(c) Plan Creates No Employment Rights. Nothing in the Plan shall confer upon any Participant the right to continue in the employ of the Firm for the Plan Year or thereafter or affect any right which the Firm may have to terminate such employment.

 

(d) Arbitration. Any dispute, controversy or claim between the Firm and any Participant arising out of or relating to or concerning the provisions of the Plan shall be finally settled by arbitration in New York City before, and in accordance with the rules then obtaining of, the New York Stock Exchange, Inc. (the “NYSE”) or, if the NYSE declines to arbitrate the matter, the American Arbitration Association (the “AAA”) in accordance with the commercial arbitration rules of the AAA. Prior to arbitration, all claims maintained by any Participant must first be submitted to the Plan Administrator in accordance with claim procedures determined by the Plan Administrator in its sole discretion. This Section is subject to the provisions of Section 7(e).

 

(e) Choice of Forum.

 

(1) THE FIRM AND EACH PARTICIPANT, AS A CONDITION TO SUCH PARTICIPANT’S PARTICIPATION IN THE PLAN, HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE CITY OF NEW YORK OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO OR CONCERNING THE PLAN THAT IS NOT OTHERWISE ARBITRATED OR RESOLVED ACCORDING TO THE PROVISIONS OF SECTION 7(d). This includes any suit, action or proceeding to compel arbitration or to enforce an arbitration award. The Firm and each Participant, as a condition to such Participant’s participation in the Plan, acknowledge that the forum designated by this Section 7(e) has a reasonable relation to the Plan and to the relationship between such Participant and the Firm. Notwithstanding the foregoing, nothing herein shall preclude the Firm from bringing any action or proceeding in any other court for the purpose of enforcing the provisions of Sections 7(d) and 7(e).

 

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(2) The agreement by the Firm and each Participant as to forum is independent of the law that may be applied in the action, and the Firm and each Participant, as a condition to such Participant’s participation in the Plan (i) agree to such forum even if the forum may under applicable law choose to apply non-forum law, (ii) hereby waive, to the fullest extent permitted by applicable law, any objection which the Firm or such Participant now or hereafter may have to personal jurisdiction or to the laying of venue of any such suit, action or proceeding in any court referred to in Section 7(e)(1), (iii) undertake not to commence any action arising out of or relating to or concerning this Plan in any forum other than the forum described in this Section 7(e) and (iv) agree that, to the fullest extent permitted by applicable law, a final and non-appealable judgment in any such suit, action or proceeding in any such court shall be conclusive and binding upon the Firm and each Participant.

 

(3) Each Participant hereby agrees, as a condition to such Participant’s participation in the Plan, to keep confidential the existence of, and any information concerning, a dispute described in Sections 7(d) or 7(e), except that a Participant may disclose information concerning such dispute to the arbitrator or court that is considering such dispute or to such Participant’s legal counsel (provided that such counsel agrees not to disclose any such information other than as necessary to the prosecution or defense of the dispute).

 

(4) Each Participant recognizes and agrees that prior to being selected by the Plan Administrator to participate in the Plan, such Participant has no rights hereunder. Accordingly, in consideration of a Participant’s selection to participate in the Plan, each Participant expressly waives any right to contest the amount of any bonus payable hereunder, the terms of the Plan, the amount of the Bonus Pool, any determination, action or omission hereunder by the Plan Administrator, Lazard, or the Board or any committee thereof, or any amendment to the Plan.

 

(f) Governing Law. ALL RIGHTS AND OBLIGATIONS UNDER THE PLAN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.

 

(g) Tax Withholding. In connection with any payments to a Participant or other event under the Plan that gives rise to a U.S. federal (or similar tax in the applicable non-U.S. jurisdiction) or other governmental tax withholding obligation relating to the amounts paid or payable under the Plan (including, without limitation, FICA tax or social security (or similar) contributions), (i) the Firm may deduct or withhold (or cause to be deducted or withheld) from any payment or distribution to such Participant whether or not pursuant to the Plan or (ii) the Plan Administrator shall be entitled to require that such Participant remit cash (through payroll deduction or otherwise), in each case in an amount sufficient in the opinion of the Firm to satisfy such withholding obligation.

 

(h) Right of Offset. The Firm shall have the right to offset, against the obligation to pay amounts to any Participant under the Plan, any outstanding amounts (including, without limitation, travel and entertainment expense, or advance account balances, loans, tax withholding amounts paid by the Firm or amounts repayable to the Firm pursuant to tax equalization, housing, automobile or other employee programs) such Participant then owes to the

 

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Firm and any amounts the Plan Administrator otherwise deems appropriate pursuant to any tax equalization policy or agreement.

 

(i) Non-Pensionable. Amounts payable under the Plan shall not be treated as pensionable earnings for purposes of any pension plan maintained by the Firm, unless explicitly provided otherwise in such plan.

 

(j) Data Protection. By participating in the Plan, the Participant consents to the collection, processing, transmission and storage by Lazard, in any form whatsoever, of any data of a professional or personal nature which is necessary for the purposes of administering the Plan. Lazard may share such information with any of its subsidiaries or affiliates or any person who obtains control of, or acquires, Lazard or any of its subsidiaries or affiliates.

 

(k) Severability. If any of the provisions of this Plan is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such provision shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability and the remaining provisions shall not be affected thereby.

 

(l) No Third Party Beneficiaries. The Plan shall not confer on any person other than the Firm and any Participant any rights or remedies hereunder.

 

(m) Participating Employers. Each subsidiary of Lazard which employs a Participant shall adopt this Plan (a “Participating Employer”). Lazard LLC shall be deemed to have adopted this Plan effective as of the effectiveness of the Plan. Except for purposes of determining the amount of the Bonus Pool and the amount of each Participant’s bonus, this Plan shall be treated as a separate plan maintained by each Participating Employer and any obligation to pay a bonus to each Participant shall be the sole liability of the Participating Employer(s) by which the Participant is employed and neither Lazard nor any other Participating Employer shall have any liability with respect to such amounts.

 

(n) Successors and Assigns. The terms of this Plan shall be binding upon and inure to the benefit of Lazard, each Participating Employer, and their successors and assigns.

 

(o) Plan Headings. The headings in this Plan are for the purpose of convenience only and are not intended to define or limit the construction of the provisions hereof.

 

(p) Construction. In the construction of this Plan, the singular shall include the plural, and vice versa, in all cases where such meanings would be appropriate.

 

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IN WITNESS WHEREOF, and as evidence of the adoption of this Plan effective as of                     , 2005, by Lazard, it has caused the same to be signed by its duly authorized officer this      day of                     , 2005.

 

LAZARD LTD
By:  

 

Name:    
Title:    

 

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Letter Agreement, dated as of March 15, 2005

Exhibit 10.27

 

LOGO     

 

March 15, 2005

 

LAZARD LLC

30 Rockefeller Plaza

New York, New York 10020

 

LAZARD LTD

30 Rockefeller Plaza

New York, New York 10020

 

Ladies and Gentlemen:

 

1.

Concurrently with our entry into this letter agreement, we are entering into the binding co-operation term sheet, between LAZARD FRERES SAS and IXIS-CORPORATE & INVESTMENT BANK (“IXIS-CIB”), dated as of the date hereof (the “Co-operation Term Sheet”) and the cover letter agreement between LAZARD LTD, LAZARD FRERES SAS, CAISSE NATIONALE DES CAISSES D’EPARGNE ET DE PREVOYANCE and IXIS-CIB dated as of the date hereof (the “Cover Letter”). In this letter agreement, the term “We” refers to IXIS-CIB and its affiliates. We are pleased to confirm hereby our agreement, subject to the terms and conditions of this letter agreement, to purchase U.S.$200,000,000 (such amount, as may be reduced pursuant to the immediately following paragraph of this Section 1, the “Investment Amount”) of securities identical to and of the same class as securities that you intend to cause to either be issued publicly in the United States or broadly distributed to qualified institutional buyers (as defined in SEC rules). The securities we purchase will be (x) U.S.$150,000,000 (such amount, as may be reduced pursuant to the immediately following paragraph of this Section 1, the “Exchangeable Debt Security Amount”) of which will be securities that will have substantially the terms set forth in Exhibit A (the “Exchangeable Debt Securities”) and which will be substantially identical (except as stated in such Exhibit) to securities that you cause to be issued publicly in the United States or broadly distributed to qualified institutional buyers and (y) U.S. $50,000,000 of which will be ordinary or common shares (“PubliCo Shares”) of Lazard Ltd. (“PubliCo”) (such amount, as may be reduced pursuant to the immediately following paragraph of this Section 1, the “PubliCo Amount”). The number of Exchangeable Debt Securities we purchase will equal the quotient obtained by dividing the Exchangeable Debt Security Amount by the price at which such Exchangeable Debt Securities are publicly sold in the U.S. underwritten offering of such Exchangeable Debt Securities (or the price at which such Exchangeable Debt Securities are initially sold to qualified institutional buyers if no public offering is made) and the number of PubliCo Shares we purchase will equal the quotient obtained by dividing the PubliCo Amount by the price at which such PubliCo Shares are publicly sold in the U.S. underwritten offering of PubliCo Shares. The Exchangeable Debt Securities and the PubliCo Shares are referred to herein as the “Securities.” Notwithstanding the foregoing, if the Investment Amount would constitute 10% (ten percent) (excluding stock options granted to employees pursuant to an employee benefit plan) or more, on a fully-diluted basis, of PubliCo’s capitalization as of the date of

 

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LOGO

 

the IPO (as defined below), the Investment Amount shall be reduced such that the Investment Amount constitutes less than 10% (ten percent) (excluding stock options granted to employees pursuant to an employee benefit plan), on a fully-diluted basis, of such capitalization. The reduction in the Investment Amount shall be allocated between the PubliCo Amount and the Exchangeable Debt Security Amount at your sole discretion, considering whatever factors you deem relevant. Notwithstanding anything herein to the contrary, for purposes of calculating the percentage that the Investment Amount constitutes, on a fully-diluted basis, of PubliCo’s capitalization as of the IPO, all securities exchangeable for PubliCo Shares shall be assumed to have been exchanged and the maximum share purchase price under the forward contract relating to the Exchangeable Debt Securities (and all securities substantially similar thereto) shall be assumed to be the price at which PubliCo Shares are purchased under such forward contract.

 

2. You have informed us that you intend to cause PubliCo or one or more affiliates, to file one or more separate registration statements with the Securities and Exchange Commission (the “SEC”) with respect to the public offering and sale of PubliCo Shares and the Exchangeable Debt Securities to persons other than us (the “Registration Statements”). You represent and warrant that (a) as of the date of our purchase of such Securities the respective Registration Statements, as amended or supplemented, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except that this does not apply to the statements or omissions made in reliance upon and in conformity with information furnished in writing by the underwriters in connection with the offering expressly for use in the Registration Statements and (b) no third-party approvals are required under any material credit facility, indenture, contractual or other material obligations binding or affecting PubliCo or any affiliate thereof in connection with the transactions contemplated by this letter agreement.

 

3.

We represent, warrant and agree that (a) the Securities we purchase will be acquired for investment purposes only for our own account or for the account of controlled affiliates, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that we have no present intention of selling, granting any participation in or otherwise distributing the same, (b) we are not party to any undisclosed contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person with respect to any of the Securities, (c) we have not been formed for the specific purpose of acquiring the Securities, (d) we have received or have had full access to all the information we consider necessary or appropriate for deciding whether to purchase the Securities and have had an opportunity to ask questions and receive answers regarding the terms and conditions of the Securities, and your and the issuer(s)’ business, properties, prospects and financial condition, (e) that we are financially sophisticated and are able to fend for ourselves, can bear the economic risk of the investment, and have such knowledge and experience in financial or business matters that we are capable of evaluating the merits and risks of the investment in the Securities, (f) we are an “accredited investor” and a “qualified institutional buyer” within the meaning of current SEC rules, (g) none of our operations are subject to the terms or limitations of the U.S. Bank Holding Company Act of 1956, as amended (nor do we “control” (within the

 

2

 

meaning of such act) any companies which are so subject), (h) no third-party approvals are required under any material credit facility, indenture, contractual or other material obligations binding or affecting us or any of our affiliates in connection with the transactions contemplated by this letter agreement, and (i) we are not a U.S. person, as such term is defined in Rule 902 under the 1933 Act, or purchasing for the account or benefit of a U.S. Person, and are purchasing the Securities in accordance with Regulation S under the 1933 Act (“Regulation S”) and are purchasing the Securities in an offshore transaction as defined in Regulation S.

 

4. We understand that the Securities we are purchasing are “restricted securities” under U.S. federal securities laws inasmuch as they will be acquired by us from the issuer(s) in a transaction not involving a public offering and that under such laws and applicable regulations such Securities may be resold without registration only in certain limited circumstances. In the absence of an effective registration statement covering the Securities, the Securities may only be resold only in accordance with Regulation S, or in a transaction otherwise exempt from registration. We agree not to make any direct or indirect disposition, sale, transfer, pledge, hedge (including by way of short selling) or otherwise encumber (“Transfer”) any Securities for a period of 545 days from the Closing (as defined below) of the sale of Securities to us (the “Lock-Up Period”). After the Lock-Up Period, we will not Transfer all or any portion of the Securities unless (a) there is a registration statement declared effective by the SEC under the Securities Act of 1933, as amended (the “1933 Act”) with respect to the Securities to be Transferred and no stop order suspending the effectiveness of such registration statement is then in effect under the 1933 Act and no proceedings for that purpose have then been instituted or (b) the Transfer is made under a valid exemption to registration under the 1933 Act. We acknowledge that a Transfer made during the Lock-Up Period shall be null and void ab initio. We further acknowledge that one or more Transfers of Securities (a) where the number of PubliCo Shares so Transferred together with the number of PubliCo Shares issuable in respect of the Exchangeable Debt Securities so Transferred in the aggregate represent more than 2.5% of then outstanding PubliCo Shares to any person, entity or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) that, after giving effect to such Transfer, would beneficially own PubliCo Shares and/or securities exchangeable into PubliCo Shares representing, in the aggregate, more than 5% of outstanding PubliCo Shares or (b) to any person, entity or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) that beneficially owns PubliCo Shares and/or securities exchangeable into PubliCo Shares representing, in the aggregate, more than 5% of outstanding PubliCo Shares, shall be null and void ab initio unless and until the transferee or transferees agree(s) in writing for the benefit of the issuer(s) to be bound by the restrictions contained herein, including in Sections 3, 4, 7 and 8 hereof. We understand that the certificates evidencing the Securities will bear an appropriate legend regarding these restrictions. In light of the foregoing, you agree to grant us registration rights in substantially the form of the registration rights agreement which is attached as Exhibit B (the “Registration Rights Agreement”). For purposes of this letter agreement, the number of PubliCo Shares issuable in respect of the Exchangeable Debt Securities (whether or not the PubliCo Shares are then issued) shall be assumed to be the maximum number of PubliCo Shares issuable in respect of the Exchangeable Debt Securities.

 

3

5. We will not be obligated to purchase the Securities unless and until: (a) the representations and warranties you make in this letter are true as of the Closing Date (and you have given us an officer’s certificate to that effect); (b) the Registration Rights Agreement, substantially in the form attached hereto as Exhibit B, shall have been executed and delivered and shall remain in full force and effect; (c) all governmental or regulatory authorizations, approvals or permits that are required for the sale or issuance of Securities have been obtained (including expiration or early termination of any waiting period under antitrust laws); (d) the IPO shall have been completed with PubliCo Shares sold for an aggregate amount of not less than U.S.$500 million, not including the PubliCo Amount, and with PubliCo Shares being accepted for listing on the New York Stock Exchange subject to official notice of issuance and other customary initial listing conditions and (e) the offering or private placement of Exchangeable Debt Securities shall have been completed with Exchangeable Debt Securities sold for an aggregate amount of not less than U.S.$200 million, not including the Exchangeable Debt Security Amount.

 

6. You will not be obligated to cause the issuance and sale of Securities unless and until: (a) the representations and warranties we make in this letter agreement are true as of the Closing Date (and we have given you an officer’s certificate to that effect), (b) all governmental or regulatory authorizations, approvals or permits that are required for the sale or issuance of Securities have been obtained (including expiration or early termination of any waiting period under antitrust laws), (c) the contemplated underwritten public offering of PubliCo Shares (the “IPO”) shall have been completed, it being understood that neither you, nor your affiliates, shall be obligated to consummate the IPO and the determination of whether to proceed with, and the terms and conditions of, the IPO shall be made by you in your sole discretion, considering whatever factors you deem relevant and (d) you determine in your sole discretion, considering whatever factors you deem relevant, to issue the Exchangeable Debt Securities to us, it being understood that neither you, nor your affiliates, shall be obligated to issue the Exchangeable Debt Securities to us. Upon the terms and subject to the conditions of this letter agreement, the sale and purchase of the Securities contemplated by this letter agreement shall take place at a closing (the “Closing”) to be held at the offices of Wachtell, Lipton, Rosen & Katz, 51 W. 52nd Street, New York, New York simultaneously with the closing of the IPO, or at such other time or on such other date as we and you may mutually agree upon in writing (the day on which the Closing takes place being the “Closing Date”).

 

7.

We agree that until the last to occur of the following (x) we are no longer entitled to designate a person of our choice as a director of PubliCo pursuant to the following paragraph, (y) we own Securities representing (directly or following issuance of PubliCo Shares issuable thereunder) less than 5% of the number of outstanding PubliCo Shares and (z) the arrangements contemplated by the Co-operation Term Sheet are terminated, we shall not, and we shall cause each of our respective affiliates not to, directly or indirectly, without the prior written consent of PubliCo: (a) acquire, offer to acquire or agree to acquire (“Acquire”) beneficial ownership of any Securities or any other securities of PubliCo or the issuer (collectively, the “Covered Securities”) or any rights to acquire any Covered Securities, except pursuant to the terms of the Securities, (b) Acquire any business or

 

4

 

material assets of PubliCo or any of its subsidiaries, (c) initiate or propose any offer by any third party to Acquire beneficial ownership of Covered Securities or any securities convertible or exchangeable into any other voting securities of PubliCo, (d) initiate, propose or enter into any merger, amalgamation, tender offer, business combination, sale or other disposition outside of the ordinary course of business of any material portion of the assets of PubliCo or any of its subsidiaries or other extraordinary transaction involving PubliCo or any of its subsidiaries, (e) call, or seek to call, a meeting of PubliCo shareholders, (f) seek election to, seek to place a representative on, or seek the removal of any member of, the Board of Directors of PubliCo (other than as permitted by the following paragraph), (g) act, alone or in concert with others, to seek to affect or influence the control of the Board of Directors of PubliCo or the management of PubliCo, or the business, operations, affairs or policies of PubliCo (other than as permitted by the following paragraph), (h) bring any action or otherwise act to contest the validity of any of the provisions of, or seek a release of the restrictions contained in this paragraph, (i) deposit any Covered Securities in a voting trust or subject any Covered Securities to any proxy, arrangement or agreement with respect to the voting of such securities or other agreement having a similar effect, except as provided in the following paragraph, (j) initiate or propose any shareholder proposal or make, or in any way participate in, directly or indirectly, any “solicitation” of “proxies” to vote, or seek to influence any shareholder with respect to the voting of, any Covered Securities, or become a “participant” in a “solicitation” (as such terms are defined in Regulation 14A under the Exchange Act) with respect to Covered Securities, (k) form, join or in any way participate in a group (other than a group comprised exclusively of our affiliates) for the purpose of acquiring, holding, voting or disposing of any Covered Securities which would be required under Section 13(d) of the Exchange Act and the rules and regulations thereunder to file a statement on Schedule 13D with the SEC as a “person” within the meaning of Section 13(d)(3) of the Exchange Act (or any successor statute or regulation), (l) propose, or agree to, or enter into any discussions, negotiations or arrangements with, or provide any confidential information to, any third party with respect to any of the foregoing, (m) make any public statement or disclosure inconsistent with the foregoing, or publicly request or suggest to you, or PubliCo, directly or indirectly, to amend, waive or terminate any provision of this Section 7 (including this clause (m)) or do so privately if such private statement, disclosure, request or suggestion would require you, PubliCo or the issuer of the Exchangeable Debt Securities to make a public statement or public disclosure, (n) advise, assist or encourage any third party in connection with the foregoing, or (o) finance third parties in connection with any of the activities prohibited by the foregoing (a)-(n) of this paragraph.

 

8.

We further agree that until the last to occur of the following (x) we are no longer entitled to designate a person of our choice as a director of PubliCo pursuant to this paragraph, (y) we own Securities representing (directly or following issuance of PubliCo Shares issuable thereunder) less than 5% of the number of outstanding PubliCo Shares and (z) the arrangements contemplated by the Co-operation Term Sheet are terminated, we shall vote all of our beneficially owned voting securities of PubliCo or give our written consent on any matter that may be presented, in the manner recommended by the Board of Directors of PubliCo and we shall be present in person or by proxy at all meetings of stockholders of PubliCo; provided, however, that we may vote our beneficially owned voting securities of

 

5

 

PubliCo freely with respect to (i) Change of Control Transactions (as defined below) submitted to a vote of PubliCo common shareholders, (ii) amendments to the charter or organizational documents of PubliCo that may adversely affect the rights of holders of Securities and (iii) matters directly relating to the arrangements contemplated by the Co-operation Term Sheet. You agree that until such time as the PubliCo Shares then owned by us, together with the PubliCo Shares issuable under the terms of the Exchangeable Debt Securities then owned by us (whether or not the PubliCo Shares are then issued), constitute less than 50% of the PubliCo Shares we initially purchase hereunder together with the PubliCo Shares issuable under the terms of the Exchangeable Debt Securities we initially purchase hereunder (whether or not the PubliCo Shares are then issued), you shall cause PubliCo to nominate one person designated by us as a director of PubliCo. You further confirm that the management of PubliCo intends to support, upon our request, the membership of such designee on any committees of the PubliCo Board of Directors (excluding the compensation committee) to which such designee is permitted to serve pursuant to applicable law, regulation and rules or listing standards of any securities exchange on which PubliCo Shares are listed, although we acknowledge the actual appointment of such designee to any such board committee shall be subject to approval of the PubliCo Board of Directors in its sole discretion. You agree that for so long as we are entitled to cause PubliCo to nominate our designee as a director of PubliCo, PubliCo will notify us in writing (an “Issuance Notice”) no less than 30 days prior to the sale by PubliCo of any PubliCo Shares (or any securities convertible into or exercisable or exchangeable for PubliCo Shares) in a broadly distributed, underwritten public offering (or broadly distributed offering made in compliance with Regulation S), in which the consideration to be received by PubliCo consists solely of cash, other than any offer or sale of securities (i) to working partners or employees of LAZARD GROUP LLC or LAZ-MD HOLDINGS LLC, (ii) relating to a merger, amalgamation, consolidation or acquisition or (iii) relating to a strategic transaction. Each Issuance Notice shall set forth the terms of the equity securities proposed to be sold and the date of issuance (the “Issuance Date”). We shall be entitled to purchase from PubliCo some or all of our Proportionate Share of the securities described in each Issuance Notice at the price and on the terms of payment as they are offered and sold publicly by providing written notice thereof to PubliCo (“Purchase Notice”) no later than 5 days after our receipt of the Issuance Notice and by making payment for such securities by certified check or wire transfer within 5 days of making the Purchase Notice. If PubliCo does not receive notice from us of our desire to purchase securities within such 5-day period, PubliCo may sell securities described in an Issuance Notice free of any restriction imposed by this Section 8. You further agree that for so long as we are entitled to cause PubliCo to nominate our designee as a director of PubliCo, we shall be entitled to participate as a third-party in any process through which PubliCo seeks to sell a substantial portion of its business assets to a third-party, it being understood that we shall have no special rights or position in any such process and the terms, conditions and procedures of such process shall be solely within your discretion (including without limitation, the ultimate decision to sell or not to sell any assets and the identity of the third-party to whom any such assets may be sold and the terms and conditions of such sale). For the avoidance of doubt, we will not have any right of first or last offer or right of first or last refusal in respect of any such sale process. For purposes of this letter agreement, a “Change of Control Transaction” is the consummation of a merger, amalgamation or consolidation of

 

6

 

PubliCo, unless, following such merger, amalgamation or consolidation, (i) the individuals and entities who were the beneficial owners, respectively, of the outstanding voting securities of PubliCo entitled to vote generally in the election of directors immediately prior to such merger, amalgamation or consolidation beneficially own, directly or indirectly, at least 50% of 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 such merger, amalgamation or consolidation, (ii) LAZ-MD HOLDINGS LLC, a Delaware limited liability company, together with the working partners and employees of AZARD GROUP LLC or any of its affiliates, beneficially owns, directly or indirectly, in the aggregate 35% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such merger, amalgamation or consolidation or the combined voting power of the then outstanding voting securities of such corporation or the ability to appoint or elect a majority of the Board of Directors of such corporation or (iii) at least 50% of the members of the Board of Directors of the corporation resulting from such merger, amalgamation or consolidation were members of the incumbent board of PubliCo at the time of the execution of the agreement, or of the action of the Board of Directors of such company, providing for such merger, amalgamation or consolidation. “Proportionate Share” means the quotient obtained by dividing (x) the sum of (A) the number of PubliCo Shares owned by us plus (B) the number of PubliCo Shares issuable in respect of the Exchangeable Debt Securities owned by us by (y) the number of PubliCo Shares then outstanding on a fully-diluted basis.

 

9.

This letter agreement may be terminated: (a) at any time by mutual written agreement between you and us (and, if after the issuance and sale of Securities, PubliCo), or (b) by you or us in the event that you make a final determination in your sole discretion, considering whatever factors you deem relevant, not to consummate the IPO. This letter agreement will automatically terminate if the issue and sale of Securities has not occurred by (i) December 31, 2005, if the date of the closing of the IPO does not occur prior to December 31, 2005, or (ii) such date earlier than December 31, 2005, if any, on which the IPO is finally abandoned or terminated by you. If such issuance and sale does occur, this letter agreement will automatically terminate at such time that the last to occur of the following occurs (x) we are no longer entitled to designate a person of our choice as a director of PubliCo pursuant to Section 8, (y) we own Securities representing (directly or following issuance of PubliCo Shares issuable thereunder) less than 5% of the number of outstanding PubliCo Shares and (z) the arrangements contemplated by the Co-operation Term Sheet are terminated. Notwithstanding anything herein to the contrary, if at any time you notify us that you no longer intend to cause the issuance of the Exchangeable Debt Securities substantially as described in Exhibit A this letter agreement shall terminate, provided, however, that if you at such time also notify us that you intend to cause the issuance of a different type of exchangeable debt security in connection with the IPO (“Alternative Exchangeable Debt Securities”), we will have 10 business days in which to elect to accept the Alternative Exchangeable Debt Securities in lieu of the Exchangeable Debt Securities, in which case this letter agreement shall not so terminate. In the event that we accept such Alternative Exchangeable Debt Securities, all references herein to Exchangeable Debt Securities shall instead be interpreted to be references to Alternative Exchangeable Debt Securities. In the event that we do not elect to accept such Alternative Exchangeable Debt Security within

 

7

 

such 10 business day period, unless extended by mutual written agreement, this letter agreement shall automatically terminate and be of no further effect.

 

10. The contents of this letter agreement and the transactions contemplated herein are of a strictly confidential nature and may not be disclosed to any third party except for the affiliates, business partners, consultants, financial and legal advisors of the parties hereto and their affiliates and except insofar as applicable law, regulations, legal process or the rules or requirements of any relevant securities, regulatory authority or stock exchange require the disclosure of this letter agreement or its content (each a “Required Disclosure”), including disclosure you reasonably determine to be required to be included in the Registration Statements. Prior to any Required Disclosure, the party that is required to make the disclosure shall inform the other party to the extent reasonably possible and permissible. The parties will use their reasonable best efforts to coordinate any disclosure, including any Required Disclosure, such that the information being provided is consistent as to scope and content. Additionally, we agree to comply with our obligations under the confidentiality agreement by and between us and you, dated as of October 21, 2004 (the “Confidentiality Agreement”).

 

11.

We and you each represent that it neither is nor will be obligated for any finders’ fee or commission in connection with this transaction, except that the issuer of the Exchangeable Debt Securities or its affiliates shall pay to us or our designee an amount in respect of the Exchangeable Debt Securities equal in percentage terms to the underwriting fees and commissions being otherwise paid by issuer for the Exchangeable Debt Securities that it is issuing publicly in the United States or otherwise distributing to qualified institutions buyers and each party will bear its own expenses in connection with this transaction. From and after the date of this letter agreement, upon request by the other party, you and we shall do all things, including but not limited to executing and delivering instruments, documents or other writings and making required regulatory filings (including under the antitrust laws), as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this letter agreement. This letter agreement, the Cover Letter, the Co-operation Term Sheet, the Confidentiality Agreement and the Registration Rights Agreement constitute the entire agreement between us and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. The terms and conditions of this letter agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any Securities). Nothing in this letter agreement, express or implied, is intended to confer upon any party, other than the parties hereto and the issuer(s) of the Exchangeable Debt Securities or their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this letter agreement, except as expressly provided in this letter agreement. Other than to controlled affiliates or Transfers of Securities made in accordance with the terms and conditions of this letter agreement, we cannot assign our rights or obligations under this letter agreement without your prior written consent. This letter agreement may only be amended by written agreement of you and us. If one or more provisions of this letter agreement are held to be unenforceable under applicable law, it shall be excluded from this letter agreement and the balance of the letter agreement shall be interpreted as if it were so excluded and shall be enforceable in

 

8

 

accordance with its terms. This letter agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

12. This letter agreement shall be governed by and construed under the internal laws of France without reference to principles of conflict of laws. The parties hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the Tribunal de Commerce de Paris for any actions, suits or proceedings arising out of or relating to this letter agreement and the transactions contemplated hereby (“Actions”) and hereby irrevocably and unconditionally waive any objection to the laying of venue of any Actions in the Tribunal de Commerce de Paris, and hereby further irrevocably and unconditionally waive and agree not to plead or claim that any Action brought in any such court has been brought in an inconvenient forum. Wherever in this letter agreement, a reference appears to options, decisions, determinations, judgments, actions, undertakings or exercises of power and/or authority by you, such reference shall be interpreted to mean that you may decide, choose, make determinations, adjudge, act, undertake undertakings or exercise your power and or authority with respect to such matters at your sole discretion, considering whatever matters you deem appropriate. Notwithstanding anything in this Section 12 to the contrary: (a) the provisions of Sections 4, 7 and 8 shall be governed by and construed under the internal laws of the State of New York without reference to principles of conflict of laws that would require the application of the laws of a jurisdiction other than the State of New York, (b) the parties hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the courts of the State of New York for any actions, suits or proceedings arising out of or relating to Sections 4, 7 and 8 of this letter agreement and the transactions contemplated hereby (“Excluded Actions”), (c) hereby irrevocably and unconditionally waive any objection to the laying of venue of any Excluded Actions in the courts of the State of New York, including any privilege regarding jurisdiction or any legal or statutory provision (even if based on public policy) resulting from the laws of a jurisdiction other than the State of New York, and (d) hereby further irrevocably and unconditionally waive and agree not to plead or claim that any Excluded Action brought in any such court has been brought in an inconvenient forum. We hereby appoint CT
     Corporation System (“Agent”), located at 111 Eighth Avenue, 13th Floor, New York, New York 10011, as our agent for service of process and service upon us shall be deemed to be effective upon service to the Agent for any Excluded Action.

 

9

LOGO

 

If you are in agreement with the foregoing, kindly sign and return to us the enclosed copy of this letter agreement.

 

Very truly yours,

 

IXIS-CORPORATE & INVESTMENT BANK

By:  

/s/ Anthony Orsatelli

Name:

  

Anthony Orsatelli

Title:

  

Président du Directoire

 

Accepted and agreed to as

of the date first above written:

 

LAZARD LLC

By:   /s/ Steven Golub

Name:

  

Steven Golub

Title:

  

Vice Chairman

LAZARD LTD
By:   /s/ Steven Golub

Name:

  

Steven Golub

Title:

  

President

 

10

Form of Registration Rights Agreement

Exhibit 10.28

 

 

FORM OF

REGISTRATION RIGHTS AGREEMENT

 

Registration Rights Agreement, dated as of                  (this “Agreement”), by and among Lazard Group Finance LLC, a Delaware limited liability company (the “Issuer”), Lazard Ltd, an exempted company organized under the laws of Bermuda (“PubliCo”), Lazard LLC, a Delaware limited liability company (the “Company”) and IXIS-Corporate & Investment Bank, an entity organized under the laws of France (the “Investor”).

 

W I T N E S S E T H :

 

WHEREAS, the Company is engaged in a series of financing transactions, including an IPO of PubliCo, in conjunction with a reorganization of the Company (the “Reorganization”);

 

WHEREAS, as part of the Reorganization and in connection with the IPO, the Company, has, or has caused the Issuer and PubliCo to issue and sell in one or more underwritten public offerings the Securities;

 

WHEREAS, entry into this Agreement by the Issuer, PubliCo and the Company is a condition to consummation by the Investor of the transactions contemplated by the letter agreement, dated as of March 15, 2005, by and among the Company and the Investor (the “Purchase Agreement”), whereby the Investor has agreed to purchase, and the Company has agreed to cause the Issuer and PubliCo to sell to the Investor, the Securities; and

 

WHEREAS, the Company, the Issuer, PubliCo and the Investor desire to enter into this Agreement to set forth the terms and conditions of the registration rights and obligations of the Issuer, PubliCo, the Company and the Investor, their respective Affiliates and certain transferees of Securities to be held by the Investor or its Affiliates;

 

NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, it is agreed as follows:

 

Article I

Definitions

 

Section 1.1 Definitions. Capitalized terms used but not defined herein shall have the meanings assigned to them in the Purchase Agreement. As used in this Agreement, the following capitalized terms shall have the meanings ascribed to them below:

 

“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For the purposes of this definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

 

“Exchange Act” means the Securities Exchange Act of 1934, as from time to time amended, and the rules and regulations of the SEC promulgated thereunder.

 

“HoldCo” means LAZ-MD Holdings LLC, a limited liability company organized or to be organized under the laws of the state of Delaware.

 

“Holder” shall mean the Investor, any Affiliate of the Investor, and any permitted transferee, pursuant to this Agreement, of Registrable Securities held by such Holder, in each case so long as such Holder holds Registrable Securities.

 

“Partners” means each holder of exchangeable interests in HoldCo and each other managing director or employee of PubliCo or the Company or their respective subsidiaries or controlled Affiliates that receives any awards of or convertible or exchangeable into PubliCo shares.

 

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

 

“PubliCo Shares” means shares ordinary or common shares of PubliCo.

 

“Prospectus” means the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement or any other amendments and supplements to such prospectus, including without limitation any preliminary prospectus, any pre-effective or post-effective amendment and all material incorporated by reference in any prospectus.

 

“Registrable Securities” means Securities which are issued or sold to any Holder pursuant to and in accordance with the terms of the Purchase Agreement, and any securities issued or issuable in respect of or in exchange for any such Securities. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (i) a Registration Statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such Registration Statement, (ii) such securities shall have been sold to the public pursuant to Rule 144 (or any successor provision) under the Securities Act, or (iii) such securities shall have ceased to be outstanding. For any calculations relating to Registrable Securities herein, the Debt Securities are counted as the number of PubliCo Shares issuable in respect of such Debt Securities (whether or not then issued), assuming that the maximum number of PubliCo Shares issuable in respect of the Debt Securities have been issued in respect thereof.

 

“Registration Expenses” has the meaning set forth in Article V.

 

“Registration Statement” means any registration statement of the Company which covers Registrable Securities pursuant to the provisions of this Agreement, all amendments and supplements to such registration statement, including post-effective amendments, and all exhibits and all material incorporated by reference in such registration statement.

 

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

 

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Article II

Demand Registrations

 

Section 2.1 Requests for Registration. Subject to the provisions of this Article II, any Holder or group of Holders holding Registrable Securities representing at least 50.1% the Registrable Securities then outstanding may at any time make (a) one written request for registration under the Securities Act of at least 33% of such Holders’ Registrable Securities consisting of Debt Securities on the Issuer and (b) four written requests for registration under the Securities Act of at least 25% of such Holders’ Registrable Securities consisting of PubliCo Shares having an aggregate market value greater than U.S.$20 million on PubliCo (such written request, in either case, a “Demand Registration”). Such requests shall specify the amount of Registrable Securities to be registered and the intended method or methods of disposition. Promptly after receipt of such request, the Issuer, in the case of Registrable Securities consisting of Debt Securities, or PubliCo in the case of Registrable Securities consisting of PubliCo Shares shall send written notice of such request to all Holders and shall, subject to the provisions of this Article II, include in such Demand Registration all Registrable Securities with respect to which the Issuer or PubliCo, as the case may be, receives written requests (specifying the amount of Registrable Securities to be registered and the intended method or methods of disposition) for inclusion therein within 15 days after such notice is sent; provided that if the managing underwriter(s) for a Demand Registration in which Registrable Securities are proposed to be included pursuant to this Article II that involves an underwritten offering shall advise the Holders and the Issuer or PubliCo, as the case may be, that in its reasonable opinion, the number of Registrable Securities to be sold would adversely affect the success of the offering, then the Issuer or PubliCo, as the case may be, will reduce the number of Registrable Securities included in such registration to the number that, in the opinion of the managing underwriter(s), can be sold without having the adverse effect referred to above. The number of Registrable Securities that may be registered shall be allocated in the following priority: first, pro rata among the Holders participating in the Demand Registration, based on the number of Registrable Securities beneficially owned by the respective Holders, second, all Debt Securities or PubliCo Shares proposed to be registered for offer and sale by the Issuer or PubliCo, as the case may be, and third, to Debt Securities or PubliCo Shares proposed to be registered pursuant to any piggy-back registration rights of third parties. As promptly as practicable thereafter, but in no event later than 45 days after the end of such 15-day period, but subject to Section 2.3 hereof, the Issuer or PubliCo, as the case may be, shall use its reasonable best efforts to file with the SEC a Registration Statement, registering all Registrable Securities that any Holders have requested to register, for disposition in accordance with the intended method or methods set forth in their notices to the Issuer or PubliCo, as the case may be. The Issuer and/or PubliCo, as the case may be, shall use its reasonable best efforts to cause such Registration Statement to be declared effective as soon as practicable after filing and to remain effective until the earlier of (i) 150 days following the date on which it was declared effective and (ii) the date on which all of the Registrable Securities covered thereby are disposed of in accordance with the method or methods of disposition stated therein; provided that no Registration Statement for a Demand Registration shall become effective prior to the day following the expiration of the Lock-up Period.

 

Notwithstanding anything to the contrary in this Article II, no Holder shall have the right to require the Issuer or PubliCo, as the case may be, to register any Registrable Securities pursuant to Article II during any period (not to exceed 135 days) following the closing of the

 

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completion of the distribution of the securities offered by the Issuer or PubliCo, as the case may be, and registered pursuant to the Article III Notice that would cause the Issuer or PubliCo, as the case may be, to breach a lock-up provision contained in the underwriting agreement for such distribution.

 

Section 2.2 Number and Timing of Registrations. The Holders shall be entitled to request no more than one (1) Demand Registration on the Issuer and no more than four (4) Demand Registrations on PubliCo.

 

Section 2.3 Suspension of Registration. The Company or PubliCo shall have the right to delay the filing or effectiveness of the Registration Statement for any Demand Registration or to require the Holders not to sell under any Registration Statement or to delay the preparation and filing of any supplement or post-effective amendment to the applicable Registration Statement or Prospectus or any document incorporated therein by reference, in each case during two periods aggregating not more than 150 days in each 12-month period, if (i) the Issuer or PubliCo, as the case may be, would, in accordance with the advice of its outside counsel, be required to disclose in the Prospectus information not otherwise then required to be publicly disclosed and (ii) in the judgment of the Issuer’s or PubliCo’s Board of Directors, as the case may be, there is a reasonable likelihood that such disclosure, or any other action to be taken in connection with the Prospectus, would materially and adversely affect any existing or prospective material business situation, transaction or negotiation or otherwise materially and adversely affect the Issuer or PubliCo, as the case may be. In the event that the ability of the Holders to sell shall be suspended for any reason, the period of such suspension shall not count towards compliance with the 150-day period referred to under clause (i) of Section 2.1 of this Agreement.

 

Section 2.4 Interrupted Registration. A registration requested pursuant to this Article II shall not be deemed to have been requested by the Holders of Registrable Securities pursuant to Section 2.2: (i) unless it has been declared effective by the SEC; (ii) if after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the SEC for any reason other than misrepresentation or an omission by the requesting Holders; (iii) if the conditions to closing specified in the underwriting agreement, if any, entered into in connection with such registration are not satisfied other than by reason of some wrongful act or omission, or act or omission in bad faith, by such Holders; or (iv) if such request has been withdrawn by the requesting Holders and such Holders shall have elected to pay all Registration Expenses of the Issuer or PubliCo, as the case may be, in connection with such withdrawn request.

 

Article III

Piggy-back Registrations

 

Section 3.1 Right to Include Registrable Securities. If at any time after expiration of the Lock-Up Period the Issuer or PubliCo proposes to register any of its Securities or PubliCo Shares under the Securities Act, whether or not for sale for its own account (other than pursuant to a registration statement on Form S-4 or Form S-8, any successor or similar forms or a registration statement for the sale of PubliCo Shares issuable or issued upon exchange, conversion or sale of Partners’ interests in HoldCo), in a manner that would permit registration

 

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of Registrable Securities for sale to the public under the Securities Act, it will each such time promptly give written notice to all Holders: (i) of its intention to do so, (ii) of the form of registration statement of the SEC that has been selected by the Issuer or PubliCo, as the case may be, and (iii) of rights of Holders under this Article III (the “Article III Notice”). The Issuer or PubliCo, as the case may be, will include in the proposed registration all Registrable Securities that the Issuer or PubliCo, as the case may be, is requested in writing, within 15 days after the Article III Notice is given, to register by the Holders thereof (the “Piggy-back Registration”); provided, however, that (i) if, at any time after giving written notice of its intention to register any Securities or PubliCo Shares and prior to the effective date of the Registration Statement filed in connection with such registration, the Issuer or PubliCo, as the case may be, shall determine that none of such Securities or PubliCo Shares shall be registered, the Issuer or PubliCo, as the case may be, may, at its election, give written notice of such determination to all Holders who so requested registration and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such abandoned registration, without prejudice, however, to the rights of Holders under Article II hereof and (ii) in case of a determination by the Issuer or PubliCo, as the case may be, to delay registration of its Securities or PubliCo Shares, the Issuer or PubliCo, as the case may be, shall be permitted to delay the registration of such Registrable Securities pursuant to this Article III for the same period as the delay in registering such other Securities or PubliCo Shares by the Issuer or PubliCo, as the case may be or may abandon the registration of Securities, in the sole discretion of the Issuer or PubliCo, as the case may be. No registration effected under this Article III shall relieve the Issuer or PubliCo, as the case may be, of its obligations to effect registrations upon request under Article II. If the Piggy-back Registration will be an underwritten offering, the Issuer or PubliCo, as the case may be, will be entitled to select all of the underwriters.

 

Section 3.2 Priority; Registration Form. If the managing underwriter(s) for a registration in which Registrable Securities are proposed to be included pursuant to this Article III that involves an underwritten offering shall advise the Issuer or PubliCo, as the case may be, that in its opinion, the inclusion of the number of Registrable Securities or PubliCo Shares to be sold for the account of Holders would adversely affect the success of the offering, then the number of Securities or PubliCo Shares to be sold shall be reduced to the number that, in the opinion of the managing underwriter(s), can be sold without having the adverse effect referred to above. The reduced number of Securities or PubliCo Shares that may be registered shall be allocated, in the following priority: first, all of Securities or PubliCo Shares proposed to be registered for offer and sale by the Issuer or PubliCo, as the case may be, second, to Securities or PubliCo Shares proposed to be registered pursuant to any demand registration rights of third parties, third, to Registrable Securities proposed to be registered by Holders as a Piggy-back Registration. The reduced number of Registrable Securities that may be registered shall be allocated pro rata among the Holders participating in the Piggy-back Registration, based on the number of Registrable Securities beneficially owned by the respective Holders. If, as a result of the proration provisions of this Section 3.2, any Holder shall not be entitled to include all Registrable Securities in a registration pursuant to this Article III that such Holder has requested be included, such Holder may elect to withdraw its Registrable Securities from the registration.

 

Section 3.3 Merger, Consolidation, etc. Notwithstanding anything in this Article III to the contrary, Holders shall not have any right to include their Registrable Securities in any distribution or registration of Securities or PubliCo Shares by the Issuer or PubliCo, as the case

 

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may be, which is pursuant to a merger, amalgamation, consolidation, acquisition, exchange offer, sale of PubliCo Shares issuable or issued upon exchange, conversion or sale of Partners’ interests in HoldCo, recapitalization, other reorganization, dividend reinvestment plan, stock option plan or other employee benefit plan, or any similar transaction having similar effect.

 

Article IV

Registration Procedures

 

Section 4.1 Use Reasonable Best Efforts. For purposes of a registration request relating to Debt Securities, if required by the Securities Act, such request shall give rise to registration obligations of both the Issuer in respect of such Debt Securities and of PubliCo in respect of the PubliCo shares issuable in respect of such Debt Securities. In connection with the Issuer’s or PubliCo’s registration obligations pursuant to Article II and Article III hereof, the Issuer or PubliCo, as the case may be, shall use its reasonable best efforts to effect such registrations to permit the sale of such Registrable Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Issuer or PubliCo, as the case may be, shall as expeditiously as reasonably practicable:

 

(a) prepare and file with the SEC a Registration Statement or Registration Statements relating to the registration on any appropriate form under the Securities Act, and to cause such Registration Statements to become effective as soon as reasonably practicable and to remain continuously effective for the time period required by this Agreement to the extent permitted under the Securities Act;

 

(b) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period set forth in Section 2.1; and to cause the Registration Statement and the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed in accordance with the Securities Act and any rules and regulations promulgated thereunder; and otherwise to comply with the provisions of the Securities Act as may be necessary to facilitate the disposition of all Registrable Securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of disposition by the selling Holders thereof set forth in such Registration Statement or such Prospectus or Prospectus supplement;

 

(c) notify the selling Holders and the managing underwriter(s), if any, promptly if at any time (i) any Prospectus, Registration Statement or amendment or supplement thereto is filed, (ii) any Registration Statement, or any post-effective amendment thereto, becomes effective, (iii) the SEC requests any amendment or supplement to, or any additional information in respect of, any Registration Statement or Prospectus, (iv) the SEC issues any stop order suspending the effectiveness of a Registration Statement or initiates any proceedings for that purpose, (v) the Issuer or PubliCo, as the case may be, receives any notice that the qualification of any Registrable Securities for sale in any jurisdiction has been suspended or that any proceeding has been initiated for the purpose of suspending such qualification, or (vi) any event occurs which requires that any changes be made in such Registration Statement or any related Prospectus so that such Registration Statement or Prospectus will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or

 

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necessary to make the statements therein not misleading; provided, however, that in the case of this subclause (vi), such notice need only state that an event of such nature has occurred, without describing such event. The Issuer or PubliCo, as the case may be, hereby agrees to promptly reimburse any selling Holders for any reasonable out-of-pocket losses and expenses incurred in connection with any uncompleted sale of any Registrable Securities in the event that the Issuer or PubliCo, as the case may be, fails to timely notify such Holder that the Registration Statement then on file with the SEC is no longer effective;

 

(d) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement, or the qualification of any Registrable Securities for sale in any jurisdiction, at the earliest reasonably practicable moment;

 

(e) if requested by the managing underwriter(s) or any Holder of Registrable Securities being sold in connection with an underwritten offering, incorporate into a Prospectus supplement or a post-effective amendment to the Registration Statement any information which the managing underwriter(s) and such Holder reasonably agree is required to be included therein relating to such sale of Registrable Securities; and to file such supplement or post-effective amendment as soon as practicable in accordance with the Securities Act and the rules and regulations promulgated thereunder and the Companies Act 1981 of Bermuda;

 

(f) furnish to each selling Holder and each managing underwriter, if any, one signed copy of the Registration Statement or Registration Statements and any post-effective amendment thereto, including all financial statements and schedules thereto, all documents incorporated therein by reference and all exhibits thereto (including exhibits incorporated by reference) as promptly as practicable after filing such documents with the SEC and the Registrar of Companies in Bermuda;

 

(g) deliver to each selling Holder and each underwriter, if any, as many copies of the Prospectus or Prospectuses (including each preliminary Prospectus) and any amendment or supplement thereto as such Persons may reasonably request; and to consent to the use of such Prospectus or any amendment or supplement thereto by each such selling Holder and underwriter, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus, amendment or supplement;

 

(h) prior to any public offering of Registrable Securities, use its reasonable best efforts to register or qualify, or to cooperate with the selling Holders, the underwriter(s), if any, and their respective counsel in connection with the registration or qualification of, such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions as may be requested by the Holders of a majority of the Registrable Securities included in such Registration Statement; to keep each such registration or qualification effective during the period set forth in Section 2.1 that the applicable Registration Statement is required to be kept effective; and to do any and all other acts or things necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by such Registration Statement; provided, however, that the Issuer or PubliCo, as the case may be, will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service in any jurisdiction where it is not then so subject;

 

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(i) to cooperate with the selling Holders and the underwriter(s), if any, in the preparation and delivery of certificates representing the Registrable Securities to be sold, such certificates to be in such denominations and registered in such names as such selling Holders or managing underwriter(s) may request at least two (2) Business Days prior to any sale of Registrable Securities represented by such certificates;

 

(j) subject to Section 4.3 hereof, upon the occurrence of any event described in clause (vi) of Section 4.1(c) above, promptly to prepare and file a supplement or post-effective amendment to the applicable Registration Statement or Prospectus or any document incorporated therein by reference, and any other required documents, so that such Registration Statement and Prospectus will not thereafter contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading, and to cause such supplement or post-effective amendment to become effective as soon as practicable;

 

(k) to take all other actions in connection therewith as are reasonably necessary or desirable in order to expedite or facilitate the disposition of the Registrable Securities included in such Registration Statement and, in the case of an underwritten offering: (i) to enter into an underwriting agreement in customary form with the managing underwriter(s) (such agreement to contain standard and customary indemnities, representations, warranties and other agreements of or from the Issuer or PubliCo, as the case may be; (ii) to obtain opinions of counsel to the Issuer or PubliCo, as the case may be, (which (if reasonably acceptable to the underwriter(s)) may be the Issuer’s or PubliCo’s inside counsel) addressed to the underwriter(s), such opinions to be in customary form; and (iii) to obtain “comfort” letters from the Issuer’s or PubliCo’s independent certified public accountants addressed to the underwriter(s), such letters to be in customary form;

 

(l) make available for inspection by any selling Holder of Registrable Securities, any underwriter(s) participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by any such selling Holder or underwriter(s) all financial and other records, pertinent corporate documents and properties of the Issuer or PubliCo, as the case may be, and cause the Issuer’s or PubliCo’s officers, directors, employees, attorneys and independent accountants to supply all information reasonably requested by any such selling Holders, underwriter(s), attorneys, accountants or agents in connection with such Registration Statement. Each selling Holder of Registrable Securities agrees, on its own behalf and on behalf of all its underwriter(s), accountants, attorneys and agents, that the information obtained by it as a result of such inspections shall be kept confidential by it and not disclosed by it, in each case unless and until such information is made generally available to the public other than by such selling Holder. Each selling Holder of Registrable Securities further agrees, on its own behalf and on behalf of all its underwriter(s), accountants, attorneys and agents, that it will, upon learning that disclosure of such information is sought in a court of competent jurisdiction, give notice to the Issuer or PubliCo, as the case may be, and allow the Issuer or PubliCo, as the case may be, at its expense, to undertake appropriate action to prevent disclosure of the information deemed confidential;

 

(m) take all such other actions not inconsistent with the terms of this Agreement as the Holders of a majority of the Registrable Securities being sold or the

 

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underwriter(s), if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities;

 

(n) if and to the extent PubliCo sponsors an American Depositary Receipt program in respect of PubliCo Shares, if requested by a Holder, it shall create additional American Depositary Shares (“ADS”) in respect of PubliCo Shares to be registered, representing the same number of underlying shares per ADS as the ADSs that previously were created and issued; and

 

(o) reasonably cooperate with the selling Holders and each underwriter or agent participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made by the NASD.

 

Section 4.2 Holders’ Obligation to Furnish Information. The Issuer or PubliCo, as the case may be, may require each Holder of Registrable Securities as to which any registration is being effected to furnish to the Issuer or PubliCo, as the case may be, such information regarding the distribution of such Registrable Securities as the Issuer or PubliCo, as the case may be, may from time to time reasonably request in writing.

 

Section 4.3 Suspension of Sales Pending Amendment of Prospectus. Each Holder shall, upon receipt of any notice from the Company of the happening of any event of the kind described in clauses (iii)-(vi) of Section 4.1(c) above, suspend the disposition of any Registrable Securities covered by such Registration Statement or Prospectus until such Holder’s receipt of the copies of a supplemented or amended Prospectus or until it is advised in writing by the Issuer or PubliCo, as the case may be, that the use of the applicable Prospectus may be resumed, and, if so directed by the Issuer or PubliCo, as the case may be, such Holder will deliver to the Issuer or PubliCo, as the case may be, all copies, other than permanent file copies, then in such Holder’s possession of any Prospectus covering such Registrable Securities. If the Issuer or PubliCo, as the case may be, shall have given any such notice during a period when a Demand Registration is in effect, the 90-day period described in Section 2.1 shall be extended by the number of days of such suspension period.

 

Section 4.4 No Required Registration. The Issuer or PubliCo, as the case may be, shall not be required to file a Registration Statement pursuant to the provisions of Article IV hereof, if the Issuer or PubliCo, as the case may be, shall receive a written opinion from its counsel that all of the Registrable Securities which any Holder has requested or may request to have registered may, as of the date of such opinion, be sold in the public market of the United States, in unlimited amounts, under Rule 144(k), without registration under the Securities Act.

 

Article V

Registration Expenses

 

Section 5.1 Registration Expenses. All reasonable and documented expenses incident to the Issuer’s or PubliCo’s performance of or compliance with its obligations under this Agreement, including without limitation all (i) registration and filing fees, (ii) fees and expenses of compliance with securities or blue sky laws, (iii) printing expenses, (iv) fees and disbursements of its counsel and its independent certified public accountants (including the

 

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expenses of any special audit or “comfort” letters required by or incident to such performance or compliance), (v) securities acts liability insurance (if the Issuer or PubliCo, as the case may be, elects to obtain such insurance) and (vi) the expenses and fees for listing securities to be registered on each securities exchange on which Securities are then listed shall be borne by the demanding Holders in the case of a Demand Registration, and the Issuer or PubliCo, as the case may be, otherwise (all such expenses being herein referred to as “Registration Expenses”); provided, however, that Registration Expenses shall not include any underwriting discounts, commissions or fees attributable to the sale of the Registrable Securities or the fees and expenses of counsel for the Holders of Registrable Securities covered by each Registration Statement, which underwriting discounts, commissions, fees and expenses of counsel shall in all cases be borne solely by the Holders.

 

Article VI

Indemnification

 

Section 6.1 Indemnification by the Company. In the event of any registration of any securities of the Issuer or PubliCo, as the case may be, under the Securities Act pursuant to Article II or Article III hereof, the Issuer or PubliCo, as the case may be, will, and hereby does, indemnify and hold harmless the selling Holder of any Registrable Securities covered by such Registration Statement, its affiliates, general and limited partners, members and shareholders and each of its and their directors, officers, managers, employees, attorneys, investment advisors and agents, each other Person who participates as an underwriter, if any, in the offering or sale of such securities and each other Person, if any, who controls such selling Holder or any such underwriter within the meaning of the Securities Act, against any and all losses, claims, damages or liabilities, joint or several, and expenses (including any amounts paid in any settlement effected with the Issuer’s or PubliCo’s consent, which consent shall not be unreasonably withheld) to which such selling Holder or other indemnified Person may become subject under the Securities Act, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement under which such securities were registered under the Securities Act or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary Prospectus, together with the documents incorporated by reference therein (as amended or supplemented if the Issuer or PubliCo, as the case may be, shall have filed with the SEC any amendment thereof or supplement thereto), if used prior to the effective date of such Registration Statement, or contained in the Prospectus, together with the documents incorporated by reference therein (as amended or supplemented if the Issuer or PubliCo, as the case may be, shall have filed with the SEC any amendment thereof or supplement thereto), or the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or (iii) any violation by the Issuer or PubliCo, as the case may be, of any federal, state or common law rule or regulation applicable to the Issuer or PubliCo, as the case may be, and relating to action required of or inaction by the Issuer or PubliCo, as the case may be, in connection with any such registration, and the Issuer or PubliCo, as the case may be, will reimburse such selling Holder and each other indemnified Person for any legal or any other

 

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expenses reasonably incurred by any of them in connection with defending any such loss, claim, liability, action or proceeding; provided, however, that the Issuer or PubliCo, as the case may be, shall not be liable to any such selling Holder or other indemnified Person in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such Registration Statement or amendment thereof or supplement thereto or in any such preliminary, final or summary Prospectus in reliance upon and in conformity with written information furnished to the Issuer or PubliCo, as the case may be, by or on behalf of any such selling Holder or other indemnified Person, specifically for use in the preparation thereof; and provided, further, that the Issuer or PubliCo, as the case may be, will not be liable to any Person who participates as an underwriter in any underwritten offering or sale of Registrable Securities, or to any Person who is a selling Holder in any non-underwritten offering or sale of Registrable Securities, or any other Person, if any, who controls such underwriter or selling Holder within the meaning of the Securities Act, under the indemnity agreement in this Section 6.1 with respect to any preliminary Prospectus or the final Prospectus (including any amended or supplemented preliminary or final Prospectus), as the case may be, to the extent that any such loss, claim, damage or liability of such underwriter, selling Holder or controlling Person results from the act that such underwriter or selling Holder sold Registrable Securities to a person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the final Prospectus as then amended or supplemented, whichever is most recent, if the Issuer or PubliCo, as the case may be, has previously furnished copies thereof to such underwriter or selling Holder and such final Prospectus, as then amended or supplemented, has corrected any such misstatement or omission.

 

Section 6.2 Indemnification by the Selling Holders. In consideration of the Issuer’s or PubliCo’s including any Registrable Securities in any Registration Statement filed in accordance with Article II or Article III hereof, each prospective selling Holder (each, a “Holder Indemnitor”) of such Registrable Securities shall be deemed to have agreed to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 6.1 hereof) the Issuer or PubliCo, as the case may be, and its directors, officers, employees, managers, attorneys, investment advisors and agents and each person controlling the Issuer or PubliCo, as the case may be, within the meaning of the Securities Act (each, an “Indemnitee”) against any and all losses, claims, damages or liabilities, joint or several, and expenses (including any amounts paid in any settlement effected with such Holder Indemnitor’s consent, which consent shall not be unreasonably withheld) to which the Indemnitees may become subject under the Securities Act, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon any statement or alleged statement in or omission or alleged omission from such Registration Statement, any preliminary, final or summary Prospectus contained therein, or any amendment or supplement, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Issuer or PubliCo, as the case may be, or its representatives by or on behalf of such selling Holder specifically for use in the preparation of such Registration Statement, preliminary, final or summary Prospectus or amendment or supplement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Issuer or PubliCo, as the case may be, or any of its directors, officers or controlling Persons. The Issuer, or PubliCo, as the case may be, may require as a condition to its including Registrable Securities in any Registration Statement filed hereunder that the holder

 

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thereof acknowledge its agreement to be bound by the provisions of this Agreement (including Article VI) applicable to it.

 

Section 6.3 Notices of Claims. Promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Article VI, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Article VI, except to the extent that the indemnifying party is actually materially prejudiced by such failure to give notice. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party; provided, further, that if, in the indemnified party’s reasonable judgment, a conflict of interest between the indemnified party and the indemnifying party exists or may exist in respect of such claim, then such indemnified party shall have the right to participate in the defense of such claim and to employ one firm of attorneys at the indemnifying party’s expense to represent such indemnified party. No indemnified party will consent to entry of any judgment or enter into any settlement without the indemnifying party’s consent to such judgment or settlement, which shall not be unreasonably withheld.

 

Section 6.4 Contribution. If the indemnification provided for in this Article VI is unavailable or insufficient to hold harmless an indemnified party under this Article VI, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in this Article VI in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other hand in connection with statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statements or omission. The Issuer or PubliCo, as the case may be, agrees, and the Holders (in consideration of the Issuer’s or PubliCo’s including any Registrable Securities in any Registration Statement filed in accordance with Article II or Article III hereof) shall be deemed to have agreed, that it would not be just and equitable if contributions pursuant to this Section 6.4 were to be determined by pro rata allocation or by any other method or allocation which does not take account of the equitable considerations referred to in the first sentence of this Section 6.4. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this Section 6.4 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim (which shall be limited as provided in Section 6.3 if the indemnifying party has assumed the defense of any such action accordance with the provisions thereof) which is the subject of this Section 6.4. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Promptly

 

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after receipt by an indemnified party under this Section 6.4 of notice of the commencement of any action against such party in respect of which a claim for contribution has been made against an indemnifying party under this Section 6.4, such indemnified party shall notify the indemnifying party in writing of the commencement thereof if the notice specified in Section 6.3 has not been given with respect to such action; provided, however, that the omission so to notify the indemnifying party shall not relieve the indemnifying party from any liability which it may have to any indemnified party otherwise under this Section 6.4, except to the extent that the indemnifying party is actually materially prejudiced by such failure to give notice.

 

Article VII

Rule 144

 

Section 7.1 Rule 144. The Issuer and PubliCo shall file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations promulgated thereunder, so long as it is subject to such reporting requirements, all to the extent required from time to time to enable the Holders to sell Registrable Securities without registration under the Securities Act within the limitations of the exemptions provided by Rule 144. Upon the request of any Holder, the Issuer or PubliCo, as the case may be, shall deliver to such Holder a written statement stating whether it has complied with such requirements, and will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144.

 

Article VIII

Underwritten Registrations

 

Section 8.1 Selection of Underwriter(s). If any of the Registrable Securities covered by any Demand Registration are to be sold in an underwritten offering, the underwriter or underwriters and managing underwriter or managing underwriters that will administer the offering shall be selected by the Issuer or PubliCo, as the case may be; provided, however, that such underwriter(s) and managing underwriter(s) shall be subject to the approval of the Holders of a majority in aggregate amount of Registrable Securities included in such offering, which approval shall not be unreasonably withheld.

 

Section 8.2 Agreements of Selling Holders. No Holder shall sell any of its Registrable Securities in any underwritten offering pursuant to a registration hereunder unless such Holder (i) agrees to sell such Registrable Securities on a basis provided in any underwriting agreement in customary form, including the making of customary representations, warranties and indemnities and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting agreements or as reasonably requested by the Issuer or PubliCo, as the case may be (whether or not such offering is underwritten).

 

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Article IX

Holdback Agreements

 

Section 9.1 Restrictions on Public Sales by Holders. To the extent not inconsistent with applicable law, each Holder that is timely notified in writing by the managing underwriter or underwriters shall not effect any public sale or distribution (including a sale pursuant to Rule 144) of any securities of the same class or issue being registered in an underwritten offering (other than pursuant to an employee stock option, stock purchase, stock bonus or similar plan, pursuant to a merger, an exchange offer or a transaction of the type specified in Rule 145(a) under the Securities Act) or any securities of the Issuer or PubliCo, as the case may be, convertible into or exchangeable or exercisable for securities of the same class or issue, during the 7-day period prior to the effective date of the applicable Registration Statement, if such date is known, or during the period beginning on such effective date and ending either (i) 60 days after such effective date or (ii) any such earlier date as may be requested by the managing underwriter or underwriters of such registration, except as part of such registration.

 

Article X

Effectiveness and Termination

 

Section 10.1 Effectiveness. This Agreement shall take effect immediately upon the Closing and shall remain in effect until it is terminated pursuant to Section 10.2 hereof.

 

Section 10.2 Termination. Other than the termination provisions applicable to particular Sections of this Agreement that are specifically provided elsewhere in this Agreement, this Agreement shall terminate upon the earliest to occur of the following:

 

(a) The tenth anniversary of the Closing; or

 

(b) Mutual written agreement of the Company, the Issuer, PubliCo and the Investor at any time to terminate this Agreement.

 

Article XI

Miscellaneous

 

Section 11.1 Amendments and Waivers. This Agreement may be amended, and waivers or consents to departures from the provisions hereof may be given, only by a written instrument duly executed, in the case of an amendment, by all of the parties hereto, or in the case of a waiver or consent, by the party against whom the waiver or consent, as the case may be, is to be effective.

 

Section 11.2 Successors, Assigns and Transferees. This Agreement shall be binding upon and shall inure to the benefit of the Company, the Holders and their respective successors, assigns and transferees.

 

Section 11.3 No Inconsistent Agreements. The Company, Issuer or PubliCo will not on or after the date of this Agreement enter into any agreement which conflicts with the provisions of this Agreement without the prior written consent of the majority of the Holders. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with

 

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the rights granted to the holders of the Company’s, Issuer’s or PubliCo’s other issued and outstanding securities under any such agreements. If the Company, Issuer or PubliCo grants registration or similar rights (including demand registration rights) to any Person other than an Affiliate, employee or Partner of the Company, Issuer, or PubliCo (such Person, a “Third Party”) with respect to PubliCo Shares or Debt Securities that are more favorable in any material respect than the rights or benefits afforded to Holders herein, the Company, Issuer or PubliCo, as the case may be, shall grant substantially similar registration or similar rights with respect to PubliCo Shares or Debt Securities to the Holders.

 

Section 11.4 Integration. This Agreement and the documents referred to herein or delivered pursuant hereto that form a part hereof contain the entire understanding of the Company and the Holders with respect to its subject matter. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein. This Agreement supersedes all prior agreements and understandings between the Company and the Holders with respect to its subject matter.

 

Section 11.5 Notices. All notices and other communications provided for hereunder shall be in writing and shall be sent by first class mail, telecopier or hand delivery:

 

If to the Company, to:

 

Lazard LLC

30 Rockefeller Plaza

New York, NY 10020

Fax:

Attn: General Counsel

 

If to Issuer, to:

 

Lazard Group Finance LLC

30 Rockefeller Plaza

New York, NY 10020

Fax:

Attn: General Counsel

 

If to PubliCo, to:

 

Lazard Ltd

Clarendon House

2 Church Street

Hamilton HM 11

Bermuda

Fax:

Attn: Secretary

 

In each case, with a copy to:

 

-15-

Wachtell Lipton Rosen & Katz

51 W. 52nd Street

New York, NY 10019

Fax: (212) 403-2327

Attn: Adam Chinn, Esq. & David C. Karp, Esq.

 

If to any of the Holders, to the address of such Holders as shown in the record books of the Issuer or PubliCo, as the case may be.

 

All such notices and communications shall be deemed to have been given or made (i) when delivered by hand or (ii) when telecopied, receipt acknowledged. The Company, Issuer or PubliCo may change its address for receipt of notices by notice of such change given in the manner contemplated hereby to the Holders.

 

Section 11.6 Descriptive Headings. The headings in this Agreement are for convenience of reference only and shall not limit, expand or otherwise affect the meaning of the terms contained herein.

 

Section 11.7 Severability. In the event that any one or more of the provisions hereof is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision, in every other respect and of the remaining provisions hereof shall not be in any way impaired, it being intended that all rights, powers and privileges of the Company, Issuer, PubliCo and the Holders shall be enforceable to the fullest extent permitted by law.

 

Section 11.8 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without regard to the principles thereof relating to conflict of laws.

 

[Rest of Page Intentionally Blank;

Signature Page Follows]

 

-16-

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date set forth above.

 

LAZARD LLC

By:

    
   

Name:

  

Steven J. Golub

   

Title:

  

Vice Chairman

IXIS CORPORATE & INVESTMENT BANK

By:

    
   

Name:

  

Anthony Orsatelli

   

Title:

  

Président du Directoire

LAZARD GROUP FINANCE LLC

By:

    
   

Name:

  

Steven J. Golub

   

Title:

  

President

LAZARD LTD

By:

    
   

Name:

  

Steven J. Golub

   

Title:

  

President

 

-17-

Condensed Financial Information of Registrant

Exhibit 12.1

 

Condensed Financial Information of Registrant

For the Years Ended December 31, 2002, 2003 and 2004

 

Report of Independent Registered Public Accounting Firm

    1

Condensed Statements of Financial Condition, as of December 31, 2003 and 2004

    2

Condensed Statements of Income for the years ended December 31, 2002, 2003 and 2004

    3

Condensed Statements of Cash Flows for the years ended December 31, 2002, 2003 and 2004

    4

Condensed Statements of Changes in Members’ Equity for the years ended December 31, 2002, 2003 and 2004

    5

Notes to Condensed Financial Statements

    6

 

The Financial Statement Schedule I reflects financial data for the existing parent company of Lazard LLC and does not reflect financial data of the registrant, Lazard Ltd. Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Members of

Lazard LLC:

 

We have audited the consolidated financial statements of Lazard LLC and subsidiaries (the “Company”) as of December 31, 2003 and 2004, and for each of the three years in the period ended December 31, 2004, and have issued our report thereon dated March 14, 2005 (included elsewhere in this Registration Statement). Our audits also included the financial statement schedule listed in Item 16 of this Registration Statement. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

 

/s/    Deloitte & Touche LLP

New York, New York

March 14, 2005

 

1

LAZARD LLC

(parent company only)

 

CONDENSED STATEMENTS OF FINANCIAL CONDITION

DECEMBER 31, 2003 AND 2004

(in thousands)

 

     December 31,
     2003
    2004

ASSETS:

              

Cash and cash equivalents

    $ 6,441    $ 201

Investments in subsidiaries, equity basis

      685,357      633,094

Due from subsidiaries

      327      7,229

Long-term investments

      8,227      10,144

Other assets

      2,025      951
    
  

Total assets

    $ 702,377    $ 651,619
    
  

LIABILITIES AND MEMBERS’ EQUITY:

              

Due to subsidiaries

    $ 56,035    $ 150,112

Other liabilities

      10,617      16,709

Mandatorily redeemable preferred stock

      100,000      100,000
    
  

Total liabilities

      166,652      266,821

Commitments and contingencies

              

Members’ equity (Including $49,777 and $18,058 of accumulated other comprehensive income, net of tax)

      535,725      384,798
    
  

Total liabilities and members’ equity

    $ 702,377    $ 651,619
    
  

 

 

 

 

See notes to condensed financial statements.

 

2

LAZARD LLC

(parent company only)

 

CONDENSED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

(in thousands)

 

     Years Ended December 31,
  
     2002
     2003
     2004
  

REVENUE:

                         

Equity in earnings of subsidiaries

    $ 300,976     $ 258,916     $ 260,288  

Trading gains and losses—net

      (213 )     (1,847 )     (36 )

Investment gains (losses), non-trading—net

      4,657       1,365       2,502  

Interest income

      383       86       80  

Other

      179       —         290  
    
 
 

Total revenue

      305,982       258,520       263,124  

Interest expense

      8,205       8,226       8,097  
    
 
 

Net revenue

      297,777       250,294       255,027  
    
 
 

OPERATING EXPENSES:

                         

Professional fees

      291       (236 )     1,052  

Other

      39       147       7,001  
    
 
 

Total operating expenses

      330       (89 )     8,053  
    
 
 

NET INCOME ALLOCABLE TO MEMBERS

    $ 297,447     $ 250,383     $ 246,974  
    
 
 

 

 

 

See notes to condensed financial statements.

 

3

LAZARD LLC

(parent company only)

 

CONDENSED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

(in thousands)

 

     Years Ended December 31,
  
     2002
     2003
     2004
  

Cash flows from operating activities:

                         

Net income allocable to Members

    $ 297,447     $ 250,383     $ 246,974  

Adjustments to reconcile net income allocable to Members to net cash provided by operating activities—

                         

Noncash transactions in net income allocable to Members:

                         

Unremitted earnings of subsidiaries

      (300,976 )     (258,916 )     (260,288 )

Dividends received from subsidiaries

      329,968       340,155       281,225  

Changes in operating assets and liabilities

      70,286       44,110       92,031  
    
 
 

Net cash provided by operating activities

      396,725       375,732       359,942  
    
 
 

Cash flows from financing activities:

                         

Distributions to Members and capital withdrawals, net of issuance of interests to LAM Members in 2003 of $27,483 relating to formation of LAM

      (395,017 )     (381,141 )     (366,182 )

Issuance of mandatorily redeemable preferred stock

      —         —         —    
    
 
 

Net cash used in financing activities

      (395,017 )     (381,141 )     (366,182 )
    
 
 

Increase (decrease) in cash and cash equivalents

      1,708       (5,409 )     (6,240 )

Cash and cash equivalents, beginning of the year

      10,142       11,850       6,441  
    
 
 

Cash and cash equivalents, end of the year

    $ 11,850     $ 6,441     $ 201  
    
 
 

 

 

 

See notes to condensed financial statements.

 

4

LAZARD LLC

(parent company only)

 

CONDENSED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY

YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

(in thousands)

 

     Capital and
Retained
Earnings
     Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax
     Total
Members’
Equity
  

BALANCE—January 1, 2002

    $ 741,759     $ (37,062 )   $ 704,697  
    
 
 

Comprehensive income (loss):

                         

Net income allocable to Members

      297,447       —         297,447  

Other comprehensive income—net of tax:

                         

Currency translation adjustments

      —         46,923       46,923  

Minimum pension liability adjustments

      —         (5,139 )     (5,139 )
    
 
 

Comprehensive income

      297,447       41,784       339,231  

Distributions and withdrawals to Members

      (395,017 )     —         (395,017 )
    
 
 

BALANCE—December 31, 2002

      644,189       4,722       648,911  
    
 
 

Comprehensive income (loss):

                         

Net income allocable to Members

      250,383       —         250,383  

Other comprehensive income—net of tax:

                         

Currency translation adjustments

      —         51,042       51,042  

Minimum pension liability adjustments

      —         (5,987 )     (5,987 )
    
 
 

Comprehensive income

      250,383       45,055       295,438  

Distributions and withdrawals to Members

      (408,624 )     —         (408,624 )
    
 
 

BALANCE—December 31, 2003

      485,948       49,777       535,725  
    
 
 

Comprehensive income (loss):

                         

Net income allocable to Members

      246,974       —         246,974  

Other comprehensive income—net of tax:

                         

Currency translation adjustments

      —         29,890       29,890  

Minimum pension liability adjustments

      —         (61,609 )     (61,609 )
    
 
 

Comprehensive income (loss)

      246,974       (31,719 )     215,255  

Distributions and withdrawals to Members

      (366,182 )     —         (366,182 )
    
 
 

BALANCE—December 31, 2004

    $ 366,740     $ 18,058     $ 384,798  
    
 
 

 

See notes to condensed financial statements.

 

5

LAZARD LLC

(parent company only)

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

(dollars in thousands, unless otherwise noted)

 

1.    BASIS OF PRESENTATION

 

The accompanying condensed financial statements (the “Parent Company Financial Statements”), including the notes thereto, should be read in conjunction with the consolidated financial statements of Lazard LLC and subsidiaries (“the Company”) and the notes thereto.

 

The Parent Company Financial Statements for the years ended December 31, 2002, 2003 and 2004 are prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and the disclosures in the condensed financial statements. Management believes that the estimates utilized in the preparation of the condensed financial statements are reasonable. Actual results could differ materially from these estimates.

 

The Parent Company Financial Statements include investments in subsidiaries, accounted for under the equity method.

 

2.    MANDATORILY REDEEMABLE PREFERRED STOCK

 

In 2001, the Company issued mandatorily redeemable preferred stock (“Class C Preferred Interests”) for an aggregate amount of $100,000. The Class C Preferred Interests are subject to mandatory redemption by the Company in March 2011 and, prior to such date, are redeemable in whole or in part, at the Company’s option. The Class C Preferred Interests are entitled to receive distributions out of the profits of the Company at a rate of 8% per annum, which distributions must be paid prior to any distributions of profits to holders of any other existing class of interests in the Company. Unpaid distributions on the Class C Preferred Interests accrue but are not compounded. Upon liquidation of the Company, the Class C Preferred Interests rank senior to Members’ equity. Interest on mandatorily redeemable preferred stock for the years ended December 31, 2002, 2003 and 2004 of $8,000 per year is included in interest expense on the accompanying condensed statements of income.

 

3.    COMMITMENTS

 

The Company has agreements relating to future minimum distributions to certain Members of $62,801 through 2007. Such agreements are cancelable under certain circumstances.

 

6

Consent of Deloitte & Touche LLP

Exhibit 23.1

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

We consent to the use in this Amendment No. 2 to Registration Statement No. 333-121407 on Form S-1 of our report dated March 14, 2005, related to the consolidated financial statements of Lazard LLC appearing in the Prospectus, which is part of this Registration Statement, and of our report dated March 14, 2005 relating to the financial statement schedule appearing elsewhere in this Registration Statement.

 

We also consent to the reference to us under the headings “Summary Consolidated Financial Data”, “Selected Consolidated Financial Data” and “Experts” in such Prospectus.

 

 

/s/ Deloitte & Touche LLC

 

New York, New York

March 14, 2005

Consent of Conyers Dill & Pearman, Bermuda

Exhibit 23.2

 

Conyers Dill & Pearman

BARRISTERS & ATTORNEYS

 

 

CLARENDON HOUSE, 2 CHURCH STREET, P.O. Box HM 666, HAMILTON HM CX, BERMUDA

TELEPHONE: (441) 295 1422 FACSIMILE: (441) 292 4720 E-MAIL: INFO@CDP.BM

INTERNET: WWW.CDP.BM

 

 

21 March, 2005

Lazard Ltd

Clarendon House

2 Church Street

Hamilton HM 11

BERMUDA

    DIRECT LINE:
E-MAIL:
OUR REF: 		   441 - 299 4923
cggarrod@cdp.bm
CGG/mgb/329393/Corp.D.139300

 

 

Dear Sirs,

 

We hereby consent to the use of our name in the Amendment No. 2 to the Registration Statement on Form S-1

(No. 333-121407) to be filed on or about the date hereof by Lazard Ltd with the Securities and Exchange Commission (the “Commission”). In giving this consent, we do not admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933 as amended or the rules and regulations of the Commission thereunder.

 

Yours faithfully,

 

/s/ Conyers Dill & Pearman

 

CONYERS DILL & PEARMAN

 

 

BERMUDA     ANGUILLA     BRITISH VIRGIN ISLANDS     CAYMAN ISLANDS     HONG KONG     LONDON     SINGAPORE

 

 

SEC Response Letter

LOGO

 

VIA EDGAR TRANSMISSION

 

Mr. Mark Webb

Branch Chief

Division of Corporation Finance

Securities and Exchange Commission

450 Fifth Street

Washington, D.C. 20549

 

  Re: Lazard Ltd —
    Registration Statement on Form S-1 (No. 333-121407) relating to the
    initial public offering of shares of Lazard Ltd Class A common stock            

 

Dear Mr. Webb:

 

On behalf of Lazard Ltd, a Bermuda corporation (the “Company”), submitted for filing under the Securities Act of 1933, as amended, is Amendment No. 2 to the Company’s Registration Statement on Form S-1 (the “Registration Statement”), relating to a proposed initial public offering of shares of the Company’s Class A common stock, par value $0.01 per share.

 

Please note that the filing fee for the Registration Statement was previously paid upon the initial filing of the Registration Statement.

 

LOGO

 

Securities and Exchange Commission

March 21, 2005

Page 2

 

If you have any questions regarding this filing, please contact the undersigned at (212) 403-1340, or Benjamin D. Fackler, Esq. at (212) 403-1395, both of this office, as counsel to the Company.

 

Very truly yours,
/s/ Kevin M. Costantino
Kevin M. Costantino, Esq.

 

cc: Scott D. Hoffman, Esq. (Lazard Ltd)

 

SEC Response Letter

LOGO

 

March 21, 2005

 

VIA EDGAR AND FACSIMILE

 

Mr. Mark Webb

Branch Chief

Division of Corporation Finance

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

 

Re: Lazard Ltd

Registration Statement on Form S-1,

filed December 17, 2004, as amended February 11, 2005

File No. 333-121407

 

Dear Mr. Webb,

 

On behalf of Lazard Ltd (“Lazard” or the “Company”), set forth below are the responses of Lazard to the comments of the staff of the Division of Corporation Finance (the “Staff”), regarding its above-referenced Registration Statement, which you delivered in a letter dated March 1, 2005.

 

We are providing under separate cover five copies of Amendment No. 2 to the above-referenced Registration Statement (“Amendment No. 2”), which reflects Lazard’s responses and additional and revised disclosure. Two copies of Amendment No. 2 are marked to show changes from the filing of Amendment No. 1 to the Registration Statement on Form S-1 on February 11, 2005. We are providing courtesy copies of Amendment No. 2, including a version marked for

LOGO

Division of Corporate Finance

March 21, 2005

Page 2 of 14

 

changes, to Angela Jackson, Staff Accountant, Joyce Sweeney, Senior Accountant, and Christian Windsor, Special Counsel.

 

For your convenience, the text of the Staff’s comments is set forth in bold text followed by the responses of Lazard. All page references in the responses set forth below refer to pages of the revised Registration Statement.

 

General comments on your filing

 

1. We note that in response to a number of comments, you have stated that you are unable to provide updated or more detailed disclosure at this time. The staff awaits revised disclosure regarding these items.

 

Response: The Staff’s comment is duly noted. The Company has revised the disclosure throughout the Registration Statement to include updated and more detailed disclosure, in particular in respect of the terms of the additional financing transactions. The Company will undertake to provide more information with respect to the other matters requested in the Staff’s letters as promptly as practicable after such information has been finalized.

 

2. In your response to prior comment 11, you state that the company is still in negotiations with former managing directors to enter into retention agreements. Please advise the staff regarding the percentage of your revenues represented by managing directors who have not yet entered into retention agreements. We may have further comment based upon your response or any revision to your disclosure in response to prior comment 11.

 

Response: The Company supplementally advises the Staff that all of our managing directors, including those mentioned in the news article referred to in the Staff’s prior comment 11, have now executed contractual agreements with us or one of our subsidiaries, with the exception of a limited number of managing directors who have indicated that they will be signing such agreements shortly. The managing directors who have not yet signed such agreements in the aggregate accounted for less than 1% of the Company’s 2004 revenues. Please note that while all our managing directors in France have signed contracts, these contracts are in escrow pending the resolution of discussions with French fiscal authorities, which we expect to resolve shortly. In addition, the Company further supplementally advises the Staff that its executive officers are currently in the process of finalizing their contractual employment arrangements with the Company.

 

3. Please revise to update your financial statements based on the requirements set forth in Rule 3-12 of Regulation S-X.

 

Response: The Staff’s reference to Rule 3-12 of Regulation S-X is duly noted. The Company has revised the Registration Statement to include 2004 financial information.

LOGO

Division of Corporate Finance

March 21, 2005

Page 3 of 14

 

Our Core Values; Introductory Note – pages i-ii

 

4. Please consider moving the information on the inside cover page to the Summary. Information about the offering should appear in the body of the prospectus.

 

Response: The Company supplementally advises the Staff that, after due consideration, it believes that the information contained in the inside front cover page to the prospectus (specifically, the information under the “Our Core Values” and “Our Business” headings) is appropriate and meaningful to investors in its current placement, particularly in light of the Company’s removal of the “Introductory Note” that previously preceded the “Summary” section of the Registration Statement in response to the Staff’s comment 5.

 

5. To the extent that you continue to retain the information in the Introductory Note in the Summary or elsewhere in the prospectus, please consider removing the glossary or shortened terms. We are sympathetic to your wish to make the document as easy to understand as possible. To the extent possible, however, shortened terms should be clear from the contexts, and if any of the names of the entities that will participate in the offering or the separation transactions are not clear, they should be fully explained at the point that they are first used.

 

Response: The Company has removed the “Introductory Note” and included the relevant information in the “Summary” section of the Registration Statement in response to the Staff’s comment.

 

Summary – page 1

 

Lazard’s Ownership Structure – page 8

 

6. Please clarify that while Lazard Ltd’s shareholders will hold 100% of the “economic rights,” the LAZ-MD will receive distributions from Lazard Group which will not necessarily be distributed to Lazard Ltd or the public shareholders.

 

Response: The Company has revised the Registration Statement on page 10 in response to the Staff’s comment.

 

Bermuda Law – page 12

 

7. Please expand the bullet pointed disclosure regarding the differences in shareholder rights between a Bermuda Company and a U.S. Corporation to briefly but more completely describe the differences in shareholder rights noted. For example, shareholders have less opportunity to vote under the Bermuda Companies Act of 1981 than under U.S. corporate law.

LOGO

Division of Corporate Finance

March 21, 2005

Page 4 of 14

 

Response: The Company has revised the Registration Statement beginning on page 13 in response to the Staff’s comment.

 

The Separation and Recapitalization Transactions

 

The Recapitalization of LAZ-MD Holdings and Lazard Group – page 47

 

8. Please address the following with respect to your responses to prior comments 22 and 68 and your revisions on pages 47 and F-30. Please revise to clearly describe each of the events that resulted in additional amounts allocated to historical partner capital. Describe the impact of each of these events on your consolidated financial statements as well as the individual Members’ capital accounts for internal capital reporting purposes. To avoid investor confusion, please ensure that you are clear in your discussion, here and throughout your filing, the difference between your revaluation of the business and goodwill/intangibles for internal capital measurement purposes and the impact of these fundamental corporate events on your financial reporting.

 

Response: The Company supplementally advises the Staff that the following events resulted in the additional amounts allocated to the historical partners.

 

In 1984, a predecessor entity to Lazard Group, known as LPLP, was formed as a holding company for the interests of the historical partners in the London, New York and Paris businesses of Lazard, which continued to operate as separate legal entities with separate, additional partner groups in each. The historical partners contributed their interests in those entities in exchange for interests in LPLP and, at the same time, new partners purchased an interest in LPLP. In order to reflect the value of their contributions, the capital accounts of the historical partners in LPLP were assigned values which exceeded the original cost of their investments in the separate businesses by $137 million. Such assigned values were based on an estimate of the fair value of the interests they contributed as agreed among all the partners in LPLP.

 

At the beginning of 2002 and 2003 and in anticipation of an increase in the number of partners that were expected in those years, Lazard LLC, which was the successor to the business of LPLP, determined that it should increase the capital accounts (for internal capital reporting purposes) of the historical partners at the beginning of the year by $77 million to recognize a portion of the increased value of the firm at that time.

 

These increases in the historical partners’ capital accounts were not reflected in the financial statements of the Company prepared in accordance with generally accepted accounting principles in the United States. However, they entitle the historical partners receiving such increases to a preferential distribution in the event of a fundamental corporate event.

LOGO

Division of Corporate Finance

March 21, 2005

Page 5 of 14

 

The Company has revised the Registration Statement on pages 55 and F-32 in response to the Staff’s comment.

 

Unaudited Pro Forma Financial Information

 

Unaudited Pro Forma Condensed Consolidated Statements of Income – pages 66 and 68

 

9. We note your supplemental response to our prior comment 28. The purpose of presenting the historical results of operations adjusted for recognizing additional employee compensation and income tax expenses is to separately show the impact of the change in your capital structure. Please revise to present the weighted average shares outstanding and net income per share data based on your historical results adjusted for the separation transaction and the additional employee compensation and income taxes that would have been reported had you been a corporation (i.e. if all outstanding membership units had been exchanged for common shares).

 

Response: The Company supplementally advises the Staff that, based on a discussion with the Staff on March 3, 2005, it understands the Staff’s request to present the impact on pro forma earnings per share (“EPS”) as if all of the exchangeable shares held by LAZ-MD Holdings were to be exchanged. Earnings per share would be unchanged assuming issuance of additional shares following the exchange. The Company has revised the Registration Statement on page 74 in response to the Staff’s comment.

 

The Company further supplementally advises the Staff that:

 

  Ÿ   the membership interests in LAZ-MD Holdings are exchangeable on a one-for-one basis into shares of Lazard Ltd, and

 

  Ÿ   the amount reported in pro forma adjustment (h) for the interest attributable to LAZ-MD Holdings’ ownership is calculated as the number of shares issuable in respect of the exchangeable LAZ-MD Holdings membership interests multiplied by the earnings per share.

 

To illustrate, assume that:

 

  Ÿ   the interests in Lazard Group are owned 60% by LAZ-MD Holdings and 40% by Lazard Ltd,

 

  Ÿ   Lazard Ltd has 40,000 shares issued to the public and has 60,000 shares reserved for issuance to members of LAZ-MD Holdings upon exchange of their LAZ-MD Holdings membership interests,

 

  Ÿ   LAZ-MD Holdings has 60,000 membership interests outstanding, and

 

 

LOGO

Division of Corporate Finance

March 21, 2005

Page 6 of 14

 

 

  Ÿ   Lazard Ltd’s net income before the LAZ-MD Holdings minority interest is $150,000.

 

As a result, Lazard Ltd would report:

 

Before exchange:

 

Minority interest (60% x $150,000)

    $ 90,000
    

Net income (40% x $150,000)

    $ 60,000
    

Earnings per share ($60,000 ÷ 40,000)

    $ 1.50
    

 

After exchange:

 

Minority interest

    $ 0
    

Net income

    $ 150,000
    

Earnings per share ($150,000 ÷ 100,000)

    $ 1.50
    

 

10. Please supplementally tell us how you intend to present earnings per share data in your comparative financial statements in your ‘34 Act filings subsequent to the effectiveness of your registration.

 

Response: The Company supplementally advises the Staff that it intends to present comparative earnings per share (“EPS”) in accordance with SFAS 128, Earnings Per Share. The weighted average common shares outstanding to be utilized within the Company’s presentation of basic EPS will give effect to the common stock that will be outstanding following the initial public offering from the date of issuance. The weighted average common shares outstanding to be utilized within the Company’s presentation of diluted EPS will give effect to (i) the common stock that will be outstanding following the initial public offering from the date of issuance, (ii) the common stock that will be issuable in connection with the LAZ-MD Holdings exchangeable interests as if the exchange into common shares occurred using the “if converted” method, and (iii) to the extent dilutive, the common stock that will be issuable pursuant to the exercise of the purchase contracts associated with the equity security units and the exchangeable securities to be issued to IXIS using the “treasury stock” method. To the extent any other equity securities are issued subsequently, those securities will be included in basic or diluted EPS in accordance with generally accepted accounting principles in the United States.

 

The Company supplementally advises the Staff that the presentation of EPS in comparative financial statements in the Company’s filings under the Securities Exchange Act of 1934, as amended, subsequent to the effectiveness of the Registration Statement

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will be provided for periods presented after such effective date. With respect to periods prior to the effectiveness, the Company operated as a limited liability company under the control of its partners and did not have shares outstanding. Ownership was instead in the form of membership interests, and, as a result, the calculation of EPS would not apply. However, the Company further supplementally advises the Staff that it does intend to provide pro forma financial information in its financial statements. As such, the Company intends to provide a pro forma EPS calculation for all periods presented, including periods prior to effectiveness.

 

11. We note your supplemental response to prior comment 29 and your revisions on pages 66, 67, 68, and 71. Please revise to describe the terms of the additional financing transactions, as available, and clarify when you expect these transactions to be consummated.

 

Response: The Company has revised the “Unaudited Pro Forma Financial Information” section of the Registration Statement in response to the Staff’s comment and in anticipation of the finalization of the additional financing transactions. In addition, the Company supplementally advises the Staff that additional information relating to the additional financing transactions has been included throughout the Registration Statement, including the “Summary” and “Separation and Recapitalization Transactions and the Lazard Organizational Structure” sections of the Registration Statement as well as the descriptions of the capital stock, equity security units and indebtedness of the Company contained in the Registration Statement.

 

12. We note your revisions on pages 69 and 83 in response to our prior comment 30. Please revise to separately quantify your estimate of the impact of the new managing directors’ retention agreements and the expiration of contractual agreements requiring payment to managing directors for services performed and founders of LAM. Disclose the expected timing of effectiveness of the new retention agreements.

 

Response: The Company has revised the Registration Statement on page 86 in response to the Staff’s comment.

 

13. Please revise to describe your plans for the reassessment of staffing needs, the potential impact (i.e. reduction of employees, reallocation of resources), and your estimate of the time-frame for performing the reassessment and implementing any changes.

 

Response: The Company has revised the Registration Statement on page 73 in response to the Staff’s comment.

 

Management’s Discussion and Analysis of Financial Position and Results of Operations

 

 

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Financial Advisory – page 89

 

14. We note your revisions on pages 89 – 91 in response to our prior comment 33. Please revise to describe any trends in gross profit margin (gross revenues less direct transaction-related expenses) for your different types of financial advisory services during the periods presented.

 

Response: The Company supplementally advises the Staff that it does not separately measure the profitability of mergers and acquisitions services vis-à-vis financial restructuring services. For example, the Company does not specifically track the amount of time spent by each of its professionals within each practice group. Compensation expense is recorded by the Company for the segment as a whole. Accordingly, the Company measures performance in its Financial Advisory segment based on overall segment net revenue and operating income margins. The Company has revised the Registration Statement on page 92 to clarify its financial reporting in response to the Staff’s comment.

 

Capital Markets and Other – page 96

 

15. We note the revisions that you made on page 96 in response to our prior comment 36. Your statement at the bottom of page 96 that “the activities described as part of this segment will remain in this segment subsequent to the separation” may suggest that you will continue to report results from these operations subsequent to the separation transaction. Please revise to clearly explain which activities will be disposed of as part of the separation transaction and which activities, if any, you will continue to perform subsequent to the separation transaction.

 

Response: The Company has revised the Registration Statement on page 97 in response to the Staff’s comment.

 

Critical Accounting Policies and Estimates – page 103

 

16. We note that you present the consolidation of VIEs as a critical accounting policy in response to our prior comment 42. Please revise to address the following:

 

  Ÿ   Describe the qualitative and quantitative analyses that you perform to determine if an entity has sufficient equity at risk.

 

  Ÿ   Describe the type(s) of models used to estimated the expected losses and expected residual returns.

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  · Discuss the types of events that would cause you to reconsider your initial assessment of whether you are the primary beneficiary of a VIE.

 

Response: The Company has revised the Registration Statement beginning on page 107 in response to the Staff’s comment.

 

Material Federal Income Tax Consequences – page 167

 

17. Remove the word “should” from the last full paragraph on page 168 and clarify whether Counsel or Management believes that changes in U.S. taxation will or will not apply to Lazard and its subsidiaries.

 

Response: The Company has revised the Registration Statement on page 181 in response to the Staff’s comment.

 

18. Please revise to reflect the opinions on the material tax consequences of the transaction requested below.

 

Response: The Company has revised the Registration Statement on page 180 in response to the Staff’s comment.

 

Lazard LLC Consolidated Financial Statements

 

Note 2 – Significant Accounting Policies

Revenue Recognition – page F-12

 

19. We note your supplemental response to prior comment 56. Please revise to briefly describe how you report client reimbursement of expenses and quantify the amount of client reimbursements for each period presented.

 

Response: The Company has revised the Registration Statement beginning on page F-12 in response to the Staff’s comment.

 

20. We note your supplemental response and revisions in response to our prior comment 58. Please revise to quantify your estimate of contingent gains from merchant banking incentive fees that have yet to be recognized because the underlying investments have not been liquidated as of December 31, 2003. Refer to paragraph 17(b) of SFAS 5 with respect to the care to be exercised in making this disclosure.

 

Response: The Company has revised the Registration Statement on page F-13 in response to the Staff’s comment.

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Note 6 – Formation of LAM – page F-20

 

21. We note your supplemental responses to prior comment 62 and 63 and your revisions on page F-20. Please supplementally explain how you determined that the LAM equity interests granted to employees were within the scope of FIN 38. Specifically discuss how you determined that these equity interests met the definition of “junior stock.”

 

Response: In its previous responses to the Staff, referred to in the Comment above, the Company supplementally explained its determination that the equity units granted to the LAM employees were akin to a profits interest granted in a limited liability company, where the substance is similar to that of a stock appreciation right and not of an equity interest. Accordingly, the Company advises the Staff that it has accounted for the equity units granted to the LAM employees as stock appreciation rights in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, and FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans. To date, no compensation expense has been recognized because a “fundamental transaction” has not been considered probable. In the Company’s previous responses to the Staff, its reference to FASB Interpretation No. 38, Determining the Measurement Date for Stock Option, Purchase, and Award Plans Involving Junior Stock, was not intended to imply that it determined that the LAM equity units granted to employees met the definition of junior stock. Rather, the Company’s reference to FASB Interpretation No. 38 was intended to reference the determination of a measurement date to measure compensation expense. In this respect, the Company refers to the guidance in paragraph 4 of FASB Interpretation No. 38, which states that:

 

“Compensation cost for stock option, purchase, and award plans involving junior stock shall be accrued according to the provisions of paragraphs 2-4 of FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans, and paragraph 11(g) of Opinion 25. However, the provisions of paragraph 2 of Interpretation 28 shall be applied only when it becomes probable that certain performance goals will be achieved or certain transactions will occur; that probability may or may not be present at the date junior stock is issued.” [Footnote omitted; emphasis added.]

 

The realization of value from the equity units by employees of LAM is contingent upon the occurrence of a “fundamental transaction,” and the Company believes that compensation expense should be recorded when that fundamental transaction is determined to be probable of occurrence (i.e., when realization is no longer contingent).

 

Note – 11 – Commitments and Contingencies – page F-28

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22. We note your supplemental response to prior comment 66 and the associated revisions. Due to the potential material impact on future operating results, please revise your discussion on pages F-29 and F-48 to describe any significant judicial, regulatory or arbitration proceedings and provide an estimate of the possible loss or range of loss. If such an estimate cannot be made, revise to explain why. In addition, state whether you have recorded an accrual for such estimated losses. Refer to paragraphs 9 and 10 of SFAS 5.

 

Response: The Company has revised the Registration Statement on page F-31 in response to the Staff’s comment. The Company supplementally advises the Staff that it is not currently involved in any significant judicial, regulatory or arbitration proceedings other than as described in the Registration Statement. The Company further supplementally advises the Staff that it has considered SFAS No. 5 and, as of December 31, 2004, has recorded an accrual for one matter that was settled subsequent to December 31, 2004.

 

Note 18 – Subsequent Events – Initial Public Offering – page F-38

 

23. We note your supplemental response to our prior comment 74. Please supplementally tell us how you determine that both criteria in paragraph 42 of SFAS 144 will be met after the separation.

 

Response: The Company supplementally advises the Staff that it has considered the criteria of FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and determined that the separated business represents a “component of an entity” (as that term is defined in paragraph 41 of SFAS No. 144) that should be classified as a discontinued operation subsequent to the separation transaction. In coming to its determination, the Company considered the guidance provided by EITF 03-13 “Applying the Conditions in Paragraph 42 of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in Determining Whether to Report Discontinued Operations.” The Company identified the cash flows and relationships that may continue after the separation and evaluated each independently and in the aggregate in forming its conclusion.

 

The Company first considered the criterion of paragraph 42(a) of SFAS No. 144 and whether continuing cash flows are expected to be generated and, if so, whether those cash flows are direct or indirect. Continuing cash flows will be generated by the Company from service agreements and a business alliance agreement between the Company and the separated business. However, the continuing cash flows will not result in a migration, and will not provide for a continuation of activities. As described in the Registration Statement, the service agreements will cover employee benefits and administrative services, and the business alliance agreement will constitute a referral and cooperation arrangement. The fee for the service agreements will be based on the allocated cost to

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provide such services and the referral fee for the business alliance agreement will be based on market rates for such referral. The Company believes, therefore, that the criterion of paragraph 42(a) has been met, as these continuing cash flows represent indirect cash flows.

 

The Company then considered the criterion of paragraph 42(b) of SFAS No. 144 and whether the Company will have significant continuing involvement in the operations of the separated business. In this respect, the Company considered (1) the service and the business alliance agreements between the parties and (2) the Company’s option to purchase the merchant banking business of the separated business, as such purchase option is described in the Registration Statement. The Company concluded that neither the service and business alliance agreements nor the purchase option will result in the Company having the ability to significantly influence the day-to-day operating and/or financial policies of the separated business. The separated business will be supervised, managed and transacted principally by dedicated personnel and management of the separated business. Other than with respect to consent rights regarding the annual budget of, and fundamental transactions relating to, the merchant banking businesses as described in the Registration Statement, the service and business alliance agreements do not convey any special or participating rights to either party and is limited to providing the contracted services and referral arrangement, respectively. The purchase option also does not convey any special or participating rights to the Company and the fixed exercise price for the purchase option is intended to represent the current fair value of the merchant banking business.

 

Based on the Company’s evaluation, since the continuing cash flows are considered indirect cash flows and the Company will not have significant continuing involvement in the operations of the separated business, the Company believes that classification of the separated business as a discontinued operation will be appropriate.

 

Exhibits

 

Exhibit 5.1 – Legal Opinion of Conyers Dill and Pearman

 

24. Please provide an opinion that addresses the material tax consequences of owning stock in Lazard under Bermuda Law and any interpretations of Bermuda Law that U.S. Tax Counsel must rely upon to deliver their opinion. An opinion that the disclosure is materially accurate is not sufficient. Please refer to Item 601(b)(8)

 

Response: The opinion of Conyers Dill and Pearman has been revised and re-filed in response to the Staff’s comment.

 

25. Please delete assumption (f) which assumes the opinion. You can assume that the shares will be sold as described in the registration statement.

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Response: The opinion of Conyers Dill and Pearman has been revised and re-filed in response to the Staff’s comment.

 

26. Please delete the parenthetical phrase after non-assessable; it is inappropriate.

 

Response: The Staff is supplementally advised that the reason that the opinion of Conyers Dill and Pearman includes the parenthetical language is because the term “non-assessable” is not a legal concept under Bermuda law. Since the opinion of such counsel is to be construed in accordance with Bermuda law, Conyers Dill and Pearman respectfully takes the position that the opinion should include an explanation regarding the meaning of the term. The Staff is further supplementally advised that Conyers Dill and Pearman has indicated that the language is commonly used in the Exhibit 5.1 opinions of other Bermudian issuers.

 

Exhibit 8.1 – Opinion of Wachtell Lipton

 

27. The opinion of counsel provided in this exhibit opines as to the accuracy of the disclosure in the Material Federal Income Tax Consequences section. However, Item 601(b)(8) requires an opinion regarding the material federal income tax consequences. Please provide an opinion that opines as to the material federal income tax consequences of owning Lazard common stock.

 

Response: The opinion of Wachtell, Lipton, Rosen & Katz has been revised and re-filed in response to the Staff’s comment.

 

*            *            *

 

 

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Should you require further clarification of the matters discussed in this letter or in the revised Registration Statement, please contact Craig M. Wasserman, Esq., Benjamin D. Fackler, Esq. or the undersigned at (212) 403-1000 (facsimile: (212) 403-2000).

 

Sincerely,

 

/s/    Gavin D. Solotar

 

Gavin D. Solotar, Esq.

 

 

cc: Scott D. Hoffman, Esq.

Managing Director and General Counsel, Lazard LLC

 

     Kris F. Heinzelman, Esq.

Cravath, Swaine & Moore LLP