Original GBL Prospectus - Gabelli

GABELLI FUNDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
At December 31, 1996 and 1997, the Company had margin deposits of approximately $1,200,000 and
$1,470,000, respectively, with a futures broker for these open futures contracts.
In connection with this futures activity, the Company incurred losses of approximately $3,692,000 and
$8,063,000 during the years ended December 31, 1996 and 1997. Such losses are reÖected as part of net gain
from investments in the consolidated statements of income.
O. PCS Licenses
The Company, through Rivgam, purchased PCS licenses auctioned by the FCC in 1997. The PCS
licenses are valued at the lower of their original purchase cost or their market value. Market values are
determined based upon the most recent public auction for similar licenses, or in the absence thereof, fair value
estimates provided by independent companies that solicit bids for such licenses.
P. Subsequent Events (unaudited)
Loan Guarantee
In February 1998, the Company guaranteed a $30 million loan made by a commercial bank to Rivgam
LMDS, LLC, an entity for which the Chairman of the Board and Chief Executive OÇcer of the Company is
the managing member and in which he has a controlling interest. All principal and interest on the loan was
repaid by Rivgam LMDS, LLC on April 3, 1998, thereby relieving the Company of its obligation under the
guarantee.
Sale of PCS Licenses
During 1998, the Company sold certain of its PCS licenses with a cost basis of $51,000,000. The
Company recorded a pre-tax gain of $17,400,000, net of investment banking, management and other related
fees of approximately $10,700,000 paid principally to related parties, of which $4,196,000 was paid to the
Company's Chairman of the Board and Chief Executive OÇcer.
Reorganization and Initial Public OÅering (Formation Transactions)
Prior to the initial public oÅering (the ""OÅering''), the Company will transfer substantially all of the
operating assets and liabilities relating to its institutional and retail asset management, mutual fund advisory
and underwriting business to Gabelli Asset Management Inc. (""GAMI''), in exchange for 24 million shares of
GAMI's Class B Common Stock, representing all of its issued and outstanding shares of Common Stock (the
""Reorganization''). GAMI is a newly formed company, incorporated in April 1998 in the state of New York
with no signiÑcant assets or liabilities and which has not engaged in any substantial business activities prior to
the oÅering. GAMI intends to sell 6 million shares of Class A Common Stock as part of the OÅering,
resulting in 30 million shares expected to be outstanding immediately after the OÅering.
Upon completion of the OÅering, the Company will no longer be treated as an ""S'' corporation and will
be subject to corporate income taxes.
Immediately preceding the OÅering, the Company and its Chairman of the Board and Chief Executive
OÇcer will enter into an Employment Agreement. The Employment Agreement provides that the Company
will pay the Chairman of the Board and Chief Executive OÇcer 10% of the Company's aggregate pre-tax
proÑts while he is an executive of the Company and devoting the substantial majority of his working time to
the business of the Company. The Employment Agreement further provides that the Company will pay the
Chairman of the Board and Chief Executive OÇcer $50 million on January 2, 2002, plus interest payable
quarterly at an annual rate of 6% from the date of the Employment Agreement.
Stock Award and Incentive Plan
Immediately prior to the OÅering, the Board of Directors will adopt the 1999 GAMI Stock Award and
Incentive Plan (the ""Plan''), designed to provide incentives which will attract and retain individuals key to the
success of GAMI through direct or indirect ownership of GAMI's common stock. BeneÑts under the Plan
may be granted in any one or a combination of stock options, stock appreciation rights, restricted stock,
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