<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1998
REGISTRATION NO. 333-51653
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
KNIGHT/TRIMARK GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 6211 52-2096335
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
OF INCORPORATION OR
ORGANIZATION)
NEWPORT TOWER, 29TH FLOOR
525 WASHINGTON BOULEVARD
JERSEY CITY, NEW JERSEY 07310
(201) 222-9400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
MICHAEL T. DORSEY, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
KNIGHT/TRIMARK GROUP, INC.
NEWPORT TOWER, 29TH FLOOR
525 WASHINGTON BOULEVARD
JERSEY CITY, NEW JERSEY 07310
(201) 222-9400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
MATTHEW J. MALLOW, ESQ. ALEXANDER D. LYNCH, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP BABAK YAGHMAIE, ESQ.
919 THIRD AVENUE BROBECK, PHLEGER & HARRISON LLP
NEW YORK, NEW YORK 10022 1633 BROADWAY, 47TH FLOOR
(212) 735-3000 NEW YORK, NEW YORK 10019
(212) 581-1600
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, 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,
please check the following box. [_]
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 THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED
[LOGO] KNIGHT/TRIMARK GROUP, INC.
10,000,000 SHARES
CLASS A COMMON STOCK
-----------
Of the 10,000,000 shares of Class A Common Stock offered hereby, 8,688,246
shares are being issued and sold by Knight/Trimark Group, Inc. (the "Company")
and 1,311,754 shares are being sold by a certain stockholder of the Company
(the "Selling Stockholder"). See "Principal and Selling Stockholders." The
Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholder. Prior to this offering, there has been no public market
for the Class A Common Stock of the Company. It is currently estimated that the
initial public offering price will be between $14.00 and $16.00 per share. See
"Underwriting" for a discussion of factors considered in determining the
initial public offering price. The Company has applied to have the shares of
its Class A Common Stock approved for quotation in The Nasdaq Stock Market
("NASDAQ") as a National Market issue under the symbol "NITE."
The Company's outstanding capital stock is comprised of Class A Common Stock
and Class B Common Stock. The rights of holders of shares of Common Stock are
identical in all respects, except that the holders of Class B Common Stock are
not entitled to vote. Upon sale or transfer, shares of Class B are exchangeable
for shares of Class A Common Stock.
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2)(3) STOCKHOLDER
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
- --------------------------------------------------------------------------------
Total(3)..................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholder have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting offering expenses payable by the Company estimated at
$1,500,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 1,500,000 shares of Class A Common Stock on the same terms
as set forth above, solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to the Selling Stockholder
will be $ , $ , $ and $ , respectively. See "Underwriting."
-----------
The Class A Common Stock is offered by the Underwriters as stated herein
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that delivery of such shares will
be made through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1998.
BANCAMERICA ROBERTSON STEPHENS
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
ABN AMRO INCORPORATED
SOUTHWEST SECURITIES
The date of this Prospectus is June , 1998
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Consolidated Financial Data..................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 35
Management............................................................... 48
Certain Transactions..................................................... 57
Principal and Selling Stockholders....................................... 60
Description of Capital Stock............................................. 61
Shares Eligible for Future Sale.......................................... 64
Underwriting............................................................. 66
Legal Matters............................................................ 68
Experts.................................................................. 68
Additional Information................................................... 68
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
The Company intends to furnish to all of its stockholders an annual report
containing consolidated financial statements audited by its independent
accountants for each fiscal year and quarterly reports containing unaudited
financial data for each of the first three quarters of each fiscal year.
The Company was incorporated in Delaware in April 1998 under the name
Knight/Trimark Group, Inc. The Company's principal executive offices are
located at Newport Tower, 29th Floor, 525 Washington Boulevard, Jersey City,
New Jersey 07310, and its telephone number is (201) 222-9400.
Knight/Trimark, Knight, Trimark, e.Knight and eKnight, among other marks,
are common law trademarks of the Company. This Prospectus also includes
trademarks and tradenames of entities other than the Company.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK OF THE COMPANY, INCLUDING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information included in "Risk Factors" and the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in "Risk Factors" and elsewhere in this Prospectus.
Unless otherwise indicated, (i) references in this Prospectus to the "Company"
mean, as appropriate, prior to the Reorganization (as defined below),
Roundtable Partners, L.L.C. and its subsidiaries, on a consolidated basis and,
after the Reorganization, Knight/Trimark Group, Inc. and its subsidiaries, on a
consolidated basis and (ii) references to "Common Stock" mean the Class A
Common Stock and the Class B Common Stock.
THE COMPANY
Knight/Trimark Group, Inc. is a leading market maker in NASDAQ securities,
other over-the-counter ("OTC") equity securities, and equity securities listed
on the New York Stock Exchange ("NYSE") and the American Stock Exchange
("AMEX") in the Third Market. The Company has attained this leadership position
by providing best execution services to broker-dealer and institutional
customers through its sophisticated trading systems and proprietary methods.
Through its wholly-owned subsidiary, Knight Securities, Inc. ("Knight"), the
Company makes markets in approximately 4,200 equity securities in NASDAQ and on
the OTC Bulletin Board of the National Association of Securities Dealers, Inc.
("NASD"). The Company, through its wholly-owned subsidiary, Trimark Securities,
Inc. ("Trimark"), makes markets in all NYSE- and AMEX-listed equity securities
in the Third Market.
Since the beginning of 1997, Knight and Trimark have significantly increased
their market share of trading volume in each of their respective markets.
According to The AutEx Group ("AutEx"), Knight's advertised share volume in
NASDAQ increased from 614.7 million shares representing 4.4% of total market
share (or a rank of 6th overall) for the month of January 1997, to 1.2 billion
shares representing 8.1% of total market share (or a rank of 2nd overall) for
the month of December 1997, to 1.9 billion shares representing 9.9% of total
market share (or a rank of 1st overall) for the month of March 1998. According
to the NASD, Trimark's reported share volume of the NYSE-listed securities
increased from 234.2 million shares representing 21.2% of total NYSE Third
Market volume (or a rank of 1st overall) for the month of January 1997, to
338.4 million shares representing 30.5% of total NYSE Third Market volume (or a
rank of 1st overall) for the month of December 1997, to 445.6 million shares
representing 33.1% of total NYSE Third Market volume (or a rank of 1st overall)
for the month of March 1998. Trimark's reported share volume of AMEX-listed
securities increased from 40.2 million shares representing 51.4% of total AMEX
Third Market volume (or a rank of 1st overall) for the month of January 1997,
to 78.7 million shares representing 66.4% of total AMEX Third Market volume (or
a rank of 1st overall) for the month of December 1997, to 80.4 million shares
representing 68.9% of total AMEX Third Market volume (or a rank of 1st overall)
for the month of March 1998.
During recent years, the U.S. market for equity securities has experienced
dramatic growth in trading volumes. The average daily volume of securities
traded in NASDAQ increased from 225.0 million shares in December 1992 to 678.5
million shares in December 1997. The average daily volume of securities traded
on the NYSE increased from 222.2 million shares in December 1992 to 546.9
million shares in December 1997. The average daily volume of securities traded
on the AMEX increased from 14.2 million shares in December 1992 to 28.0 million
shares in December 1997. During this period, the average daily trading volume
in the Third Market, which consists of trading NYSE- and AMEX-listed securities
in the OTC market, also increased significantly. The increase in trading volume
has resulted from a number of factors, including the growth of cash flows into
equity-based mutual funds, historic high returns in U.S. equity markets, the
emergence and market acceptance of discount brokers, technological innovations,
such as the emergence of the Internet, and reduced transaction costs.
3
<PAGE>
Changes in regulations governing the securities market, and to a lesser
extent, the move from securities being quoted in sixteenths rather than eighths
of a dollar, have dramatically reduced average spreads between bid and ask
prices. As a result, traditional brokerage firms are increasingly electing to
focus on their core competencies and to outsource their market-making functions
to independent market makers. In addition, Internet brokers, who are handling
increased trading volume, also utilize independent market makers. According to
AutEx, in March 1998, the three largest independent market makers represented a
combined market share of 25.4% of the trading volumes of OTC equity securities,
up from 17.2% in March 1997. Similarly, according to the NASD, in March 1998
the three largest Third Market trading firms represented a combined market
share of 58% of the Third Market volume in NYSE equity securities compared to
42% in June 1997. The three largest Third Market trading firms in AMEX listed
securities represented a combined market share of 75% in March 1998 compared to
55% in June 1997. While a large volume of trading provides an opportunity to
spread fixed costs over a larger number of trades, net profit per trade has
declined. As a result, certain independent market makers are seeking new
trading methodologies to identify and take advantage of the profit
opportunities represented by each trade. These market makers are also seeking
to increase order flow in an effort to increase the number of trades they
handle, which, in turn, will provide increased trading profit opportunities.
These market makers require efficient and sophisticated systems and risk
management practices and personnel with the requisite expertise to deliver
superior trade execution and customer service, while handling increased order
flow and maintaining low costs per trade.
The Company provides best execution services to broker-dealer and
institutional customers through its sophisticated trading systems and
proprietary methods. The Company is committed to providing a value-added
execution methodology that emphasizes automated execution and rule compliance,
real-time information access to customers, and pricing plus liquidity
advantages based upon the Company's willingness to commit capital. The Company
believes that its highly skilled, experienced and entrepreneurial workforce is
uniquely positioned to provide high quality customer service. In addition, the
Company is currently implementing its proprietary electronic communications
gateway product, "e.Knight," which enables broker-dealer and institutional
customers to access the Knight and Trimark trading systems from their desktops
through the Internet and other electronic communications gateways. The Company
has made significant investments in technology to enable the efficient
processing of large volumes of order flow, without diminishing speed of
execution. The Company's systems are designed to process up to 500,000 trades
per day and in March, 1998, handled a combined average of 134,000 trades per
day. The Company's trading methodology focuses on the dynamic, real-time
analysis of market activity and price movements, which enables the Company to
better manage risk and quickly adjust its trading strategy in an effort to
maximize its trading profits.
The Company's goal is to maintain and enhance its leadership position in the
market-making industry by (i) continuing to invest in leading technologies to
ensure that it has the capability to process greater trading volumes, (ii)
increasing order flow to enhance its position as a leading market maker and to
create additional profit opportunities, (iii) accelerating its penetration of
the market for institutional investors, which it believes provides an
opportunity for growth and offers higher profit margins, (iv) investing in
human capital, by aggressively recruiting and retaining high caliber personnel
to deliver best execution and high quality customer service, (v) developing new
services that address evolving customer and technological requirements to
establish new customer relationships, and (vi) creating customer awareness of
the link between Knight and Trimark to leverage customer satisfaction in one
market to increased use of the Company's services in other markets.
The Company's marketing strategy is to continue to differentiate itself from
competitors by enhancing its reputation and brand as the provider of highest
quality execution solutions with superior customer service. The Company's
target customers are national and regional full-service broker-dealers,
electronic discount brokers and institutional investors. Certain of the
Company's customers include Ameritrade, Brown & Company, Discover Brokerage,
E*TRADE, Merrill Lynch, PaineWebber, Waterhouse Securities, and many leading
financial institutions.
4
<PAGE>
CERTAIN TRANSACTIONS AND RELATIONSHIPS
The Reorganization and Certain Transactions. The Company was organized in
April 1998 for the purpose of succeeding to the business of Roundtable
Partners, L.L.C. (the "LLC"). Concurrent with the closing of the Offering,
based on an assumed initial public offering price of $15.00 per share, all of
the member interests of the LLC will be exchanged for 41,000,000 shares of
Common Stock of the Company. Certain members of the LLC, including management,
who have so elected, will receive 1,741,581 additional shares of Class A Common
Stock valued at the initial public offering price with respect to their share
of the undistributed income of the LLC through March 31, 1998 (the
"Undistributed Profits"). Management of the Company has elected to receive
shares of Class A Common Stock for all of its Undistributed Profits. The
Company will receive no additional consideration in connection with such
conversion of member interests into shares of Common Stock. In connection with
the exchange, Knight will become the successor entity to Knight Securities,
L.P., and Trimark will become the successor entity to Trimark Securities, L.P.
(the foregoing transactions, collectively, shall be referred to herein as the
"Reorganization"). Prior to the effective date of the Registration Statement of
which this Prospectus is a part, certain non-management members of the LLC, who
have so elected, will receive a cash distribution of all or a portion of their
Undistributed Profits. Concurrently with such distribution, the LLC intends to
make a cash distribution to each member of an estimate of its share of the
total amount of profits of the LLC accruing between April 1, 1998 and the
closing of this Offering.
Transactions with Affiliates. Immediately prior to the Reorganization, 60% of
the member interests of the LLC will be owned by a consortium of 27 broker-
dealers or their affiliates. Additionally, Brown & Company Securities
Corporation ("Brown"), a major customer of the Company, held subordinated debt
of the LLC and an option to purchase member interests in the LLC (the "Brown
Option"). After the closing of this Offering, such broker-dealer owners,
including Brown, will own 48.5% of the Company's Common Stock (47.2% if the
Underwriters' over-allotment option is exercised in full). For the period from
March 27, 1995 through December 31, 1995, the years ended December 31, 1996 and
1997, and the three months ended March 31, 1998, the broker-dealer owners and
subordinated note holders, were the source of 31.3%, 35.1%, 39.8%, and 41.3%,
respectively of the Company's total order flow. For the period from March 27,
1995 through December 31, 1995, the years ended December 31, 1996 and 1997, and
the three months ended March 31, 1998, aggregate payments by the Company to its
broker-dealer owners and subordinated note holders for order flow and aggregate
profit distributions to broker-dealer owners equaled $14.4 million and $1.7
million, $46.4 million and $10.6 million, $50.7 million and $13.4 million, and
$11.3 million and $5.0 million, respectively. See "Certain Transactions."
Pursuant to the limited liability company agreement of the LLC, its broker-
dealer owners have partially shared in the LLC profits in proportion to their
equity interest and partially in proportion to the quantity of order flow they
have directed to the Company. This arrangement will be discontinued upon
consummation of the Reorganization. The broker-dealer owners will no longer
receive any special inducements to send order flow to the Company and will not
be contractually or otherwise obligated to provide the Company with any order
flow in the future. See "Risk Factors--Risks Associated with Change of
Ownership Structure."
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock Offered by the Com- 8,688,246 shares
pany....................................
Class A Common Stock Offered by the Sell- 1,311,754 shares
ing Stockholder.........................
Common Stock to be Outstanding after the
Offering:
Class A Common Stock................. 47,484,299 shares
Class B Common Stock................. 3,945,528 shares
Total.............................. 51,429,827 shares
Use of Proceeds.......................... To pay for the redemption of all
outstanding shares of Preferred B
Units, for working capital and for
general corporate purposes. See "Use
of Proceeds."
Proposed NASDAQ National Market Symbol... NITE
</TABLE>
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 27,
THROUGH YEAR ENDED THREE MONTHS
DECEMBER 31, DECEMBER 31, ENDED MARCH 31,
------------ ----------------- ---------------
1995 1996 1997 1997 1998
------------ -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
INCOME DATA:
Total revenues................. $69,812 $185,177 $226,666 $50,979 $63,533
Payments for order flow........ 25,994 69,829 66,912 18,129 16,257
Execution and clearance fees... 12,710 25,837 32,069 6,411 10,241
Employee compensation and bene-
fits.......................... 12,151 39,494 57,717 12,013 16,168
All other expenses............. 7,616 13,257 19,891 4,006 6,083
------- -------- -------- ------- -------
Total expenses................. 58,471 148,417 176,589 40,559 48,749
------- -------- -------- ------- -------
Income before income taxes..... 11,341 36,760 50,077 10,420 14,784
Pro forma income tax ex-
pense(1)...................... 5,217 15,807 21,533 4,481 6,357
------- -------- -------- ------- -------
Pro forma net income........... $ 6,124 $ 20,953 $ 28,544 $ 5,939 $ 8,427
======= ======== ======== ======= =======
Pro forma basic and diluted
earnings per share............ $ 0.67 $ 0.20
======== =======
Shares used to compute per
share data(2)................. 42,742 42,742
======== =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------
AS
ACTUAL PRO FORMA(3) ADJUSTED(4)
-------- ------------ -----------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF FINANCIAL
CONDITION DATA:
Cash and cash equivalents................... $ 5,429 $ 5,429 $111,506
Securities owned, at market value .......... 63,490 63,490 63,490
Receivable from clearing brokers............ 78,119 78,119 78,119
Total assets................................ 171,073 171,073 277,150
Securities sold, not yet purchased, at mar-
ket value.................................. 54,581 54,581 54,581
Distributions on Common Units payable to
members.................................... 8,767 35,288 35,288
Mandatorily Redeemable Preferred Units...... 27,484 13,847 --
Owners' equity.............................. 59,990 33,468 153,893
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 27,
THROUGH YEAR ENDED THREE MONTHS
DECEMBER 31, DECEMBER 31, ENDED MARCH 31,
------------ ----------------------- ---------------------
1995 1996 1997 1997 1998
------------ ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
Total shares traded..... 4,741,868 10,757,930 18,122,830 3,392,640 7,406,164
Total trades executed... 4,993 11,598 20,264 3,780 7,572
Average daily
trades(5).............. 26 46 80 63 124
Average daily net trad-
ing revenue(6)......... $ 356 $ 724 $ 888 $ 841 $ 1,033
</TABLE>
- --------
(1) Pro forma income tax expense was computed based on an effective tax rate of
46%, 43% and 43%, respectively, for the periods ended December 31, 1995,
1996 and 1997, and 43% for the first three months ended March 31, 1997 and
1998.
(2) Shares used to compute per share data represent Common Stock outstanding
immediately after the Reorganization and the exercise of the Brown Option,
but before the Offering.
(3) Pro forma to give effect to the Reorganization and the redemption of the
Preferred A Units and the redemption of a portion of the Preferred B Units.
(4) As adjusted to reflect the sale of 8,688,246 shares of Class A Common Stock
offered hereby at an assumed initial public offering price of $15.00 per
share and the application of the estimated net proceeds therefrom, and the
exercise of the Brown Option. See "Use of Proceeds" and "Capitalization."
(5) Average daily trades was computed by dividing total trades executed by the
aggregate number of trading days in each respective period.
(6) Average daily net trading revenue was computed by dividing net trading
revenue by the aggregate number of trading days in each respective period.
Except as otherwise indicated, all information in this Prospectus assumes (i)
no exercise of the Underwriters' over-allotment option, (ii) the consummation
of the Reorganization, (iii) the exercise of the Brown Option and the issuance
of 394,887 shares of Class A Common Stock therefor (the "Option Exercise") and
(iv) the filing of the Amended and Restated Certificate of Incorporation of the
Company to effect an increase in the Company's authorized capital stock to
200,000,000 shares of Class A Common Stock, 20,000,000 shares of Class B Common
Stock and 20,000,000 shares of Preferred Stock.
6
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements and from the results
historically experienced as a result of certain factors, including those in
the following risk factors and elsewhere in this Prospectus. In addition to
the other information contained in this Prospectus, the following risk factors
should be considered carefully in evaluating the Company and its business
before purchasing shares of the Class A Common Stock offered hereby.
RISKS ASSOCIATED WITH THE SECURITIES BUSINESS GENERALLY
The securities industry has undergone several fundamental changes as a
result of new regulation at the federal and state level, the emergence of
electronic discount brokers, the increased prominence of institutional
investors, consolidation among firms in the securities industry and the
increased use of technology. These changes have resulted in an increase in the
volume of equity securities traded in the U.S. equity markets and a general
decrease in the spreads market makers receive. There can be no assurance that
the spreads market makers receive upon execution of trades in equity
securities will not continue to decrease in the future. A substantial portion
of the Company's revenues are derived from market-making activities relating
to securities that trade in NASDAQ. In the past, NASDAQ has taken regulatory
actions designed to reduce spreads between bid and ask prices for securities.
NASDAQ, NYSE and AMEX are currently examining proposed regulations pursuant to
which securities will trade in decimals rather than in fractions. The adoption
of such proposed regulations would likely result in a further decrease in
spreads between bid and ask prices, which could make the execution of trades
and market making less profitable. Any further decline in the spreads that
market makers receive in trading equity securities could have a material
adverse effect on the Company's business, financial condition and operating
results.
The Company's volume of market-making activities also depends on the number
and size of new equity offerings and aftermarket trading for such securities.
The market for equity offerings has historically experienced significant
volatility not only in the number and size of equity offerings, but also in
the aftermarket trading volume and prices of newly issued securities. The
number and size of equity offerings may decline during periods of market
uncertainty occasioned by concerns over, among other things, inflation, rising
interest rates and related economic issues as well as a slowdown or reversal
of cash flows by mutual funds and other institutional investors into the U.S.
equity markets. The recent demand for new equity offerings has been driven in
part by mutual funds and other institutional investors. A decline in cash
flows into the U.S. equity markets or a slowdown in investment activity by
mutual funds and other institutional investors may have an adverse effect on
the securities markets generally and could result in lower revenues from the
Company's market-making activities. Any reduction in revenues resulting from a
decline in the number and size of new equity offerings or the aftermarket
trading volume of such offerings could have a material adverse effect on the
Company's business, financial condition and operating results.
The securities business is also subject to various other risks, including
customer default, employees' misconduct, errors and omissions and litigation.
Losses associated with these risks could have a material adverse effect on the
Company's business, financial condition and operating results.
RISKS ASSOCIATED WITH CHANGE OF OWNERSHIP STRUCTURE
The Company has historically derived a substantial portion of its order flow
from its broker-dealer owners. In the years ended December 31, 1996, 1997 and
the three months ended March 31, 1998, order flow from broker-dealer owners
and subordinated note holders represented 35.1%, 39.8% and 41.3%, of the
Company's total order flow, respectively. The Company's broker-dealer owners
have shared in profits partially in proportion to their equity interest and
partially in proportion to the quantity of order flow they have directed to
the Company. This arrangement will be discontinued upon consummation of the
Reorganization.
7
<PAGE>
The Company's broker-dealer owners are not contractually or otherwise
obligated to provide the Company with any order flow, and after the
Reorganization may no longer have sufficient inducement to do so. There can be
no assurance that the absence of such incentives will not cause the Company's
broker-dealer owners to reduce or discontinue the level of order flow they
direct to the Company in the future. The loss of, or a significant reduction
of, order flow from such broker-dealer owners could have a material adverse
effect on the Company's business, financial condition and operating results.
See "Certain Transactions--The Reorganization."
GOVERNMENT REGULATION
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. In addition, the U.S. Securities
and Exchange Commission (the "SEC"), the NASD, other self-regulatory
organizations ("SROs"), such as the various stock exchanges, and other
regulatory bodies, such as state securities commissions, require strict
compliance with their respective rules and regulations. 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 protecting creditors or
stockholders of market makers. Market makers are subject to regulation
concerning certain aspects of their business, including trade practices,
capital structure, record retention and the conduct of directors, officers and
employees. Failure to comply with any of these laws, rules or regulations
could result in censure, fines, the issuance of cease-and-desist orders or the
suspension or disqualification of its directors, officers or employees, and
other adverse consequences, which could have a material adverse effect on the
Company's business, financial condition and operating results. The Company and
certain of its officers and other employees have, in the past, been subject to
claims arising from the violation of such laws, rules and regulations, which
resulted in the payment of fines and settlements. There can be no assurance
that the Company and/or its officers and other employees will not, in the
future, be subject to claims arising from the violation of such laws, rules
and regulations. An adverse ruling against the Company and/or its officers and
other employees, including censure or suspension, could result in the Company
and/or its officers and other employees being required to pay a substantial
fine or settlement, and could result in their suspension or expulsion, which
could have a material adverse effect on the Company's business, financial
condition and operating results.
In connection with a three-year industry-wide investigation conducted by the
staff (the "Staff") of the SEC into the trading and supervisory activities of
many OTC market makers and certain of their individual supervisory and trading
personnel, in July, 1997, the Staff informed Kenneth Pasternak, President and
Chief Executive Officer of the Company, that he is a subject in their
investigation for certain of his activities as a trading room supervisor at
Troster Singer. All of the activities being investigated took place prior to
Mr. Pasternak joining the Company in 1995 and none of them relate to his
employment by the Company. Mr. Pasternak has also been orally informed by the
Staff that, as a result of its investigation, it currently intends to
recommend to the SEC that Mr. Pasternak be charged with failure to supervise
with respect to several transactions of other traders under his supervision at
Troster Singer and that Mr. Pasternak be suspended for six months, ordered to
cease and desist, and assessed a civil penalty of $50,000. In September, 1997,
Mr. Pasternak submitted a brief to the Staff arguing that these
recommendations would be inappropriate and unsupported by the facts. To date,
the Staff has not forwarded its recommendations to the SEC. The Company cannot
predict the outcome of the Staff's investigation, including whether the Staff
will determine to forward its recommendations to the SEC in their current or a
modified form or at all. If any such charges are brought, Mr. Pasternak
intends to vigorously defend himself against them. If Mr. Pasternak should be
suspended, the Company would seek to replace his services with other Company
personnel. However, the loss of Mr. Pasternak's services would have a material
adverse effect on the Company's business, financial condition and operating
results.
The regulatory environment in which the Company operates is subject to
change. The Company's business, financial condition and operating results may
be adversely affected as a result of new or revised
8
<PAGE>
legislation or regulations imposed by the SEC, other United States or foreign
governmental regulatory authorities or the NASD. The Company's business,
financial condition and operating results also may be adversely affected by
changes in the interpretation or enforcement of existing laws and rules by
these governmental authorities and the NASD.
Additional regulation, changes in existing laws and rules, or changes in
interpretations or enforcement of existing laws and rules often directly
affect the method of operation and profitability of securities firms. The
Company cannot predict what effect any such changes might have. Furthermore,
the Company's business, financial condition and operating results may be
materially affected not only by regulations directly applicable to it, but
also by regulations of general application. For example, the volume of the
Company's market-making activities in a given period could be affected by,
among other things, existing and proposed tax legislation, antitrust policy
and other governmental regulations and policies (including the interest rate
policies of the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board")) and changes in interpretation or enforcement of existing laws
and rules that affect the business and financial communities. The level of
trading and market-making activity can be affected not only by such
legislation or regulations of general applicability, but also by industry-
specific legislation or regulations.
The Company's market-making activities involve securities traded in NASDAQ.
NASDAQ's operations have been the subject of extensive scrutiny in the media
and by government regulators, including the Antitrust Division of the United
States Department of Justice. This scrutiny has included allegations of
collusion among NASDAQ market makers. In fact, a large group of NASDAQ market
makers recently entered into a Stipulation and Order with the Department of
Justice in which they agreed not to engage in any collusive activities
relating to prices, quotes or spreads in NASDAQ-traded securities. In August
1996, the SEC adopted certain new rules and rule amendments, known as the
Order Handling Rules, which significantly altered the manner in which orders
related to both NASDAQ and listed securities are handled. The implementation
of these rules began in January 1997. The SEC has also issued for comment
certain proposed rules by the NASD which, if approved, would introduce a new
system for delivering and executing orders in NASDAQ. The proposed NASD rules,
if approved, along with other potential regulatory actions and improvements in
technology, could impact the manner in which business is currently conducted
in NASDAQ. These new rules, regulatory actions, and changes in market customs
and practices could have a material adverse effect on the Company's business,
financial condition and operating results.
The Company's business, both directly and indirectly, relies on the Internet
and other electronic communications gateways. The Company intends to expand
use of such gateways. To date, the use of the Internet has been relatively
free from regulatory restraints. However, the SEC, certain SROs and certain
states are beginning to address the regulatory issues that may arise in
connection with the use of the Internet. Accordingly, new regulations or
interpretations may be adopted that constrain the Company's and its customers'
ability to transact business through the Internet or other electronic
communications gateways. Any additional regulation of the use of such gateways
could have a material adverse effect on the Company's business, financial
condition and operating results.
In addition, the Company may in the future expand its business to other
countries. To expand its services internationally, the Company would have to
comply with regulatory controls of each specific country in which it conducts
business. The brokerage industry in many foreign countries is heavily
regulated. The varying compliance requirements of these different regulatory
jurisdictions and other factors may limit the Company's ability to expand
internationally. There can be no assurance that the Company will be successful
in obtaining the necessary regulatory approvals for any such expansion, or if
such approvals are obtained, that the Company will be able to continue to
comply with such regulations. The failure to obtain or comply with such
approvals could have a material adverse effect on the Company's business,
financial condition and operating results. See "Business--Government
Regulation."
DEPENDENCE ON MARKET-MAKING ACTIVITIES AND CLEARING BROKERS
Substantially all of the Company's revenues are derived from market-making
activities. The Company expects its market-making activities to continue to
account for substantially all of its revenues for the
9
<PAGE>
foreseeable future. Any factor adversely affecting market-making in general,
or the Company's market-making activities in particular, could adversely
affect the Company's business, financial condition and operating results. The
Company's future success will depend on continued growth in demand for its
market-making services and its ability to respond to regulatory and
technological changes, as well as customer demands. If demand for the
Company's market-making services fails to grow, grows more slowly than the
Company currently anticipates, or declines, the Company's business, financial
condition and operating results could be materially and adversely affected.
As a market maker of OTC and listed stocks, the majority of the Company's
securities transactions are conducted as principal with broker-dealer
counterparties located in the United States. The Company clears its securities
transactions through affiliated and unaffiliated clearing brokers. See
"Certain Transactions." Pursuant to the terms of the agreement between the
Company and the clearing brokers, the clearing brokers have the right to
charge the Company for losses that result from a counterparty's failure to
fulfill its contractual obligations. The Company's policy is to monitor the
credit standing of the counterparties with which it conducts business.
However, no assurance can be given that any such counterparty will not default
on their obligations, which default could have a material adverse effect on
the Company's business, financial condition and operating results. In
addition, at any time, a substantial portion of the Company's assets are held
at one or more clearing brokers and, accordingly, the Company is subject to
credit risk with respect to such clearing brokers. As of December 31, 1997 and
March 31, 1998, the Company's credit exposures were concentrated with the
clearing brokers and amounted to $30.2 million and $78.1 million,
respectively. Additionally, as of December 31, 1997 and March 31, 1998, the
clearing brokers held, as custodian, securities owned by the Company with a
market value of $61.7 million and $63.5 million, respectively. Consequently,
the Company is reliant on the ability of its clearing brokers to adequately
discharge their obligations on a timely basis. The Company is also dependent
on the solvency of such clearing brokers. Any failure by the clearing brokers
to adequately discharge their obligations on a timely basis, or failure by a
clearing broker to remain solvent, or any event adversely affecting the
clearing brokers, could have a material adverse effect on the Company's
business, financial condition and operating results.
RISK OF LOSSES ASSOCIATED WITH MARKET MAKING AND TRADING
The Company conducts its market-making activities predominantly as a
principal, which subjects the Company's capital to significant risks. These
activities involve the purchase, sale or short sale of securities for the
Company's own account and, accordingly, involve risks of price fluctuations
and illiquidity, or rapid changes in the liquidity of markets that may limit
or restrict the Company's ability to either resell securities it purchases or
to repurchase securities it sells in such transactions. From time to time, the
Company has large position concentrations in securities of a single issuer or
issuers engaged in a specific industry, which might result in higher trading
losses than would occur if the Company's positions and activities were less
concentrated.
The success of the Company's market-making activities depends upon its
ability to attract order flow, the skill of its personnel, general market
conditions, the price volatility of specific securities and the availability
of capital. To attract order flow, the Company must be competitive on price,
size of securities positions traded, order execution, technology and customer
service. In its role as a market maker, the Company attempts to derive a
profit from the difference between the prices at which it buys and sells
securities. However, competitive forces often require the Company to match the
quotes other market makers display and to hold varying amounts of securities
in inventory. By having to maintain inventory positions, the Company is
subjected to a high degree of risk. There can be no assurance that the Company
will be able to manage such risk successfully or that it will not experience
significant losses from such activities, either of which could materially
adversely effect the Company's business, financial condition and operating
results.
ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL
The Company's future success depends, in significant part, upon the
continued service of key executive officers, managers, sales, trading and
technical personnel, particularly Kenneth D. Pasternak, the Company's
10
<PAGE>
President and Chief Executive Officer. The Company has entered into employment
agreements with Mr. Pasternak and other key employees and maintains "key
person" life insurance policies on Mr. Pasternak and other key employees for
the benefit of the Company. Competition for key personnel and other highly
qualified management, sales, trading and technical personnel is intense, and
there can be no assurance that the Company will be able to retain its key
personnel or that it can attract, assimilate or retain other highly qualified
personnel in the future. The loss of the services of any of the Company's key
personnel or the inability to identify, hire, train and retain other qualified
personnel in the future could have a material adverse effect on the Company's
business, financial condition and operating results. See "Risk Factors--
Government Regulation," "Management--Employment Agreements."
The success of the Company also depends, in significant part, on the highly
skilled, and often specialized, individuals it employs. The Company's ability
to attract and retain management, sales, trading and technical professionals
is particularly important to its business strategy. The Company strives to
provide high quality services that will allow it to establish and maintain
long-term relationships with its customers. The Company's ability to do so
depends, in large part, upon the individual employees who represent the
Company in its dealings with such customers.
From time to time, other companies in the securities industry have
experienced losses of sales and trading professionals. The level of
competition to attract such professionals is intense. There can be no
assurance that the Company will not lose such professionals due to increased
competition or other factors in the future. The loss of a sales and trading
professional, particularly a senior professional with broad industry
expertise, could have a material adverse affect on the Company's business,
financial condition and operating results.
The Company expects that the number of its personnel will continue to grow,
particularly if current equity market activity continues and grows.
Competition for employees with the qualifications the Company desires is
intense, especially competition for equity trading professionals. There can be
no assurance that the Company will be able to recruit and retain a sufficient
number of new employees with the qualifications it desires in a timely manner
or that personnel costs will not increase significantly. The failure to retain
personnel or a significant increase in personnel costs could have a material
adverse effect on the Company's business, financial condition and operating
results.
RISKS ASSOCIATED WITH POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY
The Company's operating results may fluctuate significantly in the future
due to a number of factors, including the value of the Company's securities
positions and the Company's ability to manage the risks attendant thereto, the
volume of its market-making activities, volatility in the securities markets,
its ability to manage personnel, overhead and other expenses, the amount of
revenue derived from limit orders as a percentage of total revenues, changes
in payments for order flow, clearing costs, the addition or loss of sales and
trading professionals, regulatory changes, the amount and timing of capital
expenditures, the incurrence of costs associated with acquisitions and general
economic conditions. The Company's expense structure is based on historical
expense levels and the levels of demand for the Company's market-making
services. If demand for the Company's market-making services declines and the
Company is unable to adjust its cost structure on a timely basis, the
Company's operating results could be materially and adversely affected. The
Company has experienced, and may experience in the future, significant
seasonality in its business. The Company has historically experienced an
increase in revenues in the fourth quarter of the year, which the Company
believes is due, in large part, to higher trading volumes in the securities
markets at year end. The Company believes that this seasonal trend will
continue for the foreseeable future and that the Company's business, financial
condition and operating results may be affected by such trends in the future.
Due to all of the foregoing factors, period-to-period comparisons of the
revenues and operating results of the Company are not necessarily meaningful
and such comparisons cannot be relied upon as indicators of future
performance. There also can be no assurance that the Company will be able to
sustain the rates of revenue growth that it has experienced in the past, that
it will be able to improve its operating results or that
11
<PAGE>
it will be able to sustain its profitability on a quarterly basis. In
addition, the Company's operating results in future periods may be below the
expectations of securities analysts and investors. In that event, the market
price of the Common Stock would likely be materially and adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
RISKS ASSOCIATED WITH ADVERSE ECONOMIC, POLITICAL AND MARKET CONDITIONS
The securities business generally is, by its nature, volatile. It is
directly affected by numerous national and international factors that are
beyond the Company's control, including, among others, economic, political and
market conditions; the availability of short-term and long-term funding and
capital; the level and volatility of interest rates; legislative and
regulatory changes; currency values and inflation. Any one or more of these
factors may contribute to reduced levels of activity in the securities markets
generally, which could result in lower revenues from the Company's market-
making activities. Any reduction in revenues or any loss resulting from such
factors could have a material adverse effect on the Company's business,
financial condition and operating results.
RISKS ASSOCIATED WITH DECLINES IN MARKET VOLUME, PRICE OR LIQUIDITY
The Company's revenues may decrease in the event of a decline in market
volume, prices or liquidity. Declines in the volume of securities transactions
and in market liquidity generally result in lower revenues from market-making
activities. Lower price levels of securities may also result in reduced
trading volume, and could cause a reduction in trading activity, and thereby
reduce revenues from market-making transactions, as well as losses from
declines in the market value of securities held in inventory. Sudden sharp
declines in market values of securities can result in illiquid markets,
declines in the market values of securities held in inventory, the failure of
buyers and sellers of securities to fulfill their obligations and settle their
trades and increases in claims and litigation. Any decline in market volume,
price or liquidity or any other of these factors could have a material adverse
effect on the Company's business, financial condition and operating results.
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH
Since its inception in 1995, the Company has experienced significant growth
in its business activities and the number of its employees. For example, the
Company's share volume has increased from 2.0 billion shares traded for the
quarter ended December 31, 1995 to 7.4 billion shares traded for the quarter
ended March 31, 1998 and the number of the Company's employees has increased
from 152 as of December 31, 1995 to 337 as of March 31, 1998. The growth of
the Company's business and expansion of its customer base has placed, and is
expected to continue to place, a significant strain on the Company's
management and operations. This growth has required and will continue to
require increased investment in management personnel, financial and management
systems and controls and facilities, which, in the absence of continued
revenue growth, would cause the Company's operating margins to decline from
current levels. In addition, as is common in the securities industry, the
Company is and will continue to be highly dependent on the effective and
reliable operation of its communications and information systems. The Company
believes that its current and anticipated future growth will require
implementation of new and enhanced communications and information systems, and
training of its personnel to operate such systems. In addition, the scope of
procedures for assuring compliance with applicable rules and regulations has
changed as the size and complexity of the Company's business has increased.
The Company has implemented and continues to implement formal compliance
procedures to reflect such growth. Accordingly, the Company's future operating
results will depend on its ability to continue to improve its systems for
operations, financial control, and communication and information management;
to enhance its compliance procedures; and to recruit, train, manage and retain
its employee base. There can be no assurance that the Company will be able to
manage or continue to manage its recent or any future growth successfully. The
Company's inability to do so could materially and adversely affect the
Company's business, financial condition and operating results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
12
<PAGE>
RISK RELATED TO CUSTOMER CONCENTRATION
A small number of customers have historically accounted for a significant
portion of the Company's market-making activities, and the Company expects a
significant portion of the future demand for its market-making services to
remain concentrated within a limited number of customers. The Company's five
largest customers accounted for 22.3%, 29.4% and 33.8% of the Company's order
flow for the years ended December 31, 1996 and 1997, and the three months
ended March 31, 1998, respectively. None of these customers are contractually
obligated to utilize the Company as market maker and, accordingly, these
customers may direct their trading activities to other market makers at any
time. There can be no assurance that the Company will be able to retain these
or other major customers or that such customers will maintain or increase
their demand for the Company's market-making activities. The loss of, or a
significant reduction of demand for the Company's services from, any of these
customers could have a material adverse effect on the Company's business,
financial condition and operating results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Customers."
RISKS ASSOCIATED WITH LIMITED OPERATING HISTORY
The Company began its operations in 1995 with the formation of Knight and
the acquisition of the listed securities market-making business of Trimark.
Knight, which has historically accounted for a substantial portion of the
Company's revenues, and is expected to continue to do so in the foreseeable
future, only began its operation in 1995. The Company's management has limited
experience with respect to the operations of Knight and in operating the
Company on a consolidated basis. Accordingly, the Company has a limited
consolidated operating history upon which an evaluation of the performance of
the Company and its prospects can be based. The Company's prospects must be
considered in light of the risks, uncertainties, expenses and difficulties
frequently encountered by similarly situated companies, particularly companies
in the securities industry that are subject to evolving regulatory,
technological and customer requirements. To address these risks, the Company
must, among other things, maintain existing customer relationships and
effectively develop new relationships, respond to regulatory and competitive
developments, attract, retain and motivate qualified personnel, and develop
and upgrade its technology. There can be no assurance that the Company will be
successful in addressing such requirements. The failure to do so could have a
material adverse effect on the Company's business, financial condition and
operating results.
RISKS ASSOCIATED WITH INTELLECTUAL PROPERTY RIGHTS
The Company relies primarily on copyright, trade secret and trademark law to
protect its proprietary technology. Notwithstanding the precautions taken by
the Company to protect its intellectual property rights, it is possible that
third parties may copy or otherwise obtain and use the Company's proprietary
technology without authorization or otherwise infringe on the Company's
proprietary rights. It is also possible that third parties may independently
develop technologies similar to those of the Company. It may be difficult for
the Company to police unauthorized use of its proprietary technology and
intellectual property rights. There can be no assurance that the steps taken
by the Company will prevent misappropriation of its technology or intellectual
property rights.
The Company is heavily dependent on two order entry and execution software
systems known as the "Brass System," which it licenses from Automated
Securities Clearance, Ltd. ("ASC") and the "Appletree System," which it
licenses from TCAM Systems, Inc. ("TCAM") pursuant to license agreements.
Although the Company has rights to modify the licensed software under the
license agreements, the licensors own all modifications and enhancements to
the licensed software, and the licensors can use the modifications and
enhancements to the licensed software without the Company's consent. While the
Company does not believe that ASC or TCAM has incorporated any such
modifications in software licensed to third parties, there can be no assurance
that they will not do so in the future or that any such license will not have
a material adverse effect on the Company's competitive position. The Company
relies on ASC to monitor the daily operation of the Brass System in order to
detect problems with the Brass System's operation. The Company relies on the
13
<PAGE>
licensors to support and maintain the Brass and Appletree Systems. The
licenses, and the licensors' daily operation and support obligations are
terminable if the Company breaches its obligations under the license
agreements. The failure by the Company to maintain these relationships, or to
find a replacement for such technology in a timely and cost-effective manner,
could have a material adverse effect on the Company's business, financial
condition and operating results.
The Company also licenses other software from third parties, which software
is integral to the Company's business. If any of these relationships were
terminated or if any of these third parties were to cease doing business, the
Company would be forced to spend significant time to replace the licensed
software, if possible. However, there can be no assurance that such
replacements would be available on reasonable terms, if at all. Such events
would have a material adverse effect upon the Company's business, financial
condition and operating results. In addition, litigation may be necessary in
the future to enforce the Company's intellectual property rights, to protect
the Company's trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or
invalidity. Such litigation, whether successful or unsuccessful, could result
in substantial costs and diversions of resources either of which could have a
material adverse effect on the Company's business, financial condition and
operating results. The Company may in the future receive notices of claims of
infringement of other parties' proprietary rights. There can be no assurance
that claims for infringement or invalidity (or claims for indemnification
resulting from infringement claims) will not be asserted or prosecuted against
the Company. Any such claims, with or without merit, could be time consuming to
defend, result in costly litigation, divert management's attention and
resources or require the Company to enter into royalty or licensing agreements.
There can be no assurance that such royalties or licenses would be available on
reasonable terms, if at all, and the assertion or prosecution of any such
claims, whether successful or unsuccessful, could have a material adverse
effect on the Company's business, financial condition and operating results.
See "Business--Intellectual Property and Other Proprietary Rights."
COMPETITION
The Company derives substantially all of its revenues from market-making
activities. The market for these services, particularly market-making services
through electronic communications gateways, is rapidly evolving and intensely
competitive. The Company expects competition to continue and intensify in the
future. Knight competes primarily with wholesale, national, and regional
broker-dealers. Trimark competes with the NYSE, the AMEX, regional exchanges
and Third Market competitors. The Company competes primarily on the basis of
execution standards, its relationship with its customers and technology.
A number of the Company's competitors have significantly greater financial,
technical, marketing and other resources than the Company. Some of the
Company's competitors also offer a wider range of services and products than
the Company and have greater name recognition and more extensive customer bases
than the Company. These competitors may be able to respond more quickly to new
or evolving opportunities, technologies and customer requirements than the
Company and may be able to undertake more extensive promotional activities and
offer more attractive terms to customers. Recent advancements in computing and
communications technology are substantially changing the means by which market-
making services are delivered, including more direct access on-line to a wide
variety of services and information, and have also created demand for more
sophisticated levels of customer service. The provision of such services may
entail considerable cost without an offsetting increase in revenues. Moreover,
current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties or may consolidate to
enhance their services and products. New competitors or alliances among
competitors may emerge and they may acquire significant market share.
There can be no assurance that the Company will be able to compete
effectively with current or future competitors or that the competitive
pressures faced by the Company will not have a material adverse effect on the
Company's business, financial condition and operating results.
14
<PAGE>
LITIGATION AND POTENTIAL SECURITIES LAWS LIABILITY
Many aspects of the Company's business involve substantial risks of
liability. A market maker is exposed to substantial liability under federal
and state securities laws, other federal and state laws and court decisions,
as well as rules and regulations promulgated by the SEC and the NASD. The
Company is also subject to the risk of litigation and claims that may be
without merit. As the Company intends to defend actively any such litigation,
significant legal expenses could be incurred. An adverse resolution of any
future lawsuits or claims against the Company could have a material adverse
effect on the Company's business, financial condition and operating results.
RISKS ASSOCIATED WITH DEPENDENCE ON COMPUTER AND COMMUNICATIONS SYSTEMS
The Company's market-making activities are heavily dependent on the
integrity and performance of the computer and communications systems
supporting them. Extraordinary trading volumes or other events could cause the
Company's computer systems to operate at an unacceptably low speed or even
fail. Any significant degradation or failure of the Company's computer systems
or any other systems in the trading process (e.g., on-line service providers,
record retention and data processing functions performed by third parties, and
third-party software, such as Internet browsers) could cause customers to
suffer delays in trading. Such delays could cause substantial losses for
customers and could subject the Company to claims from customers for losses,
including litigation claiming fraud or negligence. There can be no assurance
that the Company's network protections will work appropriately in the event of
a computer systems failure, or that, in the event of a tornado, fire or any
other natural disaster, power or telecommunications failure, act of God or
war, the Company will not suffer an extended computer systems failure. Any
computer or communications system failure or decrease in computer systems
performance that causes interruptions in the Company's operations could have a
material adverse effect on the Company's business, financial condition and
operating results. See "Business--Technology."
RISKS RELATED TO EVOLVING MARKETS; DEPENDENCE ON NEW SERVICES, PRODUCTS AND
TECHNOLOGIES
The demand for market-making services, particularly services that rely on
electronic communications gateways is characterized by rapid technological
change, changing customer demands, the need to enhance existing or introduce
new services and products, and evolving industry standards. New services,
products and technologies may render the Company's existing services, products
and technologies less competitive. The Company's future success will depend,
in part, on its ability to respond to the demand for new services, products
and technologies on a timely and cost-effective basis and adapt to
technological advancements and changing standards to address the increasingly
sophisticated requirements of its customers. There can be no assurance that
the Company will be successful in the development, acquisition of adequate
rights to, introduction or marketing of such new services, products and
technologies. Any failure by the Company to anticipate or respond adequately
to technological advancements, customer requirements or changing industry
standards, or any significant delays in the development, introduction or
availability of new services, products or enhancements could have a material
adverse effect on the Company's business, financial condition and operating
results.
RISKS ASSOCIATED WITH UNCERTAINTY OF MARKET ACCEPTANCE OF NEW SERVICES,
PRODUCTS AND THE INTERNET
The Company receives substantially all of its order flow through electronic
communications gateways, including a variety of computer-to-computer
interfaces and the Internet. The market for market-making services that rely
on the Internet is at an early stage of development and is rapidly evolving.
As a result, the demand for and market acceptance of recently introduced
services and products is subject to a high level of uncertainty. The Company's
electronic services may involve alternative approaches to market making and,
accordingly, substantial marketing and sales efforts may be necessary to
educate prospective customers regarding the use and benefit of the Company's
electronic services and products.
15
<PAGE>
The Company depends on the business it receives from broker-dealers who
increasingly rely on the Internet to conduct transactions with their customers.
The need for the Company's services and products depend on whether the
customers of such broker-dealers are willing to adopt the Internet as a medium
for commerce and communication. Customer concerns, including security,
reliability, cost, ease of use, accessibility and quality of service all may
negatively affect the growth of Internet use for such activities. The success
of the Internet will also depend on the development of necessary infrastructure
and complementary services and products, such as high speed modems and high
speed communication lines. As the number of users and the amount of traffic on
the Internet continues to increase, there can be no assurance that the
infrastructure needed to support the Internet will be able to meet the demands
placed on it. Finally, the success of the Internet will also depend on
government regulation and the ability of Internet users to develop and adopt
new standards and protocols to handle increased levels of activity. As a
result, there can be no assurance that the number of transactions generated
over the Internet will continue to increase. Any reluctance of the clients of
the Company's broker-dealer customers to obtain brokerage services over the
Internet may have a material adverse effect on the Company's business,
financial condition and operating results.
EFFECT OF NET CAPITAL REQUIREMENTS
The SEC, the NASD and various other regulatory agencies have stringent rules
with respect to the maintenance of specific levels of net capital by securities
brokers, including the SEC's Uniform Net Capital Rule (the "Net Capital Rule"),
which governs the net capital requirements of each of the Company's
subsidiaries. Failure to maintain the required net capital may subject a firm
to suspension or revocation of registration by the SEC and suspension or
expulsion by the NASD and other regulatory bodies and ultimately could require
the firm's liquidation. In addition, a change in the net capital rules, the
imposition of new rules or any unusually large charge against net capital could
limit those operations of the Company that require the intensive use of
capital, and also could restrict the Company's ability to withdraw capital from
its brokerage subsidiaries, which in turn could limit the Company's ability to
pay cash dividends, repay debt and repurchase shares of its outstanding stock.
A significant operating loss or any unusually large charge against net capital
could adversely affect the ability of the Company to expand or even maintain
its present levels of business, which could have a material adverse effect on
the Company's business, financial condition and operating results. See
"Business--Government Regulation."
YEAR 2000
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than two years, computer systems
and/or software used by many companies, including computers involved in the
securities industry, may need to be upgraded to comply with such "Year 2000"
requirements. Significant uncertainty exists concerning the potential effects
associated with the failure to achieve such compliance. The Company has
undertaken a project to identify and modify non-year 2000 compliant
communications and data processing systems in anticipation of the Year 2000.
Although the Company's main trading-related systems are designed to be Year
2000 compliant, there can be no assurance that the Company's proprietary
software and systems or any other software or systems licensed by third parties
to the Company contain all necessary date code changes or that it will not be
adversely affected by the failure of other companies' software to be Year 2000
compliant. The Company plans to have its other computer systems certified by
the end of 1998. However, there can be no assurance that such schedule will be
met or that any software or systems licensed by third parties to the Company,
on which the Company's business is dependent, will be corrected in a timely
manner or that any such failure by such third parties would not disrupt the
Company's ability to accurately communicate with its customers or its
customers' ability to utilize the Company's services. Any such disruption or
failure could have an adverse effect on the Company's business, financial
condition and operating results. There can be no assurance that third parties
will not commence litigation against the Company for any such disruption or
failure.
16
<PAGE>
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S
CHARTER
The Company is organized under the laws of the State of Delaware. Certain
provisions of Delaware law may have the effect of delaying, deferring, or
preventing a change in control of the Company. In addition, certain provisions
of the Company's Certificate of Incorporation (the "Certificate") may be
deemed to have anti-takeover effects and may delay, defer or prevent a
takeover attempt that a stockholder might consider in its best interest. The
Certificate will authorize the Board to determine the rights, preference,
privileges and restrictions of unissued series of preferred stock and to fix
the number of shares of any series of preferred stock and the designation of
any such series, without any vote or action by the Company's stockholders.
Thus, the Board can authorize and issue shares of preferred stock with voting
or conversion rights that could adversely affect the voting or other rights of
holders of the Company's Common Stock. In addition, the issuance of preferred
stock may have the effect of delaying, deferring, or preventing a change of
control of the Company, as the terms of the preferred stock that might be
issued could potentially prohibit the Company's consummation of any merger,
reorganization, sale of substantially all of its assets, liquidation or other
extraordinary corporate transaction without the approval of the holders of the
outstanding shares of the Common Stock.
SUBSTANTIAL DISCRETION IN USE OF PROCEEDS
The company intends to use $13.8 million of the net proceeds from the
Offering to pay for the redemption of the Class B Preferred Units of the LLC.
The Company intends to use the balance of the net proceeds for working capital
and for general corporate purposes. Accordingly, management will have
significant flexibility in applying the net proceeds of the Offering. Although
the Company has no plans, commitments or agreements regarding any material
acquisitions as of the date of this Prospectus, the Company may seek
acquisitions of businesses, products or technologies that are complementary to
those of the Company, and a portion of the net proceeds may be used for such
acquisitions. See "Use of Proceeds."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there was no public market for the Company's Class A
Common Stock. The Company has applied to have the Class A Common Stock
approved for quotation in NASDAQ as a National Market issue under the symbol
"NITE." There can be no assurance that an active public market for the Class A
Common Stock will develop or be sustained. The initial public offering price
will be determined through negotiations between the Company and the
representatives of the Underwriters, and it may not be indicative of the
market price for the Class A Common Stock after the Offering is complete. The
market price of the Class A Common Stock after completion of the Offering
could be subject to significant fluctuations in response to quarterly
variations in operating results, announcements of new services or products by
the Company or its competitors, changes in financial estimates by securities
analysts or other vents or factors many of which are beyond the Company's
control. In addition, stock markets generally, and the stock prices of
competitors in the Company's industry specifically, experience significant
price and volume volatility from time to time which may adversely affect the
market price of the Class A Common Stock for reasons unrelated to the
Company's performance. There can be no assurance that purchasers of Class A
Common Stock will be able to resell their Class A Common Stock at prices equal
to or greater than the initial public offering price. See "Underwriting."
IMMEDIATE SUBSTANTIAL DILUTION
Purchasers of Class A Common Stock in the Offering will experience an
immediate and substantial dilution of $12.29 in the net tangible book value
per share of their investment. If the Company issues additional Common Stock
in the future, purchasers of Class A Common Stock in the Offering may
experience further dilution in the net tangible book value of their Class A
Common Stock. See "Dilution." The Company does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. See "Dividend
Policy."
17
<PAGE>
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company's business is dependent upon the availability of adequate
funding and regulatory capital under applicable regulatory requirements.
Historically, the Company has satisfied these needs from internally generated
funds. Prior to the Reorganization, the LLC will pay a portion of its
undistributed profits to its members, thereby reducing the Company funds
available for business operations. The Company currently anticipates, based on
management's experience and current industry trends, that its available cash
resources, combined with the net proceeds to the Company from the Offering,
will be sufficient to meet its presently anticipated working capital and
capital expenditure requirements for at least the next 12 months. The Company
expects that it will incur approximately $8.0 million in capital expenditures
in 1998. However, if the Company needs to raise additional funds to support
more rapid expansion, develop new or enhanced services and products, respond
to competitive pressures, acquire complementary businesses, products or
technologies or respond to unanticipated requirements, there can be no
assurance that additional financing will be available when needed on terms
favorable to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have 47,484,299 shares
of Class A Common Stock and 3,945,528 shares of Class B Common Stock
outstanding. Of these shares, the shares of Class A Common Stock offered
hereby will be freely tradeable without restriction or further registration
under the Securities Act, by persons other than affiliates of the Company
within the meaning of Rule 144 promulgated under the Securities Act. The
remaining shares, other than shares held by affiliates, may also be freely
tradeable. 41,429,827 of these shares are held by affiliates and, accordingly,
are "restricted securities" as that term is defined in Rule 144 under the
Securities Act and may be sold only if registered or pursuant to an exemption
from registration.
In addition, the existing stockholders have the right to cause the Company
to register the sale of certain shares of Class A Common Stock or Class B
Common Stock owned by them and/or to include their shares in future
registrable statements relating to the Company's securities.
Each of the Company, its directors and officers and certain other
stockholders has agreed that it will not offer, sell, contract to sell,
announce its intention to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the SEC a registration statement under the Securities
Act relating to, any additional shares of the Class A Common Stock or
securities convertible into or exchangeable or exercisable for any shares of
the Class A Common Stock without the prior written consent of BancAmerica
Robertson Stephens for a period of 180 days after the date of this Prospectus.
See "Shares Eligible for Future Sale" and "Underwriting."
After the date of this Prospectus, the Company intends to file a Form S-8
registration statement under the Securities Act to register all shares of
Common Stock issuable under the Company's stock option plan. Such registration
statement is expected to become effective immediately upon filing, and shares
covered by that registration statement will thereupon be eligible for sale in
the public markets, subject to certain lock-up agreements and Rule 144
limitations applicable to affiliates. See "Management," "Description of
Capital Stock--Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 8,688,246 shares of
Class A Common Stock offered by the Company hereby are estimated to be
approximately $120.4 million ($141.4 million if the Underwriters' over-
allotment option is exercised in full) at an assumed initial public offering
price of $15.00 per share after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company. The
Company will not receive any proceeds from the sale of Class A Common Stock by
the Selling Stockholder. See "Principal and Selling Stockholders."
The principal purposes of the Offering are to increase the Company's working
capital and equity base, to provide a public market for its Class A Common
Stock, to permit future acquisitions using cash or publicly tradeable Class A
Common Stock, and to facilitate future access to capital markets. From the
proceeds of the Offering, the Company intends to use $13.8 million to pay for
the redemption of all of the outstanding Preferred B Units of the LLC. The
Company intends to use the remaining proceeds of the Offering for working
capital and for general corporate purposes. The Company may also use a portion
of the proceeds of the Offering to pursue acquisitions of or investments in
businesses, products or technologies that are complementary to those of the
Company. The Company currently does not have any commitments or agreements
with respect to any such acquisitions. Pending such uses, the Company intends
to invest the net proceeds of the Offering in short-term, investment-grade,
interest-bearing securities.
DIVIDEND POLICY
Prior to the Reorganization, the LLC has been treated as a partnership for
federal and state income tax purposes. Since inception, the LLC generated
taxable income and made distributions to its members to facilitate the payment
of the tax liability associated with the allocation of LLC income of an
aggregate of $2.9 million, $17.6 million, $22.3 million and $8.4 million in
1995, 1996, 1997, and the three months ended March 31, 1998, respectively. In
addition, prior to the Reorganization, the LLC will distribute to its members
all of its Undistributed Profits (other than $26.1 million which certain LLC
members have elected not to have distributed and to receive in exchange
therefor additional shares of Common Stock), as well as all of its taxable
income earned during the period beginning April 1, 1998 and ending with the
closing of the Offering. See "Certain Transactions--The Reorganization."
The Company intends to retain future earnings, if any, to finance the
development and expansion of its business and, therefore, does not anticipate
paying any cash dividends on its Common Stock in the foreseeable future. The
payment of cash dividends is within the discretion of the Company's Board of
Directors and will be dependent upon, among other factors, the Company's
results of operations, financial condition and capital requirements,
restrictions imposed by the Company's financing arrangements and legal
requirements.
19
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1998, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company after giving effect to the Reorganization and the redemption of the
Preferred A Units and a portion of the Preferred B Units and (iii) the as
adjusted capitalization of the Company after giving effect to the sale by the
Company of 8,688,246 shares of Class A Common Stock at an assumed initial
public offering price of $15.00 per share and the application of the estimated
net proceeds therefrom and the exercise of the Brown Option. See "Use of
Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt:
Mandatorily Redeemable Preferred Units... $13,847(1) $13,847 $ --
Owners' equity:
Common Units............................. 7,345 -- --
Preferred Stock, $0.01 par value;
20,000,000 shares authorized; no shares
issued and outstanding, actual, pro
forma, or as adjusted................... -- -- --
Class A Common Stock, $0.01 par value;
200,000,000 shares authorized; no shares
issued and outstanding, actual;
38,401,166 shares issued and outstand-
ing, pro forma; 47,484,299 shares issued
and outstanding, as adjusted (2)........ -- 384 475
Class B Common Stock, $0.01 par value;
20,000,000 shares authorized; no shares
issued and outstanding, actual;
3,945,528 shares issued and outstanding,
pro forma; and 3,945,528 shares issued
and outstanding, as adjusted............ -- 39 39
Additional paid-in capital............... -- 33,045 153,379
Undistributed income..................... 52,645 -- --
------- ------- --------
Total owners' equity................... 59,990 33,468 153,893
------- ------- --------
Total capitalization.................. $73,837 $47,315 $153,893
======= ======= ========
</TABLE>
- --------
(1) In April 1998, the Company redeemed and retired all of the Preferred A
Units for $12.5 million and a portion of the Preferred B Units for $1.2
million (the "Redemption") pursuant to mandatory redemption provisions.
(2) Does not include outstanding options to purchase a total of shares of
Class A Common Stock issuable at an exercise price equal to the initial
public offering price as of the date of this Prospectus. As of the date of
this Prospectus, an additional 7,409,000 shares were reserved for future
grants under the Company's stock option plans.
20
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1998,
giving effect to the Reorganization, Option Exercise and the Redemption, was
$19.1 million or $0.45 per share. Pro forma net tangible book value per share
represents the amount of total tangible assets less total liabilities, divided
by the number of shares of Common Stock outstanding. After giving effect to
the sale of 8,688,246 shares of Class A Common Stock offered by the Company
hereby (at an assumed initial public offering price of $15.00 per share and
after deducting underwriting discounts and commissions and estimated offering
expenses), the pro forma as adjusted net tangible book value of the Company as
of March 31, 1998 would have been approximately $139.5 million or $2.71 per
share. This represents an immediate dilution of $12.29 per share to new
investors in this Offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $15.00
Pro forma net tangible book value per share as of March 31,
1998....................................................... $0.45
Increase per share attributable to new investors............ 2.26
-----
Pro forma as adjusted net tangible book value per share after
this Offering................................................ 2.71
------
Dilution per share to new investors........................... $12.29
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1998,
(i) the number of shares of Common Stock purchased from the Company, (ii) the
total consideration paid for such shares and (iii) the average price per share
paid by existing stockholders and by new stockholders:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ -------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(1).................... 42,741,581 83.1% $ 33,540,119 20.5% $0.78
New stockholders........ 8,688,246 16.9 130,323,690 79.5 15.00
---------- ----- ------------ -----
Total................. 51,429,827 100.0% $163,863,809 100.0%
========== ===== ============ =====
</TABLE>
- --------
(1) Sales by the Selling Stockholder in this offering will cause the number of
shares held by existing stockholders to be reduced to 41,429,827 shares or
80.6% (41,429,827 shares or 78.3% if the Underwriters' over-allotment
option is exercised in full) of the total number of shares of Common Stock
to be outstanding after this Offering, and will increase the number of
shares held by new investors to 10,000,000 shares or 19.4% (11,500,000
shares or 21.7% if the Underwriters' over-allotment option is exercised in
full) of the total number of shares of Common Stock to be outstanding
after this Offering. See "Principal and Selling Stockholders."
The calculation of pro forma net tangible book value and the other
computations above assume no exercise of stock options outstanding, except for
the Option Exercise. As of the date of this Prospectus, there were options
outstanding to purchase a total of shares of Class A Common Stock at an
exercise price equal to the initial public offering price. See
"Capitalization," "Management--Stock Option Plan," "Description of Capital
Stock" and "Shares Eligible for Future Sale."
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are qualified by the more
detailed consolidated financial statements of the Company and the notes
thereto included elsewhere in this Prospectus and should be read in
conjunction with such consolidated financial statements and notes and the
discussion under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus. The
consolidated statement of income data for the period from March 27, 1995
through December 31, 1995 and years ended December 31, 1996 and 1997 and the
consolidated statement of financial condition data at December 31, 1996 and
1997 have been derived from the Company's audited consolidated financial
statements included elsewhere in this Prospectus. The consolidated statement
of financial condition data at December 31, 1995 are derived from audited
consolidated financial statements not included in this Prospectus. The
consolidated statement of income data for the three months ended March 31,
1997 and 1998 and the consolidated statement of financial data at March 31,
1998 are derived from the unaudited consolidated financial statements which,
in the opinion of management, have been prepared on the same basis as the
audited consolidated financial statements and contain all adjustments,
consisting only of normal recurring accruals, necessary for a fair
presentation of the results of operations for such periods. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of results to be expected for the full year.
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 27,
THROUGH YEAR ENDED THREE MONTHS
DECEMBER 31, DECEMBER 31, ENDED MARCH 31,
------------ ----------------- ---------------
1995 1996 1997 1997 1998
------------ -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
INCOME DATA:
Revenues
Net trading revenue.......... $69,516 $183,894 $224,627 $50,483 $63,007
Interest, net................ 296 1,283 2,039 496 526
------- -------- -------- ------- -------
Total revenues............. 69,812 185,177 226,666 50,979 63,533
------- -------- -------- ------- -------
Expenses
Payments for order flow...... 25,994 69,829 66,912 18,129 16,257
Execution and clearance
fees........................ 12,710 25,837 32,069 6,411 10,241
Employee compensation and
benefits.................... 12,151 39,494 57,717 12,013 16,168
Communications and data
processing.................. 2,202 4,360 6,809 1,319 2,170
Depreciation and amortiza-
tion........................ 1,626 2,975 4,225 936 1,291
Interest on Preferred Units.. 1,310 2,093 1,941 604 416
Occupancy and equipment
rentals..................... 849 1,777 2,657 537 1,082
Business development......... 130 624 1,460 245 377
Other........................ 1,499 1,428 2,799 365 747
------- -------- -------- ------- -------
Total expenses............. 58,471 148,417 176,589 40,559 48,749
------- -------- -------- ------- -------
Income before income taxes..... 11,341 36,760 50,077 10,420 14,784
Pro forma income tax ex-
pense(1)...................... 5,217 15,807 21,533 4,481 6,357
------- -------- -------- ------- -------
Pro forma net income........... $ 6,124 $ 20,953 $ 28,544 $ 5,939 $ 8,427
======= ======== ======== ======= =======
Pro forma basic and diluted
earnings per share............ $ 0.67 $ 0.20
======== =======
Shares used to compute per
share data(2)................. 42,742 42,742
======== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------- ---------
1995 1996 1997 1998
------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF FINANCIAL
CONDITION DATA:
Cash and cash equivalents................. $ 1,668 $ 15,353 $ 13,797 $ 5,429
Securities owned, at market value......... 33,763 46,781 61,726 63,490
Receivable from clearing brokers.......... 11,437 23,156 30,152 78,119
Total assets.............................. 65,182 106,035 127,872 171,073
Securities sold, not yet purchased, at
market value............................. 11,001 19,021 21,061 54,581
Distributions on Common Units payable to
members.................................. -- 4,984 8,405 8,767
Mandatorily Redeemable Preferred Units.... 28,415 37,706 27,484 27,484
Owners' equity............................ 12,199 29,987 53,973 59,990
</TABLE>
- -------
(1) Prior to the Reorganization described elsewhere in this Prospectus, the
Company was a limited liability company and was not subject to
income taxes. Pro forma income tax expense has been presented for each of
the periods indicated as if the Reorganization had occurred as of March
27, 1995.
(2) Shares used to compute per share data represent Common Stock outstanding
immediately after the Reorganization and the exercise of the Brown Option,
but before the Offering.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company is a leading market maker in NASDAQ securities, other OTC equity
securities, and NYSE- and AMEX- listed equity securities in the Third Market.
Through its wholly-owned subsidiary, Knight, the Company makes markets in
approximately 4,200 equity securities in NASDAQ and on the NASD's OTC Bulletin
Board. Through its wholly-owned subsidiary, Trimark, the Company makes markets
in all NYSE- and AMEX-listed equity securities in the Third Market.
Knight commenced NASDAQ and OTC securities market making operations on July
24, 1995. Based on rankings published by AutEx, an electronic database and
online, real-time network for trade order indications used by the securities
industry, Knight was ranked first in AutEx's Nasdaq/OTC Securities rankings,
with a 8.95% and 9.93% market share, respectively, during February and March
1998. Knight's share volume totaled 1.1 billion, 5.7 billion and 11.2 billion,
or 23%, 53% and 62% of the Company's total share volume, during the period
from March 27, 1995 through December 31, 1995 and the years ended December 31,
1996 and 1997, respectively. For the three months ended March 31, 1998,
Knight's share volume grew 161% to 5.0 billion, or 67% of the Company's total
share volume, from 1.9 billion shares, or 56% of the Company's total share
volume, in the same period in 1997. Since commencing operations in 1995,
Knight's business has grown rapidly and accounted for 76%, 75% and 77% of the
Company's total share volume growth during the years ended December 31, 1996
and 1997, and the three months ended March 31, 1998, respectively.
Trimark commenced operations on March 27, 1995 when it acquired the NYSE-
and AMEX-listed equity securities market-making business and certain assets of
Trimark Securities, Inc. for $15 million in Mandatorily Redeemable Preferred B
Units and additional consideration based on Trimark's earnings during the five
years immediately following the acquisition. On November 17, 1997, Trimark
purchased the business and certain of the assets of Tradetech Securities, L.P.
("Tradetech"), a direct competitor of Trimark, for $750,000 in cash and
additional consideration based on Trimark's earnings during a minimum of three
years immediately following the acquisition. Since March, 1995, Trimark has
experienced significant increases in share volumes. Trimark's share volume
totaled 3.7 billion, 5.1 billion and 6.9 billion, or 77%, 47% and 38% of the
Company's total share volume during the period from March 27, 1995 through
December 31, 1995 and the years ended December 31, 1996 and 1997,
respectively. With the acquisition of Tradetech, Trimark's share volume grew
63% for the three months ended March 31, 1998 to 2.4 billion shares, from 1.5
billion shares for the comparable period in 1997 and accounted for 33% of the
Company's share volume for the three months ended March 31, 1998.
The Company was organized in April 1998 for the purpose of succeeding to the
business of the LLC. Concurrent with the closing of the Offering, based on an
assumed initial public offering price of $15.00 per share, all of the member
interests of the LLC will be exchanged for 41,000,000 shares of Common Stock
of the Company. Certain members, who have so elected, will receive additional
shares of Class A Common Stock valued at the initial public offering price
with respect to their share of the Undistributed Profits. Management of the
Company has elected to receive shares of Class A Common Stock for all of its
Undistributed Profits. The Company will receive no additional consideration in
connection with such conversion of member interests into shares of Common
Stock. In connection with the exchange, Knight will become the successor
entity to Knight Securities, L.P., and Trimark will become the successor
entity to Trimark Securities, L.P. Prior to the effective date of the
Registration Statement of which this Prospectus is a part, certain members of
the LLC, who have so elected, will receive a cash distribution of all or a
portion of their Undistributed Profits. Concurrently with such distribution,
the LLC intends to make a cash distribution to each member of an estimate of
its share of the total amount of profits of the LLC accruing between April 1,
1998 and the closing of this Offering.
23
<PAGE>
Immediately prior to the Reorganization, 60% of the member interests of the
LLC will be owned by a consortium of 27 broker-dealers or their affiliates.
Additionally, Brown & Company Securities Corporation ("Brown"), a major
customer of the Company, held subordinated debt of the LLC and an option to
purchase a member interest in the LLC (the "Brown Option"). After the closing
of this Offering, such broker-dealer owners, including Brown, will own 48.5%
of the Company's Common Stock (47.2% if the Underwriters' over-allotment
option is exercised in full). For the period from March 27, 1995 through
December 31, 1995, the years ended December 31, 1996 and 1997, and the three
months ended March 31, 1998, the broker-dealer owners and subordinated note
holders, were the source of 31.3%, 35.1%, 39.8%, and 41.3%, respectively of
the Company's total order flow. For the period from March 27, 1995 through
December 31, 1995, the years ended December 31, 1996 and 1997 and the three
months ended March 31, 1998, aggregate payments by the Company to its broker-
dealer owners and subordinated note holders for order flow and aggregate
profit distributions to broker-dealer owners equaled $14.4 million and $1.7
million, $46.4 million and $10.6 million, $50.7 million and $13.4 million,
$11.3 million and $5.0 million, respectively. See "Certain Transactions."
Pursuant to the limited liability company agreement of the LLC, its broker-
dealer owners have partially shared in the LLC profits in proportion to their
equity interest and partially in proportion to the quantity of order flow they
have directed to the Company. This arrangement will be discontinued upon
consummation of the Reorganization. The broker-dealer owners will no longer
receive any special inducements to send order flow to the Company and will not
be contractually or otherwise obligated to provide the Company with any order
flow in the future. See "Risk Factors--Risks Associated with Change of
Ownership Structure."
Revenues
The Company's revenues consist principally of net trading revenue from
market-making activities and, to a much lesser extent, net interest income
from the Company's cash and securities positions held at banks and in trading
accounts at clearing brokers. To date, the Company has only traded equity
securities, and has never traded in options, futures, forwards, swaps or other
derivative instruments. Net trading revenue, which represents trading gains
net of trading losses, is primarily affected by changes in trade and share
volumes from customers, the Company's ability to derive trading gains by
taking proprietary positions to facilitate customer transactions and, most
recently, by regulatory changes, and evolving industry customs and practices.
These regulatory changes and the move from securities being quoted in
sixteenths rather than eighths of a dollar have resulted in a decrease in net
trading revenue per trade. The Company's net trading revenue per trade for OTC
securities has historically exceeded the net revenue per trade for listed
securities.
Interest, net includes interest earned on cash balances held at banks and
clearing brokers, net of transaction-related interest charged by clearing
brokers for facilitating the settlement and financing of securities sold, not
yet purchased, and interest on subordinated notes. Interest, net is primarily
affected by the changes in cash balances held at banks and clearing brokers,
and the level of securities sold, not yet purchased, and the principal amount
outstanding under the subordinated notes.
Expenses
The Company's operating expenses largely consist of payments for order flow,
execution and clearance fees and employee compensation and benefits. A
substantial portion of these expenses are variable in nature. Payments for
order flow fluctuate based on share volume, the mix of market orders and limit
orders and the mix of orders received from broker-dealers compared to other
institutional customers. Execution and clearance fees fluctuate primarily
based on changes in trade and share volume, the mix of trades of OTC
securities compared to listed securities and the clearance fees charged by
clearing brokers. Employee compensation and benefits expense, which is largely
profitability based, fluctuates, for the most part, based on changes in net
trading revenue and the Company's profitability.
24
<PAGE>
Payments for order flow represent customary payments to broker-dealers, in
the normal course of business, for directing their order flow to the Company.
The Company does not pay for order flow from non-broker-dealer customers. As a
result of the new Order Handling Rules implemented by the SEC in 1997, the
Company changed its order flow payment policy from paying broker-dealers for
substantially all order executions, to paying broker-dealers only for orders
which provide the Company with a profit opportunity. For example, the Company
makes payments on market orders, but does not pay on limit orders. As a result
of these changes, the average order flow payment per transaction has declined.
Execution and clearance fees primarily represent clearance fees paid to
clearing brokers for OTC and listed securities, transaction fees paid to
NASDAQ for OTC securities, and execution fees paid to third parties, primarily
for executing trades in listed securities on the NYSE and AMEX and for
executing orders through Electronic Communications Networks ("ECNs").
Execution and clearance fees are higher for listed securities than for OTC
securities. Due to the Company's significant growth in share and trade volume,
the Company has been able to negotiate favorable rates and volume discounts
from clearing brokers and providers of execution services. As a result of
these lower rates and discounts and the increase in trade volume of OTC
securities as a percentage of total trade volume, execution and clearance fees
per trade have decreased.
Employee compensation and benefits expense primarily consists of salaries
and wages paid to administrative and customer service personnel and
profitability based compensation, which includes compensation and benefits
paid to market-making and sales personnel based on their individual
performance, and incentive compensation paid to all other employees based on
the overall profitability of the Company ("Profitability Based Compensation").
Profitability Based Compensation represented 65%, 79% and 78% of total
employee compensation and benefits expense for the period from March 27, 1995
through December 31, 1995 and the years ended December 31, 1996 and 1997,
respectively. Profitability Based Compensation represented 78% and 72% of
employee compensation and benefits expense for the three months ended March
31, 1997 and 1998, respectively. The Company has grown from 152 employees at
December 31, 1995 to 195 employees, 317 employees and 337 employees as of
December 31, 1996, 1997 and March 31, 1998, respectively. More than 70% of the
Company's employees are directly involved in market-making, sales or customer
service activities.
Communications and data processing expense primarily consists of costs for
obtaining stock market data and telecommunications services.
Depreciation and amortization expense results from the depreciation of fixed
assets purchased by the Company or financed under a capital lease, and the
amortization of goodwill, which includes contingent consideration, resulting
from the acquisition of the listed securities market-making business of
Trimark and the Tradetech acquisition.
Interest on Preferred Units expense represents required interest payments on
the Company's Mandatorily Redeemable Preferred A and B Units at a rate
approximating the Federal Funds rate. As of April 15, 1998, all outstanding
Preferred A Units have been redeemed and the Company has redeemed $1.2 million
of Preferred B Units. The Company intends to redeem all of the remaining
Preferred B Units for $13.8 million with the proceeds of this Offering.
Occupancy and equipment rentals expense primarily consists of rental
payments on office and equipment leases.
Business development expense primarily consists of marketing expenses,
including travel and entertainment expenses and promotion and advertising
costs.
Other expenses primarily consist of fees paid to computer programming and
systems consultants, as well as legal fees and other professional fees.
25
<PAGE>
Income Tax
Prior to the Reorganization, the Company was a limited liability company and
was not subject to federal or state income taxes. Subsequent to the
Reorganization, which will occur concurrently with the consummation of this
Offering, the Company will be subject to federal income taxes and state income
taxes in New York, New Jersey and other states. Income tax expense includes
pro forma amounts relating to federal income taxes, as well as pro forma
amounts relating to state income taxes in New York, New Jersey and other
states. The Company's pro forma effective tax rate will generally differ from
the federal statutory rate of 35% primarily due to state income taxes, as well
as the effect of nondeductible expenses, including the amortization of
goodwill resulting from the acquisition of the listed securities market-making
business of Trimark and the Tradetech acquisition and a portion of business
development expenses.
RESULTS OF OPERATIONS
The following table sets forth the consolidated statement of income data for
the periods indicated as a percentage of total revenues:
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS
MARCH 27 THROUGH YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
---------------- -------------- --------------
1995 1996 1997 1997 1998
---------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues
Net trading revenue......... 99.6% 99.3% 99.1% 99.0% 99.2%
Interest, net............... 0.4 0.7 0.9 1.0 0.8
----- ------ ------ ------ ------
Total revenues............ 100.0 100.0 100.0 100.0 100.0
----- ------ ------ ------ ------
Expenses
Payments for order flow..... 37.2 37.7 29.5 35.6 25.6
Execution and clearance
fees....................... 18.2 14.0 14.1 12.6 16.1
Employee compensation and
benefits................... 17.4 21.3 25.5 23.6 25.4
Communications and data
processing................. 3.2 2.4 3.0 2.6 3.4
Depreciation and amortiza-
tion....................... 2.3 1.6 1.9 1.8 2.0
Interest on Preferred
Units...................... 1.9 1.1 0.9 1.2 0.7
Occupancy and equipment
rentals.................... 1.2 1.0 1.2 1.1 1.7
Business development........ 0.2 0.3 0.6 0.5 0.6
Other....................... 2.1 0.8 1.2 0.7 1.2
----- ------ ------ ------ ------
Total expenses............ 83.7 80.2 77.9 79.7 76.7
----- ------ ------ ------ ------
Income before income taxes.... 16.3 19.8 22.1 20.3 23.3
Pro forma income tax expense.. 7.5 8.5 9.5 8.8 10.0
----- ------ ------ ------ ------
Pro forma net income.......... 8.8% 11.3% 12.6% 11.5% 13.3%
===== ====== ====== ====== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Revenues
Net trading revenue increased 24.8% to $63.0 million for the three months
ended March 31, 1998, from $50.5 million for the comparable period in 1997.
This increase was primarily due to higher trading volume, particularly higher
trade volume for OTC securities, which was offset in part by lower average net
trading revenue per trade. Total trade volume increased 100.3% to 7.6 million
trades for the three months ended March 31, 1998, from 3.8 million trades for
the comparable period in 1997. Total share volume increased 118.3% to 7.4
billion shares traded for the three months ended March 31, 1998, from 3.4
billion shares traded for the comparable period in 1997. Average net trading
revenue per trade decreased 37.7% to $8.32 per trade for the three months
ended March 31, 1998, from $13.36 per trade for the comparable period in 1997.
The
26
<PAGE>
decrease in average net trading revenue per trade was primarily due to the new
Order Handling Rules, which were implemented between January 1997 and October
1997, and, to a lesser extent, the move to securities being quoted in
sixteenths of a dollar rather than eighths of a dollar.
Interest, net increased 6.1% to $526,000 for the three months ended March
31, 1998, from $496,000 for the comparable period in 1997. This increase was
primarily due to larger cash balances held at banks and the Company's clearing
brokers, which was offset, in part, by increased transaction-related interest
expense resulting from a higher level of securities sold, not yet purchased.
Expenses
Payments for order flow decreased 10.3% to $16.3 million for the three
months ended March 31, 1998, from $18.1 million for the comparable period in
1997. As a percentage of net trading revenue, payments for order flow
decreased to 25.8% for the three months ended March 31, 1998, from 35.9% for
the comparable period in 1997. The decrease in payments for order flow on a
dollar basis and as a percentage of total revenue resulted from changes in the
Company's order flow payment policy, changes in the mix of market orders
versus limit orders, and changes in customer mix. Payments for order flow made
to broker-dealer owners and subordinated note holders represented 69.6% of
total payments for order flow for the three months ended March 31, 1998, as
compared to 78.9% for the comparable period in 1997 due to the expansion of
the Company's broker-dealer customer base.
Execution and clearance fees increased 59.7% to $10.2 million for the three
months ended March 31, 1998, from $6.4 million for the comparable period in
1997. As a percentage of net trading revenue, execution and clearance fees
increased to 16.3% of net trading revenue for the three months ended March 31,
1998, from 12.7% of net trading revenue for the comparable period in 1997. The
increase on a dollar basis was primarily due to a 100.3% increase in trades
for the comparable period in 1997, which was offset, in part, by a decrease in
clearance rates charged by clearing brokers and higher growth in the volume of
OTC securities transactions, which have lower execution costs than
transactions in listed securities. The increase in execution and clearance
fees as a percentage of net trading revenue was primarily due to the decrease
in the average net trading revenue per trade.
Employee compensation and benefits expense increased 34.6% to $16.2 million
for the three months ended March 31, 1998, from $12.0 million for the
comparable period in 1997. As a percentage of net trading revenue, employee
compensation increased to 25.7% of net trading revenue for the three months
ended March 31, 1998, from 23.8% of net trading revenue for the comparable
period in 1997. The increase on a dollar basis and as a percentage of net
trading revenue was primarily due to the Company's increased profitability and
an increase in the number of employees. Due to increased net trading revenue
and profitability, Profitability Based Compensation increased 24.8% to $11.6
million for the three months ended March 31, 1998, from $9.3 million for the
comparable period in 1997. The number of employees increased to 337 employees
as of March 31, 1998, from 228 employees as of March 31, 1997.
Communications and data processing expense increased 64.5% to $2.2 million
for the three months ended March 31, 1998, from $1.3 million for the
comparable period in 1997. This increase was generally attributable to higher
trading volumes, and an increase in the number of employees.
Depreciation and amortization expense increased 37.9% to $1.3 million for
the three months ended March 31, 1998, from $936,000 for the comparable period
in 1997. This increase was primarily due to the purchase of additional fixed
assets and leasehold improvements during 1997 and the first quarter of 1998 to
support the Company's expanded operations, and, to a lesser extent, the
amortization of goodwill recognized as part of the Tradetech acquisition,
which was completed in November 1997.
Interest on Preferred Units expense decreased 31.0% to $416,000 for the
three months ended March 31, 1998, from $604,000 for the comparable period in
1997. This decrease was primarily due to the redemption and retirement of
$10.2 million Preferred A Units by the Company in April 1997.
27
<PAGE>
Occupancy and equipment rental expense increased 101.5% to $1.1 million for
the three months ended March 31, 1998, from $537,000 for the comparable period
in 1997. This increase was primarily attributable to additional office space
and increased computer equipment lease expense. The Company occupied 75,768
square feet of office space at March 31, 1998, up from 47,598 square feet of
office space at March 31, 1997.
Business development expense increased 54.2% to $377,000 for the three
months ended March 31, 1998, from $244,000 for the comparable period in 1997.
This increase was primarily the result of higher travel and entertainment
costs.
Other expenses increased 104.6% to $747,000 for the three months ended March
31, 1998, from $365,000 for the comparable period in 1997. This was the result
of increased fees for computer programming and systems consultants.
Income Tax
Pro forma income tax expense was determined using an effective tax rate of
43% for the three months ended March 31, 1998 and 1997.
YEAR ENDED DECEMBER 31, 1997 AND 1996
Revenues
Net trading revenue increased 22.2% to $224.6 million in 1997, from $183.9
million in 1996. This increase was primarily due to higher trading volume,
particularly higher trade volume for OTC securities, which was offset in part
by lower average net revenue per trade. Total trade volume increased 74.7% to
20.3 million trades in 1997, from 11.6 million trades in 1996. Total share
volume increased 68.5% to 18.1 billion shares traded in 1997, from 10.8
billion shares traded in 1996. Average net revenue per trade decreased 30.1%
to $11.09 per trade in 1997, from $15.86 per trade in 1996, principally as a
result of the new Order Handling Rules, which were implemented during 1997,
and the reduction in the increments by which securities are quoted.
Interest, net increased 59.0% to $2.0 million in 1997, from $1.3 million in
1996. This increase was primarily due to larger cash balances held at banks
and the Company's clearing brokers, which was offset in part by increased
transaction-related interest expense resulting from a higher level of
securities sold, not yet purchased.
Expenses
Payments for order flow decreased 4.2% to $66.9 million, from $69.8 million
in 1996. As a percentage of net trading revenue, payments for order flow
decreased to 29.8% in 1997, as compared to 38.0% in 1996. The decrease in
payments for order flow on a dollar basis and as a percentage of total revenue
resulted from changes in the Company's order flow payment policy, changes in
the mix of market orders versus limit orders, and changes in customer mix.
Payments for order flow made to broker-dealer owners and subordinated note
holders represented 75.7% of total payments for order flow in 1997, from 66.4%
in 1996.
Execution and clearance fees increased 24.1% to $32.1 million in 1997, from
$25.8 million in 1996. As a percentage of net trading revenue, execution and
clearance fees remained relatively constant and were 14.3% of net trading
revenue in 1997 and 14.0% of net trading revenue in 1996. The increase on a
dollar basis was primarily due to increased trade volume, which was offset, in
part, by a decrease in clearance rates charged by clearing brokers, and growth
in the volume of OTC securities transactions, which have lower execution costs
than transactions in listed securities. The increase in execution and
clearance fees as a percentage of net trading revenue was primarily due to the
decrease in the average net trading revenue per trade.
Employee compensation and benefits expense increased 46.1% to $57.7 million
in 1997, from $39.5 million in 1996. As a percentage of net trading revenue,
employee compensation and benefits expense increased to 25.7% in 1997, from
21.5% in 1996. The increase on a dollar basis and as a percentage of net
trading revenue was primarily due to the Company's increased profitability and
growth in the number of employees. Due to increased net trading revenue and
profitability, Profitability Based Compensation increased 44.2% to $45.0
million in 1997, from $31.2 million in 1996. The number of employees increased
to 317 employees as of December 31, 1997, from 195 employees as of December
31, 1996.
28
<PAGE>
Communications and data processing expense increased 56.2% to $6.8 million
in 1997, from $4.4 million in 1996. This increase was generally attributable
to higher trading volumes, and an increase in the number of employees.
Depreciation and amortization expense increased 42.0% to $4.2 million in
1997, from $3.0 million in 1996. This increase was primarily due to the
purchase of approximately $4.8 million of additional fixed assets and
leasehold improvements during 1997 and the amortization of goodwill related to
the acquisition of the listed securities market-making business of Trimark.
Interest on Preferred Units expense decreased 7.2% to $1.9 million in 1997,
from $2.1 million in 1996. This decrease was primarily due to the redemption
and retirement of 1,022,208 Preferred A Units by the Company in April 1997 for
$10.2 million.
Occupancy and equipment rentals expense increased 49.6% to $2.7 million in
1997, from $1.8 million in 1996. This increase was primarily attributable to
additional office space and increased computer equipment lease expense. The
Company occupied 56,351 square feet of office space at December 31, 1997, up
from 47,598 square feet of office space at December 31, 1996.
Business development expense increased 134.1% to $1.5 million in 1997, from
$623,000 in 1996. This increase was primarily the result of higher travel and
entertainment costs.
Other expenses increased 96.0% to $2.8 million in 1997, from $1.4 million in
1996. This increase was primarily due to increased professional fees for
computer programming and systems consultants.
Income Tax
Pro forma income tax expense was determined using an effective tax rate of
43% for 1997 and 1996.
YEAR ENDED DECEMBER 31, 1996 VERSUS THE PERIOD FROM MARCH 27, 1995 THROUGH
DECEMBER 31, 1995
Revenues
Net trading revenue increased to $183.9 million in 1996, from $69.5 million
for the period from March 27, 1995 through December 31, 1995 (the "1995
Period"). Total trade volume increased to 11.6 million trades in 1996, from
5.0 million trades in the 1995 Period. Total share volume increased to 10.8
billion shares traded in 1996, from 4.7 billion shares traded in the 1995
Period. Average net trading revenue per trade increased to $15.86 per trade in
1996, from $13.92 per trade in the 1995 Period due to significant growth in
OTC securities volume.
Interest, net increased to $1.3 million in 1996, from $296,000 in the 1995
Period. This increase was primarily due to larger cash balances held at banks
and the Company's clearing brokers and the exchange of $5.0 million of
subordinated notes for equity interests in the Company in January 1996, which
was offset, in part, by increased transaction-related interest expense costs
resulting from a higher level of securities sold, not yet purchased.
Expenses
Payments for order flow increased to $69.8 million in 1996, from $26.0
million in the 1995 Period. As a percentage of net trading revenue, payments
for order flow increased slightly to 38.0% in 1996, from 37.4% in the 1995
Period. The increase on a dollar basis and as a percentage of net trading
revenue resulted from the commencement of OTC securities market-making in July
1995, and the higher trading volumes in 1996. Payments for order flow made to
broker-dealer owners and subordinated note holders represented 66.4% of total
payments for order flow for 1996, from 55.4% in the 1995 Period.
Execution and clearance fees increased to $25.8 million in 1996, from $12.7
million in the 1995 Period. As a percentage of net trading revenue, execution
and clearance fees decreased to 14.0% in 1996, from 18.3% in the 1995 Period.
The dollar increase was primarily due to increased trade volumes. The decrease
as a
29
<PAGE>
percentage of net trading revenue was primarily due to strong growth in the
volume of OTC securities transactions, which have lower execution costs than
transactions in listed securities.
Employee compensation and benefits expense increased to $39.5 million in
1996, from $12.2 million in the 1995 Period. As a percentage of net trading
revenue, employee compensation and benefits expense increased to 21.5% in
1996, from 17.5% in the 1995 Period. The increase on a dollar basis and as a
percentage of net trading revenue was primarily due to increased profitability
and growth in the number of employees. The number of employees increased to
195 employees as of December 31, 1996, from 152 employees as of December 31,
1995.
Communications and data processing expense increased to $4.4 million in
1996, from $2.2 million in the 1995 Period. This increase was generally
attributable to higher trading volumes and an increase in the number of
employees.
Depreciation and amortization expense increased to $3.0 million in 1996,
from $1.6 million in the 1995 Period. This increase was the result of the
purchase of $3.9 million of additional fixed assets and leasehold improvements
during 1996 and the amortization of goodwill related to the acquisition of the
listed securities market-making business of Trimark.
Interest on Preferred Units expense increased to $2.1 million in 1996, from
$1.3 million in the 1995 Period. This increase was primarily due to the
issuance of $13.2 million Preferred A Units during 1996, which was offset in
part by the redemption and retirement of $3.9 million Preferred A Units by the
Company in April 1996.
Occupancy and equipment rentals expense increased to $1.8 million in 1996,
from $849,000 in the 1995 Period. This increase was primarily attributable to
additional office space leased by the Company in 1996. The Company occupied
47,598 square feet of office space at December 31, 1996, up from 26,174 square
feet of office space at December 31, 1995.
Business development expense increased to $623,000 in 1996, from $130,000 in
the 1995 Period. This increase was primarily the result of higher travel and
entertainment costs.
Other expenses decreased to $1.4 million in 1996, from $1.5 million in the
1995 Period. This decrease was primarily due to higher professional fees and
promotional costs incurred in the 1995 Period in connection with the formation
of Knight and the acquisition of the listed securities market-making business
of Trimark.
Income Tax
Pro forma income tax expense was determined using an effective tax rate of
43% for 1996 and 46% in the 1995 Period. The effective tax rate in the 1995
Period differed from the effective rate in 1996 due to one-time nondeductible
syndication expenses incurred in the 1995 Period in connection with the
formation of the Company.
30
<PAGE>
CONSOLIDATED QUARTERLY RESULTS
The following table sets forth certain unaudited consolidated quarterly
statement of income data, such data as a percentage of total revenues and
certain unaudited consolidated quarterly operating data for the nine quarters
ended March 31, 1998. In the opinion of the Company's management, this
unaudited information has been prepared on substantially the same basis as the
consolidated financial statements appearing elsewhere in this Prospectus and
includes all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the unaudited consolidated quarterly data. The
unaudited consolidated quarterly data should be read in conjunction with the
audited consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus. The results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Net trading reve-
nue............... $ 39,138 $ 54,000 $ 38,150 $ 52,606 $ 50,482 $ 49,656 $ 58,060 $ 66,426 $ 63,007
Interest, net...... 174 219 389 500 496 435 510 598 526
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues..... 39,312 54,219 38,539 53,106 50,978 50,091 58,570 67,024 63,533
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Expenses
Payments for order
flow.............. 14,234 19,390 15,696 20,509 18,129 16,841 16,136 15,806 16,257
Execution and
clearance fees.... 5,819 6,592 5,936 7,489 6,411 6,873 8,576 10,209 10,241
Employee
compensation and
benefits.......... 7,745 12,627 7,932 11,191 12,013 12,492 15,034 18,178 16,168
Communications and
data processing... 882 1,063 1,124 1,291 1,319 1,721 1,832 1,937 2,170
Depreciation and
amortization...... 637 719 770 849 936 1,062 1,083 1,143 1,291
Interest on
Preferred Units... 504 451 540 597 604 477 435 425 416
Occupancy and
equipment
rentals........... 436 424 450 468 537 565 666 889 1,082
Business
development....... 101 140 162 221 245 432 321 462 377
Other.............. 241 307 357 523 365 737 860 837 747
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses..... 30,599 41,713 32,967 43,138 40,559 41,200 44,943 49,886 48,749
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes.............. 8,713 12,506 5,572 9,968 10,419 8,891 13,627 17,138 14,784
Pro forma income tax
expense............ 3,747 5,378 2,396 4,286 4,480 3,823 5,860 7,369 6,357
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Pro forma net
income............. $ 4,966 $ 7,128 $ 3,176 $ 5,682 $ 5,939 $ 5,068 $ 7,767 $ 9,769 $ 8,427
========== ========== ========== ========== ========== ========== ========== ========== ==========
Revenues
Net trading
revenue........... 99.6% 99.6% 99.0% 99.1% 99.0% 99.1% 99.1% 99.1% 99.2%
Interest, net...... 0.4 0.4 1.0 0.9 1.0 0.9 0.9 0.9 0.8
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues..... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Expenses
Payments for order
flow.............. 36.2 35.8 40.7 38.6 35.6 33.6 27.5 23.6 25.6
Execution and
clearance fees.... 14.8 12.2 15.4 14.1 12.6 13.7 14.6 15.2 16.1
Employee
compensation and
benefits.......... 19.7 23.3 20.6 21.1 23.6 24.9 25.7 27.1 25.4
Communications and
data processing... 2.2 2.0 2.9 2.4 2.6 3.4 3.1 2.9 3.4
Depreciation and
amortization...... 1.6 1.3 2.0 1.6 1.8 2.1 1.8 1.7 2.0
Interest on
Preferred Units... 1.3 0.8 1.4 1.1 1.2 1.0 0.8 0.6 0.7
Occupancy and
equipment
rentals........... 1.1 0.7 1.2 0.9 1.0 1.1 1.2 1.3 1.7
Business
development....... 0.3 0.3 0.4 0.4 0.5 0.9 0.5 0.7 0.6
Other.............. 0.6 0.5 0.9 1.0 0.7 1.6 1.5 1.3 1.2
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses..... 77.8 76.9 85.5 81.2 79.6 82.3 76.7 74.4 76.7
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes.............. 22.2 23.1 14.5 18.8 20.4 17.7 23.3 25.6 23.3
Pro forma income tax
expense............ 9.5 9.9 6.2 8.1 8.8 7.6 10.0 11.0 10.0
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Pro forma net in-
come............... 12.7% 13.2% 8.3% 10.7% 11.6% 10.1% 13.3% 14.6% 13.3%
========== ========== ========== ========== ========== ========== ========== ========== ==========
OTHER OPERATING DA-
TA(1):
Total shares traded
................... 2,316,854 2,909,494 2,360,870 3,170,712 3,392,640 3,594,245 5,025,399 6,110,546 7,406,164
Total trades
executed .......... 2,518 3,021 2,637 3,422 3,780 4,141 5,550 6,793 7,572
Average daily trades
................... 40 48 42 53 63 65 88 103 124
Average daily net
trading revenues... $ 621 $ 857 $ 606 $ 809 $ 841 $ 776 $ 922 $ 1,006 $ 1,033
</TABLE>
- -------
(1) In thousands.
31
<PAGE>
The Company has experienced and expects to continue to experience,
significant fluctuations in quarterly operating results, including the value
of the Company's securities positions and the Company's ability to manage the
risks attendant thereto, the volume of its market-making activities,
volatility in the securities markets, its ability to manage personnel,
overhead and other expenses, the amount of revenue derived from limit orders
as a percentage of total revenues, changes in payments for order flow,
clearing costs, the addition or loss of sales and trading professionals,
regulatory changes, the amount and timing of capital expenditures, the
incurrence of costs associated with acquisitions and general economic
conditions. The Company's expense structure is based on historical expense
levels and the levels of demand for the Company's market-making services. If
demand for the Company's market-making services declines and the Company is
unable to adjust its cost structure on a timely basis, the Company's operating
results could be materially and adversely affected. The Company has
experienced, and may experience in the future, significant seasonality in its
business. The Company has historically experienced an increase in revenues in
the fourth quarter of the year, which the Company believes is due, in large
part, to higher trading volumes in the securities markets at year end. The
Company believes that this seasonal trend will continue for the foreseeable
future and that the Company's business, financial condition and operating
results may be affected by such trends in the future.
Due to all of the foregoing factors, period-to-period comparisons of the
revenues and operating results of the Company are not necessarily meaningful
and such comparisons cannot be relied upon as indicators of future
performance. There also can be no assurance that the Company will be able to
sustain the rates of revenue growth that it has experienced in the past, that
it will be able to improve its operating results or that it will be able to
sustain its profitability on a quarterly basis. See "Risk Factors--Risks
Associated with Potential Fluctuations in Quarterly Results; Seasonality."
LIQUIDITY
The Company has financed its business primarily through cash generated by
operations, as well as the private placement of preferred and common units and
borrowings under subordinated notes. As of March 31, 1998, the Company had
$171.1 million in assets, 86.0% of which consisted of cash or assets readily
convertible into cash (principally receivables from clearing brokers and
securities owned). Receivables from clearing brokers include interest bearing
cash balances held with clearing brokers and net receivables for transactions
that have not yet reached their contracted settlement date, which is generally
within three business days of the trade date. Securities owned principally
consist of equity securities which trade in NASDAQ and on the NYSE and AMEX
markets.
Pro forma net income plus depreciation and amortization was $9.7 million
during the three months ended March 31, 1998, up 41.3% from $6.9 million
during the comparable period in 1997. Pro forma net income plus depreciation
and amortization was $32.8 million in 1997, up 36.9% from $23.9 million in
1996. Depreciation and amortization expense, which related to fixed assets and
goodwill, was $1.3 million for the three months ended March 31, 1998, from
$936,000 for the comparable period in 1997. Depreciation and amortization
expense was $4.2 million and $3.0 million in 1997 and 1996, respectively. The
Company's capital expenditures were $2.4 million for the three months ended
March 31, 1998 or 4% of total revenues. Capital expenditures were $5.2 million
in 1997 and $5.3 million in 1996, or 2% and 3% of total revenues in each year,
respectively. Capital expenditures in 1997 primarily related to the purchase
of data processing and communications equipment, as well as leasehold
improvements and additional office facilities to support the Company's growth.
Additionally, during 1997, the Company made cash payments of $2.4 million in
connection with its acquisitions of the listed securities market-making
businesses of Trimark in 1995 and Tradetech in 1997. The Company's aggregate
minimum rental commitments for 1998 are $3.8 million, and it expects that it
will incur $8.0 million of capital expenditures during 1998.
As registered broker-dealers and market makers, Knight and Trimark are
subject to regulatory requirements intended to ensure the general financial
soundness and liquidity of broker-dealers and requiring the maintenance of
minimum levels of net capital, as defined in SEC Rule 15c3-1 ($1.0 million
each as of March 31, 1998). These regulations also prohibit a broker-dealer
from repaying subordinated borrowings, paying cash
32
<PAGE>
dividends, making loans to its parent, affiliates or employees, or otherwise
entering into transactions which would result in a reduction of its total net
capital to less than 120.0% of its required minimum capital. Moreover, broker-
dealers, including Knight and Trimark, are required to notify the SEC prior to
repaying subordinated borrowings, paying dividends and making loans to its
parent, affiliates or employees, or otherwise entering into transactions, which,
if executed, would result in a reduction of 30.0% or more of their excess net
capital (net capital less minimum requirement). The SEC has the ability to
prohibit or restrict such transactions if the result is detrimental to the
financial integrity of the broker-dealer. At March 31, 1998, Knight had net
capital of $39.1 million, which was $38.1 million in excess of its required net
capital of $1.0 million and Trimark had net capital of $16.1 million, which was
$15.1 million in excess of its required net capital of $1.0 million.
The Company has used a portion of its capital resources to pay interest on
its issued and outstanding Mandatorily Redeemable Preferred A and B Units, and
to make quarterly distributions to its members to meet their estimated income
tax obligations on their share of the Company's taxable income. The Preferred
A and B Units bore interest at a rate approximating the Federal Funds rate.
The Preferred A Units were redeemed and retired in their entirety in April
1998 for approximately $12.5 million in cash. In April 1998, the Company
redeemed a portion of the Preferred B Units for approximately $1.2 million in
cash. The Company intends to use $13.8 million of the proceeds of the Offering
to redeem all of the remaining outstanding Preferred B Units. See "Use of
Proceeds." After the Offering, the Company will no longer make distributions
to its owners for income tax purposes.
The Company and its subsidiaries currently anticipate that net proceeds from
this Offering together with their available cash resources and credit
facilities will be sufficient to meet their anticipated working capital and
capital expenditure requirements for at least the next 12 months.
MARKET RISK
On January 28, 1997, the SEC adopted new rules (Securities Act Release No.
7386) that require disclosures about the policies used to account for
derivatives, and certain quantitative and qualitative information about market
risk exposures. Since its inception, neither the Company or its subsidiaries
has traded or otherwise transacted in derivatives.
In the normal course of its market-making business, the Company maintains
inventories of exchange-listed and OTC securities. The fair value of these
securities at March 31, 1998 and December 31, 1997 was $63.5 million and $61.7
million, respectively, in long positions and $54.6 million and $21.1 million,
respectively, in short positions. The potential loss in fair value, using a
hypothetical 10.0% decline in prices, is estimated to be approximately $1.0
million and $4.0 million as of March 31, 1998 and December 31, 1997,
respectively, due to the offset of losses in long positions with gains in
short positions.
For working capital purposes, the Company invests in money market funds or
maintains interest bearing balances in its trading accounts with clearing
brokers, which are classified as cash equivalents and receivable from clearing
brokers, respectively, in the consolidated statement of financial condition.
These amounts do not have maturity dates or present a material market risk, as
the balances are short-term in nature and subject to daily repricing.
YEAR 2000
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than two years, computer systems
and/or software used by many companies, including computers involved in the
securities industry, may need to be upgraded to comply with such "Year 2000"
requirements. The Company has undertaken a project to identify and modify non-
year 2000 compliant communications and data processing systems in anticipation
of the Year 2000. The
33
<PAGE>
Company's main trading-related systems are currently Year 2000 compliant. The
Company plans to have its other computer systems certified by the end of 1998.
However, there can be no assurance that such schedule will be met or the
systems of other companies on which the Company's business is dependent also
will be converted timely or that any such failure to convert by another
company would not have an adverse effect on the Company's business. The
Company's progress under its Year 2000 compliance plan is reviewed and
monitored by senior management.
The success of the Company's plan depends heavily on parallel efforts being
undertaken by other entities with which the Company's systems interact, most
notably the Company's clearing brokers and the major securities industry
service organizations, and therefore, the Company is taking steps to determine
the status of these other entities' Year 2000 compliance. The Company's plan
includes participating in industry-wide testing during the fourth quarter of
1998.
The total cost of the Year 2000 project is currently estimated to be
approximately $500,000. This amount primarily represents the total estimated
man-hour costs of internal Company resources working on the Year 2000 project.
Costs related to the project are expensed as incurred, and the Company has
incurred approximately $250,000 of such costs as of March 31, 1998.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, Accounting for
Transfers of Assets and Servicing of Financial Assets and Extinguishments of
Liabilities, which provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities. On
December 31, 1996, the FASB issued SFAS No. 127, Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125, which defers the
effective date of SFAS No. 125 until January 1, 1998 for transfers which are
part of repurchase agreements, dollar-roll, securities lending or similar
transactions. The Company adopted SFAS No. 125 and SFAS No. 127 effective
January 1, 1997 and January 1, 1998, respectively. The adoption of the
provisions of these standards did not have a material impact on the Company's
financial statements.
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share. This
statement establishes standards for computing and presenting earnings per
share and applies to entities with publicly held common stock or potential
common stock. The Company adopted the provisions of SFAS No. 128 effective
December 31, 1997. The adoption of these provisions required the presentation
of earnings per share in the financial statements included elsewhere in this
Prospectus.
In February 1997, the FASB also issued SFAS No. 129, Disclosure of
Information about Capital Structure. This statement establishes standards for
disclosing information about an entity's capital structure. The Company
adopted the provisions of SFAS No. 129 on its effective date of January 1,
1998. The adoption of these provisions did not have a material impact on the
Company's financial statements.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
which establishes standards for the reporting and display of comprehensive
income and its components. The Company adopted the provisions of SFAS No. 130
on its effective date of January 1, 1998. The adoption of these provisions did
not have any impact on the Company's financial statements.
In June 1997, the FASB also issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information, which determines how segments are
determined and reported. The Company adopted the provisions of SFAS No. 131 on
its effective date of January 1, 1998. As the Company operates only in a
single segment and a single line of business - equity securities market-
making, the adoption of these provisions did not have any impact on the
Company's financial statements.
34
<PAGE>
BUSINESS
OVERVIEW
The Company is a leading market maker in NASDAQ securities, other OTC equity
securities and equity securities listed on the NYSE and the AMEX in the Third
Market. The Company has attained this leadership position by providing best
execution services to broker-dealers and institutional customers through its
sophisticated trading systems and proprietary methods. Through its wholly-
owned subsidiary, Knight, the Company makes markets in approximately 4,200
equity securities in NASDAQ and on the OTC Bulletin Board of the NASD. The
Company, through its wholly-owned subsidiary, Trimark, makes markets in all
NYSE- and AMEX-listed equity securities in the Third Market.
Since the beginning of 1997, Knight and Trimark have significantly increased
their market share of trading volume in each of their respective markets.
According to AutEx, Knight's advertised share volume in NASDAQ increased from
614.7 million shares representing 4.4% of total market share (or a rank of 6th
overall) for the month of January 1997, to 1.2 billion shares representing
8.1% of total market share (or a rank of 2nd overall) for the month of
December 1997, to 1.9 billion shares representing 9.9% of total market share
(or a rank of 1st overall) for the month of March 1998. According to the NASD,
Trimark's reported share volume of the NYSE-listed securities increased from
234.2 million shares representing 21.2% of total NYSE Third Market volume (or
a rank of 1st overall) for the month of January 1997, to 338.4 million shares
representing 30.5% of total NYSE Third Market volume (or a rank of 1st
overall) for the month of December 1997, to 445.6 million shares representing
33.1% of total NYSE Third Market volume (or a rank of 1st overall) for the
month of March 1998. Trimark's reported share volume of AMEX-listed securities
increased from 40.2 million shares representing 51.4% of total AMEX Third
Market volume (or a rank of 1st overall) for the month of January 1997, to
78.7 million shares representing 66.4% of total AMEX Third Market volume (or a
rank of 1st overall) for the month of December 1997, to 80.4 million shares
representing 68.9% of total AMEX Third Market volume (or a rank of 1st
overall) for the month of March 1998.
INDUSTRY BACKGROUND
During recent years, the U.S. market for equity securities has experienced
dramatic growth in trading volumes. The average daily volume of securities
traded in NASDAQ increased from 225.0 million shares in December 1992 to 678.5
million shares in December 1997. The average daily volume of securities traded
on the NYSE increased from 222.2 million shares in December 1992 to 546.9
million shares in December 1997. During this period, the average daily trading
volume of the Third Market, which consists of trading in NYSE- and AMEX-listed
securities in the OTC market, also increased significantly. The increase in
trading volume has resulted from a number of factors, including the growth of
cash flows into equity-based mutual funds, historic high returns in U.S.
equity markets, the emergence and market acceptance of electronic discount
brokers, technological innovations, such as the emergence of the Internet, and
reduced transaction costs. In addition, due to favorable market conditions,
companies have increasingly raised capital through the U.S. equity markets,
which has resulted in a significant increase in the number of companies that
are quoted in NASDAQ or listed on the NYSE. At March 31, 1998, there were
approximately 5,500 and 3,046 companies, respectively, quoted in NASDAQ and
listed on the NYSE, as compared to approximately 4,100 and 2,008 at December
31, 1992.
The retail brokerage business has been impacted by advances in technology
that have provided new and inexpensive means for individual investors to
access and participate in the market for equity securities. For example, the
Internet has facilitated individual investors' access to market information
and has significantly reduced transaction costs. The proliferation of Internet
brokers has resulted in dramatically lowered commissions charged for trading
securities. For example, some Internet brokers charge less than $10.00 per
trade for a 1,000 share trade compared to over $300.00 per trade for some
traditional "full service" brokers. While handling an increasing number of
trades for a wide range of securities, Internet brokers provide more
35
<PAGE>
immediate access to the market place than many other retail brokers.
Additionally, mutual funds and other institutional investors are also
demanding better execution of their trades and are seeking to reduce trading
costs. The Internet brokerage business model and the demands of institutional
investors have forced traditional brokers to change their approach to their
business and seek ways to manage increased trading volumes while providing
improved trade execution and reducing costs.
These changes have caused significant pressure on market makers, a critical
and lesser known part of the securities industry. Market makers typically
provide trading execution by offering to buy securities from, or sell
securities to, broker-dealers and institutional investors. Firms that have
elected to make a market in a security display the price at which they are
willing to buy (bid) or sell (ask) these securities and adjust their bid and
ask prices in response to the forces of supply and demand for each security.
Market makers are either a department within larger, diversified securities
firms or independent businesses. The internal market-making departments of
securities firms often are limited in their ability to handle significant
trading volumes in a broad range of securities and, as a result, are often
unable to provide adequate or enhanced liquidity. Most discount brokers and
on-line brokers do not have internal market-making functions and, accordingly,
rely entirely on independent market makers for trade execution.
A market maker typically acts as principal and derives most of its revenues
from the difference between the price paid when a security is bought and the
price received when that security is sold. In the past, market makers relied
on the spreads between bid and ask prices to ensure profitability and built
cost structures based on these spreads. However, changes in regulations
governing the securities industry and, to a lesser extent, the move from
securities being quoted in sixteenths rather than eighths of a dollar, have
dramatically reduced average spreads. Implemented in January 1997, the SEC's
Limit Order Display Rule requires the display or execution of customer limit
orders (orders to buy or sell stock at a particular price) that (1) are priced
better than a market maker's quote or (2) in certain circumstances add to the
size associated with the market maker's quote when the market maker is at the
best price in the market. The Limit Order Display Rule enables investors to
advertise directly their trading interest to the market, thereby allowing them
to compete with market maker quotes and affect the size of bid-ask spreads.
Additional regulations adopted by the NASD require market makers to fill a
customer's limit order before their own trades. Since the implementation of
the Limit Order Display Rule and the move to trading in sixteenths of a
dollar, NASDAQ and NYSE spreads have each decreased by an average of 35%.
Spreads could further decline if NASDAQ adopts proposed regulations under
which securities would be traded in decimals rather than in fractions.
In this new narrower spread environment, maintaining profitability has
become extremely difficult for many traditional marker makers. At the same
time, market makers have become subject to an increasing demand for better
execution standards and improved customer service. To meet these demands and
remain competitive, market makers have been forced to reexamine their
traditional spread-based approach to market making and to make extensive
technological and human resource investments. To leverage these large
investments and to remain profitable, market makers must execute a larger
volume of trades and maintain increased inventory positions. However, the
significant increases in trading volumes are only a benefit for the market
maker if its cost per trade is lower than its revenues per trade and if the
market maker is able to manage the risks associated with larger inventory
positions.
In response to these challenges, traditional brokerage firms are
increasingly electing to focus on their core competencies and to outsource
their market-making functions to independent market makers. In addition,
Internet brokers, who are handling increased trading volume, also utilize
independent market makers. According to AutEx, in March 1998, the three
largest independent market makers represented a combined market share of 25.4%
of the trading volumes of OTC equity securities, up from 17.2% in March 1997.
Similarly, according to the NASD, in March 1998 the three largest Third Market
trading firms represented a combined market share of 58% of the Third Market
volume in NYSE-listed equity securities compared to 42% in June 1997. The
three largest Third Market trading firms in AMEX-listed securities represented
a combined market share of 75% in March 1998 compared to 55% in June 1997.
While large volumes of trading provides an opportunity to spread fixed costs
over a larger number of trades, net profit per
36
<PAGE>
trade has declined. Certain independent market makers are seeking new trading
methodologies to identify and take advantage of the profit opportunities
represented by each trade. These market makers are also seeking to increase
the number of buy and sell orders that they receive ("order flow") which, in
turn, will provide increased trading profit opportunities. These market makers
require efficient and sophisticated systems and risk management practices and
personnel with the requisite expertise to deliver superior trade execution and
customer service, while handling increased order flow and maintaining low
costs per trade.
THE KNIGHT/TRIMARK SOLUTION
The Company is a leading market maker in NASDAQ securities, other OTC equity
securities and equity securities listed on the NYSE and the AMEX in the Third
Market. The Company has attained a leadership position by providing best
execution services to broker-dealer and institutional customers through its
sophisticated trading systems and proprietary methods. Through Knight, the
Company makes markets in approximately 4,200 equity securities in NASDAQ and
on the NASD's OTC Bulletin Board. The Company, through Trimark, makes markets
in all NYSE- and AMEX-listed equity securities in the Third Market. The
Company is committed to providing a value-added execution methodology that
emphasizes automated execution and rule compliance, real-time information
access to customers and pricing plus liquidity advantages based upon the
Company's willingness to commit capital. The main elements of the Company's
solution include:
. Superior Execution and Enhanced Liquidity. The Company has implemented a
variety of best execution practices which meet or exceed customer
requirements and provide its customers with significantly enhanced
liquidity, while complying with SEC and NASD regulations. These practices
include the following:
Knight
- Knight provides guaranteed, automated, electronic, continuous execution
for over 3,000 NASDAQ securities in which it makes markets for orders of
up to 2,000-3,000 shares on quotes as low as 100 shares.
- Knight, a year prior to the implementation of the SEC's Limit Order
Display Rule, established a policy of displaying all unexecuted limit
orders for 2,000 shares or greater.
- In March 1998, for securities in which Knight was a market maker, 99.9%
of all orders eligible for automated execution were executed within 3
seconds.
- Knight was the first, and remains the only, market maker to guarantee
execution, at the opening, of market-eligible orders it has received
before the opening for all shares in which it makes a market, up to an
aggregate of 250,000 shares.
- Knight guarantees that it will execute trades at the opening price for
substantially all NASDAQ initial public offerings, up to an aggregate of
250,000 shares.
- Knight has considerable expertise in handling large trades and, in March
1998, it executed 80,559 trades of 5,000 shares or greater.
- Knight was the first market maker to accept stop orders on all NASDAQ
stocks. A stop order is an order to buy/sell a security immediately if
the security's market price falls/rises to a specified price.
Trimark
- Trimark provides guaranteed, automated, electronic, continuous execution
in every NYSE- and AMEX-listed equity security at the National Best Bid
or Offer ("NBBO") for all orders eligible for automated execution.
- Trimark accepts all orders that can be sent to a primary exchange, i.e.
short sale, all or none, or stop order.
37
<PAGE>
- Trimark provides execution for orders up to 5,000 shares at the NBBO
regardless of the quote's size for a select group of over 500 of the most
actively traded stocks, representing more than 75% of NYSE volume.
- Trimark not only guarantees the customer's market order to receive the
best price available on any exchange or by any competing market maker,
but Trimark frequently delivers that price for many more shares than
advertised if demanded by the customer.
- Trimark offers various proprietary features such as limit order execution
protection based on the primary exchange and price improvement
guarantees.
. Commitment to Highest Quality Customer Service. The Company is committed to
providing the highest quality customer service. The Company believes that
its highly skilled, experienced and entrepreneurial workforce is uniquely
positioned to address the needs of its customers. The Company has 49
employees involved in customer service, with an average of 7.5 years of
related experience. The Company's customer service group is dedicated to
handling orders greater than the automated execution size and ensuring
consistent quality of execution.
The Company is currently implementing its proprietary electronic
communications gateway product, "e.Knight," which enables broker-dealers
and institutions to access the Knight and Trimark trading systems from
their desktops through the Internet and other electronic communications
gateways. In addition, e.Knight provides a backup service to certain of the
Company's customers. If a customer's system fails, e.Knight provides the
customer with uninterrupted access to the Company's trading systems and
thereby enables the customer to continue to provide services to its
clients.
The Company supplies each of its customers with monthly execution reports
that provide a level of detail exceeding regulatory requirements. The
report documents the percentage of price-improved shares and trades, the
average dollar value per share and the total dollar value of all price
improvements. This report is a valuable tool to the Company's customers as
it enables them to monitor their compliance with regulatory requirements to
seek and obtain best execution for their clients' trades.
. Sophisticated Trading Technology. The Company relies on sophisticated
technology to facilitate its market-making activities. Knight uses the
Brass trading system under license from Automated Securities Clearance,
Ltd. ("ASC"). Brass is used by over 130 market makers. Knight is one of
only two Brass users to run Brass on its own computers with its own
personnel, while all other market makers use ASC as a service bureau.
Trimark employs a TCAM/Appletree trading system. The Company has made
significant investments in its technology platform and infrastructure since
its inception. The Company's trading systems are augmented by software
applications that enable the processing of a large volume of order flow
efficiently, without diminishing speed of execution. The Company's systems
are designed to process up to 500,000 trades per day and in March, 1998
handled a combined average of 134,000 trades per day.
. Proprietary Trading Methods. The Company's net trading revenues are
dependent on its ability to evaluate and act rapidly on market trends and
successfully manage risk. The Company's methodology focuses on the dynamic,
real time analysis of market activity and price movements, which enables
the Company to better manage risk. Throughout the business day, the Company
continually analyzes its trading positions in individual securities and
monitors its short and long positions and its aggregate profits and losses.
Management uses this information to assess market trends and adjust its
trading strategy on a real time basis in an effort to maximize its trading
profits.
38
<PAGE>
STRATEGY
The Company's goal is to maintain and enhance its leadership position in the
market-making industry through the following key strategies:
Continue to Invest in Leading Technologies. The Company believes that its
future growth and profitability will depend largely on its continued
investment in leading technologies. For example, the Company believes that an
increasing number of customers and proportion of order flow will reach market
makers through the Internet and other electronic communications gateways. The
Company intends to expand into this growing market segment by increasing the
number of customers with access to e.Knight and by examining other possible
electronic means of capturing order flow. The Company also intends to augment
its Brass and TCAM/Appletree trading systems with proprietary software
applications to ensure that it has the capability to process greater trading
volumes in the future.
Aggressively Capture New Order Flow. The Company believes that extensive
order flow is critical to creating opportunities for trading revenues. The
Company is focused on increasing order flow to enhance its position as a
leading market maker and create additional revenue opportunities. The Company
intends to retain and expand customer relationships by continuing to provide
low-cost, high quality execution services, and intends to continue to respond
to evolving customer needs through the development of new services and
customer service excellence. Knight is seeking regulatory approval to increase
the number of securities in which it is allowed to make a market.
Significantly Expand Institutional Market Share. The Company believes it has
an opportunity to significantly increase its institutional customer base.
Trades for institutional investors generally have higher margins because these
investors do not receive payments for order flow. The Company is seeking to
increase its penetration of this market by marketing e.Knight to institutions
that manage more than $1 billion in assets and invest predominantly in equity
securities. In addition, within the next 18 months, the Company also plans to
significantly increase its institutional sales force.
Invest in and Develop the Best Human Capital. The Company believes that
investing in human capital is key to delivering best execution practices and
high quality customer service. The Company intends to continue its practice of
aggressively recruiting high caliber personnel and retaining such personnel by
providing appropriate compensation incentives. The Company believes that it
has high employee morale due to its competitive performance-based incentive
compensation structure and its encouragement of a highly cooperative and
creative culture. In addition, Knight has its own in-house training program
for trading staff, Knight School, which provides ongoing training and skill-
development to Knight's sales and trading personnel. The Company intends to
expand this initiative and to develop additional programs to improve the
skills and productivity of its workforce.
Develop New Services. The Company intends to continue to develop new
services that address evolving customer needs and technological requirements.
The Company recently launched e.Knight, which it plans to provide to the
majority of its institutional and broker-dealer customers and use as a means
of establishing new customer relationships. The Company also plans to
introduce additional services to support customers in executing equity
transactions. For example, the Company has recently developed an Electronic
Communications Network ("ECN") for order execution in a joint venture with a
wholly-owned subsidiary of ASC. The Company believes that this ECN product
will greatly enhance the breadth of the Company's execution services.
Leverage Cross-Selling Opportunities. The Company jointly markets Knight and
Trimark to offer market-making services for a broad range of securities to its
customers. The Company believes that by creating customer awareness of the
link between the two companies, customer satisfaction in one market can lead
to increased use of the Company's services in other markets. In addition,
customers with the e.Knight gateway will have real-time access to both
Knight's and Trimark's services at their desktops and will be targeted for
cross-selling opportunities.
39
<PAGE>
MARKET SHARE INFORMATION
Since the beginning of 1997, Knight and Trimark have significantly increased
their market share of trading volume in each of their respective markets.
Knight's market share is based on rankings published by AutEx, an electronic
database and on-line, real-time network for trade order indications used by
the securities industry.
<TABLE>
<CAPTION>
PERCENTAGE TOTAL NUMBER
ADVERTISED OF TOTAL OF OTC
MONTH ENDED SHARE VOLUME MARKET SHARE RANK STOCKS TRADED RANK
----------- -------------- ------------ ---- ------------- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
March 1998............... 1,864,544 9.93% 1 6,578 1
February 1998............ 1,451,983 8.95% 1 5,954 2
January 1998............. 1,125,939 7.50% 2 5,873 2
December 1997............ 1,248,282 8.11% 2 6,174 2
November 1997............ 993,276 8.20% 2 5,710 2
October 1997............. 1,396,968 7.14% 2 5,997 2
September 1997........... 1,073,493 6.99% 2 5,651 1
August 1997.............. 890,829 6.39% 3 5,386 1
July 1997................ 859,161 5.84% 3 5,395 1
June 1997................ 671,845 5.22% 5 5,131 1
May 1997................. 651,441 4.93% 6 5,013 1
April 1997............... 636,927 4.99% 6 4,884 1
March 1997............... 562,336 4.67% 6 4,938 1
February 1997............ 572,895 4.72% 6 4,963 1
January 1997............. 614,692 4.38% 6 4,952 1
</TABLE>
Trimark's market share is based on trade volumes reported to the NASD.
<TABLE>
<CAPTION>
THIRD MARKET VOLUME IN
-------------------------------------------------------------------
NYSE SECURITIES AMEX SECURITIES
--------------------------------- ---------------------------------
% THIRD % THIRD
MONTH ENDED SHARE VOLUME MARKET VOLUME RANK SHARE VOLUME MARKET VOLUME RANK
----------- -------------- ------------- ---- -------------- ------------- ----
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
March 1998.............. 445,662 33.1% 1 80,443 68.9% 1
February 1998........... 383,719 34.4% 1 70,301 69.1% 1
January 1998............ 337,126 29.2% 1 58,427 69.0% 1
December 1997........... 338,433 30.5% 1 78,793 66.4% 1
November 1997........... 247,468 28.5% 1 59,410 64.9% 1
October 1997............ 347,815 29.2% 1 84,323 65.8% 1
September 1997.......... 262,594 25.7% 1 58,731 57.9% 1
August 1997............. 238,652 24.1% 1 40,517 52.1% 1
July 1997............... 251,631 22.5% 1 42,540 46.7% 1
June 1997............... 216,472 20.7% 1 33,554 44.0% 1
May 1997................ 202,036 20.7% 1 27,629 42.0% 1
April 1997.............. 180,502 20.6% 1 23,666 41.5% 1
March 1997.............. 181,938 20.2% 1 25,088 43.1% 1
February 1997........... 209,402 22.4% 1 25,807 46.5% 1
January 1997............ 234,291 21.2% 1 40,271 51.4% 1
</TABLE>
ELECTRONIC COMMUNICATIONS NETWORK
ECNs are private trading systems which are popular among institutional
investors and traders because they provide investors with the ability to trade
securities anonymously. ECNs currently account for approximately 20% of the
NASDAQ trading volume.
The Company has entered into a joint venture with ASC, the developer and
owner of the Brass order entry and trading system, to establish an ECN. The
Company owns 20% of the joint venture entity, Brass Utility, L.L.C. ("BRUT").
The Company believes that access to the BRUT ECN will greatly enhance the
breadth of the Company's execution services.
40
<PAGE>
CUSTOMERS
The Company's target customers are national and regional full-service
broker-dealers, electronic discount brokers and institutional investors.
Selected customers of the Company own equity interests in the Company. See
"Certain Transactions--Transactions with Affiliates." The following table
presents a representative list of the Company's customers.
Ameritrade Inc. Josephthal & Co. Inc.
BHC Securities, Inc. Merrill Lynch, Pierce, Fenner & Smith
BHF Securities Corp. Incorporated
Bidwell & Company Mesirow Financial
Brown & Company Securities Nathan & Lewis Securities, Inc.
Corporation National Discount Brokers
Burke, Christensen & Lewis National Financial Services Corporation
Securities, Inc. PaineWebber Incorporated
CIBC Woody Gundy Securities Corp. Primevest Financial Services, Inc.
Cowles, Sabol & Co., Inc. The R.J. Forbes Group, Inc.
Dain Rauscher Incorporated Sanders Morris Mundy, Inc.
David A. Noyes & Co. Scottsdale Securities, Inc.
Direct Access Brokerage Services, Southwest Securities, Inc.
Inc. Stockcross, Inc.
Discover Brokerage Direct Thomas F. White & Co.
U.S. Clearing Corp.
E*TRADE Securities, Inc.
A.G. Edwards & Sons, Inc. Van Kasper & Company
Fiserv Correspondent Services, Inc. Waterhouse Securities, Inc.
Gruntal & Co., LLC (Gruntal & Co., Wedbush Morgan Securities, Inc.
Inc.)
Howe Barnes Investments, Inc.
International Correspondent Trading,
Inc.
J.W. Charles Securities, Inc.
MARKETING
The Company seeks to increase its market share through direct-response
advertising, advertising on its Web site and a public relations program. The
Company's marketing focuses on advertising its execution services in
publications targeted at the securities industry. In addition, the Company has
a quarterly program of targeted mailings to existing and potential broker-
dealer and institutional customers.
The Company also markets aggressively through one-on-one meetings with
customers and potential customers, and continuous communications with existing
customers. The Company maintains a comprehensive customer database that is
used regularly to better understand and address customer needs. The Company's
marketing strategy is to continue to differentiate itself from competitors by
enhancing its reputation and brand as the provider of highest quality
execution solutions with superior customer service.
CLEARING ARRANGEMENTS
By contract, Knight clears all its trades through Correspondent Services
Corp., a subsidiary of PaineWebber Incorporated ("PaineWebber"). The contract
will remain in effect until terminated by either party upon sixty days' prior
written notice or upon thirty days' written notice in certain limited
circumstances. Trimark is a party to a contract with National Investor
Services Corp., a subsidiary of Waterhouse Investor Services, Inc., pursuant
to which all of Trimark's trades are cleared. The contract will remain in
effect until terminated by either party upon sixty days' prior written notice.
See "Certain Transactions."
41
<PAGE>
TECHNOLOGY
The Company's success is largely attributable to management's ability to
identify and deploy emerging technologies that facilitate the execution of
trades. Technology has not only enhanced the Company's ability to handle order
flow, it has also been an important component of the Company's strategy to
comply with government regulations, achieve the highest execution standards
and provide superior customer service. The Company also uses its technology
and technology licensed from third parties to monitor proactively the
performance of its traders and to assess its inventory positions and to
provide ongoing information to its customers. The Company is electronically
linked to its broker-dealer and institutional customers through dedicated
servers. The Company's trading volume is transacted over dedicated
communications networks, which provide immediate access to the Company's
trading operations and facilitate the handling of customer orders. The Company
plans to continue to make additional investments in technology and to automate
further its execution services.
Architectural Design and Industry Standards. The Company's systems are
designed to be open, interoperable, scalable, redundant and flexible. The
Company utilizes leading edge technologies including Sun Microsystems, Inc.'s
client/server architecture, C/C++ programming languages, Java, relational
database management systems and online analytical processing.
Electronic Commerce. The Company's electronic commerce architecture enables
its broker-dealer and institutional customers to send their orders through a
variety of electronic communications gateways, including the Internet and
direct customer interfaces over the Company's private network. The Company's
customers can use their own order management system, an institutional
portfolio management system or can select from a variety of the Company's
electronic connections.
Knight uses the Brass trading system designed by ASC. This system has a
client/server architecture that uses Sun Microsystems, Inc. workstations and
servers. Knight runs a local version of Brass. Knight also makes extensive use
of application program interfaces ("APIs") to develop software applications.
Trimark uses the Appletree trading system designed by TCAM. This system runs
on Stratus Computer Inc.'s fault tolerant platform. Trimark has also developed
software applications using APIs.
Disaster Recovery Center. The Company is in the process of establishing a
back-up data center and trading facility in Ridgefield, New Jersey. This
facility will be used primarily to accommodate traders if a disaster or major
system malfunction occurs. This back-up data center will run a real-time copy
of the Company's trading systems and house a small group of full-time traders.
To provide for system continuity in the event of short power outages, the
Company has also equipped its three data centers and trading rooms with
uninterruptible power supply units and back up generators.
COMPETITION
The Company derives substantially all of its revenues from market-making
activities. The market for these services, particularly market-making services
through electronic communications gateways, is rapidly evolving and intensely
competitive. The Company expects competition to continue and intensify in the
future. Knight competes primarily with wholesale, national, and regional
broker-dealers. Trimark competes with the NYSE, the AMEX, regional exchanges
and Third Market competitors. The Company competes primarily on the basis of
execution standards, its relationship with its customers and technology.
A number of the Company's competitors have significantly greater financial,
technical, marketing and other resources than the Company. Some of the
Company's competitors also offer a wider range of services and products than
the Company and have greater name recognition and more extensive customer
bases than the Company. These competitors may be able to respond more quickly
to new or evolving opportunities, technologies and customer requirements than
the Company and may be able to undertake more extensive promotional activities
and offer more attractive terms to customers. Recent advancements in computing
and communications technology are substantially changing the means by which
market-making services are
42
<PAGE>
delivered, including more direct access on-line to a wide variety of services
and information, and have also created demand for more sophisticated levels of
customer service. The provision of such services may entail considerable cost
without an offsetting increase in revenues. Moreover, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties or may consolidate to enhance their services
and products. New competitors or alliances among competitors may emerge and
they may acquire significant market share.
There can be no assurance that the Company will be able to compete
effectively with current or future competitors or that the competitive
pressures faced by the Company will not have a material adverse effect on the
Company's business, financial condition and operating results.
EMPLOYEES
At March 31, 1998 the Company had a total of 337 full-time employees, of
which 246 were employed at Knight and of which 91 were employed at Trimark. Of
Knight's 246 employees, 142 were engaged in market-making activities, 33 in
customer service and 71 in administration. Of Trimark's 91 employees, 55 were
engaged in market-making activities, 16 in customer service and 20 in
administration. None of the Company's employees are subject to a collective
bargaining agreement. The Company believes that its relations with its
employees are excellent.
The Company recruits and retains its employees by compensating them largely
on a performance basis, measuring performance primarily in terms of revenue
generation. The Company is committed to improving the skill levels of its
employees and, to that end, Knight has established Knight School, a weekly
training session in which trading staff learn new trading techniques and are
informed of regulatory developments. The Company intends to expand this
initiative and to develop additional programs to improve the skills and
productivity of its workforce. The Company believes that it has high employee
morale due to its performance-based incentive compensation and its
encouragement of a highly cooperative and creative culture.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company relies primarily on copyright, trade secret and trademark law to
protect its proprietary technology. Notwithstanding the precautions taken by
the Company to protect its intellectual property rights, it is possible that
third parties may copy or otherwise obtain and use the Company's proprietary
technology without authorization or otherwise infringe on the Company's
proprietary rights. It is also possible that third parties may independently
develop technologies similar to those of the Company. It may be difficult for
the Company to police unauthorized use of its intellectual property rights.
There can be no assurance that the steps taken by the Company will prevent
misappropriation of its technology. In addition, litigation may be necessary
in the future to enforce the Company's intellectual property rights, to
protect the Company's trade secrets, to determine the validity and scope of
the proprietary rights of others, or to defend against claims of infringement
or invalidity. Such litigation, whether successful or unsuccessful, could
result in substantial costs and diversions of resources either of which could
have a material adverse effect on the Company's business, financial condition
and operating results. The Company may in the future receive notices of claims
of infringement of other parties' proprietary rights. There can be no
assurance that claims for infringement or invalidity (or claims for
indemnification resulting from infringement claims) will not be asserted or
prosecuted against the Company. Any such claims, with or without merit, could
be time consuming to defend, result in costly litigation, divert management's
attention and resources or require the Company to enter into royalty or
licensing agreements. There can be no assurance that such royalties or
licenses would be available on reasonable terms, if at all, and the assertion
or prosecution of any such claims could have a material adverse effect on the
Company's business, financial condition and operating results.
GOVERNMENT REGULATION
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. In addition, the SEC, the NASD,
other SROs, such as the various stock exchanges, and other regulatory
43
<PAGE>
bodies, such as state securities commissions, require strict compliance with
their rules and regulations. 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 protecting creditors or stockholders of market makers.
Market makers are subject to regulation concerning certain aspects of their
business, including trade practices, capital structure, record retention and
the conduct of directors, officers and employees. Failure to comply with any
of these laws, rules or regulations could result in censure, fine, the
issuance of cease-and-desist orders or the suspension or disqualification of
its directors, officers or employees, and other adverse consequences, which
could have a material adverse effect on the Company's business, financial
condition and operating results. The Company and certain of its officers and
other employees have, in the past, been subject to claims arising from the
violation of such laws, rules and regulations, which resulted in the payment
of fines and settlements. There can be no assurance that the Company and/or
its officers and other employees will not, in the future, be subject to claims
arising from the violation of such laws, rules and regulations. An adverse
ruling against the Company and/or its employees, including censure or
suspension, could result in the Company and/or its officers and other
employees being required to pay a substantial fine or settlement, and could
result in their suspension or expulsion, which could have a material adverse
effect on the Company's business, financial condition and operating results.
In connection with a three-year industry-wide investigation conducted by the
staff of the SEC into the trading and supervisory activities of many OTC
market makers and certain of their individual supervisory and trading
personnel, in July, 1997, the Staff informed Kenneth Pasternak, President and
Chief Executive Officer of the Company, that he is a subject in their
investigation for certain of his activities as a trading room supervisor at
Troster Singer. All of the activities being investigated took place prior to
Mr. Pasternak joining the Company in 1995 and none of them relate to his
employment by the Company. Mr. Pasternak has also been orally informed by the
Staff that, as a result of its investigation, it currently intends to
recommend to the SEC that Mr. Pasternak be charged with failure to supervise
with respect to several transactions of other traders under his supervision at
Troster Singer and that Mr. Pasternak be suspended for six months, ordered to
cease and desist, and assessed a civil penalty of $50,000. In September, 1997,
Mr. Pasternak submitted a brief to the Staff arguing that these
recommendations would be inappropriate and unsupported by the facts. To date,
the Staff has not forwarded its recommendations to the SEC. The Company cannot
predict the outcome of the Staff's investigation, including whether the Staff
will determine to forward its recommendations to the SEC in their current or a
modified form or at all. If any such charges are brought, Mr. Pasternak
intends to vigorously defend himself against them. If Mr. Pasternak should be
suspended, the Company would seek to replace his services with other Company
personnel. However, the loss of Mr. Pasternak's services would have a material
adverse effect on the Company's business, financial condition and operating
results.
The regulatory environment in which the Company operates is subject to
change. The Company's business, financial condition and operating results may
be adversely affected as a result of new or revised legislation or regulations
imposed by the SEC, other United States or foreign governmental regulatory
authorities or the NASD. The Company's business, financial condition and
operating results also may be adversely affected by changes in the
interpretation or enforcement of existing laws and rules by these governmental
authorities and the NASD.
Additional regulation, changes in existing laws and rules, or changes in
interpretations or enforcement of existing laws and rules often directly
affect the method of operation and profitability of securities firms. The
Company cannot predict what effect any such changes might have. Furthermore,
the Company's business, financial condition and operating results may be
materially affected not only by regulations directly applicable to it, but
also by regulations of general application. For example, the volume of the
Company's market-making activities in a given period could be affected by,
among other things, existing and proposed tax legislation, antitrust policy
and other governmental regulations and policies (including the interest rate
policies of the Federal Reserve Board) and changes in interpretation or
enforcement of existing laws and rules that affect the business and financial
communities. The level of trading and market-making activity can be affected
not only by such legislation or regulations of general applicability, but also
by industry-specific legislation or regulations.
44
<PAGE>
The Company's market-making activities involve securities traded in NASDAQ.
NASDAQ's operations have been the subject of extensive scrutiny in the media
and by government regulators, including the Antitrust Division of the United
States Department of Justice. This scrutiny has included allegations of
collusion among NASDAQ market makers. In fact, a large group of NASDAQ market
makers recently entered into a Stipulation and Order with the Department of
Justice in which they agreed not to engage in any collusive activities
relating to prices, quotes or spreads in NASDAQ-traded securities. In August
1996, the SEC adopted certain new rules and rule amendments, known as the
Order Handling Rules, which significantly altered the manner in which orders
related to both NASDAQ and listed securities are handled. The implementation
of these rules began in January 1997. The SEC has also issued for comment
certain proposed rules by the NASD which, if approved, would introduce a new
system for delivering and executing orders in NASDAQ. The proposed NASD rules,
if approved, along with other potential regulatory actions and improvements in
technology, could impact the manner in which business is currently conducted in
NASDAQ. These new rules, regulatory actions, and changes in market customs and
practices could have a material adverse effect on the Company's business,
financial condition and operating results.
The Company's business, both directly and indirectly, relies on the Internet
and other electronic communications gateways. The Company intends to expand
use of such gateways. To date, the use of the Internet has been relatively
free from regulatory restraints. However, the SEC, certain SROs and certain
states are beginning to address the regulatory issues that may arise in
connection with the use of the Internet. Accordingly, new regulations or
interpretations may be adopted that constrain the Company's and its customers'
ability to transact business through the Internet or other electronic
communications gateways. Any additional regulation of the use of such gateways
could have a material adverse effect on the Company's business, financial
condition and operating results.
In addition, the Company may in the future expand its business to other
countries. To expand its services internationally, the Company would have to
comply with regulatory controls of each specific country in which it conducts
business. The brokerage industry in many foreign countries is heavily
regulated. The varying compliance requirements of these different regulatory
jurisdictions and other factors may limit the Company's ability to expand
internationally. There can be no assurance that the Company will be successful
in obtaining the necessary regulatory approvals for any such expansion, or if
such approvals are obtained, that the Company will be able to continue to
comply with such regulations. The failure to obtain or comply with such
approvals could have a material adverse effect on the Company's business,
financial condition and operating results. See "Business--Government
Regulation."
NET CAPITAL REQUIREMENTS
As registered broker-dealers and members of the NASD, the Company's
subsidiaries are subject to the Net Capital Rule. The Net Capital Rule, which
specifies minimum net capital requirements for registered brokers-dealers, is
designed to measure the general financial integrity and liquidity of a broker-
dealer and requires that at least a minimum part of its assets be kept in
relatively liquid form. In general, net capital is defined as net worth
(assets minus liabilities), plus qualifying subordinated borrowings and
certain discretionary liabilities, and less certain mandatory deductions that
result from excluding assets that are not readily convertible into cash and
from valuing conservatively certain other assets. Among these deductions are
adjustments (called "haircuts"), which reflect the possibility of a decline in
the market value of an asset prior to disposition.
Failure to maintain the required net capital may subject a firm to
suspension or revocation of registration by the SEC and suspension or
expulsion by the NASD and other regulatory bodies and ultimately could require
the firm's liquidation. The Net Capital Rule prohibits payments of dividends,
redemption of stock, the prepayment of subordinated indebtedness and the
making of any unsecured advance or loan to a stockholder, employee or
affiliate, if such payment would reduce the firm's net capital below required
levels.
The Net Capital Rule also provides that the SEC may restrict for up to 20
business days any withdrawal of equity capital, or unsecured loans or advances
to stockholders, employees or affiliates ("capital
45
<PAGE>
withdrawal"), if such capital withdrawal, together with all other net capital
withdrawals during a 30-day period, exceeds 30% of excess net capital and the
SEC concludes that the capital withdrawal may be detrimental to the financial
integrity of the broker-dealer. In addition, the Net Capital Rule provides
that the total outstanding principal amount of a broker-dealer's indebtedness
under certain subordination agreements, the proceeds of which are included in
its net capital, may not exceed 70% of the sum of the outstanding principal
amount of all subordinated indebtedness included in net capital, par or stated
value of capital stock, paid in capital in excess of par, retained earnings
and other capital accounts for a period in excess of 90 days.
A change in the Net Capital Rule, the imposition of new rules or any
unusually large charge against net capital could limit those operations of the
Company that require the intensive use of capital and also could restrict the
Company's ability to withdraw capital from its broker-dealer subsidiaries,
which in turn could limit the Company's ability to pay dividends, repay debt
and repurchase shares of its outstanding stock. A significant operating loss
or any unusually large charge against net capital could adversely affect the
ability of the Company to expand or even maintain its present levels of
business, which could have a material adverse effect on the Company's
business, financial condition and operating results.
RISK MANAGEMENT
The Company's market-making and trading activities expose the Company's
capital to significant risks. These risks include, but are not limited to,
absolute and relative price movements, price volatility or changes in
liquidity, over which the Company has virtually no control.
The Company employs an automated proprietary trading and risk management
system which provides real time, on-line risk management and inventory
control. The Company monitors its risks by a constant review of trading
positions. For each trader, the Company has established a system whereby any
trades that exceed pre-determined limits are monitored by senior management as
are individual and aggregate dollar and share position totals and real-time
profits and losses. The management of trading positions is enhanced by review
of mark-to-market valuations and/or position summaries on a daily basis. The
following table illustrates the number of trading days the Company earned net
trading revenues or net trading losses for the respective periods.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- ---------------
1996 1997 1998
------------- -------------- ---------------
DAILY DAILY DAILY
DAYS AVERAGE DAYS AVERAGE DAYS AVERAGE
---- -------- ---- --------- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Daily trading revenues.......... 252 $730,010 252 $ 895,338 61 $1,032,895
Daily trading losses............ 2 (34,439) 1 (997,755) -- --
--- -------- --- --------- --- ----------
Average daily net trading
revenues..................... $723,991 $ 887,855 $1,032,895
======== ========= ==========
Total days.................... 254 253 61
=== === ===
</TABLE>
The Company takes long and short positions in securities in which it makes a
market. The following table illustrates, for the period indicated, the
Company's average, highest and lowest month-end inventory at market value
(based on both the aggregate and the net of the long and short positions of
trading securities).
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- ------------------------
1996 1997 1998
----------------------- ----------------------- ------------------------
AGGREGATE AGGREGATE AGGREGATE OF
OF LONG AND NET OF LONG OF LONG AND NET OF LONG LONG AND NET OF LONG
SHORT AND SHORT SHORT AND SHORT SHORT AND SHORT
POSITIONS POSITIONS POSITIONS POSITIONS POSITIONS POSITIONS
----------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Average month-end....... $48,010,762 $15,833,096 $73,545,271 $20,946,420 $ 96,365,617 $13,855,650
Highest month-end....... 65,802,039 27,759,237 84,466,227 40,665,188 118,071,197 21,598,757
Lowest month-end........ 37,865,308 8,968,927 56,988,279 11,535,551 74,539,279 8,908,909
</TABLE>
46
<PAGE>
PROPERTIES
The Company's headquarters are located in Jersey City, New Jersey. The
Company leases approximately 52,000 square feet under a lease which expires in
March 2005. The Company has an option to extend the lease term on three floors
for an additional five-year period. The Company also leases approximately
24,000 square feet for its offices in Purchase, NY, Chicago, IL and Boston,
MA. The Company believes that its present facilities, together with its
current options to extend lease terms and occupy additional space, are
adequate for its current needs.
LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings, the adverse
outcome of which, individually or in the aggregate, could have a material
adverse effect on its business, financial condition or operating results. The
Company and certain of its officers and employees have been subject to legal
proceedings in the past and may be subject to legal proceedings in the future.
See "Risk Factors--Government Regulations."
47
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Steven L. Steinman.... 50 Chairman of the Board of Directors
Kenneth D. Pasternak.. 44 President, Chief Executive Officer and Director
Walter F. Raquet...... 53 Executive Vice President and Director
Robert I. Turner...... 46 Executive Vice President, Chief Financial Officer,
Treasurer and Director
Robert M. Lazarowitz.. 42 Executive Vice President and Director
Anthony M.
Sanfilippo........... 42 Executive Vice President and Director
Michael T. Dorsey..... 42 Senior Vice President, General Counsel and Secretary
Martin Averbuch(1).... 46 Director
Charles V.
Doherty(1)........... 64 Director
Gene L. Finn(1)....... 65 Director
Gary R. Griffith(2)... 58 Director
Bruce R. McMaken(2)... 38 Director
J. Joe Ricketts....... 56 Director
Rodger O. Riney....... 52 Director
V. Eric Roach......... 35 Director
Charles A. Zabatta.... 55 Director
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Steven L. Steinman, Chairman of the Board of Directors of the Company, has
more than 20 years of experience in the securities industry. For the past 12
years, Mr. Steinman has been the Chief Executive Officer of Trimark
Securities, L.P., which he founded in 1986. Mr. Steinman is a co-founder of
the LLC, along with Messrs. Pasternak, Raquet and Lazarowitz, and has served
as the Chairman of the LLC for the past three years. Before founding Trimark
Securities, L.P., Mr. Steinman held trading positions at a number of trading
firms including Troster Singer and M.H. Meyerson & Co., Inc., and was Trading
Room Manager for Stix Friedman and Co., Gattini & Co., Traubner Bach Co. Inc.
and Monvest Securities. Mr. Steinman attended Columbia University.
Kenneth D. Pasternak, President, Chief Executive Officer and Director of the
Company, has 20 years of experience in the securities industry. For the past
three years, Mr. Pasternak has been the President, Chief Executive Officer and
a trading room supervisor for Knight Securities, L.P. Before co-founding the
LLC and Knight Securities, L.P., Mr. Pasternak served as the Senior Vice
President, Limited Partner and Trading Room Manager for Spear Leeds &
Kellogg/Troster Singer, a trading firm. Mr. Pasternak received his B.A. degree
from the State University of New York at New Paltz in 1976.
Walter F. Raquet, Executive Vice President and Director of the Company and
Chief Operating Officer of Knight, has 30 years of experience in the
securities industry. For the past three years, Mr. Raquet has been a Managing
Director and the Chief Operating Officer of Knight Securities, L.P. Mr. Raquet
was one of the co-founders of the LLC and Knight. From 1992 to 1994, he was a
Senior Vice President with Spear, Leeds & Kellogg/Troster Singer managing
their technology and marketing functions. From 1982 to 1992, Mr. Raquet was a
Partner at Herzog Heine & Geduld, Inc., a trading firm, where he directed the
firm's technology and marketing efforts. Mr. Raquet was also Corporate
Controller for PaineWebber Incorporated between 1980 and 1982. He was
Executive Vice President of Cantor Fitzgerald from 1977 to 1980 and Controller
for Weeden & Co. from 1968 to 1976. He has a CPA and practiced at the
accounting firm of Price Waterhouse. Mr. Raquet received a B.S. degree in
Accounting from New York University in 1966.
48
<PAGE>
Robert I. Turner, Executive Vice President, Chief Financial Officer,
Treasurer and Director of the Company and Chief Financial Officer of Knight,
has 20 years of experience in the financial services and securities
industries. For the past three years, Mr. Turner has served as the Chief
Financial Officer for Knight and in April 1996 he was elected to the advisory
board of the LLC. From 1988 to 1995, Mr. Turner was a Corporate Vice President
at PaineWebber Incorporated, serving in a variety of financial management
positions in the fixed income, financial services, merchant banking and
commodities trading divisions. From 1982 to 1987, Mr. Turner worked for
Citicorp in the treasury and investment banking divisions. From 1979 to 1981,
Mr. Turner practiced at the accounting firm of Price Waterhouse where he
became a CPA. Mr. Turner received his B.A. from the State University of New
York at Binghamton in 1973 and his M.S.B.A. from the University of
Massachusetts at Amherst in 1976.
Robert M. Lazarowitz, Executive Vice President and Director of the Company
and Chief Operating Officer of Trimark, has 20 years of experience in the
securities and financial services industries. For the past 10 years, Mr.
Lazarowitz served first as Chief Financial Officer and then as Chief Operating
Officer of Trimark Securities, L.P. Mr. Lazarowitz was also a co-founder of
the LLC. From 1985 to 1987, he served as Chief Financial Officer of Bach
Management/Investment Banking, and, from 1984 to 1985, as Chief Operating
Officer of Traubner Bach Co. Inc. He has been a member of the NASD's
Intermarket Trading System Committee for the past three years. Mr. Lazarowitz
received his B.S. in Accounting from the University of South Florida in 1978.
Anthony M. Sanfilippo, Executive Vice President and Director of the Company
and President of Trimark, has over 22 years of experience in the securities
industry. For the past year, he has been the President of Trimark Securities,
L.P. From 1993 to 1997, Mr. Sanfilippo was President and Chief Executive
Officer of Tradetech Securities, a market maker in the Third Market which he
founded in 1993. From 1988 to 1993, he served as Executive Vice President at
Mesirow Financial, managing the Institutional Equity Division and Regional
Exchange Specialist Operations. From 1980 to 1986, he was Vice President of
Jefferies & Co., an investment bank where he co-managed the firm's capital
commitments in listed securities. Mr. Sanfilippo is a member of the National
Organization of Investment Professionals. He has also served as President of
the Security Traders Association of Chicago and is currently serving on the
NASDR Business District Conduct Committee. Mr. Sanfilippo attended DePaul
University.
Michael T. Dorsey, Senior Vice President, General Counsel and Secretary of
the Company, joined the Company in March 1998. From June 1994 to March 1998,
Mr. Dorsey served as the Chief Legal Officer to Prudential Investment
Management Services LLC and its predecessor, in the institutional money
management unit of The Prudential Insurance Company of America. From March
1986 until June 1994, Mr. Dorsey served as an attorney in the SEC's Division
of Market Regulation, holding various posts including Special Counsel to the
Assistant Director and then Branch Chief of the Office of Compliance
Inspections and Oversight. Mr. Dorsey received a B.S.B.A. in Finance from St.
Louis University in 1981, a J.D. from the University of Missouri-Columbia in
1984 and an LL.M. in Securities Regulations from Georgetown University Law
Center in 1989. Mr. Dorsey is admitted to the Missouri and Illinois state
bars.
Martin Averbuch, Director of the Company, has served as an advisory board
member of the LLC since 1996. Mr. Averbuch has served in various positions at
E*TRADE Group, Inc., including President of E*TRADE Capital, Vice President
On-Line Ventures, and Vice President, Special Projects. Mr. Averbuch is also a
member of the TAG Industry Advisory Board on Execution Quality. Mr. Averbuch
was a member of the Hofstra University faculty from 1977 to 1978 as a
Professor in the Finance Department. He received a B.S. in Economics, magna
cum laude, from The Wharton School of Business at the University of
Pennsylvania in 1974 and a J.D./M.B.A. from the University of Chicago in 1977.
Charles V. Doherty, Director of the Company, has served as an advisory board
member of the LLC since March 1995. He has also been a Managing Director of
Madison Asset Group, an investment advisory firm, since 1993. From 1986 to
1992, Mr. Doherty was President and Chief Operating Officer of the Chicago
Stock Exchange specializing in information technology, marketing, floor
operations and compliance. He is a CPA
49
<PAGE>
and founder of Doherty, Zable & Company, an accounting firm, where he served
as President between 1974 to 1985. Mr. Doherty received his B.A. in
Accounting, magna cum laude, from the University of Notre Dame in 1955 and his
M.B.A. from the University of Chicago in 1967.
Gene L. Finn, Director of the Company, has served as an advisory board
member of the LLC since March 1995. He served as Vice President and Chief
Economist of the NASD from 1983 to 1995 and as Chief Economist and Senior
Economic Adviser for the SEC from 1969 to 1982. In such capacities, Mr. Finn
provided policy advice on stock market and investment company regulation and
oversight. Mr. Finn is an independent consultant and has been a Director of
Ameritrade Holding Corporation since December 1996. Mr. Finn holds a Ph.D. in
Economics from the University of Wisconsin.
Gary R. Griffith, Director of the Company, has served as an advisory board
member of the LLC since March 1995. He has been an independent financial
consultant since 1990 and has been in investment banking and financial
consulting since 1980. Before 1980, Mr. Griffith was with CBS, Inc. and Price
Waterhouse. Mr. Griffith is a CPA. Mr. Griffith received a B.S. in Business
Administration from Ohio State University.
J. Joe Ricketts, Director of the Company, is Chairman and Chief Executive
Officer of Ameritrade Holding Corporation. Previously, Mr. Ricketts was an
investment advisor with Ricketts & Co., a registered representative with Dean
Witter, and a branch manager at Dun & Bradstreet. Mr. Ricketts is a member of
the Board of Directors of Creighton University, a director of CSS Management,
Inc. of Denver, Colorado and a member of the District Business Conduct
Committee of the NASD, District No. 4. He received his B.A. degree in
economics from Creighton University in Omaha, Nebraska.
Bruce R. McMaken, Director of the Company, has been an advisory board member
of the LLC since March 1995. He also has been employed by Sanders Morris Mundy
("SMM"), an investment banking firm, since 1992, currently serving as a
Managing Director of Corporate Finance. Mr. McMaken serves as one of the
managers of Environmental Opportunities Fund, Ltd., a $38 million private
equity fund managed by an affiliate of SMM. Before joining SMM, Mr. McMaken
provided independent corporate finance and venture capital advisory services
to clients primarily in the environmental services, biotechnology and real
estate development industries. He is also a director of Independent
Environmental Services, Inc., a private solid waste collection and disposal
company. He received his B.A. degree from Cornell University in 1981.
Rodger O. Riney, Director of the Company, has been an advisory board member
of the LLC since March 1995. He is also the President of Scottsdale
Securities, Inc., a discount brokerage firm he founded in 1980. In 1969, he
joined Edward Jones & Co., a brokerage firm, and in 1975 became a General
Partner of that firm. Mr. Riney received a B.S. degree in Civil Engineering in
1968 and an M.B.A. in 1969, both from the University of Missouri-Columbia.
V. Eric Roach, Director of the Company, has served as an advisory board
member of the LLC since 1995. He founded Lombard Brokerage, a brokerage firm,
in 1992 and was Chairman and Chief Executive Officer until Dean Witter,
Discover & Co. acquired the company in 1997. He is President of Discover
Brokerage Direct, a 100%-owned subsidiary of Morgan Stanley Dean Witter,
managing the company's strategy, marketing and public relations areas. He
attended Brigham Young University and also attended the Executive M.B.A.
program of Pepperdine University.
Charles A. Zabatta, Director of the Company, is President and Chief
Operating Officer of Wall Street Connect, a national financial services
company. He has over 30 years of brokerage experience, having recently served
as Executive Vice President of Corporate Development at Waterhouse Investor
Services and Executive Vice President of Marketing at Kennedy Cabot & Co. He
also served as Director of Marketing for Securities Settlement, a national
clearing organization. He received his B.A. degree from Iona College in 1964.
50
<PAGE>
BOARD COMMITTEES
The Board of Directors has created an Audit Committee and a Compensation
Committee of the Board. The Audit Committee was established in April, 1998 and
is charged with reviewing the Company's annual audit and meeting with the
Company's independent accountants to review the Company's internal controls
and financial management practices. As of the date of this Prospectus, the
Audit Committee is composed of Gary R. Griffith, Joseph A. Konen and Bruce R.
McMaken. The Compensation Committee, was established in April 1998, and is
charged with recommending to the Board of Directors compensation for the
Company's key employees and will administer the 1998 Stock Option and Award
Plan. As of the date of this Prospectus, the Compensation Committee is
composed of Martin Averbuch, Charles V. Doherty and Gene L. Finn. See "--Stock
Option Plan."
DIRECTOR COMPENSATION
Non-employee directors will receive $18,000 per year, with committee
chairpersons receiving an additional $3,000 per year, in addition to $1,000
for each Board or Committee Meeting attended. Each non-employee director will
receive stock options pursuant to the automatic option grant provisions of the
Company's Stock Incentive Plan. See "--Nonemployee Director Stock Option
Plan." All directors will receive reimbursement of reasonable out-of-pocket
expenses incurred in connection with meetings of the Board of Directors. No
director who is an employee of the Company will receive compensation for
services rendered as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, and prior to the formation of the Compensation Committee,
decisions concerning the compensation of executive officers were made by the
entire Board of Directors. As of the date of this Prospectus, the Company's
Compensation Committee consists of Messrs. Averbuch, Doherty and Finn, none of
whom has ever been an officer or employee of the Company. No executive officer
of the Company serves as a member of the board of directors or compensation
committee of any entity that has one or more executive officers serving as a
member of the Company's Board of Directors or Compensation Committee. Certain
members of the Company's Board of Directors are parties to transactions with
the Company. See "Certain Transactions."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company utilizes certain provisions in Delaware corporate law to limit
the liability of corporate officers and directors. The Company believes that
the provisions of its Certificate of Incorporation and Bylaws and the separate
indemnification agreements outlined below are necessary to attract and retain
qualified persons as directors and officers. The Company's Certificate of
Incorporation limits the liability of directors to the maximum extent
permitted by Delaware law. This provision is intended to allow the Company's
directors the benefit of Delaware General Corporation Law, which provides that
directors of Delaware corporations may be relieved of monetary liabilities for
breach of their fiduciary duties as directors, except under certain
circumstances, including breach of their duty of loyalty, acts or omissions
not in good faith or involving intentional misconduct or a knowing violation
of law, unlawful payments or dividends or unlawful stock repurchases or
redemptions or any transaction from which the director derived an improper
personal benefit. The Company's Bylaws provide that the Company shall
indemnify officers and directors to the fullest extent provided by Delaware
law. The Bylaws authorize the use of indemnification agreements and the
Company intends to enter into such agreements with each of its directors and
executive officers.
The Company intends to obtain officer and director liability insurance with
respect to liabilities arising out of certain matters, including matters
arising under the Securities Act.
There is no pending litigation or proceeding involving a director, officer,
associate or other agent of the Company as to which indemnification is being
sought, nor is the Company aware of any threatened litigation that may result
in claims for indemnification by any director, officer, associate or other
agent.
51
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to Kenneth
Pasternak, the Company's Chief Executive Officer, and the Company's four other
most highly compensated executive officers (together with the Chief Executive
Officer, the "Named Executive Officers") for services rendered in all
capacities to the Company in 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------
NAME AND ALL OTHER
PRINCIPAL POSITION SALARY($) BONUS($)(1)(2) COMPENSATION($)(3)
- ------------------ --------- -------------- ------------------
<S> <C> <C> <C>
Kenneth Pasternak, President and
Chief Executive Officer......... 250,000 3,084,742(4) 5,421,289
Steven Steinman, Chairman of the
Board of Directors.............. 250,000 780,936 5,421,289
Walter Raquet, Executive Vice
President....................... 250,000 1,219,788 5,421,289
Robert Turner, Executive Vice
President, Chief Financial
Officer and Treasurer........... 140,576 379,708 4,750
Robert Lazarowitz, Executive Vice
President....................... 250,000 872,038 5,421,289
</TABLE>
- --------
(1) Includes discretionary incentive cash bonuses paid pursuant to the
Incentive Plan described below.
(2) The columns for "Long-Term Compensation Awards" and "Other Annual
Compensation" have been omitted because there is no compensation required
to be reported in such columns.
(3) Includes self-employment earnings reported on Form K-1 for the LLC, as
well as $4,750 contributed on behalf of each of the executive officers by
the Company under the Company's 401(k) defined contribution plan.
(4) Includes $60,025 paid as trading compensation to Mr. Pasternak for fiscal
1997.
52
<PAGE>
KNIGHT/TRIMARK GROUP, INC. 1998 LONG-TERM INCENTIVE PLAN. The Company, with
the approval of its stockholders, has adopted the 1998 Long-Term Incentive
Plan (the "1998 Plan"). The 1998 Plan will take effect prior to the
consummation of this Offering. A maximum of 7,145,000 shares of Common Stock
has been reserved for issuance under the 1998 Plan, subject to equitable
adjustment upon the occurrence of any increase in, decrease in or exchange of
the outstanding shares of Common Stock through merger, consolidation,
recapitalization, reclassification, stock split, stock dividend or similar
corporate transaction.
The 1998 Plan will be administered by a committee established by the Board
of Directors, the composition of which will at all times satisfy the
provisions of Rule 16b-3 of the Securities Exchange Act of 1934, as in effect
from time to time, including any successor thereof (the "Committee"). The
Committee will have full authority, subject to the provisions of the 1998
Plan, to determine, among other things, the persons to whom awards under the
1998 Plan ("Awards") will be made, the size of such Awards, and the specific
terms and conditions applicable to Awards, including, but not limited to, the
duration, vesting and exercise or other realization periods, the circumstances
for forfeiture and the form and timing of payment. The 1998 Plan limits the
number of shares of Common Stock that may be the subject of Awards to any
grantee in any calendar year to 1 million.
Awards, including stock options ("Options"), and restricted stock
("Restricted Stock"), and restricted stock units ("Restricted Stock Units")
may be made under the 1998 Plan to selected employees and independent
contractors of the Company and its present or future subsidiaries and
affiliates, in the discretion of the Committee. Approximately 300 employees
will be eligible to receive Awards under the 1998 Plan. Stock options may be
either "incentive stock options," as such term is defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), or nonqualified
stock options. The exercise price of an Option will not be less than the fair
market value per share of Common Stock on the date of grant. The exercise
price of an Option may be paid in cash or Common Stock or pursuant to a
"broker's cashless exercise" or other similar arrangement approved by the
Committee. Options will have a term of not more than ten years, will become
exercisable at such times and upon such terms as the Committee may determine,
and may be exercised following termination of employment as determined by the
Committee in the document evidencing the Award.
Restricted Stock is Common Stock transferred to the grantee, generally
without payment to the Company, which shares are subject to certain
restrictions and to a risk of forfeiture. A Restricted Stock Unit is a right
to receive shares of Common Stock or cash at the end of a specified period,
subject to a risk of forfeiture. The vesting of Restricted Stock and
Restricted Stock Units may be conditioned upon the satisfaction of specified
performance criteria. The maximum number of shares of Common Stock that may be
awarded as Restricted Stock under the 1998 Plan is 500,000.
In the event of a "change of control" (as defined in the 1998 Plan), (i) any
Award carrying a right to exercise that was not previously exercisable and
vested will become fully exercisable and vested, (ii) the restrictions,
deferral limitations, payment conditions and forfeiture conditions applicable
to any other Award granted under the 1998 Plan will lapse and such Award will
be deemed fully vested, and (iii) any performance conditions imposed with
respect to Awards will be deemed to be fully achieved.
The 1998 Plan may, at any time and from time to time, be altered, amended,
suspended, or terminated by the Board of Directors, in whole or in part,
provided that no amendment that, in the opinion of counsel, requires
stockholder approval will be effective unless such amendment has received the
requisite approval of stockholders. In addition, no amendment may be made that
adversely affects any of the rights of a grantee under any Award theretofore
granted, without such grantee's consent.
Set forth below is a brief discussion of certain federal income tax
consequences relating to Awards that may be granted pursuant to the 1998 Plan.
Nonqualified Stock Options. In the case of a nonqualified stock option, an
option holder generally will not be taxed upon the grant of the option.
Rather, at the time of exercise of such nonqualified stock option,
53
<PAGE>
the option holder will generally recognize ordinary income for federal income
tax purposes in an amount equal to the excess of the then fair market value of
the shares purchased over the option price (the "Spread"). The Company will
generally be entitled to a tax deduction at the time and in the amount that
the holder recognizes ordinary income.
Incentive Stock Options. In the case of an incentive stock option, the tax
recognition event will generally occur upon the disposition of the shares
acquired upon exercise of the incentive stock option, rather than upon the
grant of the incentive stock option or upon its exercise within the
employment-related period prescribed by the Code for this purpose ("timely
exercise"). The Spread will, however, be an item of tax adjustment for
purposes of the "alternative minimum tax" imposed by Section 55 of the Code.
If, upon disposition of the shares acquired upon exercise, the special holding
period requirements prescribed in the Code with respect to incentive stock
options have been satisfied (a "Qualifying Disposition"), any taxable income
will constitute capital gain in an amount equal to the excess of the sale
proceeds over the exercise price. The Company will not be entitled to a tax
deduction with respect to the timely exercise of an incentive stock option or
the subsequent Qualifying Disposition of shares so acquired. The tax
consequences of an untimely exercise of an incentive stock option or non-
Qualifying Disposition of acquired shares will be determined in accordance
with the rules applicable to nonqualified stock options. The tax consequences
of any untimely exercise of an incentive stock option or non-Qualifying
Disposition of acquired shares will be determined in accordance with the rules
applicable to nonqualified stock options, as described in the preceding
paragraph.
Exercise with Shares. An option holder who pays the option price upon
exercise of an option, in whole or in part, by delivering already owned shares
of stock will generally not recognize gain or loss on the shares surrendered
at the time of such delivery, except under certain circumstances. Rather,
recognition of such gain or loss will generally occur upon disposition of the
shares acquired in substitution for the shares surrendered.
Restricted Stock. Generally, the grant of restricted stock has no federal
income tax consequences at the time of grant. Rather, at the time the shares
are no longer subject to a substantial risk of forfeiture (as defined in the
Code), the holder will recognize ordinary income in an amount equal to the
fair market value of such shares. A holder may, however, elect to be taxed at
the time of the grant. The Company generally will be entitled to a deduction
at the time and in the amount that the holder recognizes ordinary income.
THE FOREGOING SUMMARY CONSTITUTES A BRIEF OVERVIEW OF THE PRINCIPAL FEDERAL
INCOME TAX CONSEQUENCES RELATING TO THE ABOVE-DESCRIBED AWARDS BASED UPON
CURRENT FEDERAL INCOME TAX LAWS. THIS SUMMARY IS NOT INTENDED TO BE EXHAUSTIVE
AND DOES NOT DESCRIBE STATE, LOCAL OR FOREIGN TAX CONSEQUENCES. PARTICIPANTS
IN THE 1998 PLAN SHOULD CONSULT THEIR PERSONAL TAX ADVISORS TO DETERMINE THE
SPECIFIC TAX CONSEQUENCES TO THEM OF AWARDS AND OTHER TRANSACTIONS RELATING
THERETO.
KNIGHT/TRIMARK GROUP, INC. 1998 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN. The
Company, with the approval of its stockholders, has adopted the 1998
Nonemployee Director Stock Option Plan (the "Nonemployee Director Plan"). The
Nonemployee Director Plan will take effect upon, and only in the event of, the
consummation of this Offering. A maximum of 264,000 shares of Common Stock
have been reserved for issuance under the Nonemployee Director Plan, subject
to equitable adjustment upon the occurrence of any increase in, decrease in or
exchange of the outstanding shares of Common Stock through merger,
consolidation, recapitalization, reclassification, stock split, stock dividend
or similar corporate transaction.
Under the Nonemployee Director Plan, any questions of administration that
arise will be resolved by the Board of Directors. Approximately eight
directors will be eligible to receive awards under the Plan. All stock options
granted under the Nonemployee Director Plan ("Director Options") will be
nonqualified stock options.
A Director Option to purchase 8,000 shares of Common Stock will be granted
upon the effective date of the Nonemployee Director Plan to each then
Nonemployee Director and, thereafter, to each new Nonemployee Director upon
election to the Board of Directors. In addition, on the first business day
following each annual meeting of the Company's stockholders, each continuing
Nonemployee Director will
54
<PAGE>
be granted a Director Option to purchase 4,000 shares of Common Stock. The
exercise price of a Director Option will be the fair market value per share of
Common Stock on the date of grant and may be paid in cash or Common Stock or
pursuant to a "broker's cashless exercise." Director Options will have a term
of ten years, will become exercisable in four equal annual instalments
commencing with the first anniversary of the date of grant, and may be
exercised following a director's termination of service, as determined by the
Board of Directors in the document evidencing the grant.
In the event of a "change of control" (as defined in the Nonemployee
Director Plan), any outstanding Director Options not yet exercisable in whole
or in part will become exercisable in full.
The Nonemployee Director Plan may, at any time and from time to time, be
altered, amended, suspended, or terminated by the Board of Directors, in whole
or in part; provided that no amendment that, in the opinion of counsel,
requires stockholder approval will be effective unless such amendment has
received the requisite approval of stockholders. In addition, no amendment may
be made that adversely affects any of the rights of a grantee under any
Director Option theretofore granted, without such grantee's consent.
For a discussion of certain federal income tax consequences relating to
options granted pursuant to the Nonemployee Director Plan, see "Knight/Trimark
Group, Inc. 1998 Long-Term Incentive Plan."
KNIGHT/TRIMARK GROUP, INC. MANAGEMENT INCENTIVE PERFORMANCE PLAN. The
Company has established a profit-pool incentive plan (the "Incentive Plan"),
currently consisting of three sub-profit pools, one for the Company
(disregarding its subsidiary companies)(the "Holding Company Pool"), one for
Knight (the "Knight Sub-Pool") and one for Trimark (the "Trimark Sub-Pool").
The Incentive Plan also provides for the creation of a new sub-pool at the
time of any future formation or acquisition of a new Company subsidiary, to be
allocated by such person or persons as determined by a committee of the Board
of Directors consisting of its executive officers (the "Executive Board").
The annual Holding Company Pool will equal 15% of the before-tax profits of
the Company (on an unconsolidated basis) earned by the Holding Company during
each fiscal quarter (not taking into account amounts paid out pursuant to the
Incentive Plan) and will be allocated on a quarterly basis by the Chief
Executive Officer of the Company. The annual Knight Sub-Pool equals 15% of the
before-tax profits earned by Knight during each fiscal quarter (not taking
into account amounts paid out pursuant to the Incentive Plan), and is
allocated on a quarterly basis by the Chief Executive Officer and Chief
Operation Officer of Knight. The annual Trimark Sub-Pool equals 15% of the
before-tax profits earned by Trimark during each fiscal quarter (not taking
into account amounts paid out pursuant to the Incentive Plan), and is
allocated on a quarterly basis by the Chief Executive Officer and Chief
Operation Officer of Trimark. Such officers may not themselves receive an
allocation from any sub-profit pool in any year unless the entire Company, on
a consolidated basis, earns a before-tax profit (not taking into account
amounts paid out pursuant to the Incentive Plan).
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company has established a Supplemental Executive Retirement Plan (the
"SERP"), effective as of June 1, 1998. The Company will purchase variable life
insurance policies upon the individual lives of each of Messrs. Raquet,
Pasternak, Steinman, Lazarowitz, Turner, and Sanfilippo (the "Participants")
in order to set aside sufficient assets for the SERP. The Company has agreed
with each Participant to pay one-half of the annual policy premiums for five
years, extendable for an additional five years, with the remaining one-half of
such premiums to be derived from deferrals of compensation by the
Participants.
The SERP will provide supplemental retirement income annually for fifteen
years. Assuming a benefit commencement date at the age of 65, a 10% return,
and the payment of premiums for a period of (i) five years, and (ii) 10 years,
the projected annual retirement benefit, respectively, is as follows: Mr.
Raquet, (i) $90,000, (ii) $190,000; Mr. Pasternak, (i) $250,000, (ii)
$440,000; Mr. Steinman, (i) $145,000, (ii) $270,000; Mr. Lazarowitz, (i)
$260,000, (ii) $480,000; Mr. Turner, (i) $210,000, (ii) $380,000; and Mr.
Sanfilippo,
55
<PAGE>
(i) $320,000, (ii) $565,000. The SERP also provides for pre-retirement and
post-retirement death benefits. Benefits are fully vested at all times.
Reduced early retirement benefits may be elected by a Participant at any time
after attainment of age 55.
401(K) PLAN
The Company has a Section 401(k) Plan (the "401(k) Plan"), a tax-qualified
plan covering substantially all of the Company's employees. Under the terms of
the 401(k) Plan, participants may elect to defer a portion of their
compensation, subject to certain limitations and the Company is required to
make annual contributions to the 401(k) Plan equal to 50% of the contributions
made by its employees, subject to certain limitations.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements substantially the same as
the prior LLC employment agreements with Messrs. Raquet, Steinman, Lazarowitz
and Pasternak, and the prior Trimark employment agreement with Mr. Sanfilippo
(collectively, the "Executives"). The term of each of the agreements (the
"Agreements") will be four (4) years, beginning on the date of the
consummation of the Offering, with annual, automatic one-year extensions
beginning on the fourth anniversary of such date unless either party gives
notice of nonrenewal at least 60 days prior to such anniversary.
Mr. Pasternak's Agreement provides that he will be President and Chief
Executive Officer of the Company and President and Chief Executive Officer of
Knight. Each of Messrs. Raquet and Lazarowitz's Agreement provides that the
Executive will be Executive Vice President of the Company; Mr. Raquet will
also be Chief Operating Officer of Knight and Mr. Lazarowitz will be Chief
Operating Officer of Trimark. Mr. Steinman's Agreement provides that he will
be Chairman of the Board of the Company and Chief Executive Officer of
Trimark. Mr. Sanfilippo's Agreement provides that he will be Executive Vice
President of the Company and President of Trimark. Each Executive will receive
an annual salary of $250,000, as from time to time increased by the Board of
Directors.
Each Agreement provides for the payment of annual bonuses pursuant to the
Incentive Plan (see "Knight/Trimark Group, Inc. 1998 Incentive Plan,") and for
participation in current and future employee benefit plans, including the
SERP. See "Supplemental Executive Retirement Plan". In addition, the
Agreements of each of Messrs. Pasternak and Sanfilippo provide for the payment
of a sales commission equal to a percentage (in the case of Mr. Pasternak,
35%; in the case of Mr. Sanfilippo, a percentage consistent with the Company's
other traders) of the net, before-tax trading profits of the Executive's
personal trading account; and the Agreements of each of Messrs. Steinman and
Lazarowitz provide for the payment of an additional annual bonus until March
31, 2000, equal in each case to 5 percent of the before-tax earnings of
Trimark (the "Additional Trimark Bonus").
56
<PAGE>
CERTAIN TRANSACTIONS
THE REORGANIZATION
The Company was organized in April 1998 for the purpose of succeeding to the
business of Roundtable Partners, L.L.C. (the "LLC"). Concurrent with the
closing of the Offering, based on an assumed initial public offering price of
$15.00 per share, all of the member interests of the LLC will be exchanged for
41,000,000 shares of Common Stock of the Company. Certain members of the LLC,
including management, who have so elected, will receive 1,741,581 additional
shares of Class A Common Stock valued at the initial public offering price
with respect to their share of the undistributed income of the LLC through
March 31, 1998 (the "Undistributed Profits"). Management of the Company has
elected to receive shares of Class A Common Stock for all of its Undistributed
Profits. The Company will receive no additional consideration in connection
with such conversion of member interests into shares of Common Stock. In
connection with the Reorganization, Knight will become the successor entity to
Knight Securities, L.P., and Trimark will become the successor entity to
Trimark Securities, L.P. Prior to the effective date of the Registration
Statement of which this Prospectus is a part, certain non-management members
of the LLC, who have so elected, will receive a cash distribution of all or a
portion of their Undistributed Profits. Concurrently with such distribution,
the LLC intends to make a cash distribution to each member of an estimate of
its share of the total amount of profits of the LLC accruing between April 1,
1998 and the closing of this Offering.
BROWN & COMPANY SECURITIES CORPORATION
On April 24, 1996, the Company entered into a $500,000 subordinated note
agreement with Brown & Company Securities Corporation ("Brown"), a major
customer of the Company, which pays interest quarterly at a market rate
approximating the prevailing Federal Funds Rate. The subordinated note matures
on April 23, 1999, but may be prepaid by the Company at any time without
penalty. Concurrent with the execution of the subordinated note, the Company
granted Brown certain benefits, including the right to receive additional
payments based on the amount of order flow provided to the Company by Brown.
For the period from March 27, 1995 through December 31, 1995, the years ended
December 31, 1996 and 1997, and for the three-months ended March 31, 1998,
Brown was the source of 4.0%, 4.6%, 4.3% and 4.1%, respectively, of the
Company's order flow. Payments by the Company to Brown during these periods
amounted to $2.1 million, $6.2 million, $7.5 million and $1.7 million,
respectively. Additionally, in April 1996, the Company granted Brown the right
to purchase 7,143 Common Units in the LLC at the then prevailing market price
of $10.00 per Common Unit (the "Brown Option"). As of the date of grant, the
right to purchase the Common Units had a de minimis value. Brown has elected
to exercise the Brown Option at the closing of the Offering. Upon the closing
of the Offering, Brown will own 394,887 shares of the Company's Class A Common
Stock. The aggregate exercise price for the Brown Option is $71,430.
TRANSACTIONS WITH AFFILIATES
Transactions with Affiliates. Immediately prior to the Reorganization, 60%
of the Common Units of the LLC will be owned by a consortium of 27 broker-
dealers or their affiliates. After the closing of this Offering, such broker-
dealer owners will own 48.5% of the Company's Common Stock (47.2% if the
Underwriters' over-allotment option is exercised in full).
Set forth below is a list of the Company's broker-dealer owners as of March
31, 1998:
<TABLE>
<S> <C> <C>
Ameritrade Inc. E*TRADE Securities, Inc. Dain Rauscher Incorporated
BHC Securities, Inc. Fiserv Correspondent Services, Inc. R.J. Forbes Group, Inc.
BHF Securities Corp. Gruntal & Co., L.L.C. Sanders Morris Mundy Inc.
Bidwell & Company Howe Barnes Investments, Inc. Scottsdale Securities, Inc.
Burke, Christensen &
Lewis Securities International Correspondents Trading, Inc. Southwest Securities, Inc.
Cowles, Sabol & Co.,
Inc. J.W. Charles Securities, Inc. Stockcross, Inc.
David A. Noyes & Co. Josephthal & Co. Inc. Thomas F. White & Co.
Direct Access Brokerage
Services, Inc. Nathan & Lewis Securities, Inc. Van Kasper & Company
Discover Brokerage
Direct Primevest Financial Services, Inc. Waterhouse Securities, Inc.
</TABLE>
57
<PAGE>
For the period from March 27, 1995 through December 31, 1995, the years
ended December 31, 1996 and 1997, and the three-months ended March 31, 1998,
the broker-dealer owners and subordinated note holders were the source of
31.3%, 35.1%, 39.8% and 41.3% of the Company's order flow, respectively. For
the period from March 27, 1995 through December 31, 1995, the years ended
December 31, 1996 and 1997, and the three months ended March 31, 1998,
aggregate payments by the Company to its broker-dealer owners and subordinated
note holders for order flow and aggregate profit distributions to broker-
dealer owners equaled $14.4 million and $1.7 million, $46.4 million and $10.6
million, $50.7 million and $13.4 million and $11.3 million and $5.0 million,
respectively. Pursuant to the limited liability company agreement of the LLC,
its broker-dealer owners have shared in the LLC profits partially in
proportion to their equity interest and partially in proportion to the
quantity of order flow they have directed to the Company. This arrangement
will be discontinued upon consummation of the Reorganization.The broker-dealer
owners will no longer receive any special inducements to send order flow to
the Company and will not be contractually or otherwise obligated to provide
the Company with any order flow in the future. See "Risk Factors--Risks
Associated with Change of Ownership Structure."
Ameritrade. Upon the closing of this Offering, Ameritrade, Inc.
("Ameritrade") will own 3,953,675 shares of the Company's Class A Common
Stock. Mr. J. Joe Ricketts, the Chairman and Chief Executive Officer of
Ameritrade Holding Corporation, an affiliate of Ameritrade, is a Director of
the Company. For the period from March 27, 1995 through December 31, 1995, the
years ended December 31, 1996 and 1997, and the three months ended March 31,
1998, Ameritrade was the source of 6.8%, 5.7%, 5.8% and 8.4%, respectively, of
the Company's order flow. During the same periods, aggregate payments by the
Company to Ameritrade for order flow and profit distributions, respectively,
equalled $3.1 million and $529,000, $8.2 million and $2.7 million, $6.9
million and $2.6 million, and $1.9 million and $972,000, respectively.
Discover Brokerage Direct. Upon the closing of this Offering, Discover
Brokerage Direct, Inc. ("Discover") will own 2,101,963 shares of the Company's
Class A Common Stock. Mr. V. Eric Roach, the President of Discover, is a
Director of the Company. For the period from March 27, 1995 through December
31, 1995, the years ended December 31, 1996 and 1997, and the three months
ended March 31, 1998, Discover was the source of 2.1%, 2.3%, 3.5% and 2.8%,
respectively, of the Company's order flow. During the same periods, aggregate
payments by the Company to Discover for order flow and profit distributions,
respectively, equalled $1.0 million and $185,000, $4.4 million and $964,000,
$5.5 million and $1.3 million, and $954,000 and $394,000, respectively.
E*Trade. Upon the closing of this Offering, E*Trade Securities, Inc.
("E*Trade") will own 2,566,432 shares of the Company's Class A Common Stock.
Mr. Martin Averbuch, the Vice President, Special Projects of E*Trade Group, an
affiliate of E*Trade, is a Director of the Company. For the period from March
27, 1995 through December 31, 1995, the years ended December 31, 1996 and
1997, and the three months ended March 31, 1998, E*Trade was the source of
1.8%, 3.2%, 5.7% and 7.2%, respectively, of the Company's order flow. During
the same periods, aggregate payments by the Company to E*Trade for order flow
and profit distributions, respectively, equalled $645,000 and $190,000, $3.5
million and $825,000, $5.3 million and $1.7 million, and $1.3 million and
$545,000, respectively.
Gruntal & Co. After the Reorganization, Gruntal & Co., L.L.C. ("Gruntal")
will own 1,311,754 shares of the Company's Class A Common Stock, all of which
shares are being sold by Gruntal in the Offering. For the period from March
27, 1995 through December 31, 1995, the years ended December 31, 1996 and
1997, and the three months ended March 31, 1998, Gruntal was the source of
1.0%, 0.6%, 0.3% and 0.2%, respectively, of the Company's order flow. During
the same periods, aggregate payments by the Company to Gruntal for order flow
and profit distributions, respectively, equalled $421,000 and $341,000,
$434,000 and $1.2 million, $415,000 and $845,000, and $66,000 and $290,000,
respectively. In addition, from its inception until March 1998, the Company
utilized Gruntal as its clearing broker. For the period from March 27, 1995
through December 31, 1995, the years ended December 31, 1996 and 1997, and the
three months ended March 31, 1998, the Company paid Gruntal clearing fees in
the amount of $11.7 million , $21.5 million, $14.8 million and $1.6 million.
The Company terminated its clearing arrangements with Gruntal as of
March 1998.
58
<PAGE>
Sanders Morris Mundy. Upon the closing of this Offering, Sanders Morris
Mundy Inc. ("SMM") will own 134,566 shares of the Company's Class A Common
Stock. Mr. Bruce R. McMaken, a Managing Director of SMM, is a Director of the
Company. For the period from March 27, 1995 through December 31, 1995, the
years ended December 31, 1996 and 1997, and the three months ended March 31,
1998, SMM was the source of 0.1%, 0.046%, 0.033% and 0.017%, respectively, of
the Company's order flow. During the same periods, aggregate payments by the
Company to SMM for order flow and profit distributions, respectively, equalled
$34,000 and $31,000, $64,000 and $115,000, $45,000 and $85,000, and $3,000 and
$28,000, respectively.
Scottsdale Securities. Upon the closing of this Offering, Scottsdale
Securities, Inc. ("Scottsdale Securities") will own 1,012,097 shares of the
Company's Class A Common Stock. Mr. Rodger O. Riney, the President of
Scottsdale Securities, is a Director of the Company. For the period from March
27, 1995 through December 31, 1995, the years ended December 31, 1996 and
1997, and the three months ended March 31, 1998, Scottsdale Securities was the
source of 0.9%, 1.5%, 1.4% and 1.3%, respectively, of the Company's order
flow. During the same periods, aggregate payments by the Company to Scottsdale
Securities for order flow and profit distributions, respectively, equalled
$662,000 and $170,000, $2.2 million and $798,000, $1.3 million and $649,000,
and $340,000 and $226,000, respectively.
Southwest Securities. Upon the closing of this Offering, Southwest
Securities, Inc. ("Southwest") will own 1,674,850 shares of the Company's
Class A Common Stock. For the period from March 27, 1995 through December 31,
1995, the years ended December 31, 1996 and 1997, and the three months ended
March 31, 1998, Southwest was the source of 2.7%, 2.3%, 1.4% and 1.4%,
respectively, of the Company's order flow. During the same periods, aggregate
payments by the Company to Southwest for order flow and profit distributions,
respectively, equalled $1.6 million and $451,000, $3.1 million and $1.6
million, $1.8 million and $1.1 million, and $383,000 and $375,000,
respectively. In addition, Southwest is acting as an underwriter in connection
with this Offering. See "Underwriting."
Waterhouse Investor Services, Inc. Upon the closing of this Offering,
Waterhouse Investor Services, Inc. ("Waterhouse") will own 2,136,793 shares of
the Company's Class A Common Stock and 3,945,528 shares of the Company's Class
B Common Stock. Waterhouse is an affiliate of Waterhouse Securities, Inc.
("Waterhouse Securities," together with "Waterhouse," is herein referred to as
the "Waterhouse Entities"). For the period from March 27, 1995 through
December 31, 1995, the years ended December 31, 1996 and 1997, and the three
months ended March 31, 1998, Waterhouse Securities was the source of 5.8%,
6.5%, 10.1% and 11.3%, respectively, of the Company's order flow. During the
same periods, aggregate payments by the Company to the Waterhouse Entities for
order flow and profit distributions, respectively, equalled $2.0 million and
$697,000, $6.8 million and $2.9 million, $10.2 million and $3.9 million and
$3.5 million and $1.5 million, respectively. In addition, Trimark utilizes
National Investor Services Corp. ("NISC"), a subsidiary of Waterhouse, as its
clearing broker. In the year ended December 31, 1997 and the three months
ended March 31, 1998, the Company paid NISC clearing fees in the amount of
$9.5 million and $6.0 million, respectively.
Trimark Leasing. The Company leases certain computer and telephone equipment
and furniture from Trimark Leasing, Inc., an entity which is wholly-owned by
Steven L. Steinman and Robert M. Lazarowitz, executive officers and directors
of the Company. For the period from March 27, 1995 through December 31, 1995,
the years ended December 31, 1996 and 1997, and for the three months ended
March 31, 1998, rental expenses under such leases were $261,000, $530,000,
$539,000, and $118,000, respectively.
PaineWebber. Knight has contracted to clear all its trades through
Correspondent Services Corp. ("CSC"), a subsidiary of PaineWebber Incorporated
("PaineWebber"). In the three months ended March 31, 1998, the Company paid
CSC clearing fees in the amount of $590,000. PaineWebber is acting as an
underwriter in connection with the Offering. In addition, Knight is party to a
$30,000,000 subordinated credit facility with PaineWebber Group, Inc., an
affiliate of PaineWebber. As of March 31, 1998, no amounts were outstanding
under the facility.
59
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock giving effect to
the Reorganization and the exercise of the Brown Option, and as adjusted to
reflect the sale of the shares pursuant to this offering, by (i) each person
who is known by the Company to own beneficially more than 5% of its
outstanding shares of Common Stock, (ii) each director and Named Executive
Officer of the Company, (iii) all directors and executive officers of the
Company as a group and (iv) the Selling Stockholder. Except as otherwise
indicated below, to the knowledge of the Company, each person listed below has
sole voting power and investment power with respect to the shares beneficially
owned by such person subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO SHARES OWNED AFTER
THE OFFERING OFFERED BY THE OFFERING(3)
--------------------- THE SELLING -----------------------
NAME AND ADDRESS(1) NUMBER PERCENT(2) STOCKHOLDER NUMBER PERCENT
- ------------------- ---------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Steven L. Steinman(4)... 4,414,656 10.33% -- 4,414,656 8.58%
Kenneth D. Pasternak.... 4,342,104 10.16 -- 4,342,104 8.44
Walter F. Raquet........ 4,269,709 9.99 -- 4,269,709 8.30
Robert M.
Lazarowitz(5).......... 4,342,104 10.16 -- 4,342,104 8.44
Anthony M. Sanfilippo... 415,705 * -- 415,705 *
Robert I. Turner........ -- 0.00 -- -- 0.00
Michael T. Dorsey....... -- 0.00 -- -- 0.00
Martin Averbuch......... -- 0.00 -- -- 0.00
Charles V. Doherty...... -- 0.00 -- -- 0.00
Gene L. Finn............ -- 0.00 -- -- 0.00
Gary R. Griffith........ -- 0.00 -- -- 0.00
J. Joe Ricketts......... -- 0.00 -- -- 0.00
Bruce R. McMaken........ -- 0.00 -- -- 0.00
Rodger O. Riney......... -- 0.00 -- -- 0.00
V. Eric Roach........... -- 0.00 -- -- 0.00
Charles A. Zabatta...... -- 0.00 -- -- 0.00
Ameritrade Holding
Corp................... 3,953,675 9.25 -- 3,953,675 7.69
E* TRADE Securities,
Inc.................... 2,566,432 6.00 -- 2,566,432 4.99
Gruntal & Co.,
L.L.C.(6).............. 1,311,754 3.07 1,311,754 -- 0.00
Discover Brokerage
Direct................. 2,101,963 4.92 -- 2,101,963 4.09
Waterhouse Investor
Services, Inc.......... 6,082,321 14.23 -- 6,082,321 11.83
All executive officers
and directors as a
group (16 persons)..... 17,784,278 41.61% -- 17,784,278 34.58%
</TABLE>
- --------
* Less than one percent of the outstanding Common Stock.
(1) See "Management--Executive Officers and Directors." Unless otherwise
indicated, the address for each beneficial owner is c/o Knight/Trimark
Group, Inc., Newport Tower, 29th Floor, 525 Washington Boulevard, Jersey
City, New Jersey 07310.
(2) The percentage of total outstanding for each stockholder immediately prior
to the Offering is calculated by dividing (i) the number of shares of
Common Stock deemed to be beneficially owned by such stockholder at such
time by (ii) the sum of the number of shares of Common Stock outstanding
at such time.
(3) Assumes that the Underwriters' over-allotment option to purchase up to an
additional 1,500,000 shares from the Company is not exercised.
(4) Mr. Steinman does not own any of the Company's Common Stock, but he is the
general partner of the Steinman Family Association, L.P., a Delaware
limited partnership, the limited partners of which are his wife and a
trust for the benefit of certain members of his immediate family.
(5) Mr. Lazarowitz does not own any of the Company's Common Stock, but he is
the general partner of the Lazarowitz Family Association, L.P., a Delaware
limited partnership, the limited partners of which are his wife and a
trust for the benefit of certain members of his immediate family.
(6) The address of Gruntal & Co., L.L.C. is 14 Wall Street, New York, New York
10005.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company does
not purport to be complete and is subject to the provisions of the Certificate
of Incorporation and Bylaws of the Company, which are included as exhibits to
the Registration Statement of which this Prospectus forms a part, and the
provisions of applicable law.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Upon consummation of the Offering, the authorized Capital Stock of the
Company will consist of 220,000,000 shares of Common Stock, par value $.01 per
share, and 20,000,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"). Of the 220,000,000 authorized shares of the Company's
Common Stock, 200,000,000 shares will be designated Class A Common Stock and
20,000,000 shares will be designated as Class B Common Stock. As of March 31,
1998, after giving effect to the Reorganization and the Offering, 47,484,299
shares of Class A Common Stock will be issued and outstanding and 3,945,528
shares of Class B Common Stock will be issued and outstanding.
COMMON STOCK
Voting Rights. Except as otherwise required by law or, as described below,
by the Certificate of Incorporation, the holders of shares of Class A Common
Stock will vote together as a single class. Each share of Class A Common Stock
will entitle the registered holder thereof to one vote. There will be no
cumulative voting and, therefore, holders of a majority of the shares of Class
A Common Stock can elect all of the directors.
The holders of Class A Common Stock will be entitled to elect all members of
the Company's Board of Directors. The holders of Class B Common Stock will
have no voting rights.
Conversion into Class A Common Stock. Pursuant to the Certificate of
Incorporation, each share of Class B Common Stock will be exchangeable at any
time upon sale or other transfer thereof, subject to certain limitations on
such sale or transfer, for one fully paid and nonassessable share of Class A
Common Stock, subject to adjustment for any stock split. Subject to certain
limitations and upon satisfaction of certain conditions, holders of Class B
Common Stock shall be entitled to convert their shares into the same number of
shares of Class A Common Stock.
Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, after payment in full to creditors
and distribution in full of the preferential amounts, if any, to be
distributed to holders of shares of Preferred Stock, unless otherwise required
by law, holders of shares of Common Stock will be entitled to receive all the
remaining assets of the Company of whatever kind available for distribution to
stockholders ratably in proportion to the number of shares of Common Stock
held by them. Pursuant to the Certificate of Incorporation, the holders of
Common Stock will participate in the distribution of such assets as if all
classes and series of Common Stock constituted a single class of stock.
Dividends. Subject to the preferential rights of holders of Preferred Stock,
if any, the holders of shares of Common Stock will be entitled to receive,
when, as and if declared by the Board of Directors, out of the assets of the
Company which are by law available therefor, dividends payable either in cash,
in property or in shares of capital stock. Pursuant to the Certificate of
Incorporation, no dividend will be declared or paid in respect of any class of
Common Stock by the Company unless the holders of all classes of Common Stock
receive the same per share dividend, payable in the same amount and type of
consideration, as if such classes constituted a single class, except that if
any dividend is declared that is payable in shares of Common Stock, or in
subscription or other rights to acquire shares of Common Stock, then such
dividend will be declared and paid at the same rate per share with respect to
each class of Common Stock, the dividend payable on shares of Class A Common
Stock will be payable only in shares of, or in subscription or other rights to
acquire shares of, Class A Common Stock, and the dividend payable on shares of
Class B Common Stock will be payable only in shares of, or in subscription or
other rights to acquire shares of Class B Common Stock.
61
<PAGE>
PREFERRED STOCK
Under the Certificate of Incorporation, the Board of Directors will be
expressly authorized, without further stockholder approval, to provide for the
issuance of all or any shares of Preferred Stock in one or more classes or
series, and to fix for each such class or series such voting powers, full or
limited, or no voting powers, and such distinctive designations, preferences
and relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of such class or series and as may be permitted by
the DGCL. The Company has no present plans to issue any shares of Preferred
Stock. See "--Antitakeover Effects of Provisions of the Certificate of
Incorporation and Bylaws and the DGCL."
REGISTRATION RIGHTS
Certain securityholders of the Company (the "Rightsholders") are entitled to
require the Company to register under the Securities Act, up to a total of
shares (the "Registrable Shares") of outstanding Common Stock (including
Registrable Shares being sold by the Selling Stockholder in this
offering) pursuant to the terms of a Registration Rights Agreement (the
"Registration Rights Agreement"). The Registration Rights Agreement provides
that in the event the Company proposes to register any of its securities under
the Securities Act at any time or times, the Rightsholders, subject to certain
exceptions, shall be entitled to include Registrable Shares in such
registration. However, the managing underwriter of any such offering may
exclude for marketing reasons some of such Registrable Shares from such
registration. In addition, certain Rightsholders have additional rights,
subject to certain conditions and limitations, to require the Company to
prepare and file a registration statement under the Securities Act with
respect to their Registrable Shares. The Company is generally required to bear
the expenses of all such registrations, except underwriting discounts and
commissions.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
BYLAWS AND THE DGCL
Certificate of Incorporation and Bylaws. The Certificate of Incorporation
will provide that stockholders are not entitled to call a special meeting of
stockholders, nor to require the Board of Directors to call such a meeting.
The Certificate of Incorporation will provide that stockholders will not be
entitled to act by written consent in lieu of a meeting except where such
consent is unanimous. These provisions of the Certificate of Incorporation,
could discourage potential acquisition proposals and could delay or prevent a
change of control of the Company.
Delaware Takeover Statute. The Company is subject to Section 203 of the DGCL
("Section 203"), which, subject to certain exceptions, prohibits a publicly
held Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (a) by persons
who are directors and also officers and (b) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 % of the outstanding voting stock that is not
owned by the interested stockholder.
Section 203 defines "business combination" to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder; (iii) subject to
certain exceptions, any
62
<PAGE>
transaction that results in the issuance or transfer by the corporation of any
stock of the corporation to the interested stockholder; (iv) any transaction
involving the corporation that has the effect of increasing the proportionate
share of the stock of any class or series of the corporation beneficially
owned by the interested stockholder; or (v) the receipt by the interested
stockholder of the benefit of any loans, advances, guarantees, pledges or
other financial benefits provided by or through the corporation. In general,
Section 203 defined an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
Other Provisions. The holders of Common Stock are not entitled to preemptive
or subscription rights. In any merger, consolidation or business combination,
the consideration to be received per share by holders of Class A Common Stock
is identical to that to be received by holders of Class B Common Stock. No
class of Common Stock may be subdivided, consolidated, reclassified or
otherwise changed unless the other class of Common Stock concurrently is
subdivided, consolidated, reclassified or otherwise changed in the same
proportion and in the same manner. All outstanding shares are, and the shares
of Class A Common Stock offered hereby will be upon issuance, validly issued,
fully paid and nonassessable.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is .
63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have an aggregate of
51,429,827 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option). Of these shares, the 10,000,000 shares
of Class A Common Stock sold in this Offering will be freely tradable without
restriction or further registration under the Securities Act, except that any
shares purchased by an "affiliate" of the Company, as that term is defined in
Rule 144 ("Rule 144") under the Securities Act (an "Affiliate"), may generally
be sold only in compliance with Rule 144 as described below.
In addition, the existing stockholders have the right to cause the Company
to register the sale of certain shares of Class A Common Stock or Class B
Common Stock owned by them and/or to include their shares in future
registrable statements relating to the Company's securities.
Approximately 41,429,827 of the outstanding shares of Common Stock are
"restricted securities" as that term is defined under Rule 144 (the
"Restricted Shares"). Of these Restricted Shares, shares will be subject
to lock-up agreements as described below. Upon expiration of these agreements
all of the Restricted Shares will be available for sale in the public market,
subject to the provisions of Rule 144 under the Securities Act. Upon
completion of this offering, the holders of 41,429,827 of the Restricted
Shares will be entitled to registration rights. Sales of Restricted Shares in
the public market, or the availability of such shares for sale, could
adversely affect the market price of the Common Stock. See "Description of
Capital Stock--Registration Rights."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially
owned Restricted Shares for at least one year is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater
of (i) one percent of the then outstanding shares of Class A Common Stock
(approximately 474,844 shares immediately after this offering) or (ii) the
average weekly trading volume in the Class A Common Stock in the Nasdaq
National Market during the four calendar weeks preceding the date on which
notice of such sale is filed with the Securities and Exchange Commission. Such
sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information
about the Company. In addition, a person who is not an Affiliate and has not
been an Affiliate for at least three months prior to the sale and who has
beneficially owned Restricted Shares for at least two years may resell such
shares without regard to the requirements described above. The Company is
unable to estimate accurately the number of Restricted Shares that ultimately
will be sold under Rule 144 because the number of shares will depend in part
on the market price for the Common Stock, the personal circumstances of the
sellers and other factors. See "Risk Factors--Shares Eligible for Future Sale"
and "Risk Factors--No Prior Market; Possible Volatility of Stock Price."
After the date of this Prospectus, the Company intends to file a
registration statement under the Securities Act on Form S-8 to register all
shares of Common Stock issuable pursuant to the Company's stock option plans.
Such registration statement is expected to become effective immediately upon
filing. Accordingly, shares issued under the Company's stock plans will be
eligible for sale in the public markets upon vesting and exercise of options
or awards, subject to the Rule 144 volume restrictions applicable to
affiliates and, in certain cases, lock-up agreements.
All executive officers and directors of the Company and substantially all of
the Company's stockholders (including the Selling Stockholder), who upon the
completion of this Offering will hold in the aggregate shares of Common
Stock, have agreed that they will not, without the prior written consent of
BancAmerica Robertson Stephens, directly or indirectly, offer to sell, sell,
contract to sell or otherwise dispose of any shares of Common Stock
beneficially owned by them for a period of 180 days after the date of this
Prospectus, subject to certain exceptions. BancAmerica Robertson Stephens may,
in its sole discretion and at any time, without notice, release all or any
portion of the securities subject to lock-up agreements. See "Underwriting."
64
<PAGE>
The Company is unable to estimate the number of shares that will be sold
under Rule 144, as this will depend upon the market price for the Common Stock
of the Company, the personal circumstances of the sellers and other factors.
Prior to this offering, there has been no public market for the Common Stock,
and there can be no assurance that a significant public market for the Common
Stock will develop or be sustained after the Offering.
Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for the
Common Stock and could impair the Company's future ability to obtain capital
through an offering of equity securities.
65
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, PaineWebber Incorporated, ABN AMRO Incorporated and Southwest
Securities, Inc. (the "Representatives"), have severally agreed with the
Company and the Selling Stockholder, subject to the terms and conditions of
the Underwriting Agreement, to purchase the number of shares of Class A Common
Stock set forth below opposite their respective names. The Underwriters are
committed to purchase and pay for all such shares, if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
BancAmerica Robertson Stephens...........................
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......
PaineWebber Incorporated.................................
ABN AMRO Incorporated....................................
Southwest Securities, Inc. ..............................
----------
Total.................................................. 10,000,000
==========
</TABLE>
The Representatives have advised the Company and the Selling Stockholder
that the Underwriters propose to offer the shares of Class A Common Stock to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share, of which $ may be reallowed to other dealers.
After the completion of the initial public offering, the public offering
price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall change the amount of proceeds to be
received by the Company and the Selling Stockholder as set forth on the cover
page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to
1,500,000 additional shares of Class A Common Stock from the Company at the
initial public offering price per share set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage of such additional shares that the number of shares of Class A
Common Stock to be purchased by it shown in the above table represents as a
percentage of the total number of shares offered hereby. If purchased, such
additional shares will be sold by the Underwriters on the same terms less the
underwriting discount as those on which the shares offered hereby are being
sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Selling Stockholder and the Company against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
Underwriting Agreement.
Pursuant to the terms of lock-up agreements, the holders of 41,429,827
shares of the Company's Common Stock have agreed, for a period of up to 180
days after the date of this Prospectus, that, subject to certain exceptions,
they will not contract to sell or otherwise dispose of any shares of Common
Stock, any options or warrants to purchase shares of Common Stock or any
securities convertible into, or exchangeable for, shares of Common Stock,
owned directly by such holders or with respect to which they have the power of
disposition, without the prior written consent of BancAmerica Robertson
Stephens. BancAmerica Robertson Stephens may, in its sole discretion, and at
any time without notice, release all or any portion of the securities subject
to lock-up agreements. All of the shares of Common Stock subject to lock-up
agreements may be eligible for sale in the public market upon the expiration
of the lock-up agreements, subject to Rule 144.
In addition, the Company and the Selling Stockholder have agreed that until
180 days after the date of this Prospectus, the Company and the Selling
Stockholder will not, without prior written consent of BancAmerica Robertson
Stephens, subject to certain exceptions, offer, sell, contract to sell or
otherwise
66
<PAGE>
dispose of any shares of Common Stock, any options or warrants to purchase any
shares of Common Stock or any securities convertible into, exercisable for or
exchangeable for shares of Common Stock other than the Company's and the
Selling Stockholder's sale of shares in this offering, the issuance of shares
of Common Stock upon the exercise of outstanding options and warrants and the
grant of options to purchase shares of Common Stock under existing employee
stock option or stock purchase plans. Furthermore, the Company has agreed not
to file any registration statements on Form S-8 to register the 7,409,000
shares of Class A Common Stock reserved for issuance pursuant to its Stock
Option Plans until at least 90 days after the date of this Prospectus. See
"Management--Stock Options Plans" and "Shares Eligible for Future Sale."
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
The Company's subsidiary, Knight, is a party to a clearing contract with an
affiliate of PaineWebber Incorporated, whereby such affiliate clears all of
Knight's trades for usual and customary fees. One of the Underwriters,
Southwest Securities, Inc., is a stockholder of the Company. See "Certain
Transactions."
Prior to this offering, there has been no public market for the Class A
Common Stock of the Company. Consequently, the initial public offering price
for the Class A Common Stock offered hereby will be determined through
negotiations between the Company and the Representatives. Among the factors to
be considered in such negotiations are prevailing market conditions, certain
financial information of the Company, market valuations of other companies
that the Company and the Representatives believe to be comparable to the
Company, estimates of the business potential of the Company, the present state
of the Company's development and other factors deemed relevant.
The offering is being conducted in accordance with Rule 2720 ("Rule 2720")
of the National Association of Securities Dealers, Inc. (the "NASD") which
provides that, among other things, when an NASD member firm participates in
the offering of equity securities of a company with whom such member has a
"conflict of interest" (as defined in Rule 2720), the initial public offering
price can be no higher than that recommended by a "qualified independent
underwriter" (as defined in Rule 2720) (a "QIU"). BancAmerica Robertson
Stephens is serving as the QIU in the offering and will recommend a price in
compliance with the requirements of Rule 2720. BancAmerica Robertson Stephens
has performed due diligence investigations and reviewed and participated in
the preparation of this Prospectus and the Registration Statement of which
this Prospectus forms a part. BancAmerica Robertson Stephens, in its capacity
as QIU, will receive no additional compensation as such in connection with the
offering.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions, or the imposition of penalty bids which may have the effect of
stabilizing or maintaining the market price of the Class A Common Stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the Class A Common Stock on
behalf of the Underwriters for the purpose of fixing or maintaining the price
of the Class A Common Stock. A "syndicate covering transaction" is the bid for
or the purchase of the Class A Common Stock on behalf of the Underwriters to
reduce a short position incurred by the Underwriters in connection with the
offering. A "penalty bid" is an arrangement permitting the Representatives to
reclaim the selling concession otherwise accruing to an Underwriter or
syndicate member in connection with this offering if the shares of Class A
Common Stock originally sold by such Underwriter or syndicate member are
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected in NASDAQ as a National Market issue or otherwise and, if commenced,
may be discontinued at any time.
67
<PAGE>
LEGAL MATTERS
The validity of the Class A Common Stock offered hereby will be passed upon
for the Company by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York. Certain legal matters will be passed on for the Underwriters by Brobeck,
Phleger & Harrison LLP, New York, New York.
EXPERTS
The consolidated financial statements as of and for the years ended December
31, 1996 and 1997 and for the period from March 27, 1995 to December 31, 1995
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements of
the Exchange Act. Upon completion of the Offerings, the Company will be
subject to the informational requirements of the Exchange Act, and in
accordance therewith, will be required to file periodic reports and other
information with the SEC. Such information can be inspected without charge
after the Offerings at the public reference facilities of the SEC at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the regional offices of the SEC located at Suite 1400, Northwest, Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material may also
be obtained at prescribed rates from the Public Reference Section of the SEC,
450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains a web
site (http://www.sec.gov) that will contain all information filed
electronically by the Company with the SEC.
This Prospectus, which constitutes a part of a Registration Statement on
Form S-1 (the "Registration Statement") filed by the Company with the SEC
under the Securities Act, does not contain all of the information set forth in
the Registration Statement, including the exhibits thereto. For further
information with respect to the Company and the Class A Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits
thereto. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and, with respect to
each such contract or document filed as an exhibit to the Registration
Statement, reference is made to the copy of such contract or document, and
each such statement is qualified in all respects by such reference. A copy of
the Registration Statement, including the exhibits thereto, may be inspected
and copies thereof may be obtained as described in the preceding paragraph
with respect to periodic reports and other information to be filed by the
Company under the Exchange Act.
68
<PAGE>
ROUNDTABLE PARTNERS, L.L.C.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Statements of Financial Condition as of December 31, 1996 and
1997 and (unaudited) March 31, 1998 and (unaudited) Pro forma March 31,
1998...................................................................... F-3
Consolidated Statements of Income for the period from March 27, 1995 (date
of initial capitalization) through December 31, 1995, the years ended
December 31, 1996 and 1997 and the (unaudited) three month periods ended
March 31, 1997 and 1998................................................... F-4
Consolidated Statements of Changes in Members' Equity for the period from
March 27, 1995 (date of initial capitalization) through December 31, 1995,
the years ended December 31, 1996 and 1997 and the (unaudited) three month
period ended March 31, 1998............................................... F-5
Consolidated Statements of Cash Flows for the period from March 27, 1995
(date of initial capitalization) through December 31, 1995, the years
ended December 31, 1996 and 1997 and the (unaudited) three month periods
ended March 31, 1997 and 1998............................................. F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Advisory Board and
Members of Roundtable Partners, L.L.C.
In our opinion, the accompanying consolidated statements of financial
condition and the related consolidated statements of income, changes in
members' equity and cash flows present fairly, in all material respects, the
consolidated financial position of Roundtable Partners, L.L.C. and its
subsidiaries at December 31, 1996 and 1997, and the results of their
operations and their cash flows for the period from March 27, 1995 (date of
initial capitalization) through December 31, 1995 and for the years ended
December 31, 1996 and 1997, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
New York, New York
February 10, 1998, except as to Note 15,
which is as of April 15, 1998
F-2
<PAGE>
ROUNDTABLE PARTNERS, L.L.C.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
(NOTE 16)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............ $ 15,353,166 $ 13,797,198 $ 5,429,440 $ 5,429,440
Securities owned, at
market value........... 46,780,638 61,726,045 63,490,053 63,490,053
Receivable from clearing
brokers................ 23,155,776 30,151,720 78,119,153 78,119,153
Fixed assets and
leasehold improvements,
at cost, less
accumulated
depreciation and
amortization of
$1,752,435 in 1996,
$3,884,743 in 1997 and
$4,650,032 in 1998
(unaudited)............ 6,398,112 7,353,429 8,273,607 8,273,607
Goodwill, less
accumulated
amortization of
$2,720,728 in 1996,
$4,465,484 in 1997 and
$4,973,786 in 1998
(unaudited)............ 13,852,211 14,192,840 14,394,624 14,394,624
Other assets............ 495,564 651,190 1,366,150 1,366,150
------------ ------------ ------------ ------------
Total assets........ $106,035,467 $127,872,422 $171,073,027 $171,073,027
============ ============ ============ ============
LIABILITIES AND MEMBERS'
(PRO FORMA STOCKHOLDERS')
EQUITY
Liabilities
Securities sold, not
yet purchased, at
market value......... $ 19,021,401 $ 21,060,857 $ 54,581,144 $ 54,581,144
Mandatorily Redeemable
Preferred Units
currently
redeemable........... -- -- -- 13,636,510
Distributions on
Common Units payable
to members........... 4,983,972 8,405,326 8,767,185 35,288,478
Accrued compensation
expense.............. 4,185,918 6,112,562 7,940,980 7,940,980
Accrued execution and
clearance fees....... 3,174,472 3,966,145 3,789,466 3,789,466
Accrued payments for
order flow........... 2,898,601 3,764,391 5,278,397 5,278,397
Liability for capital
lease................ 1,070,029 786,801 713,207 713,207
Accounts payable,
accrued expenses and
other liabilities.... 1,911,988 1,394,288 1,612,570 1,612,570
Interest payable on
Preferred Units...... 596,878 424,981 416,486 416,486
Subordinated note..... 500,000 500,000 500,000 500,000
Mandatorily Redeemable
Preferred A Units.... 22,705,690 12,483,610 12,483,610 --
Mandatorily Redeemable
Preferred B Units.... 15,000,000 15,000,000 15,000,000 13,847,100
------------ ------------ ------------ ------------
Total liabilities... 76,048,949 73,898,961 111,083,045 137,604,338
------------ ------------ ------------ ------------
Commitments and contin-
gent liabilities (Notes
9 and 12)
Members' equity
Common units, $10 par
value, 750,000 units
authorized; 738,097,
734,497 and 734,497
(unaudited) units
issued and
outstanding at
December 31, 1996,
1997 and March 31,
1998, respectively... 7,380,970 7,344,970 7,344,970 --
Undistributed income.. 22,605,548 46,628,491 52,645,012 --
Pro forma stockholders'
equity (unaudited)
Class A Common Stock,
$0.01 par value,
200,000,000 shares
authorized;
38,401,166
shares issued and
outstanding.......... -- -- -- 384,012
Class B Common Stock,
$0.01 par value,
20,000,000 shares
authorized; 3,945,528
shares issued and
outstanding.......... -- -- -- 39,455
Additional paid-in
capital.............. -- -- -- 33,045,222
------------ ------------ ------------ ------------
Total members' (pro
forma
stockholders')
equity............. 29,986,518 53,973,461 59,989,982 33,468,689
------------ ------------ ------------ ------------
Total liabilities
and members' (pro
forma
stockholders')
equity............ $106,035,467 $127,872,422 $171,073,027 $171,073,027
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ROUNDTABLE PARTNERS, L.L.C.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
MARCH 27, 1995 FOR THE THREE MONTHS
(DATE OF INITIAL FOR THE YEARS ENDED ENDED
CAPITALIZATION) DECEMBER 31, MARCH 31,
THROUGH ------------------------- -----------------------
DECEMBER 31, 1995 1996 1997 1997 1998
------------------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Net trading revenue..... $69,516,222 $183,893,654 $224,627,402 $50,482,673 $63,006,565
Interest, net........... 296,019 1,282,522 2,039,244 495,551 525,651
----------- ------------ ------------ ----------- -----------
Total revenues...... 69,812,241 185,176,176 226,666,646 50,978,224 63,532,216
----------- ------------ ------------ ----------- -----------
EXPENSES
Payments for order flow
Affiliates ........... 14,388,467 46,374,341 50,662,461 14,300,570 11,313,265
Non-affiliates........ 11,605,572 23,454,327 16,249,579 3,827,950 4,943,253
Execution and clearance
fees...................
Affiliates............ 11,724,385 21,461,560 24,262,767 4,923,875 7,579,469
Non-affiliates........ 985,373 4,375,397 7,805,806 1,487,104 2,661,208
Employee compensation
and benefits........... 12,150,932 39,494,032 57,716,994 12,013,016 16,168,160
Communications and data
processing............. 2,202,276 4,359,785 6,809,086 1,318,959 2,169,675
Depreciation and
amortization........... 1,626,159 2,975,152 4,225,286 936,362 1,291,164
Interest on Preferred
Units.................. 1,309,576 2,092,593 1,940,972 603,955 416,486
Occupancy and equipment
rentals................ 849,352 1,776,806 2,657,402 536,627 1,081,542
Business development.... 130,422 623,492 1,459,822 244,421 376,850
Other................... 1,498,614 1,428,089 2,799,238 365,315 747,438
----------- ------------ ------------ ----------- -----------
Total expenses...... 58,471,128 148,415,574 176,589,413 40,558,154 48,748,510
----------- ------------ ------------ ----------- -----------
NET INCOME.............. $11,341,113 $ 36,760,602 $ 50,077,233 $10,420,070 $14,783,706
=========== ============ ============ =========== ===========
Earnings per common unit
Basic................. $ 33.21 $ 62.31 $ 67.93 $ 14.12 $ 20.13
=========== ============ ============ =========== ===========
Diluted............... $ 9.36 $ 23.08 $ 41.54 $ 6.45 $ 20.13
=========== ============ ============ =========== ===========
Weighted average common
units outstanding
Basic................. 341,508 589,948 737,197 738,097 734,497
=========== ============ ============ =========== ===========
Diluted............... 1,351,298 1,683,537 1,252,183 1,710,044 734,497
=========== ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ROUNDTABLE PARTNERS, L.L.C.
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
FOR THE PERIOD FROM MARCH 27, 1995 (DATE OF INITIAL CAPITALIZATION) THROUGH
DECEMBER 31, 1995, THE YEARS ENDED DECEMBER 31, 1996 AND 1997 AND THE
(UNAUDITED)
THREE MONTH PERIOD ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
COMMON UNITS
------------------- UNDISTRIBUTED
UNITS AMOUNT INCOME TOTAL
------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Initial capitalization, March
27, 1995..................... 304,407 $3,044,070 $ -- $ 3,044,070
Issuance of Common Units...... 68,241 682,410 -- 682,410
Net income.................... -- -- 11,341,113 11,341,113
Distributions on Common
Units........................ -- -- (2,868,323) (2,868,323)
------- ---------- ----------- -----------
Balance, December 31, 1995.... 372,648 3,726,480 8,472,790 12,199,270
Issuance of Common Units...... 365,449 3,654,490 -- 3,654,490
Net income.................... -- -- 36,760,602 36,760,602
Distributions on Common
Units........................ -- -- (22,627,844) (22,627,844)
------- ---------- ----------- -----------
Balance, December 31, 1996.... 738,097 7,380,970 22,605,548 29,986,518
Net income.................... -- -- 50,077,233 50,077,233
Distributions on Common
Units........................ -- -- (25,742,857) (25,742,857)
Resignation of Member......... (3,600) (36,000) (311,433) (347,433)
------- ---------- ----------- -----------
Balance, December 31, 1997.... 734,497 7,344,970 46,628,491 53,973,461
Net income (unaudited)........ -- -- 14,783,706 14,783,706
Distributions on Common Units
(unaudited).................. -- -- (8,767,185) (8,767,185)
------- ---------- ----------- -----------
Balance, March 31, 1998
(unaudited).................. 734,497 $7,344,970 $52,645,012 $59,989,982
======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ROUNDTABLE PARTNERS, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
MARCH 27, 1995
(DATE
OF INITIAL FOR THE THREE MONTHS
CAPITALIZATION) FOR THE YEARS ENDED ENDED
THROUGH DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------ ------------------------
1995 1996 1997 1997 1998
--------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income.............. $11,341,113 $36,760,602 $50,077,233 $10,420,070 $14,783,706
Adjustments to reconcile
net income to net cash
(used in) provided by
operating activities
Depreciation and
amortization........... 1,626,159 2,975,152 4,225,286 936,362 1,291,164
(Increase) decrease in
operating assets
Securities owned....... (33,763,047) (13,017,591) (14,945,407) 7,343,493 (1,764,008)
Receivable from
clearing brokers...... (11,436,653) (11,719,123) (6,995,944) (6,320,762) (47,967,433)
Other assets........... (508,552) (115,061) (225,200) (130,803) (732,532)
Increase (decrease) in
operating liabilities
Securities sold, not
yet purchased......... 11,000,921 8,020,480 2,039,456 (1,474,487) 33,520,287
Accrued compensation
expense............... 1,458,880 2,727,038 1,926,644 391,216 1,828,418
Accrued execution and
clearance fees........ 2,395,353 779,119 791,673 (252,109) (176,679)
Accrued payments for
order flow............ 1,611,636 1,286,965 865,790 (1,334,507) 1,514,006
Accounts payable,
accrued expenses and
other liabilities..... 1,329,886 582,102 (517,700) (1,267,698) 218,282
Interest payable on
Preferred Units....... 433,440 163,438 (171,897) 7,074 (8,494)
----------- ----------- ----------- ----------- -----------
Net cash (used in)
provided by operating
activities............ (14,510,864) 28,443,121 37,069,934 8,317,849 2,506,717
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of general
partnership interest in
Trimark Securities,
L.P.................... (15,273,295) -- -- -- --
Purchase of business and
net assets of
Tradetech Securities,
L.P.................... -- -- (750,000) -- --
Payment of contingent
consideration.......... (1,261,298) (1,351,447) (1,685,385) (218,988) (710,086)
Sale of fixed assets.... -- -- 1,413,115 -- --
Purchases of fixed
assets and leasehold
improvements........... (1,410,283) (3,939,871) (4,429,389) (1,230,863) (1,685,469)
----------- ----------- ----------- ----------- -----------
Net cash used in
investing activities.. (17,944,876) (5,291,318) (5,451,659) (1,449,851) (2,395,555)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from issuance
of subordinated notes.. 5,000,000 500,000 -- -- --
Proceeds from issuance
of Mandatorily
Redeemable Preferred A
Units.................. 13,415,300 8,870,410 -- -- --
Proceeds from issuance
of Mandatorily
Redeemable Preferred B
Units.................. 15,000,000 -- -- -- --
Proceeds from issuance
of Common Units........ 3,726,480 2,940,200 -- -- --
Decrease in liability
for capital lease...... (149,700) (267,664) (283,228) (69,404) (73,594)
Redemptions of
Mandatorily Redeemable
Preferred A Units...... -- (3,865,730) (10,147,050) -- --
Resignation of Member... -- -- (422,463) -- --
Distributions on Common
Units.................. (2,868,323) (17,643,870) (22,321,502) (4,983,972) (8,405,326)
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities............ 34,123,757 (9,466,654) (33,174,243) (5,053,376) (8,478,920)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in
cash and cash
equivalents............ 1,668,017 13,685,149 (1,555,968) 1,814,622 (8,367,758)
Cash and cash
equivalents at
beginning of period.... -- 1,668,017 15,353,166 15,353,166 13,797,198
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
period................. $ 1,668,017 $15,353,166 $13,797,198 $17,167,788 $ 5,429,440
=========== =========== =========== =========== ===========
Supplemental disclosure
of cash flow
information
Cash paid for
interest.............. $ 1,150,262 $ 2,470,434 $ 2,652,357 $ 726,773 $ 644,302
=========== =========== =========== =========== ===========
</TABLE>
Supplemental information pertaining to noncash investing and financing
activities
In 1995, the Company incurred a capital lease obligation of $1,487,393, which
represents the present value of future minimum lease payments on certain fixed
assets.
Effective January 1, 1996, Waterhouse Securities exchanged its $5,000,000
subordinated note for 71,429 Common Units and 428,571 Preferred A Units issued
by the Company with an aggregate value of $5,000,000.
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ROUNDTABLE PARTNERS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS
Roundtable Partners, L.L.C. ("Roundtable"), a Delaware limited liability
corporation, was initially capitalized on March 27, 1995 to own and operate
the securities market-making businesses of Knight Securities, L.P. ("Knight")
and Trimark Securities, L.P. ("Trimark") (collectively, the "Company"). The
Company is owned 20% by key employees of Knight, 20% by key employees of
Trimark (collectively, the "Management Investors") and 60% by a consortium of
independent securities firms and investors (the "Non-Management Investors").
As a limited liability company, the Company has a finite life and must be
dissolved no later than September 30, 2024.
The Company, which operates in one segment and line of business - equity
securities market-making, owns a 99.99% general partnership interest in both
Knight and Trimark. A subchapter S holding corporation owned by the Management
Investors owns a 0.01% limited partnership interest in each entity. Knight, a
New York limited partnership, was organized on February 17, 1995 by Roundtable
to operate as a market maker in over-the-counter equity securities ("OTC
stocks"), principally securities traded on the National Association of
Securities Dealers, Inc.'s ("NASD") Automated Quotation System ("NASDAQ"),
including Small Capitalization listings and securities listed on the OTC
Bulletin Board. Trimark is a New York Limited Partnership which was acquired
by the Company on March 27, 1995 (Note 2). Trimark operates as a market-maker
in equity securities listed on the New York and American Stock Exchanges
("listed stocks"). Knight and Trimark are registered as broker-dealers with
the Securities and Exchange Commission and are members of the NASD.
2. ACQUISITIONS
On March 27, 1995, Trimark Securities, Inc., an unaffiliated securities
firm, contributed its market-making business in listed stocks and the fixed
assets necessary to operate such business to Trimark Securities L.P. for a
99.99% general partnership interest. Immediately thereafter, Trimark
Securities, Inc. sold its 99.99% general partnership interest in Trimark
Securities, L.P. to the Company in exchange for 1.5 million Preferred B Units
of the Company with a fair value of $15 million and contingent consideration.
In connection with that transaction, the Company incurred $348,000 in
acquisition costs. The Company's acquisition of the 99.99% general partnership
interest in Trimark Securities L.P. was recorded under the purchase method and
the carrying values of the assets and liabilities acquired were adjusted to
their fair market values as of the acquisition date. The excess of the
purchase price over the fair value of the net assets acquired of $13,960,195
was recorded as goodwill and is being amortized over a period of ten years.
In connection with the acquisition, the Company entered into an agreement
which entitles Trimark Securities, Inc. to receive additional consideration
during the five years immediately subsequent to the acquisition, equal to 10%
of Trimark's pre-tax earnings, before amortization of goodwill and
depreciation on fixed assets initially purchased. The additional consideration
represents contingent consideration to be paid in connection with the Trimark
acquisition. All amounts paid under this arrangement are being capitalized as
additional purchase price (goodwill) and amortized over the remainder of the
original ten year amortization period.
Pursuant to an agreement effective November 17, 1997, Trimark purchased the
business and the related fixed assets of Tradetech Securities, L.P.
("Tradetech"), an Illinois Limited Partnership, in exchange for $750,000 in
cash and contingent consideration. Tradetech was a direct competitor of
Trimark operating as a market-maker in listed stocks and, after the
acquisition, its business and operations were integrated into Trimark's. The
acquisition was accounted for under the purchase method and the carrying
values of the assets acquired were adjusted to their fair market values as of
the acquisition date. The excess of the purchase price over the fair value of
the assets acquired of $400,000 was recorded as goodwill and is being
amortized over a period of five years.
F-7
<PAGE>
ROUNDTABLE PARTNERS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
In connection with the acquisition, Trimark entered into an agreement with
Tradetech which entitles Tradetech to additional consideration equal to 10% of
Trimark's pretax earnings during the period from the acquisition date through
December 31, 2000 (the "Earnout Period"). If, after the Earnout Period, the
owners of Tradetech have not received payments which total $3,000,000, the
additional consideration shall continue until the earlier of (i) December 31,
2002, or (ii) an aggregate of $3,000,000 has been paid. All amounts paid under
this arrangement will be capitalized as additional purchase price (goodwill)
and amortized over the remainder of the original five year amortization
period.
The total contingent consideration paid and recorded as goodwill by the
Company was as follows:
<TABLE>
<CAPTION>
TRIMARK TRADETECH
ADDITIONAL ADDITIONAL
CONSIDERATION CONSIDERATION TOTAL
------------- ------------- ----------
<S> <C> <C> <C>
For the period March 27, 1995
through December 31, 1995......... $1,261,297 $ -- $1,261,297
For the year ended December 31,
1996.............................. 1,351,447 -- 1,351,447
For the year ended December 31,
1997.............................. 1,466,812 218,573 1,685,385
For the three months ending March
31, 1998 (unaudited).............. 382,879 327,207 710,086
---------- -------- ----------
$4,462,435 $545,780 $5,008,215
========== ======== ==========
</TABLE>
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation and form of presentation
The accompanying consolidated financial statements include the accounts of
Roundtable, Knight and Trimark. All significant intercompany transactions and
balances have been eliminated.
Cash equivalents
Cash equivalents represent money market accounts, which are payable on
demand. The carrying amount of such cash equivalents approximates fair value
due to the short-term nature of these instruments.
Trading activities
Securities owned and securities sold, not yet purchased, which primarily
consist of listed and OTC stocks, are carried at market value and are recorded
on a trade date basis. Net trading revenue (trading gains, net of trading
losses) and related expenses, including compensation and benefits, execution
and clearance fees and payments for order flow, are also recorded on a trade
date basis. Payments for order flow represent payments to other broker-dealers
for directing their order executions to Knight and Trimark.
Mandatorily redeemable preferred units
The Company's Preferred A and Preferred B Units are mandatorily redeemable,
and have been classified as liabilities in the Consolidated Statements of
Financial Condition, and the related distributions on such units have been
classified as interest expense in the Consolidated Statements of Income.
F-8
<PAGE>
ROUNDTABLE PARTNERS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
Depreciation, amortization and occupancy
Fixed assets are being depreciated on a straight-line basis over their
estimated useful lives of three to seven years. Leasehold improvements are
being amortized on a straight-line basis over the life of the related office
lease. The Company records rent expense on a straight-line basis over the life
of the lease.
Income taxes
As a limited liability company, the Company is treated as a partnership and,
as such, is not subject to federal, state or local income taxes.
Estimated fair value of financial instruments
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments," requires the disclosure of the fair value of
financial instruments, including assets and liabilities recognized on the
Consolidated Statements of Financial Condition. The Company's securities owned
and securities sold, not yet purchased are carried at market value. Management
estimates that the fair values of other financial instruments recognized on
the Consolidated Statements of Financial Condition (including receivables,
payables, accrued expenses, subordinated debt and mandatorily redeemable
preferred units) approximates their carrying value, as such financial
instruments are short-term in nature, bear interest at current market rates or
are subject to frequent repricing.
Other
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited interim information
The interim financial statements and related financial information as of
March 31, 1998 and for the three months ended March 31, 1998 and March 31,
1997 are unaudited; however, in the opinion of the Company, the interim
information includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations
for the interim periods. The results of operations for the three months ended
March 31, 1998 are not necessarily indicative of the results to be expected
for the full year.
4. FIXED ASSETS AND LEASEHOLD IMPROVEMENTS
Fixed assets and leasehold improvements comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
DEPRECIATION --------------------- MARCH 31,
PERIOD 1996 1997 1998
------------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Computer hardware and
software................... 3 years $3,137,877 $5,307,119 $6,471,200
Trading systems............. 5 years 2,660,387 2,648,326 2,812,726
Leasehold improvements...... Life of Lease 1,359,458 1,666,288 1,709,613
Furniture and fixtures...... 7 years 461,463 735,341 970,562
Telephone system............ 5 years 473,167 537,585 580,226
Equipment................... 5 years 58,195 343,513 379,312
---------- ---------- ----------
8,150,547 11,238,172 12,923,639
Less--Accumulated depreciation and
amortization............................. 1,752,435 3,884,743 4,650,032
---------- ---------- ----------
$6,398,112 $7,353,429 $8,273,607
========== ========== ==========
</TABLE>
F-9
<PAGE>
ROUNDTABLE PARTNERS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
Knight leases its trading system under a noncancelable capital lease. As of
December 31, 1995, 1996, 1997 and March 31, 1998 (unaudited), the net book
value of the trading equipment recorded under such capital lease was
$1,338,654, $1,041,175, $743,697 and $669,327 (unaudited), respectively.
Depreciation of the capitalized asset is included in depreciation and
amortization expense in the Consolidated Statements of Income. As of December
31, 1997, future minimum lease payments under the capital lease and the
determination of the related liability for the capital lease were as follows:
<TABLE>
<S> <C>
Year ending December 31, 1998...................................... $340,800
Year ending December 31, 1999...................................... 340,800
Year ending December 31, 2000...................................... 170,400
--------
Total future minimum lease commitments........................... 852,000
Amount representing interest..................................... (65,199)
--------
Present value of minimum lease payments.......................... $786,801
========
</TABLE>
As of March 31, 1998 (unaudited), future minimum lease payments under the
capital lease and the determination of the related liability for the capital
lease were as follows:
<TABLE>
<S> <C>
For the period from April 1, 1998 through December 31, 1998........ $255,600
Year ending December 31, 1999...................................... 340,800
Year ending December 31, 2000...................................... 170,400
--------
Total future minimum lease commitments........................... 766,800
Amount representing interest..................................... (53,593)
--------
Present value of minimum lease payments.......................... $713,207
========
</TABLE>
5. SUBORDINATED NOTES
On March 24, 1995, the Company entered into a $5,000,000 subordinated note
agreement with Waterhouse Securities, Inc. ("Waterhouse"), a major customer,
which paid interest quarterly at a market rate based on the broker call rate
and matured on March 23, 1997. The subordinated note was senior in liquidation
to the Common Units and Mandatorily Redeemable Preferred A and B Units, but
was subordinate to the claims of all other creditors. Concurrent with the
execution of the subordinated note, the Company granted Waterhouse certain
benefits accorded to holders of Common Units, including the right to receive
additional payments based on the amount of order flow provided by Waterhouse.
Effective January 1, 1996, Waterhouse entered into an agreement with the
Company to exchange the subordinated note for 71,429 Common Units and 428,571
Preferred A Units issued by the Company with an aggregate value of $5,000,000.
As a result of the exchange, the subordinated note was satisfied in full and
canceled. The Common Units owned by Waterhouse are non-voting. In connection
with the issuance of Common Units to Waterhouse, the Management Investors
purchased, in aggregate, 47,620 additional Common Units at a price of $10 per
unit, such that, after the aforementioned transactions, the Management
Investors and the Non-Management Investors owned 40% and 60%, respectively, of
the total outstanding Common Units.
On April 24, 1996, the Company entered into a $500,000 subordinated note
agreement with Brown & Co. Securities Corporation ("Brown"), a major customer,
which pays interest quarterly at a market rate approximating the prevailing
Federal Funds Rate. The subordinated note matures on April 23, 1999, but may
be prepaid by the Company at any time, without penalty. The subordinated note
is senior in liquidation to the Common Units and Mandatorily Redeemable
Preferred A and B Units, but is subordinate to the claims of all other
creditors. Concurrent with the execution of the subordinated note, the Company
granted Brown certain benefits accorded to holders of Common Units, including
the right to receive additional payments based on
F-10
<PAGE>
ROUNDTABLE PARTNERS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
the amount of order flow provided by Brown. Additionally, the Company granted
Brown the option to purchase 7,143 Common Units at the then prevailing market
price of $10 per Common Unit during the term that the subordinated note
remains outstanding (the "Brown Option"). As of April 24, 1996, the date of
grant, the Brown Option had a de minimis value.
During 1995, the Company made additional payments for order flow totaling
$996,786 to Waterhouse. Similarly, the Company made additional payments for
order flow to Brown totaling $1,088,924, $1,865,222 and $520,360 (unaudited)
during the years ended December 31, 1996 and 1997 and during the three month
period ended March 31, 1998 (unaudited). Such amounts have been included in
payments for order flow expense in the accompanying Consolidated Statements of
Income.
6. MEMBERS' EQUITY
The Company's Common Units, which have one for one voting rights (except for
the units owned by Waterhouse (Note 5)), are owned 40% by Management Investors
and 60% by Non-Management Investors. The Company's net income (after
distributions to holders of Preferred A and B Units) is allocated to holders
of Common Units based upon a formula which considers the volume of order flow
such holders have provided to Knight and Trimark during each period and each
holder's proportionate share of total Common Units. Net losses are shared
ratably in proportion to each member's ownership percentage. On December 31,
1997, the Company declared a distribution to holders of Common Units of
$8,405,326, which was paid on January 23, 1998. On March 31, 1998, the Company
declared a distribution to holders of Common Units of $8,767,185 (unaudited),
payable on April 20, 1998 (unaudited).
The Common Units are generally not transferable, although a member may
resign from the Company at any time by providing written notice to the
Company. The Company shall pay the resigning member $10 for each Common Unit
and Preferred A Unit owned by the resigning member, and any remaining
undistributed income in the resigning member's capital account as of the date
of the written notice (the "Resigning Member Capital Distribution"). During
1997, one member resigned from the Company and received a Resigning Member
Capital Distribution of $422,463, or $10 per unit. There were no resignations
in 1995, 1996 or the three month period ended March 31, 1998 (unaudited).
7. MANDATORILY REDEEMABLE PREFERRED UNITS
The Mandatorily Redeemable Preferred A Units ("Preferred A Units"), which
are owned by the Non-Management Investors, are non-voting and have preference
to all other units in the event of liquidation. The Preferred A Units were
originally issued to the Non-Management Investors for a price of $10 per unit,
simultaneously with the purchase of Common Units, at a ratio of six Preferred
A Units to one Common Unit. The Preferred A Units pay quarterly distributions
at a rate approximating the Federal Funds rate and are subject to mandatory
redemption annually, on April 15th, at a fixed price of $10 per unit, in an
aggregate amount equal to at least 25 percent of the Company's consolidated
net income on an annual basis. Any units not redeemed by the fifth anniversary
of the issuance date are convertible into Common Units on a one-for-one basis,
at the holder's option. There were 2,700,000 Preferred A Units authorized as
of December 31, 1995, 1996 and 1997 and March 31, 1998 (unaudited).
Distributions to holders of Preferred A Units for the period ending December
31, 1995 amounted to $590,903, which included distributions accrued, but not
paid, of $202,891 at December 31, 1995. Distributions to holders of Preferred
A Units for the year ending December 31, 1996 amounted to $1,155,859, which
included distributions accrued, but not paid, of $359,429 at December 31,
1996. Distributions to holders of Preferred A Units for the year ended
December 31, 1997 amounted to $985,737, which included distributions accrued,
but not paid, of $193,035 at December 31, 1997.
F-11
<PAGE>
ROUNDTABLE PARTNERS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
The Mandatorily Redeemable Preferred B Units ("Preferred B Units"), which
are held by Trimark Securities, Inc., are non-voting and have preference only
to the Common Units in liquidation. The Preferred B Units pay quarterly
distributions at a rate approximating the Federal Funds rate and, after the
redemption of all Preferred A Units, are subject to mandatory redemption
annually, on April 15th, at a fixed price of $10 per unit, in an aggregate
amount equal to at least 25 percent of the Company's consolidated net income
on an annual basis, if certain levels of earnings are achieved in the prior
year. The Preferred B Units are not convertible into Common Units. There were
1,500,000 Preferred B Units authorized as of December 31, 1995, 1996 and 1997
and March 31, 1998 (unaudited). Distributions to holders of Preferred B Units
for the period ending December 31, 1995 amounted to $718,673, which includes
distributions accrued, but not paid, of $230,549 at December 31, 1995.
Distributions to holders of Preferred B Units for the year ending December 31,
1996 amounted to $936,734, which includes distributions accrued, but not paid,
of $237,449 at December 31, 1996. Distributions to holders of Preferred B
Units for the year ended December 31, 1997 amounted to $955,235, which
includes distributions accrued, but not paid, of $231,946 at December 31,
1997. No Preferred B Units were redeemed during the period from March 27, 1995
through December 31, 1995 or the years ending December 31, 1996 or 1997 or the
three months ended March 31, 1998 (unaudited). The following table presents
activity for Preferred A Units and Preferred B Units for the period from March
27, 1995 through December 31, 1995, for the years ended December 31, 1996 and
1997, and for the three months ended March 31, 1998 (unaudited):
<TABLE>
<CAPTION>
PREFERRED A UNITS PREFERRED B UNITS
------------------------ ---------------------
UNITS AMOUNT UNITS AMOUNT
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Initial capitalization,
March 27, 1995........... 1,095,864 $ 10,958,640 1,500,000 $15,000,000
Issuance of Preferred A
Units.................... 245,666 2,456,660 -- --
---------- ------------ --------- -----------
Balance, December 31,
1995..................... 1,341,530 13,415,300 1,500,000 15,000,000
Issuance of Preferred A
Units.................... 1,315,612 13,156,120 -- --
Redemption of Preferred A
Units.................... (386,573) (3,865,730) -- --
---------- ------------ --------- -----------
Balance, December 31,
1996..................... 2,270,569 22,705,690 1,500,000 15,000,000
Resignation of Member..... (7,503) (75,030) -- --
Redemption of Preferred A
Units.................... (1,014,705) (10,147,050) -- --
---------- ------------ --------- -----------
Balance, December 31,
1997..................... 1,248,361 12,483,610 1,500,000 15,000,000
---------- ------------ --------- -----------
Balance, March 31, 1998
(unaudited).............. 1,248,361 $ 12,483,610 1,500,000 $15,000,000
========== ============ ========= ===========
</TABLE>
8. RELATED PARTY TRANSACTIONS
A substantial portion of Knight's and Trimark's securities transactions are
conducted with securities firms which own equity interests in the Company (the
"Broker-Dealer Owners"). As measured in share volume, the Broker-Dealer Owners
and Brown accounted for 31%, 35% and 40% of the Company's order flow during
the period ended December 31, 1995 and the years ended December 31, 1996 and
1997, respectively, and 41% (unaudited) for the three months ended March 31,
1998. Moreover, five of these affiliates accounted for 29% of the Company's
total order flow for the year ended December 31, 1997 and 34% (unaudited) of
the Company's total order flow for the three months ended March 31, 1998.
Included within accrued payments for order flow on the Consolidated
Statements of Financial Condition are the following amounts payable to the
Broker-Dealer Owners and Brown:
<TABLE>
<S> <C>
December 31, 1996................................................ $2,032,039
December 31, 1997................................................ 1,990,045
March 31, 1998 (unaudited)....................................... 2,981,311
</TABLE>
F-12
<PAGE>
ROUNDTABLE PARTNERS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
As of December 31, 1997, Knight and Trimark cleared their securities
transactions through clearing brokers which own equity interests in the
Company. Effective March 9, 1998, Knight began clearing its securities
transactions through an unaffiliated clearing broker (unaudited).
Trimark and Knight lease certain computer and telephone equipment and
furniture from a leasing company which is wholly owned by two key employees of
Trimark. Rental expenses under such leases were as follows:
<TABLE>
<S> <C>
For the period March 27, 1995 through December 31, 1995............ $260,957
For the year ended December 31, 1996............................... 529,852
For the year ended December 31, 1997............................... 539,082
For the three months ended March 31, 1998 (unaudited).............. 117,644
</TABLE>
9. COMMITMENTS AND CONTINGENT LIABILITIES
The Company and its subsidiaries lease office space under noncancelable
operating leases. The office leases contain certain escalation clauses whereby
the rental commitments may be increased if certain conditions are satisfied
and specify yearly adjustments to the lease amounts based on annual
adjustments according to the Consumer Price Index. Rental expense under the
office leases was as follows:
<TABLE>
<S> <C>
For the period March 27, 1995 through December 31, 1995.......... $ 343,935
For the year ended December 31, 1996............................. 810,893
For the year ended December 31, 1997............................. 1,258,827
For the three months ending March 31, 1998 (unaudited)........... 342,669
</TABLE>
Additionally, Knight and Trimark lease computer and other equipment under
noncancelable operating leases. As of December 31, 1997, future minimum rental
commitments under all noncancelable operating leases were as follows:
<TABLE>
<CAPTION>
OFFICE OTHER
LEASES LEASES TOTAL
---------- ---------- -----------
<S> <C> <C> <C>
Year ending December 31, 1998............. $1,440,959 $2,023,951 $ 3,464,910
Year ending December 31, 1999............. 1,375,634 1,706,737 3,082,371
Year ending December 31, 2000............. 1,233,881 550,781 1,784,662
Year ending December 31, 2001............. 1,250,980 -- 1,250,980
Year ending December 31, 2002............. 1,264,181 -- 1,264,181
Thereafter through December 15, 2006...... 4,638,240 -- 4,638,240
-----------
$15,485,344
===========
</TABLE>
F-13
<PAGE>
ROUNDTABLE PARTNERS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
During 1998, the Company entered into an additional operating lease for
office space. As of March 31, 1998, future minimum rental commitments under
all noncancelable operating leases were as follows (all information is
unaudited):
<TABLE>
<CAPTION>
OFFICE OTHER
LEASES LEASES TOTAL
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
For the period from April 1, 1998
through December 31, 1998............ $1,474,739 $1,513,864 $ 2,988,603
Year ending December 31, 1999......... 2,005,484 1,762,273 3,767,757
Year ending December 31, 2000......... 1,863,731 578,549 2,442,280
Year ending December 31, 2001......... 1,880,830 -- 1,880,830
Year ending December 31, 2002......... 1,935,468 -- 1,935,468
Thereafter through December 15, 2006.. 6,864,816 -- 6,864,816
-----------
$19,879,754
===========
</TABLE>
As of December 31, 1997 and March 31, 1998 (unaudited), the Company had
deposited an irrevocable letter of credit which was collateralized by U.S.
Treasury securities with market values of $1,541,038 and $1,533,788
(unaudited), respectively, as security for one of its operating leases.
Securities sold, not yet purchased represent obligations of Knight and
Trimark to purchase such securities at a future date. The Company may incur a
loss if the market value of the securities subsequently increases.
10. EARNINGS PER COMMON UNIT
Basic and diluted earnings per common unit ("EPS") have been calculated by
dividing earnings applicable to common units (net income) by the weighted
average common units outstanding during each respective period. Diluted
earnings per common unit also includes the potential dilutive effects of the
Preferred A Units, under the "if-converted" method, which are convertible into
Common Units on a one-for-one basis at the holder's option if outstanding five
years from the date of issuance. In determining diluted EPS, the interest
expense applicable to the Preferred A Units during each respective period has
been added back to net income. Under the "treasury stock" method applicable to
outstanding written call options, the Brown Option did not have a dilutive
effect. The following is a reconciliation of the numerators and denominators
of the basic and diluted earnings per common unit computations:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
MARCH 27, 1995 (DATE
OF INITIAL
CAPITALIZATION) THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997
------------------------- ------------------------- -------------------------
NUMERATOR / DENOMINATOR / NUMERATOR / DENOMINATOR / NUMERATOR / DENOMINATOR /
INCOME SHARES INCOME SHARES INCOME SHARES
----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Earnings applicable to
Common Units.......... $11,341,113 341,508 $36,760,602 589,948 $50,077,233 737,197
Effect of Dilutive
Securities
Preferred A Units...... 1,309,576 1,009,790 2,092,593 1,093,589 1,940,972 514,986
----------- --------- ----------- --------- ----------- ---------
Diluted EPS............. $12,650,689 1,351,298 $38,853,195 1,683,537 $52,018,205 1,252,183
=========== ========= =========== ========= =========== =========
</TABLE>
F-14
<PAGE>
ROUNDTABLE PARTNERS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED MARCH 31, 1997 ENDED MARCH 31, 1998
------------------------- -------------------------
NUMERATOR / DENOMINATOR / NUMERATOR / DENOMINATOR /
INCOME SHARES INCOME SHARES
----------- ------------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Basic EPS
Earnings applicable to
Common Units......... $10,420,070 738,097 $14,783,706 734,497
Effect of Dilutive
Securities
Preferred A Units..... 603,955 971,947 -- --
----------- --------- ----------- -------
Diluted EPS............. $11,024,025 1,710,044 $14,783,706 734,497
=========== ========= =========== =======
</TABLE>
On April 15, 1998, the Company redeemed and retired all of the outstanding
Mandatorily Redeemable Preferred A Units for their carrying value of
$12,483,610 (see Note 15).
11. EMPLOYEE BENEFIT PLANS
Trimark and Knight sponsor a 401(k) Profit Sharing Plan (the "Plan") in
which substantially all of their employees are eligible to participate. Under
the terms of the Plan, Trimark and Knight are required to make annual
contributions to the Plan equal to 50% of the contributions made by their
respective employees, up to certain limitations. The total expense recognized
with respect to the Plans was as follows:
<TABLE>
<S> <C>
For the period March 27, 1995 through December 31, 1995............ $111,544
For the year ended December 31, 1996............................... 478,308
For the year ended December 31, 1997............................... 681,927
For the three months ended March 31, 1998 (unaudited).............. 381,688
</TABLE>
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
As a market maker of OTC and listed stocks, the majority of the Company's
securities transactions are conducted as principal with broker-dealer
counterparties located in the United States. The Company clears all of its
securities transactions through affiliated clearing brokers on a fully
disclosed basis (see Note 8). Pursuant to the terms of the agreement between
the Company and the clearing brokers, the clearing brokers have the right to
charge the Company for losses that result from a counterparty's failure to
fulfill its contractual obligations. The Company's policy is to monitor the
credit standing of the clearing brokers and all counterparties with which it
conducts business. As of December 31, 1997 and March 31, 1998, the Company's
credit exposures were concentrated with the clearing brokers and amounted to
$30.2 million and $78.1 million (unaudited), respectively. Additionally, as of
December 31, 1997 and March 31, 1998, the clearing brokers held, as custodian,
securities owned by the Company with a market value of $61.7 million and $63.5
million (unaudited), respectively.
The net receivable or (payable) for securities transactions that have not
reached their contractual settlement date amounted to ($6,196,423),
($10,407,524), ($5,126,772) and $17,504,744 (unaudited) at December 31, 1995,
1996, 1997 and March 31, 1998 (unaudited), respectively. Such amounts were
included within receivable from clearing brokers on the Consolidated
Statements of Financial Condition.
13. NET CAPITAL REQUIREMENTS
As registered broker-dealers and NASD member firms, Trimark and Knight are
subject to the Securities and Exchange Commission's Uniform Net Capital Rule
(the "Rule") which requires the maintenance of minimum net capital. Trimark
and Knight have elected to use the basic method, permitted by the Rule, which
requires that they each maintain net capital equal to the greater of
$1,000,000 or 6 2/3% of aggregate indebtedness, as defined.
F-15
<PAGE>
ROUNDTABLE PARTNERS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
At December 31, 1997, Trimark had net capital of $16,538,514, which was
$15,538,514 in excess of its required net capital of $1 million and Knight had
net capital of $39,941,753, which was $38,941,753 in excess of its required
net capital of $1 million.
At March 31, 1998, Trimark had net capital of $16,124,553 (unaudited), which
was $15,124,553 (unaudited) in excess of its required net capital of $1
million (unaudited) and Knight had net capital of $39,137,608 (unaudited),
which was $38,137,608 (unaudited) in excess of its required net capital of $1
million (unaudited).
14. CONDENSED FINANCIAL STATEMENTS OF ROUNDTABLE PARTNERS, L.L.C. (PARENT)
Presented below are the Condensed Statements of Financial Condition, Income
and Cash Flows for Roundtable Partners, L.L.C., the parent company, on an
unconsolidated basis.
STATEMENTS OF FINANCIAL CONDITION
ROUNDTABLE PARTNERS, L.L.C. (PARENT)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
ASSETS (UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents................. $ 2,851,690 $ 1,219,374 $ 730,161
Securities owned, at market value......... 2,035,457 1,541,038 1,533,788
Investments in subsidiaries, equity
method................................... 69,032,590 88,630,081 94,775,413
Other assets.............................. 313,466 222,908 718,835
----------- ----------- -----------
Total assets.......................... $74,233,203 $91,613,401 $97,758,197
=========== =========== ===========
LIABILITIES AND MEMBERS' EQUITY
Liabilities
Distributions on Common Units payable to
members.................................. $ 4,983,972 $ 8,405,326 $ 8,767,185
Interest payable on Preferred Units....... 596,878 424,981 416,486
Accounts payable and accrued expenses..... 460,145 826,023 600,934
Subordinated note......................... 500,000 500,000 500,000
Mandatorily Redeemable Preferred A Units.. 22,705,690 12,483,610 12,483,610
Mandatorily Redeemable Preferred B Units.. 15,000,000 15,000,000 15,000,000
----------- ----------- -----------
Total liabilities......................... 44,246,685 37,639,940 37,768,215
Total members' equity..................... 29,986,518 53,973,461 59,989,982
----------- ----------- -----------
Total liabilities and members' equity..... $74,233,203 $91,613,401 $97,758,197
=========== =========== ===========
</TABLE>
F-16
<PAGE>
ROUNDTABLE PARTNERS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
STATEMENTS OF INCOME
ROUNDTABLE PARTNERS, L.L.C. (PARENT)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE YEARS ENDED FOR THE THREE MONTHS ENDED
MARCH 27, 1995 (DATE DECEMBER 31, MARCH 31,
OF INITIAL CAPITALIZATION) ----------------------- ---------------------------
THROUGH DECEMBER 31, 1995 1996 1997 1997 1998
-------------------------- ----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Equity in earnings of
subsidiaries........... $13,411,536 $40,094,824 $54,202,490 $ 11,447,650 $ 15,660,332
Management fee.......... 713,868 -- -- -- --
Other................... -- 216,554 148,533 35,669 97,660
----------- ----------- ----------- ------------- -------------
Total revenues........ 14,125,404 40,311,378 54,351,023 11,483,319 15,757,992
----------- ----------- ----------- ------------- -------------
EXPENSES
Interest on Preferred
Units.................. 1,309,576 2,092,593 1,940,972 603,955 416,486
Payments for order
flow................... 996,786 1,088,924 1,865,222 400,027 520,360
Other................... 477,929 369,259 467,596 59,267 37,440
----------- ----------- ----------- ------------- -------------
Total expenses........ 2,784,291 3,550,776 4,273,790 1,063,249 974,286
----------- ----------- ----------- ------------- -------------
Net income............ $11,341,113 $36,760,602 $50,077,233 $ 10,420,070 $ 14,783,706
=========== =========== =========== ============= =============
</TABLE>
F-17
<PAGE>
ROUNDTABLE PARTNERS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
STATEMENTS OF CASH FLOWS
ROUNDTABLE PARTNERS, L.L.C. (PARENT)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
MARCH 27, 1995
(DATE OF INITIAL
CAPITALIZATION FOR THE YEARS ENDED FOR THE THREE MONTHS
THROUGH DECEMBER 31, ENDED MARCH 31,
DECEMBER 31, -------------------------- --------------------------
1995 1996 1997 1997 1998
---------------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERAT-
ING ACTIVITIES
Net income.............. $ 11,341,113 $ 36,760,602 $ 50,077,233 $ 10,420,070 $ 14,783,706
Equity in earnings of
subsidiaries........... (13,411,536) (40,094,824) (54,202,490) (11,447,650) (15,660,332)
(Increase) decrease in
operating assets
Securities owned....... (1,988,879) (46,578) 494,419 136 7,250
Other assets........... (612,104) 298,736 90,557 (2,640) (495,928)
Increase (decrease) in
operating liabilities
Accounts payable,
accrued expenses and
other liabilities..... 594,025 (133,880) 365,879 (42,377) (225,089)
Interest payable on
Preferred Units....... 433,440 163,438 (171,898) 7,074 (8,494)
------------ ------------ ------------ ------------ ------------
Net cash used in
operating activities.. (3,643,941) (3,052,506) (3,346,300) (1,065,387) (1,598,887)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of general
partnership interest in
Trimark Securities,
L.P.................... (15,273,295) -- -- -- --
Capital contributions to
subsidiaries........... (22,307,090)
------------ ------------ ------------ ------------ ------------
Net cash used in
investing activities.. (37,580,385) -- -- -- --
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from issuance
of subordinated notes.. 5,000,000 500,000 -- -- --
Proceeds from issuance
of Common Units........ 3,726,480 2,940,200 -- -- --
Proceeds from issuance
of Mandatorily
Redeemable Preferred A
Units.................. 13,415,300 8,870,410 -- -- --
Proceeds from issuance
of Mandatorily
Redeemable Preferred B
Units.................. 15,000,000 -- -- -- --
Dividends received from
subsidiaries........... 7,862,754 14,191,301 34,604,999 3,404,700 9,515,000
Redemptions of
Mandatorily Redeemable
Preferred A Units...... -- (3,865,730) (10,147,050) -- --
Resignation of Member... -- -- (422,463) -- --
Distributions on Common
Units.................. (2,868,323) (17,643,870) (22,321,502) (4,983,972) (8,405,326)
------------ ------------ ------------ ------------ ------------
Net cash provided by
(used in) financing
activities............ 42,136,211 4,992,311 1,713,984 (1,579,272) 1,109,674
------------ ------------ ------------ ------------ ------------
Increase (decrease) in
cash and cash
equivalents............ 911,885 1,939,805 (1,632,316) (2,644,659) (489,213)
Cash and cash
equivalents at
beginning of period.... -- 911,885 2,851,690 2,851,690 1,219,374
------------ ------------ ------------ ------------ ------------
Cash and cash
equivalents at end of
period................. $ 911,885 $ 2,851,690 $ 1,219,374 $ 207,031 $ 730,161
============ ============ ============ ============ ============
Supplemental disclosure
of cash flow
information
Cash paid for
interest.............. $ 1,045,675 $ 2,016,244 $ 2,144,877 $ 604,724 $ 432,648
============ ============ ============ ============ ============
</TABLE>
Supplemental information pertaining to noncash investing and financing
activities
Effective January 1, 1996, Waterhouse Securities exchanged its $5,000,000
subordinated note for 71,429 Common Units and 428,571 Preferred A Units issued
by the Company with an aggregate value of $5,000,000.
F-18
<PAGE>
ROUNDTABLE PARTNERS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
15. SUBSEQUENT EVENT--REDEMPTION OF MANDATORILY REDEEMABLE PREFERRED UNITS
On April 15, 1998, the Company redeemed and retired all outstanding
Preferred A Units for $12,483,610 and redeemed and retired 115,290 Preferred B
Units for $1,152,900.
16. PROPOSED REORGANIZATION OF THE COMPANY (UNAUDITED)
The Knight/Trimark Group, Inc. (the "Corporation") was organized in April
1998 for the purpose of succeeding to the business of Roundtable Partners,
L.L.C. (the "Company"). Concurrent with the closing of the Offering, based on
an assumed initial public offering price of $15.00 per share, all of the
member interests of the Company will be exchanged for 41,000,000 shares of
Common Stock of the Company. Certain members, who have so elected, will
receive 1,741,581 additional shares of Class A Common Stock valued at the
initial public offering price with respect to their share of the undistributed
income of the Company through March 31, 1998 (the "Undistributed Profits").
Management of the Company has elected to receive shares of Class A Common
Stock for all of its Undistributed Profits. The Company will receive no
additional consideration in connection with such conversion of member
interests into shares of Common Stock. In connection with the exchange, Knight
Securities, Inc., a newly formed corporation, will become the successor entity
to Knight Securities, L.P., and Trimark Securities, Inc., a newly formed
corporation, will become the successor entity to Trimark Securities, L.P. (the
foregoing transactions, collectively, shall be referred to herein as the
"Reorganization"). Prior to the effective date of the Registration Statement
relating to the Initial Public Offering (the "Offering"), certain members of
the Company, who have so elected, will receive a cash distribution of all or a
portion of their Undistributed Profits. Concurrently with such distribution,
the Company intends to make a cash distribution to each member of an estimate
of its share of the total amount of profits of the Company accruing between
April 1, 1998 and the closing of this Offering.
The Pro Forma Consolidated Statement of Financial Condition as of March 31,
1998 has been presented to give effect to the Reorganization as if it had
occurred as of the close of business on March 31, 1998. In addition, the Pro
Forma Consolidated Statement of Financial Condition gives effect to the
declaration of redemption of the Preferred A and B Units described in Note 15
as of March 31, 1998. The specific pro forma transactions are as follows:
. Exchange of 734,497 Common Units of the Company for 37,054,472 shares of
Class A Common Stock, par value $0.01, of the Corporation ("Class A Stock")
and 3,945,528 shares of Class B Common Stock, par value $0.01, of the
Corporation;
. Purchase of 1,741,581 shares of Class A Stock by members of the Company for
$26,123,719 from Undistributed Income of the Company;
. Declaration of cash distribution on Common Units payable to members of
$26,521,293 from Undistributed Income of the Company;
. Declaration of redemption of 1,248,361 Preferred A Units for $12,483,610;
and
. Declaration of redemption of 115,290 Preferred B Units for $1,152,900.
Additionally, Brown has agreed with the Company that it will exercise its
option to purchase 7,143 Common Units of the Company by purchasing the
equivalent shares of Class A Stock of the Corporation at the closing of the
Offering.
The Corporation contemplates that the Offering will comprise up to
10,000,000 shares of Class A Stock (not including an underwriters' over-
allotment option of shares) comprised of 8,688,246 newly-issued shares
F-19
<PAGE>
ROUNDTABLE PARTNERS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
and 1,311,754 shares from Selling Shareholders. The Pro Forma Consolidated
Statement of Financial Condition as of March 31, 1998 does not reflect any
adjustments related to the Offering.
Prior to the Reorganization, the Company was a limited liability company and
was not subject to federal or state income taxes. Subsequent to the
Reorganization, the Corporation will be subject to federal income taxes and
state income taxes in New York, New Jersey and other states. The following pro
forma condensed consolidated statements of income give effect to the
Reorganization as if it had occurred on January 1, 1997. Pro forma income tax
expense includes pro forma amounts relating to federal income taxes, as well
as pro forma amounts relating to state income taxes in New York, New Jersey
and other states. The Company's pro forma effective tax rate of 43% differs
from the federal statutory rate of 35% primarily due to state income taxes
(6%), as well as nondeductible expenses, including the amortization of
goodwill and a portion of business development expenses (2%).
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME:
<TABLE>
<CAPTION>
FOR THE
THREE
FOR THE YEAR MONTHS
ENDED ENDED MARCH
DECEMBER 31, 31, 1998
1997 (UNAUDITED)
------------ -----------
<S> <C> <C>
Total revenues........................................ $226,666,646 $63,532,216
Total expenses........................................ 176,589,413 48,748,510
------------ -----------
Net income as reported................................ 50,077,233 14,783,706
------------ -----------
PRO FORMA ADJUSTMENTS
Pro forma income tax expense(1)..................... 21,533,210 6,356,994
============ ===========
Pro forma net income................................ $ 28,544,023 $ 8,426,712
============ ===========
Pro forma earnings per common unit
Basic............................................. $ 38.72 $ 11.47
Diluted........................................... $ 23.68 $ 11.47
Weighted average common units outstanding...........
Basic............................................. 737,197 734,497
Diluted........................................... 1,252,183 734,497
</TABLE>
F-20
<PAGE>
[BACK COVER]
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the offering are estimated to be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $ 54,280
NASD filing fee............................................... 18,900
NASDAQ listing fee............................................ 90,000
Legal fees and expenses....................................... 400,000
Accounting fees and expenses.................................. 400,000
Blue Sky fees and expenses (including legal fees)............. 10,000
Printing expenses............................................. 200,000
Transfer Agent fees........................................... 25,000
Miscellaneous................................................. 301,820
----------
TOTAL....................................................... $1,500,000
==========
</TABLE>
--------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company, a Delaware corporation, is empowered by Section 145 of the
Delaware General Corporation Law (the "DGCL"), subject to the procedures and
limitations stated therein, to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding by reason of the fact that such person is or was a
director, officer, employee or agent of the Company, or is or was serving at
the request of the Company as a director, officer, employee or agent of
another corporation or other enterprise, against reasonable expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually incurred by him in connection with such action, suit or proceeding,
if such director, officer, employee or agent acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The Company is required
by Section 145 to indemnify any person against reasonable expenses (including
attorneys' fees) actually incurred by him in connection with an action, suit
or proceeding in which he is a party because he is or was a director, officer,
employee or agent of the Company or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation or
other enterprise, if he has been successful, on the merits or otherwise, in
the defense of the action, suit or proceeding. Section 145 also allows a
corporation to purchase and maintain insurance on behalf of any such person
against any liability asserted against him in any such capacity, or arising
out of his status as such, whether or not the corporation would have the power
to indemnify him against such liability under the provisions of Section 145.
In addition, Section 145 provides that indemnification pursuant to its
provisions is not exclusive of other rights of indemnification to which a
person may be entitled under any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise.
Article 7 of the Company's Certificate of Incorporation (the "Charter")
provides that the Company shall indemnify and hold harmless any person who
was, is, or is threatened to be made a party to a proceeding by reason of the
fact that he or she (i) is or was a director or officer of the Company or (ii)
while a director or officer of the Company, is or was serving at the request
of the Company as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, to the fullest extent permitted under the
DGCL. The right to indemnification under Article 7 of the Charter is a
contract right which includes, with respect to directors and officers, the
right to be paid by the Company the expenses incurred in defending any such
proceeding in advance of its disposition.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On March 27, 1995, Roundtable Partners, L.L.C. (the "LLC") sold an aggregate
of 304,407 common units of the LLC ("Common Units") to 22 investors, at a
price of $10 per unit, for an aggregate purchase price of $3,044,070. The LLC
also sold an aggregate of 1,095,864 Series A preferred units of the LLC
("Series A Preferred Units") to 18 investors, at a price of $10 per unit, for
an aggregate purchase price of $10,958,640. In addition, on such date, the LLC
sold an aggregate of 1,500,000 Series B preferred units of the LLC to Trimark
Securities, Inc., at a price of $10 per unit, for an aggregate purchase price
of $15,000,000.
On June 28, 1995, the LLC sold an aggregate of 23,331 Common Units to 5
investors, at a price of $10 per unit, for an aggregate purchase price of
$233,310. The LLC also sold an aggregate of 83,992 Series A Preferred Units to
a single investor, at a price of $10 per unit, for an aggregate purchase price
of $839,920.
On July 26, 1995, the LLC sold an aggregate of 33,574 Common Units to 8
investors, at a price of $10 per unit, for an aggregate purchase price of
$335,740. The LLC also sold an aggregate of 120,866 Series A Preferred Units
to 4 investors, at a price of $10 per unit, for an aggregate purchase price of
$1,208,660.
On October 25, 1995, the LLC sold an aggregate of 7,167 Common Units to 6
investors, at a price of $10 per unit, for an aggregate purchase price of
$71,670. The LLC also sold an aggregate of 25,800 Series A Preferred Units to
2 investors, at a price of $10 per unit, for an aggregate purchase price of
$258,000.
On November 29, 1995, the LLC sold an aggregate of 1,190 Common Units, at a
price of $10 per unit, for an aggregate purchase price of $11,900. The LLC
also sold an aggregate of 4,284 Series A Preferred Units, at a price of $10
per unit, for an aggregate purchase price of $42,840.
On December 27 1995, the LLC sold an aggregate of 2,979 Common Units to 6
investors, at a purchase price of $10 per unit, for an aggregate purchase
price of $29,790. The LLC also sold an aggregate of 10,724 Series A Preferred
Units to 2 investors, at a price of $10 per unit, for an aggregate purchase
price of $107,240.
On January 1, 1996, the LLC sold an aggregate of 120,849 Common Units to 5
investors, at a price of $10 per unit, for an aggregate purchase price of
$1,208,490. The LLC also sold an aggregate of 435,056 Series A Preferred Units
to a single investor, at a price of $10 per unit, for an aggregate purchase
price of $4,350,560.
On January 24, 1996, the LLC sold an aggregate of 1,699 Common Units to 5
investors, at a price of $10 per unit, for an aggregate purchase price of
$16,990. The LLC also sold an aggregate of 6,116 Series A Preferred Units to a
single investor, at a price of $10 per unit, for an aggregate purchase price
of $61,160.
On February 21, 1996, the LLC sold an aggregate of 1,783 Common Units to 5
investors, at a price of $10 per unit, for an aggregate purchase price of
$17,830. The LLC also sold an aggregate of 6,418 Series A Preferred Units to a
single investor, at a price of $10 per unit, for an aggregate purchase price
of $64,180.
On March 27, 1996, the LLC sold an aggregate of 1,190 Common Units to 6
investors, at a price of $10 per unit, for an aggregate purchase price of
$11,900. The LLC sold an aggregate of 4,284 Series A Preferred Units to 2
investors, at a price of $10 per unit, for an aggregate purchase price of
$42,840.
On April 24, 1996, the LLC sold an aggregate of 4,189 Common Units to 5
investors, at a price of $10 per unit, for an aggregate purchase price of
$41,890. The LLC also sold an aggregate of 15,080 Series A Preferred Units to
a single investor, at a price of $10 per unit, for an aggregate purchase price
of $150,800.
On May 29, 1996, the LLC sold an aggregate of 60,160 Common Units to 7
investors, at a price of $10 per unit, for an aggregate purchase price of
$601,600. The LLC also sold an aggregate of 216,575 Series A Preferred Units
to 3 investors, at a price of $10 per unit, for an aggregate purchase price of
$2,165,750.
On June 26, 1996, the LLC sold an aggregate of 29,809 Common Units to 10
investors, at a price of $10 per unit, for an aggregate purchase price of
$298,090. The LLC also sold an aggregate of 107,312 Series A Preferred Units
to 6 investors, at a price of $10 per unit, for an aggregate purchase price of
$1,073,120.
On July 24, 1996, the LLC sold an aggregate of 12,001 Common Units to 7
investors, at a price of $10 per unit, for an aggregate purchase price of
$120,010. The LLC also sold an aggregate of 43,203 Series A Preferred Units to
3 investors, at a price of $10 per unit, for an aggregate purchase price of
$432,030.
II-2
<PAGE>
On October 1, 1996, the LLC sold an aggregate of 133,769 Common Units to 12
investors, at a price of $10 per unit, for an aggregate purchase price of
$1,337,690. The LLC also sold an aggregate of 481,568 Series A Preferred Units
to 8 investors, at a price of $10 per unit, for an aggregate purchase price of
$4,815,680.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Form of Amended and Restated Certificate of Incorporation of the
Registrant.
*3.2 Form of Amended and Restated By-laws of the Registrant.
4.1 Specimen Common Stock certificate.
4.2 Form of Registration Rights Agreement.
*5.1 Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.
*10.1 Clearing Agreement between Knight Securities, L.P. and Correspondent
Services Corporation, dated April 23, 1997.
*10.2 Clearing Agreement between Trimark Securities, L.P. and National
Investor Service Corporation, dated June 29, 1997.
10.3 Lease Agreement between Newport L.P.-I, Inc. and Knight Securities,
L.P. dated December 6, 1994 (the "Knight Lease Agreement") for
office space situated in Newport Office Tower, 525 Washington
Boulevard, Jersey City, New Jersey 07310.
10.4 Amendment to the Knight Lease Agreement, dated May 28, 1996.
10.5 Second Amendment to the Knight Lease Agreement, dated September 30,
1997.
10.6 Third Amendment to the Knight Lease Agreement, dated March 18, 1998.
10.7 Lease Agreement between Nestle USA, Inc. and Trimark Securities L.P.,
dated March 20, 1996, for the office space situated at 100
Manhattanville Road, Purchase, New York 10577.
10.8 License Agreement between Automated Securities Clearance, Ltd. and
Knight Securities, L.P., dated April 5th, 1995.
10.9 Master Program Product License Agreement between TCAM Systems, Inc.
and Trimark Securities, Inc. dated May 1, 1990.
10.10 Form of Employment Agreement between the Registrant and Kenneth
Pasternak.
10.11 Form of Employment Agreement between the Registrant and Walter
Raquet.
10.12 Form of Employment Agreement between the Registrant and Steven
Steinman.
10.13 Form of Employment Agreement between the Registrant and Robert
Lazarowitz.
10.14 Form of Employment Agreement between the Registrant and Anthony
Sanfilippo.
10.15 Form of Registrant's 1998 Stock Option and Award Plan.
10.16 Form of Registrant's 1998 Nonemployee Director Stock Option Plan.
10.17 Form of Registrant's Management Incentive Performance Plan.
10.18 Form of Supplemental Executive Retirement Plan.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained in
Exhibit 5.1 hereto).
+24.1 Powers of Attorney.
27 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Previously filed.
(b) Consolidated Financial Statement Schedules
All schedules are omitted because the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or
related notes.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
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 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.
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.
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.
II-4
<PAGE>
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 JERSEY CITY, STATE OF
NEW JERSEY, ON THE 22ND DAY OF MAY, 1998.
Knight/Trimark Group, Inc.
/s/ Kenneth D. Pasternak
By: _________________________________
KENNETH D. PASTERNAK
Director, President and Chief
Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director, Executive
* Vice President and May 22, 1998
- ------------------------------------- Chief Financial
(ROBERT I. TURNER) Officer (principal
financial and
accounting officer)
Director and
* Chairman of the May 22, 1998
- ------------------------------------- Board
(STEVEN L. STEINMAN)
Director and
* Executive Vice May 22, 1998
- ------------------------------------- President
(WALTER F. RAQUET)
* Director and May 22, 1998
- ------------------------------------- Executive Vice
(ROBERT M. LAZAROWITZ) President
</TABLE>
II-5
<PAGE>
SIGNATURE TITLE DATE
Director and
* Executive Vice May 22, 1998
- ------------------------------------ President
(ANTHONY M. SANFILIPPO)
Director
* May 22, 1998
- ------------------------------------
(MARTIN AVERBUCH)
Director
* May 22, 1998
- ------------------------------------
(CHARLES V. DOHERTY)
Director
* May 22, 1998
- ------------------------------------
(GENE L. FINN)
Director
* May 22, 1998
- ------------------------------------
(GARY R. GRIFFITH)
Director
* May 22, 1998
- ------------------------------------
(BRUCE R. MCMAKEN)
Director May 22, 1998
- ------------------------------------
(J. JOE RICKETTS)
Director
* May 22, 1998
- ------------------------------------
(RODGER O. RINEY)
Director May 22, 1998
- ------------------------------------
(V. ERIC ROACH)
Director May 22, 1998
- ------------------------------------
(CHARLES A. ZABATTA)
/s/ Kenneth D. Pasternak
*By: __________________________
ATTORNEY IN FACT
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
*1.1 Form of Underwriting Agreement.
*3.1 Form of Amended and Restated Certificate of Incorporation of
the Registrant.
*3.2 Form of Amended and Restated By-laws of the Registrant.
4.1 Specimen Common Stock certificate.
4.2 Form of Registration Rights Agreement.
*5.1 Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.
*10.1 Clearing Agreement between Knight Securities, L.P. and
Correspondent Services Corporation, dated April 23, 1997.
*10.2 Clearing Agreement between Trimark Securities, L.P. and
National Investor Service Corporation, dated June 29, 1997.
10.3 Lease Agreement between Newport L.P.-I, Inc. and Knight
Securities, L.P. dated December 6, 1994 (the "Knight Lease
Agreement") for office space situated in Newport Office Tower,
525 Washington Boulevard, Jersey City, New Jersey 07310.
10.4 Amendment to the Knight Lease Agreement, dated May 28, 1996.
10.5 Second Amendment to the Knight Lease Agreement, dated September
30, 1997.
10.6 Third Amendment to the Knight Lease Agreement, dated March 18,
1998.
10.7 Lease Agreement between Nestle USA, Inc. and Trimark Securities
L.P., dated March 20, 1996, for the office space situated at
100 Manhattanville Road, Purchase, New York 10577.
10.8 License Agreement between Automated Securities Clearance Ltd.
and Knight Securities, L.P., dated April 5th, 1995.
10.9 Master Program Product License Agreement between TCAM Systems,
Inc. and Trimark Securities, Inc. dated May 1, 1990.
10.10 Form of Employment Agreement between the Registrant and Kenneth
Pasternak.
10.11 Form of Employment Agreement between the Registrant and Walter
Raquet.
10.12 Form of Employment Agreement between the Registrant and Steven
Steinman.
*10.13 Form of Employment Agreement between the Registrant and Robert
Lazarowitz.
10.14 Form of Employment Agreement between the Registrant and Anthony
Sanfilippo.
10.15 Form of Registrant's 1998 Long Term Incentive Plan.
10.16 Form of Registrant's 1998 Nonemployee Director Stock Option
Plan.
10.17 Form of Registrant's Management Incentive Performance Plan.
10.18 Form of Supplemental Executive Retirement Plan
21.1 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained
in Exhibit 5.1 hereto).
+24.1 Powers of Attorney.
27. Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Previously filed.
<PAGE>
EXHIBIT 4.1
NUMBER OF SHARES
COMMON STOCK
THIS CERTIFIES THAT____________________________________ is the owner of
_______________________________shares of the COMMON STOCK of Knight/Trimark
Group, Inc., fully paid and non-assessable, transferable only on the books of
the Corporation in person or by Attorney upon surrender of this Certificate
properly endorsed.
The Corporation will furnish without charge to each stockholder who so
requests, a statement of the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this_____________________________day of_________________A.D. 19_____.
_______________________ _______________________
SECRETARY/TREASURER PRESIDENT
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
PASTE CANCELLED CERTIFICATE IN THIS SPACE
_______________________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________________
CERTIFICATE No.__________ RECEIVED CERTIFICATE No.____________________
FOR_______________________________________________ SHARES FOR____________________________________________________ SHARES
ISSUED TO
THIS _________________ DAY OF ____ ____ _____________ 19_________
_________________________________________________________
_________________________________________________________________
_________________________________________________________
_________________________________________________________________
_________________________________________________________
DATED ____________________________________________ 19____ _________________________________________________________________
===============================================================================================================================
TRANSFER FROM ORIGINAL ISSUE BELOW TRANSFER DETAILS FOR SURRENDERED CERTIFICATES
- -------------------------------------------------------------------------------------------------------------------------------
NO.OF SHARES NO.OF NEW
FROM WHOM TRANSFERRED: NEW CERTIFICATES ISSUED TO: TRANSFERRED CERTIFICATES
----------------------------
_________________________________________________________ _________________________________________________________________
DATED __________________________________________ 19______ _________________________________________________________________
- ---------------------------------------------------------
NO. ORIGINAL NO. ORIGINAL NO. OF SHARES
CERTIFICATE SHARES TRANSFERRED
- --------------------------------------------------------- _________________________________________________________________
_________________________________________________________ _________________________________________________________________
</TABLE>
<PAGE>
Exhibit 4.2
FORM OF
--------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (the "Agreement") is made and
entered into this __ day of __ 1998, among Knight/Trimark Group, Inc., a
Delaware corporation (the "Company") and certain shareholders set forth on
Schedule A attached hereto (the "Contributing Shareholders").
This Agreement is made pursuant to the Contribution Agreement dated
April 18, 1998, between the Company, Roundtable Partners, L.L.C. and the
Contributing Shareholders (the "Contribution Agreement"), which provides, among
other things, that the Company will issue shares of common stock (the "Common
Stock") to the Contributing Shareholders.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties to this Agreement hereby agree as
follows:
1. Definitions. As used in this Agreement, the following terms
-----------
shall have the following meanings:
"Holders": Holders of Registrable Shares:
-------
"Managers": Kenneth Pasternak, Walter Raquet, Steven Steinman and
--------
Robert Lazarowitz.
"Registrable Shares": any shares of stock issued to the Contributing
------------------
Shareholders pursuant to the Contribution Agreement or issued upon conversion of
any shares of stock and any securities issued or issuable with respect to any
Common Stock referred to above by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise. As to any particular Registrable Shares,
such shares shall cease to be Registrable Shares when (a) a registration
-
statement with respect to the sale of such shares shall have become effective
under the Securities Act and such shares shall have been disposed of in
accordance with such registration statement, (b) they shall be saleable to the
-
public pursuant to Rule 144 (or any successor provision) under the Securities
Act, (c) new certificates for them not
-
<PAGE>
bearing a legend restricting further transfer shall have been delivered by the
Company and subsequent disposition of them shall not require registration or
qualification of them under the Securities Act or any similar state law then in
force, or (d) they shall have ceased to be outstanding.
-
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
2. Demand Registration and Purchaser Demand Registration.
-----------------------------------------------------
(a) If at any time, after the conclusion of the 180-day period
commencing on the date of closing of the Company's initial public offering,
holders of Registrable Shares, other than the Managers, representing 3% or more
of the shares of Common Stock outstanding shall request, in writing, that the
Company register, under the Securities Act, all or a part of such holders'
Registrable Shares (a "Demand Registration"), or any Manager shall request,
in writing, that the Company register, under the Securities Act, all or part of
such Manager's Registrable Shares (a "Manager Demand Registration"), the Company
shall use its reasonable efforts to cause a registration statement to be filed
as soon as reasonably practicable (but in no event later than the 60th day after
such holders' request is made). Such registration statement shall be filed on
an appropriate form, as the Company in its discretion shall determine, and
provide for the sale of all such Registrable Shares held by such holders. The
Company agrees to use its reason able efforts to have such registration
statement declared effective by the SEC and to keep any such registration
statement continuously effective and usable for resale of Registrable Shares for
the lesser of 120 days or until all shares covered thereby have been sold, if
earlier. Each registration statement filed pursuant to a request pursuant to
this Section 2(a) by holders of Registrable Shares other than Managers is
hereinafter referred to as a "Demand Registration Statement and each such
registration pursuant to a request pursuant to this Section 2(a) by Managers is
hereinafter referred to as a "Manager Demand Registration Statement)."
Notwithstanding the foregoing, the Company's obligation to effect any
registration of Registrable Shares pursuant to this Section 2 shall be subject
to the following limitations, conditions and qualifications:
2
<PAGE>
i) the Company shall only be required to effect three Demand
Registration Statements and three Manager Demand Registration Statements; and
ii) the Company shall only be required to effect a Demand
Registration Statement or Manager Demand Registration Statement if the aggregate
number of Registrable Shares requested to be registered by all holders of
Registrable Shares is equal to or greater than 3% of the number of shares of
Common Stock outstanding at the time.
(b) The Company agrees (i) not to effect any public or private sale,
distribution or purchase of any of its securities which are the same as or
similar to the Registrable Shares, including a sale pursuant to Regulation D
under the Securities Act, during the 15-day period prior to, and during the 45-
day period beginning on, the closing date of each underwritten offering under
any Demand Registration Statement or Manager Demand Registration Statement, and
(ii) to request each holder of its securities purchased from the Company, at any
time on or after the date of this Agreement (other than in a registered public
offering) to agree not to effect any public sale or distribution of any such
securities during such period, including a sale pursuant to Rule 144 under the
Securities Act.
(c) The Company may postpone for a reasonable period of time, not to
exceed 60 days, the filing or the effectiveness of any Demand Registration
Statement or Manager Demand Registration Statement if the Board of Directors of
the Company in good faith determines that (i) such registration might have a
material adverse effect on any plan or proposal by the Company with respect to
any financing, acquisition, recapitalization, reorganization or other material
transaction, or (ii) the Company is in possession of material non-public
information that, if publicly disclosed, could result in a material disruption
of a major corporate development or transaction then pending or in progress or
in other material adverse consequences to the Company.
(d) The Company shall have the right to select any nationally
recognized investment banking firm(s) to administer any offering pursuant to a
Demand Registration or Manager Demand Registration, and the holders selling in
such offering shall enter into underwriting agreements with the underwriter(s)
of such offering, which agreements shall contain such representations and
warranties by such holders, and such other terms, conditions and indemnities as
are at the time customarily contained in underwriting agreements for similar
offerings.
3
<PAGE>
3. Incidental Registration. Subject to the other terms and
-----------------------
conditions set forth in this Agreement, if the Company proposes at any time to
register any shares of its Common Stock (the "Initially Proposed Shares") under
the Securities Act for sale, whether or not for its own account, pursuant to an
offering (other than the Company's initial public offering, a registration on
Form S-4 or any successor form, a registration relating solely to the sale of
securities to participants in a Company stock plan or stock option plan, a
registration relating solely to an exchange offer, a registration relating to
the conversion or exchange of convertible or exchangeable securities or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Shares or which form does not permit the
inclusion of the Registrable Shares), the Company will promptly give written
notice to the Holders of its intention to effect such registration (such notice
to specify, among other things, the proposed offering price, the kind and number
of securities proposed to be registered and the distribution arrangements,
including identification of the underwriter(s)), and the Holders shall be
entitled to include in such registration statement, as a part of such
underwritten offering, such number of shares (the "Piggyback Shares") to be sold
for the account of the Holders (on the same terms and conditions as the
Initially Proposed Shares) as shall be specified in a request in writing
delivered to the Company within 15 days after the date upon which the Company
gave the aforementioned notice.
The Company's obligations to include Piggyback Shares in a
registration statement pursuant to this Section 2 is further subject to each of
the following limitations, conditions and qualifications:
i) If, at any time after giving written notice of its
intention to effect a registration of any of the Initially Proposed Shares
and prior to the effective date of any registration statement filed in
connection with such registration, the Company shall determine for any
reason not to register all of such shares, the Company may, at its
election, give written notice of such determination to the holders of
Registrable Shares seeking to sell in such offering and thereupon it shall
be relieved of its obligation to use any efforts to register any Piggyback
Shares in connection with such aborted registration.
ii) If, at any time after giving written notice of its
intention to effect a registration of any of the Initially Proposed Shares
and after the effective date of any registration statement filed in
connection with such
4
<PAGE>
registration, the Company shall determine for any reason to postpone
or defer the sale of the Initially Proposed Shares, or not to sell the
Initially Proposed Shares at all, then the Company may, at its election,
give written notice of such determination to the Holders, and thereupon the
Holders shall comply with the Company's determination and agree, as the
case may be, to postpone or defer the sale of Shares, or not to sell
Piggyback Shares at all.
iii) If, in the opinion of the managing underwriter(s) of such
offering, the distribution of all or a specified portion of the Piggyback
Shares would materially interfere with the registration, sale or marketing
of the Initially Proposed Shares, then the number of Piggyback Holder
Shares to be included in such registration statement shall be reduced to
such number, if any, that, in the opinion of such managing underwriter(s),
can be included without such interference. If, as a result of the cutback
provisions of the preceding sentence, the Holders wishing to sell
Piggyback Shares are not entitled to include all of the Piggyback Shares in
such registration, the shares that may be included by such holders shall be
limited on a pro rata basis (based on the number of Registrable Shares held
by all holders), or such Holders may elect to withdraw their request to
include Piggyback Shares in such registration (a "Withdrawal Election").
iv) The Company shall not be required to include the shares of
Common Stock of any Holder in any such registration, if such Holder has not
agreed to enter into an underwriting agreement in customary form with the
underwriters and to refrain from selling any additional shares of Common
Stock for such reasonable period prior to or following the effective date
of the offering as such managing underwriter may request.
v) In addition to (iv) above, if the Company shall so request
in writing, each Holder shall agree not to effect any public or private
sale or distribution of any Registrable Shares (other than the Piggyback
Shares) during the 15-day period prior to and during the 90-day period
beginning on, the effective date of any underwritten public offering of
shares of Common Stock.
4. Registration Procedures. (a) Whenever the Company is required
-----------------------
to use its reasonable efforts to effect the registration of any Registrable
Shares under the Securities Act pursuant to the terms and conditions of Section
2 (such Registrable Shares being hereinafter referred to as "Subject Shares"),
the
5
<PAGE>
Company will use its reasonable efforts to effect the registration and sale of
the Subject Shares in accordance with the intended method of disposition
thereof. Without limiting the generality of the foregoing, the Company will as
soon as practicable:
i) prepare and file with the SEC a registration statement with
respect to the Subject Shares in form and substance satisfactory to the
holders of the Subject Shares, and use all reasonable efforts to cause such
registration statement to become effective as soon as possible;
ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statements effective for the applicable period and to comply with the
provisions of the Securities Act with respect to the disposition of all
Subject Shares and other securities covered by such registration statement;
iii) furnish the holders of Registrable Shares covered by such
registration statement, without charge, such number of conformed copies of
such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
prospectus included in such registration statement (including each
preliminary prospectus), such documents incorporated by reference in such
registration statement or prospectus, and such other documents, as such
holders may reasonably request;
iv) use its reasonable efforts to register or qualify the
Subject Shares covered by such registration statement under the securities
or blue sky laws of such jurisdictions as the managing underwriter(s) shall
reasonably recommend, and do any and all other acts and things which may be
reasonably necessary or advisable to enable the holders to consummate the
disposition in such jurisdictions of the Subject Shares covered by such
registration statement, except that the Company shall not for any such
purpose be required to (A) qualify generally to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified, (B) subject
itself to taxation in any jurisdiction wherein it is not so subject, or (C)
consent to general service of process in any such jurisdiction or otherwise
take any action that would subject it to the general jurisdiction of the
courts of any jurisdiction in which it is not so subject;
6
<PAGE>
v) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the SEC;
vi) furnish, at the Company's expense, undefended certificates
representing ownership of the securities being sold in such denominations
as shall be requested and instruct the transfer agent to release any stop
transfer orders with respect to the Subject Shares being sold;
vii) notify each holder at any time when a prospectus relating
to the Subject Shares is required to be delivered under the Securities Act
of the happening of any event as a result of which the prospectus included
in such registration statement contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
therein (in the case of the prospectus or any preliminary prospectus, in
light of the circumstances under which they were made) not misleading, and
the Company will, as promptly as practicable thereafter, prepare and file
with the SEC and furnish a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of Subject Shares such
prospectus will not contain any 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 not misleading;
vii) enter into customary agreements (including an under writing
agreement in customary form in the case of an underwritten offering) and
make such representations and warranties to the sellers and under writer(s)
as in form and substance and scope are customarily made by issuers to
underwriters in underwritten offerings and take such other actions as the
Holders or the managing underwriter(s) or agent, if any, reasonably require
in order to expedite or facilitate the disposition of such Subject Shares;
ix) make available for inspection by the Holders, any
underwriter or agent participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other similar
professional advisor retained by any such holders or underwriter
(collectively the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company (collectively,
the "Records"), as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information reasonably requested by
any such Inspector in
7
<PAGE>
connection with such registration statement. The Holders agree that Re-
cords and other information which the Company determines, in good faith, to
be confidential and of which determination the Inspectors are so notified
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in the
registration statement, (ii) the release of such Records is ordered
pursuant to a subpoena, court order or regulatory or agency request or
(iii) the information in such Records has been generally disseminated to
the public. Each Holder agrees that it will, upon learning that disclosure
of such Record is sought in a court of competent jurisdiction or by a
governmental agency, give notice to the Company and allow the Company, at
the Company's expense, to undertake appropriate action to prevent
disclosure of the Records deemed confidential;
x) obtain for delivery to the Company, the underwriter(s) or
their agent, with copies to the Holders, a "cold comfort" letter from the
Company's independent public accountants in customary form and covering
such matters of the type customarily covered by "cold comfort" letters as
the Holders or the managing underwriter(s) reasonably request;
xi) obtain for delivery to the Holders and the underwriter(s)
or their agent an opinion or opinions from counsel for the Company in
customary form and reasonably satisfactory to the Holder, underwriters or
agents and their counsel;
xii) make available to its security holders earnings statements,
which need not be audited, satisfying the provisions of Section 11(a) of
the Securities Act no later than 90 days after the end of the 12-month
period beginning with the first month of the Company's first quarter
commencing after the effective date of the registration statement, which
earnings statements shall cover said 12-month period;
xiii) make every reasonable effort to prevent the issuance of any
stop order suspending the effectiveness of the registration statement or of
any order preventing or suspending the effectiveness of such registration
statement at the earliest possible moment;
xiv) cause the Subject Shares to be registered with or approved
by such other governmental agencies or authorities within the United States
as may be necessary to enable the sellers thereof or the
8
<PAGE>
underwriters(s), if any, to consummate the disposition of such Subject
Shares;
xv) cooperate with the Holders and the managing under-
writer(s), if any, or any other interested party (including any interested
broker-dealer) in making any filings or submission required to be made, and
the furnishing of all appropriate information in connection therewith, with
the National Association of Securities Dealers, Inc. ("NASD");
xvi) cause its subsidiaries to take action necessary to effect
the registration of the Subject Shares contemplated hereby, including
filing any required financial information;
xvii) effect the listing of the Subject Shares on the Nasdaq
National Market or such other national securities exchange or over-the-
counter market on which shares of the Common Stock shall then be listed;
xviii) participate in roadshow presentations to promote the sale
of the Subject Shares; and
xix) take all other steps necessary to effect the registration
of the Subject Shares contemplated hereby.
(b) The sellers of Subject Shares shall provide (in writing and
signed by the such sellers and stated to be specifically for use in the related
registration statement, preliminary prospectus, prospectus or other document
incident thereto) all such information and materials and take all such action as
may be required in order to permit the Company to comply with all applicable
requirements of the SEC and any applicable state securities laws and to obtain
any desired acceleration of the effective date of any registration statement
prepared and filed by the Company pursuant to this Agreement.
(c) The sellers of Subject Shares shall, if requested by the
Company or the managing underwriter(s) in connection with any proposed
registration and distribution pursuant to this Agreement, (i) agree to sell the
Subject Shares on the basis provided in any underwriting arrangements entered
into in connection therewith, (ii) complete and execute all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
customary in similar offerings and (iii) agree to sign a lock-up agreement upon
the request of the managing underwriter(s) prohibiting such Holders from selling
shares by any other means for up to 180 days after such offering.
9
<PAGE>
(d) Upon receipt of any notice from the Company that the
Company has become aware that the prospectus (including any preliminary
prospectus) included in any registration statement filed pursuant to Section 2,
as then in effect, contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, the sellers of Subject Shares shall forthwith
discontinue disposition of Subject Shares pursuant to the registration statement
covering the same until the such Sellers' receipt of copies of a supplemented or
amended prospectus and, if so directed by the Company, deliver to the Company
(at the Company's expense) all copies other than permanent file copies then in
the Qualified Holder possession, of the prospectus covering the Subject Shares
that was in effect prior to such amendment or supplement.
(e) The Company shall pay all out-of-pocket expenses incurred in
connection with any registration statement filed pursuant to Section 2(a) or
Section 3 of this Agreement, including, without limitation, printing expenses,
transfer agents and registrars' fees, fees and disbursements of the Company's
counsel and accountants and fees and disbursements of experts used by the
Company in connection with such registration statement. Notwithstanding the
foregoing, the sellers of Subject Shares shall pay all underwriting discounts
or brokerage commissions and all SEC or NASD registration and filing fees
attributable to the Subject Shares sold pursuant to any such registration
statement. The Company shall not be responsible for the fees and disbursements
of counsel retained by any such seller, for which the seller shall be solely
responsible.
(f) In connection with any sale of Subject Shares that are
registered pursuant to this Agreement, the Company and the sellers of Subject
Shares shall enter into an agreement providing for indemnification of such
sellers by the Company, and indemnification of the Company by the such sellers,
on terms customary for such agreements at that time (it being understood that
any disputes arising as to what is customary shall be resolved by counsel to the
underwriter(s)).
5. Notices. Any notice or other communication required or permitted
-------
to be given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by telex (with correct answer back received), telecopy or
facsimile at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day
10
<PAGE>
during normal business hours where such notice is to be received) or (b) on the
third business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company, to:
Newport Tower
525 Washington Boulevard
Jersey City, NJ 07310
If to any other Holder,
to such name at such address as such Holder shall have indicated in a
written notice delivered to the other parties to this Agreement.
Any party hereto may from time to time change its address for notices under this
Section 6 by giving at least 10 days' notice of such changes to the other
parties hereto.
6. Waivers. No waiver by any party of any default with respect to
-------
any provision, condition or requirement hereof shall be deemed to be a
continuing waiver in the future thereof or a waiver of any other provision,
condition or requirement hereof; nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
7. Headings. The headings herein are for convenience only, do not
--------
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
8. Successors and Assigns; Amendments. This Agreement shall be
----------------------------------
binding upon and inure to the benefit of the parties and their successors and
assigns, including without limitation and without the need for an express
assignment each subsequent holder of any Registrable Shares. Except as provided
in this Section 9, neither the Company nor any Holder shall assign this
Agreement or any rights hereunder without the prior written consent of the other
parties hereto. The assignment by a party of this Agreement or any rights
hereunder shall not affect the obligations of such party hereunder. This
Agreement may not be amended except by a written instrument executed by the
parties hereto.
11
<PAGE>
9. No Third Party Beneficiaries. This Agreement is intended for the
----------------------------
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
10. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of laws.
12. Entire Agreement. This Agreement contains the entire agreement
----------------
of the parties hereto in respect of the subject matter hereof and supersedes all
prior agreements and understandings between the parties with respect to the
subject matter hereof.
13. Execution. This Agreement may be executed in two or more
---------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the date hereof.
KNIGHT/TRIMARK GROUP, INC.
--------------------------------------------------
By:
Title:
[CONTRIBUTING SHAREHOLDERS]
--------------------------------------------------
13
<PAGE>
Schedule A
[CONTRIBUTING SHAREHOLDERS]
14
<PAGE>
Exhibit 10.3
================================================================================
AGREEMENT OF LEASE
between
NEWPORT L.G.-I, INC.,
Landlord
and
KNIGHT SECURITIES, L.P.,
Tenant
Newport Office Tower
Washington Boulevard
Jersey City, New Jersey
Sutherland, Asbill & Brennan
1270 Avenue of the Americas
New York, New York 10020-1700
================================================================================
<PAGE>
Lease Agreement Terms
BASE RENT
- ---------
. Lease Period begins = 12/6/94 ends 4/05/06 (11 years, 4 months)
. Free Rent Period = 12/6/94 through 4/5/96 (1 year 4 months)
. Rent period ends = 4/5/06 (10 years from 4/6/96)
. Total rent due $624,325 per year X 10 years = $6,243,250
. Rent to be amortized from August 1, 1995 through 4/5/06 = 128 months
. $6,243,250/128 months = $48,775.39/month
EMERGENCY POWER
- ---------------
. $43,750/year; $3,645.83/month
. Begins upon occupancy
.
SUPPLEMENTAL AIR CONDITIONING
- -----------------------------
. $17,500/year; $1,458.33/month
. Begins upon occupancy
PARKING
- -------
. Ten spots allocated to Knight
. $125 per spot
Subsequent months accrual = $48,775.39 + $3,645.83 + $1,458.33 + $875.00 =
$54,754.55
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C> <C>
DEFINITIONS............................................... 1
ARTICLE 1 - DEMISE, PREMISES, TERM, RENT............ 11
ARTICLE 2 - USE AND OCCUPANCY....................... 12
ARTICLE 3 - ALTERATIONS............................. 13
ARTICLE 4 - MAINTENANCE AND REPAIRS-FLOOR LOAD...... 18
ARTICLE 5 - WINDOW CLEANING......................... 20
ARTICLE 6 - REQUIREMENTS OF LAW..................... 20
ARTICLE 7 - SUBORDINATION........................... 22
ARTICLE 8 - RULES AND REGULATIONS................... 25
ARTICLE 9 - INSURANCE, PROPERTY LOSS OR DAMAGE;
REIMBURSEMENT........................... 26
ARTICLE 10 - DESTRUCTION-FIRE OR OTHER CAUSE......... 29
ARTICLE 11 - EMINENT DOMAIN.......................... 32
ARTICLE 12 - ASSIGNMENT, SUBLETTING, MORTGAGE, ETC... 33
ARTICLE 13 - ELECTRICITY............................. 41
ARTICLE 14 - ACCESS TO PREMISES...................... 43
ARTICLE 15 - CERTIFICATE OF OCCUPANCY................ 46
ARTICLE 16 - DEFAULT................................. 47
ARTICLE 17 - REMEDIES AND DAMAGES.................... 49
ARTICLE 18 - LANDLORD FEES AND EXPENSES.............. 52
ARTICLE 19 - REPRESENTATIONS BY LANDLORD............. 52
ARTICLE 20 - END OF TERM............................. 53
ARTICLE 21 - QUIET ENJOYMENT......................... 53
ARTICLE 22 - POSSESSION.............................. 54
ARTICLE 23 - NO WAIVER............................... 54
ARTICLE 24 - WAIVER OF TRIAL BY JURY................. 55
ARTICLE 25 - INABILITY TO PERFORM.................... 55
ARTICLE 26 - BILLS AND NOTICES....................... 56
ARTICLE 27 - ESCALATION.............................. 57
ARTICLE 28 - SERVICES................................ 66
ARTICLE 29 - INTENTIONALLY OMITTED................... 71
ARTICLE 30 - INTENTIONALLY OMITTED................... 71
ARTICLE 31 - SECURITY................................ 71
ARTICLE 32 - CAPTIONS................................ 72
ARTICLE 33 - PARTIES BOUND........................... 73
ARTICLE 34 - BROKER.................................. 73
ARTICLE 35 - INDEMNITY............................... 73
ARTICLE 36 - INTENTIONALLY OMITTED................... 74
ARTICLE 37 - MISCELLANEOUS........................... 75
ARTICLE 38 - RENT CONTROL............................ 77
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 39 - PARKING................................. 77
ARTICLE 40 - RENEWAL TERM............................ 78
ARTICLE 41 - ARBITRATION............................. 81
Schedule A Rules and Regulations
Schedule B Cleaning Specifications
Schedule C VAC Specifications
Schedule D Landlord's Work
Schedule E Holidays
Schedule F Contractors
EXHIBIT A The Site
EXHIBIT B The Parking Garage
EXHIBIT C Letter of Credit
</TABLE>
ii
<PAGE>
AGREEMENT OF LEASE, made as of the 6th day of December, 1994, between
Landlord and Tenant.
W I T N E S S E T H
- - - - - - - - - -
The parties hereto, for themselves, their legal representatives,
successors and assigns, hereby covenant as follows.
DEFINITIONS
-----------
"AAA" shall mean the American Arbitration Association.
---
"ACM" shall mean asbestos or asbestos-containing materials.
---
"Affiliate" shall mean a Person which shall (1) Control, (2) be under
---------
the Control of, or (3) be under common Control with the Person in question.
"Alterations" shall mean alterations, installations, improvements,
-----------
additions or other physical changes, (other than decorations) in or about the
Premises.
"Applicable Rate" shall mean the lesser of (x) two (2) percentage
---------------
points above the then current Base Rate, and (y) the maximum rate permitted by
applicable law, from time to time.
"Appraiser" shall have the meaning set forth in Section 40.3.
---------
"Assignment Proceeds" shall have the meaning set forth in Section 12.8
-------------------
hereof.
"Bankruptcy Code" shall mean 11 U.S.C. Section 101 et seq., or any
--------------- -------
statute of similar nature and purpose.
"Base Operating Expenses" shall mean the mean average of Operating
-----------------------
Expenses for calendar year 1994 and Operating Expenses for calendar year 1995.
"Base Rate" shall mean the rate of interest publicly announced from
---------
time to time by Citibank, N.A., or its successor, as its "prime lending rate"
(or such other term as may be used by Citibank, N.A., from time to time, for the
rate presently referred to as its "prime lending rate").
"Base Taxes" shall mean One Million Five Hundred Sixty-Four Thousand
----------
Five Hundred One and 50/100 Dollars ($1,564,501.50).
<PAGE>
"Broker" shall have the meaning set forth in Article 34 hereof.
------
"Building" shall mean all the buildings, equipment and other
--------
improvements and appurtenances of every kind and description now located or
hereafter erected, constructed or placed upon the land, including, without
limitation, a pedestrian bridge and/or walkway connecting to the Building if and
to the extent required to be maintained by Landlord and any and all alterations,
and replacements thereof, additions thereto and substitutions therefor, known as
Newport Office Tower, 525 Washington Boulevard, Jersey City, New Jersey.
"Building Systems" shall mean the mechanical, gas, electrical,
----------------
sanitary, heating, air conditioning, ventilating, elevator, plumbing, life-
safety and other service systems of the Building.
"Business Days" shall mean all days, excluding Saturdays, Sundays and
-------------
Holidays.
"Commencement Date" shall mean the date hereof.
-----------------
"Consumer Price Index" shall mean the Consumer Price Index for All
--------------------
Urban Consumers published by the Bureau of Labor Statistics of the United States
Department of Labor, New York, N.Y. - Northeastern N.J. Area, All Items (1982-84
= 100), or any successor index thereto, appropriately adjusted. In the event
that the Consumer Price Index is converted to a different standard reference
base or otherwise revised, the determination of adjustments provided for herein
shall be made with the use of such conversion factor, formula or table for
converting the Consumer Price Index as may be published by the Bureau of Labor
Statistics or, if said Bureau shall not publish the same, then with the use of
such conversion factor, formula or table as may be published by Prentice-Hall,
Inc., or any other nationally recognized publisher of similar statistical
information. If the Consumer Price Index ceases to be published, and there is no
successor thereto, such other index as Landlord and Tenant shall agree upon in
writing shall be substituted for the Consumer Price Index. If Landlord and
Tenant are unable to agree as to such substituted index, such matter shall be
submitted to the AAA or any successor organization for determination in
accordance with the regulations and procedures thereof then obtaining for
commercial arbitration.
"Control" or "control" shall mean ownership of more than fifty percent
------- -------
(50%) of the outstanding voting stock of a corporation or other majority equity
and control interest if not a corporation and the possession of power to direct
or cause the direction of the management and policy of such corporation or other
entity, whether through the ownership of voting securities, by statute,
according to the provisions of a contract, or otherwise.
-2-
<PAGE>
"Current Year" shall mean the Operating Year in which a demand is made
------------
upon Tenant for payment of a Tentative Monthly Escalation Charge.
"Deficiency" shall have the meaning set forth in Section 17.2 hereof.
----------
"Emergency Generator" shall have the meaning set forth in Section 13.3
-------------------
hereof.
"Emergency Power" shall have the meaning set forth in Section 13.3
---------------
hereof.
"Escalation Rent" shall mean, individually or collectively, the Tax
---------------
Payment and the Operating Payment.
"Event of Default" shall have the meaning set forth in Section 16.1
----------------
hereof.
"Expiration Date" shall mean the Fixed Expiration Date or such earlier
---------------
or later date on which the Term shall sooner or later end pursuant to any of the
terms, conditions or covenants of this Lease or pursuant to law.
"Fair Market Rent" shall have the meaning set forth in Section 40.3
----------------
hereof.
"Fixed Expiration Date" shall mean the date immediately prior to the
---------------------
date eleven (11) years and four (4) after the Commencement Date.
"Fixed Rent" shall have the meaning set forth in Section 1.1 hereof.
----------
"Governmental Authority (Authorities)" shall mean the United States of
------------------------------------
America, the State of New Jersey, the City of Jersey City, any political
subdivision thereof and any agency, department, commission, board, bureau or
instrumentality of any of the foregoing, or any quasi-governmental authority,
now existing or hereafter created, having jurisdiction over the Real Property or
any portion thereof.
"Ground Lease" shall have the meaning set forth in Section 7.6 hereof.
------------
"Hazardous Materials" shall mean (i) any "hazardous wastes" as defined
-------------------
by the Resource, Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901
et seq., as amended, and regulations promulgated thereunder, (ii) any
- -- ---
"hazardous, toxic or dangerous waste, substance or material" defined as such in
(or for purposes of) the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C. Section 9601 et seq.), as amended, and
-- ---
regulations promulgated thereunder, and (iii) any hazardous, toxic or dangerous
chemical, biological or other waste, substance or material as defined in any so-
called
-3-
<PAGE>
"superfund" or "superlien" law or any other federal, state or local statute,
law, ordinance, code, rule, regulation, order or decree regulating, relating to
or imposing liability or standards of conduct concerning such waste, substance
or material; including, without limiting the generality of the foregoing,
asbestos, radon, hydrochlorofluoro carbons, chloroflouuro carbons, urea
formaldehyde, polychlorinated byphenyls, and petroleum products including
gasoline, fuel oil, crude oil and various constituents of such products.
Hazardous Materials shall not include office supplies which are used and stored
in compliance with all applicable Requirements.
"Holidays" shall mean all days observed by either the State of New
--------
Jersey or the Federal Government and by the labor unions servicing the Building
as legal holidays. As of the date hereof, Holidays means the days set forth on
Schedule E attached hereto and made a part hereof.
- ----------
"Indemnitees" shall mean Landlord, the partners comprising Landlord
-----------
and its and their partners, shareholders, officers, directors, employees, agents
and contractors.
"Initial Alterations" shall mean the Alterations made by Tenant to
-------------------
prepare the Premises for Tenant's occupancy.
"Landlord", on the date as of which this Lease is made, shall mean
---------
Newport L.G.-I, Inc., a Delaware corporation having an office c/o The Georgetown
Company, 667 Madison Avenue, New York, New York, but thereafter, "Landlord"
shall mean only the fee owner of the Real Property or if there shall exist a
Superior Lease, the tenant thereunder.
"Landlord Delay(s)" shall mean any actual delay which Tenant
-----------------
encounters in the performance or completion of any Tenant Alteration, including
Tenant's Initial Alterations and Specialty Alterations, or in moving into the
Premises, which is caused by any act or omission of Landlord, its agents,
employees or contractors, including, without limitation (i) delays caused by any
acts or omissions of Landlord, its agents, servants, employees or contractors
which unreasonably interfere with Tenant (including, without limitation, any
failure to cure a violation of any Requirement for which Tenant is not
responsible), (ii) delays, other than those reasonably anticipated by reason of
the staging of the performances thereof in accordance with good construction
practice taking into account Tenant's desire to perform its Initial Alterations
as soon as possible, caused by the performance by Landlord of Landlord's Work,
(iii) delays caused by latent defects in the Building (or the repair thereof),
and (iv) delays caused by the inaccuracy of Landlord's representation contained
in Section 6.3.
-4-
<PAGE>
"Landlord's Determination" shall have the meaning set forth in Section
------------------------
40.3 hereof.
"Landlord's Interruption" shall have the meaning set forth in Section
-----------------------
14.2 hereof.
"Landlord's Work" shall have the meaning set forth in Section 3.5
---------------
hereof.
"Lease Year" shall mean the twelve (12) month period commencing on the
----------
Commencement Date and each succeeding twelve (12) month period thereafter.
"Lessor(s)" shall mean a lessor under a Superior Lease.
---------
"Letter of Credit" shall have the meaning set forth in Article 31
----------------
hereof.
"Lighting Meters" shall mean the meters used to measure electricity
---------------
for lighting and ordinary office machinery use.
"Long Lead Work" shall mean any item which is not a stock item and
--------------
must be specially manufactured, fabricated or installed or is of such an
unusual, delicate or fragile nature that there is a substantial risk that
(i) there will be a delay in its manufacture, fabrication, delivery or
installation, or
(ii) after delivery, such item will need to be reshipped or redelivered
or repaired
so that the item in question would delay the completion of the standard items
even though the items of Long Lead Work in question are (1) ordered together
with the other items required and (2) installed or performed (after the
manufacture or fabrication thereof) in the order and sequence that such Long
Lead Work and other items are normally installed or performed in accordance with
good construction practice.
"Material Event of Default" shall mean (i) any outstanding monetary
-------------------------
default(s) aggregating more than $100,000 with respect to which (a) notice has
been given to Tenant in accordance with the provisions of this Lease, (b) the
grace period, if any, provided in this Lease for the curing thereof has expired,
and (c) if Tenant disputes such default, either (1) arbitration with respect to
the subject matter thereof shall not be pending, or (2) Tenant shall not have
paid fifty percent (50%) of the amount claimed by Landlord to Landlord under
protest reserving all of Tenant's rights with respect to such default, or (ii)
any outstanding Event of Default, the cost of the cure of which shall exceed
$100,000, or (iii) any of the Events of Default enumerated
-5-
<PAGE>
in Section 16.1 (D) hereof, or (iv) if Tenant's interest in this Lease shall be
assigned or transferred or if Tenant shall sublet the Premises, in either case
in violation of the provisions of this Lease.
"Meters" shall mean hard-wired check meters or other meters which are
------
acceptable to the public utility company furnishing electricity to the Building
which are placed within the electrical wires which supply electricity to the
Premises.
"Mortgage(s)" shall mean any trust indenture or mortgage which may now
-----------
or hereafter affect the Real Property, the Building or any Superior Lease and
the leasehold interest created thereby, and all renewals, extensions,
supplements, amendments, modifications, consolidations and replacements thereof
or thereto, substitutions therefor, and advances made thereunder.
"Mortgagee(s)" shall mean any trustee, mortgagee or holder of a
------------
Mortgage.
"Mutual Determination" shall have the meaning set forth in Section
--------------------
40.3 hereof.
"Nondisturbance Agreement" shall have the meaning set forth in Section
------------------------
7.1 hereof.
"NTURC" shall have the meaning set forth in Section 7.6 hereof.
-----
"Operating Expenses" shall have the meaning set forth in Section 27.1
------------------
hereof.
"Operating Payment" shall have the meaning set forth in Section 27.4
-----------------
hereof.
"Operating Statement" shall have the meaning set forth in Section 27.1
-------------------
hereof.
"Operating Year" shall have the meaning set forth in Section 27.1
--------------
hereof.
"Operation of the Property" shall mean the maintenance, repair,
-------------------------
security and management of the Real Property and the curbs, sidewalks and areas
adjacent thereto.
"Overtime Periods" shall have the meaning set forth in Section 28.3
----------------
hereof.
-6-
<PAGE>
"Parking Garage" shall mean the parking garage (which garage may be in
--------------
part a public parking garage) located as shown on Exhibit B attached hereto and
---------
made a part hereof.
"Parties" shall have the meaning set forth in Section 37.2 hereof.
-------
"Partner" or "partner" shall mean any partner of Tenant, if Tenant
------- -------
is a partnership; and any shareholder of Tenant if Tenant is a corporation.
"Person(s) or person(s)" shall mean any natural person or persons, a
----------------------
partnership, a corporation and any other form of business or legal association
or entity.
"Premises" shall mean, subject to the provisions of this Lease, the
--------
entire thirtieth (30th) floor of the Building.
"Qualified Building Service Interruption" shall have the meaning set
---------------------------------------
forth in Section 14.2 hereof.
"Real Property" shall mean the Building, together with the plot of
-------------
land upon which it stands.
"Renewal Notice" shall have the meaning set forth in Section 40.1
--------------
hereof.
"Renewal Option" shall have the meaning set forth in Section 40.1
--------------
hereof.
"Renewal Terms" shall have the meaning set forth in Section 40.1
-------------
hereof.
"Rent Per Square Foot" shall mean the sum of the then Fixed Rent and
--------------------
Escalation Rent divided by the Space Factor.
"Rental" shall mean and be deemed to include Fixed Rent, Escalation
------
Rent, Electricity Additional Rent, all additional rent and any other sums
payable by Tenant hereunder.
"Rent Commencement Date" shall mean the date one (1) year, four (4)
----------------------
months after Commencement Date, which period shall be extended for any period of
Landlord Delay (i) on a day for day basis for the first thirty (30) days in the
aggregate, and (ii) two (2) days for each day of Landlord Delay in the aggregate
in excess of thirty (30) days.
-7-
<PAGE>
[TO COME]
8
<PAGE>
Property leased to and used by such subtenant, (vi) any transfer or similar
taxes paid by Tenant in connection with the sublease, and (vii) any Rental paid
by Tenant for the sublease space for the period commencing on the later of (a)
the date Tenant has vacated such space for the normal conduct of its business,
and (b) the date Tenant formally lists (i.e. by written agreement and in good
faith) such space for rent with one or more real estate brokers and actively
markets such space for rent and ending on the sublease rent commencement date.
In determining Sublease Rent, the costs set forth in clause (v) shall be
amortized on a straight line basis over the greater of the longest useful life
of such improvements, alterations or Property (as permitted pursuant to the
Internal Revenue Code of 1986, as amended) and the term of such sublease.
"Sublease Profit" shall mean the product of (x) the Sublease Rent Per
---------------
Square Foot less the Rent Per Square Foot, and (y) the number of rentable square
feet constituting the portion of the Premises sublet by Tenant.
"Sublease Rent" shall mean any rent or other consideration paid to
-------------
Tenant directly or indirectly by any subtenant or any other amount received by
Tenant from or in connection with any subletting (including, but not limited to,
sums paid for the sale or rental, or consideration received on account of any
contribution, of Tenant's Property or sums paid in connection with the supply of
electricity or VAC) less the Sublease Expenses.
"Sublease Rent Per Square Foot" shall mean the Sublease Rent divided
-----------------------------
by the rentable square feet of the space demised under the sublease in question.
"Substantial Completion" or "Substantially Completed" or words of
---------------------- -----------------------
similar import shall mean that Landlord's Work has been substantially completed,
it being agreed that Landlord's Work shall be deemed to be substantially
completed notwithstanding the fact that (a) minor or insubstantial details of
construction and/or mechanical adjustment and/or decorative items remain to be
performed, and (b) any Long Lead Work remains to be performed, provided that in
either case such items or Long Lead Work to be performed do not unreasonably
interfere with the performance of Tenant's Initial Alterations or the normal
conduct of Tenant's business.
"Superior Lease(s)" shall mean all ground or underlying leases of the
-----------------
Real Property or the Building heretofore or hereafter made by Landlord and all
renewals, extensions, supplements, amendments and modifications thereof.
"Supplemental System" shall have the meaning set forth in Section 28.3
-------------------
hereof.
"Taxes" shall have the meaning set forth in Section 27.1 hereof.
-----
"Tax Agreement" shall mean the Financial Agreement Annual Service
-------------
Charge in Lieu of Taxes, dated April 18, 1988 between Newport Tower Urban
Renewal Company and the City of Jersey City, as the same may have been or may
hereafter be amended, entered into pursuant to the Urban Renewal Corporation and
Association Law of 1961 (N.J.S.A. 40:55C-40, et seq.)
-------
-9-
<PAGE>
"Tax Payment" shall have the meaning set forth in Section 27.2 hereof.
-----------
"Tax Statement" shall have the meaning set forth in Section 27.1
-------------
hereof.
"Tax Year" shall have the meaning set forth in Section 27.1 hereof.
--------
"Tenant" on the date as of which this Lease is made, shall mean Knight
------
Securities, L.P., a New York limited partnership, having an office at 100 Wall
Street, New York, New York 10005 but thereafter "Tenant" shall mean only the
tenant under this Lease at the time in question; provided, however, that the
originally named tenant and any assignee of this Lease shall not be released
from liability hereunder in the event of any assignment of this Lease.
"Tenant Fund" shall have the meaning set forth in Section 3.6 hereof.
-----------
"Tenant Indemnitees" shall have the meaning set forth in Section 35.1
------------------
hereof.
"Tenant Parties" shall have the meaning set forth in Section 37.2
--------------
hereof.
"Tenant's Allocable Share" shall mean a fraction, expressed as a
------------------------
percentage, the numerator of which shall be the Space Factor, expressed as a
square footage, and the denominator of which shall be the total rentable square
footage (measured in the same manner as the Space Factor) of the area serviced
by the VAC unit serving the Premises.
"Tenant's Business Occupancy Date" shall mean the date on which the
--------------------------------
Premises are first used by Tenant for the conduct of its business.
"Tenant's Determination" shall have the meaning set forth in Section
----------------------
40.3 hereof.
"Tenant's Property" shall mean Tenant's movable fixtures and movable
-----------------
partitions, telephone and other equipment, furniture, furnishings, decorations
and other items of personal property.
"Tenant's Share" shall mean two and two thousand three hundred ninety-
--------------
six ten thousandths percent (2.2396%), as the same may be increased or decreased
pursuant to the terms hereof.
"Tenant Statement" shall have the meaning set forth in Section 12.6
----------------
hereof.
"Tenant's Tax Share" shall mean two and one thousand one hundred
------------------
eighty-nine ten thousandths percent (2.1189%), as the same may be increased or
decreased pursuant to the terms hereof.
"Tentative Monthly Escalation Charge" shall have the meaning set forth
-----------------------------------
in Section 27.4 hereof.
-10-
<PAGE>
"Term" shall mean a term which shall commence on the Commencement Date
----
and shall expire on the Expiration Date.
"Unavoidable Delays" shall have the meaning set forth in Article 25
------------------
hereof.
"VAC" shall mean heat, ventilation and air conditioning.
---
"VAC Meters" shall mean the meters used to measure electricity
----------
consumed by the VAC unit serving the Premises.
"VAC Systems" shall mean the Building Systems providing VAC.
-----------
ARTICLE 1
DEMISE. PREMISES, TERM, RENT
----------------------------
Section 1.1 Landlord hereby leases to Tenant and Tenant hereby hires
-----------
from Landlord the Premises for the Term to commence on the Commencement Date and
to end on the Fixed Expiration Date, at an annual rent (the "Fixed Rent") of Six
-----------
Hundred Twenty-Four Thousand Three Hundred Twenty-Five Dollars ($624,325) for
the period commencing on the Rent Commencement Date and ending on the Fixed
Expiration Date ($52,027 per month); which Tenant agrees to pay in lawful money
of the United States which shall be legal tender in payment of all debts and
dues, public and private, at the time of payment, in equal monthly installments
in advance, on the first (1st) day of each calendar month during the Term
commencing on the Rent Commencement Date, at the office of Landlord or such
other place as Landlord may designate, without any set-off, offset, abatement or
deduction whatsoever. Fixed Rent shall be apportioned on a per diem basis for
any partial month in which the Rent Commencement Date or the Expiration Date
shall occur.
Section 1.2 The Fixed Rent shall be payable as set forth in Section
-----------
1.1. Tenant's liability for the Fixed Rent payable in accordance with Section
1.1 shall, however, accrue in equal monthly installments beginning with the
first day of the first calendar month following Tenant's Business Occupancy Date
and ending on the Fixed Expiration Date. Such monthly installments shall be
calculated by dividing the total amount of Fixed Rent payable pursuant to
Section 1.1 by the number of full calendar months during the period commencing
with the first full calendar month following Tenant's Business Occupancy Date
and Ending on the Fixed Expiration Date. For federal income tax purposes, Tenant
and Landlord shall accrue their deductions and income, respectively, in equal
amounts, in accordance with a schedule to be provided by Tenant to Landlord
within thirty (30) days after Tenant's Business Occupancy Date which schedule
shall be computed in accordance with Section 467 of the Internal Revenue Code.
-11-
<PAGE>
ARTICLE 2
USE AND OCCUPANCY
-----------------
Section 2.1 Tenant shall use and occupy the Premises as general or
-----------
executive offices, including, without limitation, Tenant's stock brokerage,
securities, commodities and investment banking business, uses incidental or
customarily ancillary thereto and for no other purpose.
Section 2.2 (A) Tenant shall not use the Premises or any part thereof,
-----------
or permit the Premises or any part thereof to be used, (1) for the business of
photographic, multilith or multigraph reproductions or offset printing, except
in connection with, either directly or indirectly, Tenant's own business and/or
activities, (2) for a banking, trust company, depository, guarantee or safe
deposit business, which, in each case, is open to the general public for off-
the-street transactions, (3) as a savings bank, a savings and loan association,
or as a loan company, which, in each case, is open to the general public for
off-the-street transactions, (4) for the sale of travelers checks, money orders,
drafts, foreign exchange or letters of credit or for the receipt of money for
transmission, if any of the foregoing, in each case, is open to the general
public for off-the-street transactions, (5) as a stockbroker's or dealer's
office or for the underwriting or sale of securities, which is open to the
general public (as opposed to a client of Tenant visiting by appointment) for
off-the-street transactions, (6) by the United States government, Jersey City,
the State of New Jersey, any foreign government, the United Nations or any
agency or department of any of the foregoing or any other Person having
sovereign or diplomatic immunity, (7) as a restaurant or bar or for the sale of
confectionery, soda or other beverages, sandwiches, ice cream or baked goods or
for the preparation, dispensing or consumption of food or beverages in any
manner whatsoever, except for consumption by Tenant's officers, employees and
business guests, (8) as an employment agency, executive search firm or similar
enterprise, labor union, school, or vocational training center (except for the
training of employees of Tenant intended to be employed at the Premises), or (9)
as a barber shop, beauty salon or similar use.
(B) Tenant may install, at its sole cost and expense and subject
to and in compliance with the provisions of Articles 3 and 4 hereof, vending
machines for the exclusive use of the officers, employees and business guests of
Tenant, each of which vending machines (if it dispenses any beverages or other
liquids or refrigerates) shall have a waterproof pan located thereunder,
connected to a drain.
Section 2.3 Tenant's use and occupancy of the Premises shall be
-----------
subject to and in conformity with (i) the Newport Redevelopment Plan, dated
February 1985, as amended on July 12, 1988 and September 22, 1988, and as the
same may be amended or replaced from time to time, and (ii) the Contract for the
Sale of Land for Private Redevelopment, dated July 2, 1981, between Jersey City
Redevelopment Agency and The Glimcher Company, as amended on March 29, 1985, and
as the same may be amended or replaced from time to time.
-12-
<PAGE>
ARTICLE 3
ALTERATIONS
-----------
Section 3.1 (A) Except to the extent provided in Section 3.4 hereof,
-----------
Tenant shall not make Alterations without Landlord's prior consent. Landlord
shall not unreasonably withhold or delay its consent to any proposed
nonstructural Alterations, provided that such Alterations (i) are not visible
from the outside of the Building, (ii) do not adversely affect any part of the
Building other than the Premises or require any material alterations,
installations, improvements, additions or other physical changes to be performed
in or made to any portion of the Building or the Real Property other than the
Premises, (iii) do not adversely affect any service required to be furnished by
Landlord to any other tenant or occupant of the Building, (iv) do not adversely
affect the proper functioning of any Building System, and (v) do not adversely
affect or violate the certificate of occupancy for the Building or the Premises.
Landlord shall not unreasonably withhold or delay its consent to Tenant's
Initial Alterations.
(B) (1) Prior to making any Alterations, including, without
limitation, the Initial Alterations, Tenant shall (i) submit to Landlord
reasonably detailed plans and specifications (including layout, architectural,
mechanical and structural drawings) for each proposed Alteration and shall not
commence any such Alteration without first obtaining Landlord's approval of such
plans and specifications (except with respect to any nonstructural Alteration
referred to in Section 3.4 hereof for which Landlord's approval is not
required), which, in the case of nonstructural Alterations which meet the
criteria set forth in Section 3.1(A) above, shall not be unreasonably withheld
or delayed, (ii) at Tenant's expense, obtain all permits, approvals and
certificates required by any Governmental Authorities, it being agreed that all
filings with Governmental Authorities to obtain such permits, approvals and
certificates shall be made, at Tenant's expense, by a Person approved by
Landlord, which approval shall not be unreasonably withheld or delayed, and
(iii) furnish to Landlord duplicate original policies or certificates thereof of
worker's compensation (covering all persons to be employed by Tenant, and
Tenant's contractors and subcontractors in connection with such Alteration) and
comprehensive public liability (including property damage coverage) insurance in
such form, with such companies, for such periods and in such amounts as Landlord
may reasonably approve, naming Landlord and its agents, any Lessor and any
Mortgagee, as additional insureds. Upon completion of such Alteration, Tenant,
at Tenant's expense, shall obtain a certificate of occupancy and any other
approvals with respect to such Alteration as shall be required by any
Governmental Authority and shall furnish Landlord with copies thereof, together
with the last field set of plans and specifications (or marked shop drawings)
for such Alterations, it being agreed that all filings with Governmental
Authorities to obtain such permits, approvals and certificates shall be made, at
Tenant's expense, by a Person approved by Landlord, which approval shall not be
unreasonably withheld or delayed. All Alterations shall be made and performed
substantially in accordance with the plans and specifications therefor as
approved by Landlord, all Requirements, the Rules and Regulations, and all rules
and regulations relating to Alterations promulgated by Landlord in its
reasonable judgment. All materials and equipment to be incorporated in the
Premises as a result of any Alterations or a part thereof shall be first quality
and no such materials or equipment (other than Tenant's Property) shall be
-13-
<PAGE>
subject to any lien, encumbrance, chattel mortgage or title retention or
security agreement. In addition, no Alteration at a cost for labor and materials
(as reasonably estimated by Landlord's architect, engineer or contractor) in
excess of One Hundred Fifty Thousand Dollars ($150,000), either individually or
in the aggregate with any other Alteration constructed in any twelve (12) month
period, shall be undertaken prior to Tenant's providing to Landlord such
security as shall be reasonably satisfactory to Landlord or required by any
Mortgagee or Lessor. If, as a result of any Alterations performed by Tenant, any
alterations, installations, improvements, additions or other physical changes
are required to be performed in or made to any portion of the Building or the
Real Property other than the Premises in order to comply with any
Requirement(s), which alterations, installations, improvements, additions or
other physical changes would not otherwise have had to be performed or made
pursuant to the applicable Requirement(s) at such time, Landlord, at Tenant's
sole cost and expense, may perform or make such alterations, installations,
improvements, additions or other physical changes and take such actions as
Landlord shall deem reasonably necessary to comply with any such Requirements,
and the amount of the security required pursuant to the preceding sentence shall
include, in addition to the amounts set forth in the preceding sentence, an
amount equal to the cost of such alterations, installations, improvements,
additions or other physical changes, as reasonably estimated by Landlord's
architect, engineer or contractor. All Alterations requiring the consent of
Landlord shall be performed only under the supervision of an independent
licensed architect approved by Landlord, which approval shall not be
unreasonably withheld or delayed. Landlord hereby approves SCR Design
Organization, Inc. as Tenant's architect for the Internal Alterations.
(2) If Landlord shall fail to disapprove Tenant's final plans and
specifications for any Alteration within ten (10) Business Days, or within five
(5) Business Days (with respect to any resubmission of disapproved plans), after
Landlord's receipt thereof (provided in each instance the same shall be of a
scope and scale reasonably susceptible of review in such periods), Landlord
shall be deemed to have approved such plans and specifications. Any disapproval
given by Landlord shall be accompanied by a statement of the reasons for such
disapproval. Landlord reserves the right to disapprove any plans and
specifications in part, to reserve approval of items shown thereon pending its
review and approval of other plans and specifications, and to condition its
approval upon Tenant making revisions to the plans and specifications or
supplying additional information. Any review or approval by Landlord of any
plans and/or specifications or any preparation or design of any plans by
Landlord's architect or engineer (or any architect or engineer designated by
Landlord) with respect to any Alteration is solely for Landlord's benefit, and
without any representation or warranty whatsoever to Tenant or any other Person
with respect to the compliance thereof with any Requirements, the adequacy,
correctness or efficiency thereof or otherwise. The granting by Landlord of its
consent to any Alterations shall not be deemed to imply that Landlord's estate
or interest in the Land and/or the Building may be subjected to any lien by any
contractor, subcontractor, mechanic, materialmen, vendor or other supplier
engaged by Tenant, directly or indirectly, in connection with such Alteration.
-14-
<PAGE>
(C) Tenant shall be permitted to perform Alterations during the
hours of 8:00 A.M. to 6:00 P.M. on Business Days, provided that such work shall
not unreasonably interfere with or interrupt the operation and maintenance of
the Building or unreasonably interfere with or interrupt the use and occupancy
of the Building by other tenants in the Building. Otherwise, Alterations shall
be performed at such times and in such manner as Landlord may from time to time
reasonably designate. All Tenant's Property installed by Tenant and all
Alterations in and to the Premises which may be made by Tenant at its own cost
and expense prior to and during the Term, shall remain the property of Tenant.
Upon the Expiration Date, Tenant shall remove Tenant's Property from the
Premises and, at Tenant's option, Tenant also may remove, at Tenant's cost and
expense, all Alterations made by Tenant to the Premises, provided, however, in
any case, that Tenant shall repair and restore in a good and workerlike manner
to good condition any damage to the Premises or the Building caused by such
removal. Notwithstanding the foregoing, however, Landlord, upon notice given at
least thirty (30) days prior to the Fixed Expiration Date or upon such shorter
notice as is reasonable under the circumstances upon the earlier expiration of
the Term, may require Tenant to remove any Specialty Alterations, and to repair
and restore in a good and workmanlike manner to good condition any damage to the
Premises or the Building caused by such removal.
(D) All Alterations shall be designed and performed, at Tenant's
sole cost and expense, by contractors, subcontractors or mechanics approved by
Landlord (which approval shall not be unreasonably withheld or delayed). Prior
to making any Alteration, including the Initial Alterations, Landlord shall
furnish to Tenant, at Tenant's request, a list of contractors who may perform
Alterations to the Premises on behalf of Tenant. Such list shall contain at
least three (3) contractors per non-mechanical trade. Annexed hereto as Schedule
--------
F and made a part hereof, is the list of contractors who may perform Alterations
- -
to the Premises as of the Commencement Date. If Tenant shall engage any
contractor set forth on said list, Tenant shall not be required to obtain
Landlord's consent for such contractor unless, prior to the earlier of (a)
entering into a contract with such contractor, and (b) the commencement of work
by such contractor, Landlord shall notify Tenant that such contractor has been
removed from the list. Notwithstanding the foregoing, with respect to
Alterations which affect the Building Systems or structural elements of the
Building, Tenant shall use Landlord's designated contractor with respect to the
applicable Building Systems or structural element, and the Alteration shall, at
Tenant's cost and expense, be designed by an engineer designated by Landlord.
(E) Any mechanic's lien filed against the Premises or the Real
Property for work claimed to have been done for, or materials claimed to have
been furnished to, Tenant shall be discharged by Tenant within thirty (30) days
after Tenant shall have received notice thereof (or such shorter period if
required by the terms of any Superior Lease or Mortgage), at Tenant's expense,
by payment or filing the bond required by law. Tenant shall not, at any time
prior to or during the Term, directly or indirectly employ, or permit the
employment of, any contractor, mechanic or laborer in the Premises, whether in
connection with any Alteration or otherwise, if such employment would interfere
or cause any labor conflict with other contractors, mechanics or laborers
engaged in the construction, maintenance or operation of the
-15-
<PAGE>
Building by Landlord, Tenant or other tenants. In the event of any such
interference or conflict, Tenant, upon demand of Landlord, shall cause all
contractors, mechanics or laborers causing such interference or conflict to
leave the Building immediately. Tenant shall at all times employ contractors,
mechanics and laborers who in each instance are members of the applicable trade
union.
Section 3.2 Neither Landlord nor any managing agent of the Building
-----------
shall receive any fee or compensation for reviewing any Tenant's plans and
specifications for any Alteration or for inspecting any such Alteration. Tenant
shall, however, reimburse Landlord for all reasonable out-of-pocket third party
costs and expenses incurred by Landlord in connection with any Alterations
performed by Tenant, which total costs and expenses shall not exceed $5,000 for
the Initial Alterations.
Section 3.3 Upon the request of Tenant, Landlord, at Tenant's cost and
-----------
expense, shall join in any applications for any permits, approvals or
certificates required to be obtained by Tenant in connection with any permitted
Alteration (provided that the provisions of the applicable Requirement shall
require that Landlord join in such application) and shall otherwise cooperate
with Tenant in connection therewith, provided that Landlord shall not be
obligated to incur any cost or expense, including, without limitation,
attorneys' fees and disbursements, or suffer any liability in connection
therewith.
Section 3.4 Anything contained in this Lease to the contrary
-----------
notwithstanding, Landlord's consent shall not be required with respect to any
nonstructural Alteration, provided that such Alteration meets the conditions set
forth in clauses (i) through (vi) of Section 3.1(A) hereof; provided, however,
that at least ten (10) days prior to making any such nonstructural Alteration,
Tenant shall submit to Landlord for informational purposes only the detailed
plans and specifications for such Alteration, as required by Section 3.1(B)(1)
(i) hereof, and any such Alteration shall otherwise be performed in compliance
with the provisions of this Article 3.
Section 3.5 (A) Landlord shall perform the work, and make the
-----------
installations, in the Premises designated as "Landlord's Work" on Schedule D
----------
annexed hereto and made a part hereof ("Landlord's Work").
------------------
(B) Landlord shall reimburse Tenant for the costs incurred
by Tenant in performing the work and making the installations in the Premises
designated as "Tenant's Items" on Schedule D. Tenant shall utilize a contractor
----------
designated by Landlord in the performance of such work. Such reimbursement shall
be made by Landlord within fifteen (15) days following receipt by Landlord of an
invoice for the work, together with evidence reasonably satisfactory to Landlord
that the work was completed. At Tenant's option, in lieu of receiving
reimbursement, Tenant may forward the invoice for the work to Landlord for
direct payment to the contractor, provided that such invoice is accompanied by
evidence reasonably satisfactory to Landlord that the work was completed.
-16-
<PAGE>
Section 3.6 (A) Landlord shall contribute the amount of One Million
-----------
Two Hundred Fifteen Thousand Five Hundred Dollars ($1,215,500) (the "Tenant
------
Fund") toward (i) the "hard costs" of construction of the Initial Alterations,
- -----
and (ii) the "soft costs" incurred by Tenant in connection with the Initial
Alterations, including, without limitation, architectural, construction and
engineering fees, moving expenses, furniture and equipment.
(B) Landlord shall disburse a portion of the Tenant Fund
to Tenant from time to time, within twenty (20) days after receipt of the items
set forth in Section 3.6(C) hereof, provided that on the date of a request and
on the date of disbursement from the Tenant Fund, no Event of Default shall have
occurred and be continuing. Disbursements from the Tenant Fund shall not be made
more frequently than monthly, and shall be in an amount equal to the aggregate
amounts theretofore paid or payable (as certified by Tenant's independent
licensed architect or Tenant's Chief Financial Officer) to Tenant's contractors,
subcontractors, materialmen, architects, engineers and suppliers which have not
been the subject of a previous disbursement from the Tenant Fund.
(C) Landlord's obligation to make disbursements from the
Tenant Fund shall be subject to Landlord's receipt of: (i) a request for such
disbursement from Tenant signed by the chief financial officer of Tenant,
together with the certification required by Section 3.6(B) hereof, (ii) copies
of all receipts, invoices, and bills for the work completed and materials or
services furnished in connection with the Initial Alterations and, with respect
to "hard costs", incorporated in the Premises, which are to be paid from the
requested disbursement or which have been paid by Tenant and for which Tenant is
seeking reimbursement, (iii) copies of all contracts, work orders, change orders
and other materials relating to the work or materials or services which are the
subject of the requested disbursement or reimbursement, (iv) general releases
and waivers of lien from all contractors, subcontractors and materialmen
involved in the performance of the Initial Alterations relating to the portion
of the Initial Alterations theretofore performed and materials theretofore
provided and for which previous disbursement has been made (except to the extent
such releases and waivers of lien were previously furnished to Landlord), and
(v) a certificate of Tenant's independent licensed architect stating (x) that,
in his opinion, the portion of the Initial Alterations theretofore completed and
for which the disbursement is requested was performed in a good and workmanlike
manner and substantially in accordance with the final detailed plans and
specifications of such Initial Alterations, as approved by Landlord, and (y) the
percentage of completion of the Initial Alterations as of the date of such
certificate.
(D) In no event shall the aggregate amount paid by
Landlord to Tenant under this Section 3.6 exceed the amount of the Tenant Fund.
Upon completion of the Initial Alterations and satisfaction of the conditions
set forth in Section 3.6(E) hereof, any amount of the Tenant Fund which has not
been previously disbursed shall be applied as a credit toward the next accruing
installments of Tenant's Rental obligations under this Lease. Upon the
disbursement of the entire Tenant Fund, Landlord shall have no further
obligation or liability whatsoever to Tenant for further disbursement of any
portion of the Tenant Fund to Tenant. It is expressly understood and agreed that
Tenant shall complete, at its sole cost and expense, the
-17-
<PAGE>
Initial Alterations, whether or not the Tenant Fund is sufficient to fund such
completion. Any costs to complete the Initial Alterations in excess of the
Tenant Fund shall be the sole responsibility and obligation of Tenant.
(E) Within thirty (30) days after completion of the
Initial Alterations, Tenant shall deliver to Landlord (i) general releases and
waivers of lien from all contractors, subcontractors and materialmen involved in
the performance of the Initial Alterations and the materials furnished in
connection therewith (unless same were previously furnished pursuant to Section
3.6(C) hereof), (ii) a certificate from Tenant's independent licensed architect
certifying that in his opinion the Initial Alterations have been performed in a
good and workmanlike manner and completed in accordance with the final detailed
plans and specifications for such Initial Alterations as approved by Landlord,
and (iii) a certificate from Tenant's Chief Financial Officer certifying that
all contractors, subcontractors and materialmen have been paid for the Initial
Alterations and materials furnished through such date.
(F) If Landlord shall fail to pay to Tenant any
disbursement of the Tenant Fund, Tenant may, in addition to all other remedies
available to it, offset any such amounts due from Landlord, together with
interest thereon at the Applicable Rate, against the Rental next payable under
the Lease.
Section 3.7 Landlord shall pay to Tenant, within thirty (30) days
-----------
after demand therefor, any additional costs incurred by Tenant in making any
Alterations, including Tenant's Initial Alterations and Specialty Alterations to
the extent resulting from any Landlord Delay provided, however, no such payment
shall be made by Landlord to Tenant to the extent any Landlord Delay is within
the period of any other delay encountered by Tenant which is not a Landlord
Delay. Any demand for payment of such additional costs shall be accompanied by a
itemized statement thereof, together with all reasonable appropriate back-up
documentation evidencing said additional costs. Provided Landlord shall not be
in good faith contesting all or any portion of such additional costs, Tenant
shall have the right to offset any such amounts due from Landlord against the
Rental otherwise payable under this Lease. Tenant covenants and agrees to use
all commercially reasonable efforts to minimize and/or mitigate such additional
costs.
ARTICLE 4
MAINTENANCE AND REPAIRS-FLOOR LOAD
----------------------------------
Section 4. 1 Landlord shall operate and maintain the Building in a
------------
manner consistent with the standards of first class office buildings in the
metropolitan New Jersey area In this regard Landlord shall operate, maintain and
make all necessary repairs (both structural and nonstructural) to the part of
Building Systems which provide service to the Premises (but not to the
distribution portions of such Building Systems located within the Premises) and
the public portions of the Building, both exterior and interior, in conformance
with standards applicable to first class office buildings in the metropolitan
New Jersey area. Tenant, at
-18-
<PAGE>
Tenant's sole cost and expense, shall take good care of the Premises and the
fixtures, furniture and equipment located therein and the distribution systems
and shall make all nonstructural repairs thereto, as and when needed to preserve
them in good working order and condition, except for latent defects in the
Building or Premises which Landlord shall be responsible to repair and
reasonable wear and tear, obsolescence and damage for which Tenant is not
responsible pursuant to the provisions of Article 10 hereof. Notwithstanding the
foregoing, all damage or injury to the Premises or to any other part of the
Building and Building Systems, or to fixtures, furniture and equipment whether
requiring structural or nonstructural repairs, caused by or resulting from the
negligent act or omission or improper conduct of, or Alterations made by,
Tenant, Tenant's agents, employees, invitees or licensees, shall be repaired at
Tenant's sole cost and expense, by Tenant to the reasonable satisfaction of
Landlord (if the required repairs are nonstructural in nature and do not affect
any Building System), or by Landlord (if the required repairs are structural in
nature or affect any Building System). All of the aforesaid repairs shall be of
first quality and of a class consistent with first class office building work or
construction and shall be made in accordance with the provisions of Article 3
hereof. If Tenant fails after ten (10) days' notice to proceed with due
diligence to make repairs required to be made by Tenant, the same may be made by
Landlord at the expense of Tenant, and the expenses thereof incurred by
Landlord, with interest thereon at the Applicable Rate, shall be forthwith paid
to Landlord as additional rent after rendition of a bill or statement therefor.
Tenant shall give Landlord prompt notice of any defective condition in the
Building or in any Building System, located in, servicing or passing through the
Premises.
Section 4.2 Tenant shall not place a load upon any floor of the
-----------
Premises exceeding fifty (50) pounds per square foot "live load", unless Tenant,
in compliance with all applicable Requirements and the provisions of Article 3
hereof, reinforces the floor in a manner reasonably satisfactory to Landlord.
Tenant shall not move any safe, heavy machinery, heavy equipment, freight, bulky
matter or fixtures into or out of the Building without Landlord's prior consent,
which consent shall not be unreasonably withheld, and shall make payment to
Landlord of Landlord's reasonable costs in connection therewith. If such safe,
machinery, equipment, freight, bulky matter or fixtures requires special
handling, Tenant shall employ only persons holding a Master Rigger's license to
do said work. All work in connection therewith shall comply with all
Requirements and the Rules and Regulations, and shall be done during such hours
as Landlord may reasonably designate. Business machines and mechanical equipment
shall be placed and maintained by Tenant at Tenant's expense in settings
sufficient in Landlord's reasonable judgment to absorb and prevent vibration,
noise and annoyance. Except as expressly provided in this Lease, there shall be
no allowance to Tenant for a diminution of rental value and no liability on the
part of Landlord by reason of inconvenience, annoyance or injury to business
arising from Landlord, Tenant or others making, or failing to make, any repairs,
alterations, additions or improvements in or to any portion of the Building or
the Premises, or in or to fixtures, appurtenances or equipment thereof.
Section 4.3 Landlord shall use its reasonable efforts to minimize
-----------
interference with Tenant's use and occupancy of the Premises in making any
repairs, alterations, additions or improvements; provided, however, that
Landlord shall have no obligation to employ
-19-
<PAGE>
contractors or labor at so-called overtime or other premium pay rates or to
incur any other overtime costs or expenses whatsoever, except that Landlord, at
its expense, but subject to recoupment pursuant to Article 27 hereof, shall
employ contractors or labor at so-called overtime or other premium pay rates if
necessary to make any repair required to be made by it hereunder to remedy any
condition that either (i) materially diminishes access to the Premises, (ii)
threatens the health or safety of any occupant of the Premises, or (iii) except
in the case of a fire or other casualty, materially interferes with Tenant's
ability to conduct its business in the Premises. In all other cases, at Tenant's
request, Landlord shall employ contractors or labor at so-called overtime or
other premium pay rates and incur any other overtime costs or expenses in making
any repairs, alterations, additions or improvements, and Tenant shall pay to
Landlord, as additional rent, within ten (10) Business Days after demand, an
amount equal to the difference between the overtime or other premium pay rates
and the regular pay rates for such labor and any other overtime costs or
expenses so incurred.
ARTICLE 5
WINDOW CLEANING
---------------
Tenant shall not clean, nor require, permit, suffer or allow any
window in the Premises to be cleaned from the outside in violation of any
applicable Requirements.
ARTICLE 6
REQUIREMENTS OF LAW
-------------------
Section 6.1 (A) Tenant at its sole cost and expense, shall comply
-----------
with all Requirements applicable to the use and occupancy of the Premises,
including, without limitation, those applicable to the making of any Alterations
therein or the result of the making thereof and those applicable by reason of
the nature or type of business operated by Tenant in the Premises, except that
(other than with respect to the making of Alterations or the result of the
making thereof) Tenant shall not be under any obligation to make any Alteration
in order to comply with any Requirement applicable to the mere general "office"
use (as opposed to the manner of use) of the Premises, unless otherwise
expressly required herein. Tenant shall not do or permit to be done any act or
thing upon the Premises which will invalidate or be in conflict with a standard
"all-risk" insurance policy; and shall not do, or permit anything to be done in
or upon the Premises, or bring or keep anything therein, except as now or
hereafter permitted by the Jersey City Fire Department, the Jersey City Building
Inspector or other authority having jurisdiction and then only in such quantity
and manner of storage as not to increase the rate for fire insurance applicable
to the Building, or use the Premises in a manner (as opposed to mere use as
general "offices") which shall increase the rate of fire insurance on the
Building or on property located therein, over that in similar type buildings or
in effect on the Commencement Date. If by reason of Tenant's failure to comply
with the provisions of this Article, the fire insurance rate shall be higher
than it otherwise would be, then Tenant shall desist from doing or permitting to
be done any such act or thing and shall reimburse Landlord, as additional rent
-20-
<PAGE>
hereunder, for that part of all fire insurance premiums thereafter paid by
Landlord which shall have been charged because of such failure by Tenant, and
shall make such reimbursement upon demand by Landlord. In any action or
proceeding wherein Landlord and Tenant are parties, a schedule or "make up" of
rates for the Building or the Premises issued by any fire rating bureau or
organization having jurisdiction, or other body fixing such fire insurance
rates, shall be conclusive evidence of the facts therein stated and of the
several items and charges in the fire insurance rates then applicable to the
Building.
(B) Landlord, at its sole cost and expense (but subject to recoupment
as provided in Article 27 hereof), shall comply with all Requirements applicable
to the Premises and the Building other than those Requirements which Tenant or
other tenants or occupants of the Building shall be required to comply with,
subject to Landlord's right to contest the applicability or legality thereof,
provided that any such contest and non-compliance does not prevent Tenant from,
or materially interfere with Tenant, conducting its business in substantially
the same manner as prior to such contest or non-compliance. Landlord shall
indemnify and save Tenant harmless from and against all claims against Tenant
arising from Landlord's failure to comply with any Requirements with which
Landlord is required to comply pursuant to this Section 6.1(B). Landlord
represents to Tenant that, as of the Commencement Date, Landlord has not
received any notice of any violation with respect to the Real Property or the
Premises which remains uncured.
Section 6.2 Tenant, at its sole cost and expense and after notice to
-----------
Landlord, may contest by appropriate proceedings prosecuted diligently and in
good faith, the legality or applicability of any Requirement affecting the
Premises, provided that (a) Landlord (or any Indemnitee) shall not be subject to
imprisonment or to prosecution for a crime, nor shall the Real Property or any
part thereof be subject to being condemned or vacated, nor shall the certificate
of occupancy for the Premises or the Building be suspended or threatened to be
suspended by reason of noncompliance or by reason of such contest; (b) before
the commencement of such contest, if Landlord or any Indemnitee may be subject
to any civil fines or penalties or other criminal penalties or if Landlord may
be liable to any independent third party as a result of such noncompliance,
Tenant shall indemnify Landlord (and any Indemnitee) against the cost of such
compliance and liability resulting from or incurred in connection with such
contest or non-compliance; and (c) Tenant shall keep Landlord regularly advised
as to the status of such proceedings.
Section 6.3 (A) Landlord represents that as of the date hereof the
-----------
Building, the Premises and the Building columns do not contain ACM or other
Hazardous Materials. If, by reason of any Requirement or as a condition to or in
connection with any Alteration, including Tenant's Initial Alterations and
Specialty Alterations, made by Tenant during the Term, any ACM or Hazardous
Materials in the Premises which were not introduced by Tenant, Tenant's
contractors, agents, employees, invitees, licensees or subtenants, are required
to be abated by removal, enclosure or encapsulation in accordance with
Requirements, Landlord shall promptly commence and diligently proceed to
complete such abatement at its own cost, which cost shall not be included in
Operating Expenses.
-21-
<PAGE>
(B) If Tenant shall discover such ACM or other Hazardous Materials in
the performance of any Alteration including Tenant's Initial Alterations and
Specialty Alterations, and Tenant shall actually be delayed in the performance
and completion of such Alteration by reason of the existence of ACM or other
Hazardous Materials in the Premises, then Tenant shall be entitled to an
abatement of one (1) day of Fixed Rent and Escalation Rent for each of the first
thirty (30) days Tenant is so delayed in the completion of such Alteration and
two (2) days of Fixed Rent and Escalation Rent for each day after such thirty
(30) day period that Tenant is so delayed; provided, however, in the event that
such delay also constitutes a Landlord Delay or any other act or omission by
Landlord which results in a deferral of the Rent Commencement Date, the Rent
Commencement Date shall not be so deferred and Tenant shall only be entitled to
the abatement as provided in this Section 6.3(B). Landlord hereby indemnifies
and holds Tenant harmless from and against all constructions costs actually
incurred by Tenant in connection with any Alteration in excess of the amount
such construction costs would have been had Tenant not been so delayed in the
completing of such Alteration. Any demand for payment of such additional costs
shall be accompanied by an itemized statement thereof, together with all
reasonable appropriate back-up documentation evidencing said additional costs.
Provided Landlord shall not be in good faith contesting all or any portion of
such additional costs, Tenant shall have the right to offset any such amounts
due from Landlord against the Rental otherwise payable under this Lease.
(C) Landlord shall indemnify, defend and save and hold Tenant and
Tenant's contractors, agents, employees, invitees, licensees and subtenants
harmless from and against any and all loss, cost, demand, liability and expense
(including, without limitation, reasonable attorneys fees and disbursements)
which Tenant may incur as a result of any ACM or other Hazardous Materials
located in the Building, other than those placed in the Building by or on behalf
of Tenant, Tenant's contractors, agents, employees, invitees, licensees, or
subtenants.
ARTICLE 7
SUBORDINATION
-------------
Section 7.1 (A) Provided that (1) a Mortgagee shall execute and
-----------
deliver to Tenant an agreement to the effect that, if there shall be a
foreclosure of its Mortgage, such Mortgagee will not make Tenant a party
defendant to such foreclosure, evict Tenant, disturb Tenant's possession under
this Lease, or terminate or disturb Tenant's leasehold estate or rights
hereunder, and will recognize Tenant as the direct tenant of such Mortgagee on
the same terms and conditions as are contained in this Lease, subject to the
provisions hereinafter set forth, provided no Event of Default shall have
occurred and be continuing hereunder, or (2) a Lessor shall execute and deliver
to Tenant an agreement to the effect that if its Superior Lease shall terminate
or be terminated for any reason, Lessor will not evict Tenant, disturb Tenant's
possession under the Lease, or terminate or disturb Tenant's leasehold estate or
rights hereunder, and will recognize Tenant as the direct tenant of such Lessor
on the same terms and conditions as are contained in this Lease (subject to the
provisions hereinafter set forth), provided no Event of Default shall have
occurred and be continuing and Lessor shall not make Tenant a part in any action
to terminate such Superior Lease or to remove or evict Tenant from
-22-
<PAGE>
the Premises provided no Event of Default shall have occurred and be continuing
(any such agreement, or any agreement of similar import, from a Mortgagee or
Lessor, as the case may be, being hereinafter referred to as a "Nondisturbance
--------------
Agreement"), this Lease shall be subject and subordinate to such Superior Lease
- -----------
and/or to such Mortgage. This clause shall be self-operative and no further
instrument of subordination shall be required from Tenant to make the interest
of any Lessor or Mortgagee superior to the interest of Tenant hereunder. Tenant,
however, at Tenant's sole cost and expense, shall execute and deliver promptly
the Nondisturbance Agreement.
(B) Any Nondisturbance Agreement may be made on the condition that
neither the Mortgagee nor the Lessor, as the case may be, nor anyone claiming
by, through or under such Mortgagee or Lessor, as the case may be, including a
purchaser at a foreclosure sale, shall be:
(1) liable for any act or omission of any prior landlord
(including, without limitation, the then defaulting landlord), except with
respect to the continuing failure of the successor landlord to perform such
prior landlord's obligations, or
(2) except as expressly set forth in this Lease, subject to any
defense or offset which Tenant may have against any prior landlord (including,
without limitation, the then defaulting Landlord), or
(3) bound by any payment of Rental which Tenant may have made to
any prior landlord (including, without limitation, the then defaulting Landlord)
more than thirty (30) days in advance of the date upon which such payment was
due, or
(4) bound by any obligation to make any payment to or on behalf
of Tenant except payments from the Tenant Fund, or
(5) bound by any amendment or modification of this Lease that
reduces the Rental, the Term or the obligations of Tenant (except to a de
--
minimus extent) or increases the obligations of Landlord (except to a de minimus
- ------- -- -------
extent) made without its consent after the date of its mortgage or lease, as the
case may be, and after notice to Tenant of such mortgage or lien, as the case
may be.
(C) If required by the Mortgagee or the Lessor, within fourteen (14)
days after notice thereof, Tenant shall join in any Nondisturbance Agreement to
indicate its concurrence with the provisions thereof and its agreement set forth
in Section 7.2 hereof to attorney to such Mortgagee or Lessor, as the case may
be, as Tenant's landlord hereunder. Tenant shall promptly so accept, execute and
deliver any Nondisturbance Agreement, reasonably satisfactory to Tenant,
proposed by any such Mortgagee or Lessor which conforms to the provisions of
this Article 7. Any such Nondisturbance Agreement may also contain other
reasonable terms and conditions as may otherwise be reasonably required by such
Mortgagee or Lessor, as the case may be, which do not increase Tenant's monetary
obligations under this
-23-
<PAGE>
Lease, or adversely affect or diminish the rights (except to a de minimus
-- -------
extent) or increase the other obligations (except to a de minimus extent) of
-- -------
Tenant under this Lease.
Section 7.2 If at any time prior to the expiration of the Term, any
-----------
Superior Lease shall terminate or be terminated for any reason or any Mortgagee
comes into possession of the Real Property or the Building or the estate created
by any Superior Lease by receiver or otherwise, Tenant agrees, at the election
and upon demand of any owner of the Real Property or the Building, or of the
Lessor, or of any Mortgagee in possession of the Real Property or the Building,
to attorn, from time to time, to any such owner, Lessor or Mortgagee or any
person acquiring the interest of Landlord as a result of any such termination,
or as a result of a foreclosure of the Mortgage or the granting of a deed in
lieu of foreclosure, upon the then executory terms and conditions of this Lease,
subject to the provisions of Section 7.1 hereof, for the remainder of the Term,
provided that such owner, Lessor or Mortgagee, as the case may be, or receiver
caused to be appointed by any of the foregoing, shall then be entitled to
possession of the Premises. The provisions of this Section 7.2 shall enure to
the benefit of any such owner, Lessor or Mortgagee, shall apply notwithstanding
that, as a matter of law, this Lease may terminate upon the termination of any
Superior Lease, and shall be self-operative upon any such demand, and no further
instrument shall be required to give effect to said provisions. Tenant, however,
upon demand of any such owner, Lessor or Mortgagee, shall execute, from time to
time, instruments, in recordable form, in confirmation of the foregoing
provisions of this Section 7.2, reasonably satisfactory to Tenant, any such
owner, Lessor or Mortgagee, acknowledging such attornment and setting forth the
terms and conditions of its tenancy.
Section 7.3 From time to time, within fourteen (14) days next
-----------
following request by Landlord, any Mortgagee or any Lessor, but not more
frequently than four (4) times in any twelve (12) month period, Tenant shall
deliver to Landlord, such Mortgagee or such Lessor a written statement executed
by Tenant, in form satisfactory to Landlord, such Mortgagee or such Lessor, (1)
stating that this Lease is then in full force and effect and has not been
modified (or if modified, setting forth all modifications), (2) setting forth
the date to which the Fixed Rent, additional rent and other items of Rental have
been paid, (3) stating whether or not, to the best knowledge of Tenant, Landlord
is in default under this Lease, and, if Landlord is in default, setting forth
the specific nature of all such defaults, and (4) as to any other matters
reasonably requested by Landlord, such Mortgagee or such Lessor. Tenant
acknowledges that any statement delivered pursuant to this Section 7.3 may be
relied upon by any purchaser or owner of the Real Property or the Building, or
Landlord's interest in the Real Property or the Building or any Superior Lease,
or by any Mortgagee, or by an assignee of any Mortgagee, or by any Lessor.
Section 7.4 From time to time, within fourteen (14) days next
-----------
following request by Tenant but not more frequently than twice in any twelve
(12) month period, Landlord shall deliver to Tenant a written statement executed
by Landlord (i) stating that this Lease is then in full force and effect and has
not been modified (or if modified, setting forth all modifications),
-24-
<PAGE>
(ii) setting forth the date to which the Fixed Rent, all additional rent and any
other items of Rental have been paid, (iii) stating whether or not, to the best
knowledge of Landlord, Tenant is in default under this Lease, and, if Tenant is
in default, setting forth the specific nature of all such defaults, and (iv) as
to any other matters reasonably requested by Tenant and related to this Lease.
Section 7.5 As long as any Superior Lease or Mortgage shall exist,
-----------
Tenant shall not seek to terminate this Lease by reason of any act or omission
of Landlord until Tenant shall have given written notice of such act or omission
to all Lessors and Mortgagees at such addresses as shall have been furnished to
Tenant by such Lessors and Mortgagees and, if any such Lessor or Mortgagee, as
the case may be, shall have notified Tenant within ten (10) Business Days
following receipt of such notice of its intention to remedy such act or
omission, until a reasonable period of time shall have elapsed following the
giving of such notice, during which period such Lessors and Mortgagees shall
have the right, but not the obligation, to remedy such act or omission.
Section 7.6 Landlord hereby represents to Tenant that (a) Landlord is
-----------
both (i) the fee owner of the Land, which Landlord's predecessor-in-interest
leased to NTURC, pursuant to a lease agreement (the "Ground Lease"), dated as of
------------
May 17, 1989, between Landlord's predecessor-in-interest and NTURC and (ii) the
tenant under a sublease agreement (the "Sublease"), dated as of May 17, 1989,
--------
between NTURC, as sublandlord, and Landlord's predecessor-in-interest, as
subtenant, and (b) the Ground Lease and the Sublease are the only Superior
Leases affecting the Real Property or the Building on the date hereof. Landlord
further represents that neither the Ground Lease, the Sublease nor any other
underlying document or agreement shall impair Tenant's rights granted under this
Lease or Landlord's obligations, and that no consent to this Lease is required
thereunder. Landlord and Tenant acknowledge and agree that during the term of
the Sublease this Lease shall be a lease from Landlord as subtenant under the
Sublease and that upon the expiration or earlier termination of the term of the
Ground Lease, this Lease shall be a lease from Landlord as the fee owner of the
Real Property. Landlord shall obtain and deliver to Tenant a Nondisturbance
Agreement from NTURC in accordance with Section 7.1 hereto.
ARTICLE 8
RULES AND REGULATIONS
---------------------
Tenant and Tenant's contractors, employees, agents, visitors, invitees
and licensees shall comply with the Rules and Regulations. Tenant shall have the
right to dispute the reasonableness of any additional Rule or Regulation
hereafter adopted by Landlord. If Tenant disputes the reasonableness of any
additional Rule or Regulation hereafter adopted by Landlord, the dispute shall
be determined by arbitration in Jersey City in accordance with the rules and
regulations then obtaining of the AAA or its successor. Any such determination
shall be final and conclusive upon the parties hereto. The right to dispute the
reasonableness of any additional Rule or Regulation upon Tenant's part shall be
deemed waived unless the same shall
-25-
<PAGE>
be asserted by service of a notice upon Landlord within thirty (30) days after
receipt by Tenant of notice of the adoption of any such additional Rule or
Regulation. Nothing in this Lease contained shall be construed to impose upon
Landlord any duty or obligation to enforce the Rules and Regulations or terms,
covenants or conditions in any other lease against any other tenant, and
Landlord shall not be liable to Tenant for violation of the same by any other
tenant, its employees, agents, visitors or licensees, except that Landlord shall
not enforce any Rule or Regulation against Tenant which Landlord shall not then
be enforcing against all other office tenants in the Building (other than
Landlord or its Affiliates, unless non-compliance by Landlord or its Affiliates
with such Rule or Regulation causes unreasonable interference with Tenant's
enjoyment of the Premises).
ARTICLE 9
INSURANCE, PROPERTY LOSS OR DAMAGE; REIMBURSEMENT
-------------------------------------------------
Section 9.1 (A) Any Building employee to whom any property shall be
-----------
entrusted by or on behalf of Tenant shall be deemed to be acting as Tenant's
agent with respect to such property and neither Landlord nor its agents shall be
liable for any damage to property of Tenant or of others entrusted to employees
of the Building, nor for the loss of or damage to any property of Tenant by
theft or otherwise. Neither Landlord nor its agents shall be liable for any
injury (or death) to persons or damage to property, or interruption of Tenant's
business, resulting from fire or other casualty; nor shall Landlord or its
agents be liable for any such injury (or death) to persons or damage caused by
other tenants or persons in the Building or caused by construction of any
private, public or quasi-public work; nor shall Landlord be liable for any
injury (or death) to persons or damage to property or improvements, or
interruption of Tenant's business, resulting from any latent defect in the
Premises or in the Building (provided that the foregoing shall not relieve
Landlord from its obligations, if any, to repair such latent defect pursuant to
the provisions of Article 4 hereof or affect Tenant's right, if any, regarding
an abatement of the Fixed Rent and Escalation Rent as set forth in Section 14.2
hereof). Anything in this Article 9 to the contrary notwithstanding, except as
otherwise expressly provided in this Lease, Landlord shall not be relieved from
responsibility directly to Tenant for any loss or damage caused directly to
Tenant wholly or in part by the negligent acts or omissions of Landlord, its
agents, contractors or employees. Nothing in the foregoing sentence shall affect
any right of Landlord to the indemnity from Tenant to which Landlord may be
entitled under Article 35 hereof in order to recoup for payments made to
compensate for losses of third parties.
(B) If at any time any windows of the Premises are temporarily
closed, darkened or bricked-up due to any Requirement or by reason of repairs,
maintenance, alterations, or improvements to the Building, or any of such
windows are permanently closed, darkened or bricked-up due to any Requirement,
Landlord shall not be liable for any damage Tenant may sustain thereby and
Tenant shall not be entitled to any compensation therefor, nor abatement or
diminution of Fixed Rent or any other item of Rental, nor shall the same release
Tenant from its obligations hereunder, nor constitute an actual or constructive
eviction, in whole
-26-
<PAGE>
or in part, by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business, or otherwise, nor impose any liability upon
Landlord or its agents. If at any time the windows of the Premises are
temporarily closed, darkened or bricked-up, as aforesaid, Landlord shall perform
such repairs, maintenance, alterations or improvements and comply with the
applicable Requirements with reasonable diligence and otherwise take such action
as may be reasonably necessary to minimize the period during which such windows
are temporarily closed, darkened, or bricked-up.
(C) Tenant shall promptly notify Landlord of any fire or accident
in the Premises.
Section 9.2 Tenant shall obtain and keep in full force and effect (i)
-----------
a standard form "all risk" insurance policy for Tenant's Specialty Alterations
and Tenant's Property at the Premises in an amount equal to one hundred percent
(100%) of the replacement value thereof, and (ii) a policy of commercial general
liability and property damage insurance on an occurrence basis, with a broad
form contractual liability endorsement. Such policies shall provide that Tenant
is named as the insured. Landlord, Landlord's managing agent, Landlord's agent
and any Lessors and any Mortgagees (whose names shall have been furnished to
Tenant) shall be added as additional insureds, as their respective interests may
appear with respect to the insurance required to be carried pursuant to clause
(i) above, and only to the extent of the named insured's negligence with respect
to the insurance required to be carried pursuant to clause (ii) above. Such
policy described in clause (ii) above shall include coverage for all cost,
expense and liability arising out of, or based upon, any and all claims,
accidents, injuries and damages mentioned in Article 35. In addition, the policy
required to be carried pursuant to clause (ii) above shall contain a provision
that (a) no act or omission of Tenant shall affect or limit the obligation of
the insurer to pay the amount of any loss sustained and (b) the policy shall be
non-cancelable with respect to Landlord, Landlord's managing agent, Landlord's
agent and such Lessors and Mortgagees (whose names and addresses shall have been
furnished to Tenant) unless thirty (30) days' prior written notice shall have
been given to Landlord by certified mail, return receipt requested, which notice
shall contain the policy number and the names of the insured and additional
insureds. In addition, upon receipt by Tenant of any notice of cancellation or
any other notice from the insurance carrier which may adversely affect the
coverage of the insureds under such policy of insurance, Tenant shall promptly
deliver to Landlord and any other additional insured hereunder a copy of such
notice. The minimum amounts of liability under the policy of insurance required
to be carried pursuant to clause (ii) above shall be a combined single limit
with respect to each occurrence in an amount of $1,000,000 primary coverage and
$4,000,000 excess liability coverage for injury (or death) to persons and damage
to property, which amount shall be increased from time to time to that amount of
insurance which in Landlord's reasonable judgment is then being customarily
required by prudent landlords of first class office buildings in the New
York/New Jersey metropolitan area. All insurance required to be carried by
Tenant pursuant to the terms of this Lease shall be effected under valid and
enforceable policies issued by reputable and independent insurers permitted to
do business in the State of New Jersey and rated in Best's Insurance
-27-
<PAGE>
Guide, or any successor thereto (or if there be none, an organization having a
national reputation) as having a general policyholder rating of "A" and a
-
financial rating of at least "X".
-
Section 9.3 Landlord shall obtain and keep in full force and effect
-----------
insurance against loss or damage by fire and other casualty to the Building,
including Tenant's Alterations and Specialty Alterations, as may be insurable
under then available standard forms of "all-risk" insurance policies, in an
amount equal to one hundred percent (100%) of the replacement value thereof.
Tenant shall pay to Landlord, as and for additional rent hereunder, an amount
equal to the actual costs incurred by Landlord in connection with obtaining and
keeping in force and effect any such insurance with respect to the Specialty
Alterations, any such amount shall be paid by Tenant within ten (10) days after
demand therefor. Notwithstanding the foregoing, Landlord shall not be liable to
Tenant for any failure to insure, replace or restore any Alterations unless
Tenant shall have notified Landlord of the completion of such Alterations and of
the cost thereof, and shall have maintained adequate records with respect to
such Alterations to facilitate the adjustment of any insurance claims with
respect thereto. Tenant shall cooperate with Landlord and Landlord's insurance
companies in the adjustment of any claims for any damage to the Building or such
Alterations.
Section 9.4 On or prior to the Commencement Date, each of Landlord and
-----------
Tenant shall deliver to the other appropriate certificates of insurance,
including evidence of waivers of subrogation required pursuant to Section 9.6
hereof, required to be carried by such party pursuant to this Article 9.
Evidence of each renewal or replacement of a policy shall be delivered by each
of Landlord and Tenant to the other at least twenty (20) days prior to the
expiration of such policy.
Section 9.5 Tenant acknowledges that Landlord shall not carry
-----------
insurance on, and shall not be responsible for damage to, Tenant's Property and
that Landlord shall not carry insurance against, or be responsible for any loss
suffered by Tenant due to, interruption of Tenant's business; it being expressly
understood and agreed that the foregoing shall not affect Tenant's right, if
any, regarding an abatement of the Fixed Rent and Escalation Rent pursuant to
Section 14.2 hereof.
Section 9.6 The parties hereto shall procure an appropriate clause in,
-----------
or endorsement on, any fire or extended coverage insurance covering the
Premises, the Building and personal property, fixtures and equipment located
thereon or therein, pursuant to which the insurance companies waive subrogation
or consent to a waiver of right of recovery and will not make any claim against
or seek to recover from the other for any loss or damage to its property or the
property of others resulting from fire or other hazards covered by such fire and
extended coverage insurance. If the payment of an additional premium is required
for the inclusion of such waiver of subrogation provision, each party shall
advise the other of the amount of any such additional premiums and the other
party at its own election may, but shall not be obligated to, pay the same. If
such other party shall not elect to pay such additional premium, the first party
shall not be required to obtain such waiver of subrogation provision. If either
party shall be unable to obtain the inclusion of such clause even with the
payment of an additional
-28-
<PAGE>
premium, then such party shall attempt to name the other party as an additional
insured (but not a loss payee) under the policy. If the payment of an additional
premium is required for naming the other party as an additional insured (but not
a loss payee), each party shall advise the other of the amount of any such
additional premium and the other party at its own election may, but shall not be
obligated to, pay the same. If such other party shall not elect to pay such
additional premium or if it shall not be possible to have the other party named
as an additional insured (but not loss payee), even with the payment of an
additional premium, then (in either event) such party shall so notify the first
party and the first party shall not have the obligation to name the other party
as an additional insured. Tenant acknowledges that Landlord shall not carry
insurance on and shall not be responsible for damage to, Tenant's Property or,
prior to the completion thereof, the Specialty Alterations or any other
Alteration, and that Landlord shall not carry insurance against, or be
responsible for any loss suffered by Tenant due to, interruption of Tenant's
business.
ARTICLE 10
DESTRUCTION-FIRE OR OTHER CAUSE
-------------------------------
Section 10. 1 (A) If the Premises (including Alterations and Specialty
-------------
Alterations) shall be damaged by fire or other casualty, and if Tenant shall
give prompt notice thereof to Landlord, the damage shall be diligently repaired
by and at the expense of Landlord to substantially the condition prior to the
damage, with such modifications as shall be required in order to comply with
Requirements, and until (i) in the case of damage to the Building but not to the
Premises, such repairs which are required to be performed by Landlord (excluding
Long Lead Work) shall be substantially completed (of which substantial
completion Landlord shall promptly notify Tenant), or (ii) in the case of damage
to the Premises, the date which is the earlier of (a) thirty (30) days after the
date set forth in clause (i), and (b) the date upon which Tenant occupies the
Premises for the conduct of its business after such casualty, the Fixed Rent and
Escalation Rent shall be reduced in the proportion which the ratio between the
area of the part of the Premises which is not usable by Tenant for the conduct
of its business in substantially the same manner as prior to the casualty
(whether or not such area has been damaged) bears to the total area of the
Premises immediately prior to such casualty. Upon the substantial completion of
such repairs (excluding Long Lead Work), Landlord shall diligently prosecute to
completion any items of Long Lead Work remaining to be completed. Landlord shall
have no obligation to repair any damage to, or to replace, any Tenant's
Property. In addition, Landlord shall not be obligated to repair any damage to,
or to replace, any Alterations unless Tenant shall have notified Landlord of the
completion of such Alterations and the cost thereof, and shall have maintained
adequate records with respect to such Alterations. Landlord shall use its
reasonable efforts to minimize interference with Tenant's use and occupancy in
making any repairs pursuant to this Section.
(B) Prior to the substantial completion of Landlord's repair
obligations set forth in Section 10.1(A) hereof, Landlord shall provide Tenant
and Tenant's contractor, subcontractors and materialmen access to the Premises
to perform any Alterations, if Landlord
-29-
<PAGE>
is not obligated to repair same pursuant to the provisions hereof, on the
following terms and conditions (but not to occupy the same for the conduct of
business):
(1) Tenant shall not commence work in any portion of the
Premises until the date specified in a notice from Landlord to Tenant stating
that the repairs required to be made by Landlord have been or will be completed
to the extent reasonably necessary, in Landlord's discretion reasonably
exercised, to permit the commencement of any Alterations Landlord is not
obligated to repair pursuant to the provisions hereof then prudent to be
performed in accordance with good construction practice in the portion of the
Premises in question without interference with, and consistent with the
performance of, the repairs remaining to be performed.
(2) Such access by Tenant shall be deemed to be subject to
all of the applicable provisions of this Lease, except that there shall be no
obligation on the part of Tenant solely because of such access to pay any Fixed
Rent or Escalation Rent or other Rental with respect to the affected portion of
the Premises for any period prior to substantial completion of the repairs.
(3) It is expressly understood that if Landlord shall be
prevented from substantially completing the repairs due to any acts of Tenant,
its agents, servants, employees or contractors, including, without limitation,
by reason of the performance of any Alteration Landlord is not obligated to
repair pursuant to the provisions hereof), by reason of Tenant's failure or
refusal to comply or to cause its architects, engineers, designers and
contractors to comply with any of Tenant's obligations described or referred to
in this Lease, or if such repairs are not completed because under good
construction scheduling practice such repairs should be performed after
completion of any Alteration Landlord is not obligated to repair pursuant to the
provisions hereof), then such repairs shall be deemed substantially complete on
the date when the repairs would have been substantially complete but for such
delay and the expiration of the abatement of Tenant's obligations hereunder
shall not be postponed by reason of such delay. Any additional costs to Landlord
to complete any repairs occasioned by such delay shall be paid by Tenant to
Landlord within ten (10) days after demand, as additional rent.
Section 10.2 Anything contained in Section 10.1 hereof to the contrary
------------
notwithstanding, if the Building shall be so damaged by fire or other casualty
that, in Landlord's opinion, substantial alteration, demolition, or
reconstruction of the Building shall be required (whether or not the Premises
shall have been damaged or rendered untenantable), then Landlord, at Landlord's
option, may, not later than ninety (90) days following the damage, give Tenant a
notice in writing terminating this Lease, provided that if the Premises are not
substantially damaged or rendered substantially untenantable, Landlord may not
terminate this Lease unless it shall elect to terminate all of the leases
(including this Lease), affecting the Building. If Landlord elects to terminate
this Lease, the Term shall expire upon a date set by Landlord, but not sooner
than (i) the tenth (10th) day after such notice is given, if more than fifty
percent (50%) of the Premises are not accessible and/or substantially useable by
Tenant for
-30-
<PAGE>
the conduct of its business, and (ii) six (6) months after such notice is given
if fifty percent (50%) or more of the Premises are accessible and usable by
Tenant for the conduct of its business, and Tenant shall vacate the Premises and
surrender the same to Landlord in accordance with the provisions of Article 20
hereof. Upon the termination of this Lease under the conditions provided for in
this Section 10.2, the Fixed Rent and Escalation Rent shall be apportioned and
any prepaid portion of Fixed Rent and Escalation Rent for any period after such
date shall be refunded by Landlord to Tenant. Except as expressly set forth in
this Section 10.2 and Section 10.3(B), Landlord shall have no other options or
rights to cancel this Lease in the event of damage by fire or casualty to the
Building and/or the Premises, except as set forth in Articles 16 and 17 hereof.
Section 10.3 (A) Within forty-five (45) days after notice to Landlord
------------
of any damage described in Section 10.1 hereof, Landlord shall deliver to Tenant
a statement prepared by a reputable independent contractor setting forth such
contractor's estimate as to the time required to repair such damage, inclusive
of time required to repair any Alterations, Specialty Alterations or to perform
Long Lead Work. If the estimated time period exceeds twelve (12) months from the
date of such statement, Tenant may elect to terminate this Lease by notice to
Landlord not later than thirty (30) days following receipt of such statement. If
Tenant makes such election, the Term shall expire upon the thirtieth (30th) day
after notice of such election is given by Tenant, and Tenant shall vacate the
Premises and surrender the same to Landlord in accordance with the provisions of
Article 20 hereof. If Tenant shall not have elected to terminate this Lease
pursuant to this Article 10 (or is not entitled to terminate this Lease pursuant
to this Article 10), the damages shall be diligently repaired by and at the
expense of Landlord as set forth in Section 10.1 hereof unless Landlord shall
elect to terminate this Lease pursuant to Section 10.2 hereof. If Landlord
cannot restore the Premises within twelve (12) months from the date of such
statement (as such period may be extended by any Unavoidable Delays or Tenant
delays), then Tenant may elect to terminate this Lease by notice to Landlord not
later than ten (10) Business Days following such twelve (12) month period (as so
extended). If Tenant makes such election, the term shall expire upon the
thirtieth (30th) day after notice of such election given by Tenant, and Tenant
shall vacate the Premises and surrender the same to Landlord in accordance with
the provisions of Article 20 hereof.
(B) Notwithstanding the foregoing, if the Premises shall be
substantially damaged during the last Lease Year of the Term, Landlord or Tenant
may elect by notice, given within thirty (30) days after the occurrence of such
damage, to terminate this Lease and if either party makes such election, the
Term shall expire upon the thirtieth (30th) day after notice of such election is
given by such party and Tenant shall vacate the Premises and surrender the same
to Landlord in accordance with the provisions of Article 20 hereof. As used
herein, "substantially damaged" shall mean damage estimated by a reputable
independent contractor, reasonably selected by Landlord, to take more than
ninety (90) days to repair.
(C) Except as expressly set forth in this Section 10.3,
Tenant shall have no other options to cancel this Lease under this Article 10.
-31-
<PAGE>
Section 10.4 This Article 10 constitutes an express agreement and
------------
stipulation governing any case of damage or destruction of the Premises or the
Building by fire or other casualty, and the provisions of N.J.S.A. 46:8-6 and 7
which provide for such contingency in the absence of an express agreement or
stipulation, and any other law of like nature and purpose now or hereafter in
force shall have no application in any such case.
ARTICLE 11
EMINENT DOMAIN
--------------
Section 11.1 If the whole of the Real Property, the Building or the
------------
Premises shall be acquired or condemned for any public or quasi-public use or
purpose, this Lease and the Term shall end as of the date of the vesting of
title with the same effect as if said date were the Expiration Date. If only a
part of the Real Property and not the entire Premises shall be so acquired or
condemned then, (1) except as hereinafter provided in this Section 11.1, this
Lease and the Term shall continue in force and effect, but, if a part of the
Premises is included in the part of the Real Property so acquired or condemned,
from and after the date of the vesting of title, the Fixed Rent and the
Escalation Rent shall be reduced in the proportion which the area of the part of
the Premises so acquired or condemned bears to the total area of the Premises
immediately prior to such acquisition or condemnation and Tenant's Share shall
be redetermined based upon the proportion in which the ratio between the
rentable area of the Premises remaining after such acquisition or condemnation
bears to the rentable area of the Building, exclusive of the retail portions
remaining after such acquisition or condemnation; (2) whether or not the
Premises shall be affected thereby, Landlord, at Landlord's option, may give to
Tenant, within sixty (60) days next following the date upon which Landlord shall
have received notice of vesting of title, a thirty (30) days' notice of
termination of this Lease if Landlord shall elect to terminate all of the leases
(including this Lease) affecting the Building; and (3) if the part of the Real
Property so acquired or condemned shall contain more than fifteen percent (15%)
of the total area of the Premises immediately prior to such acquisition or
condemnation, or if, by reason of such acquisition or condemnation, Tenant no
longer has reasonable means of access to the Building or Premises, or if
adequate parking is not available for Tenant's employees or business invitees,
Tenant, at Tenant's option, may give to Landlord, within sixty (60) days next
following the date upon which Tenant shall have received notice of vesting of
title, a thirty (30) days' notice of termination of this Lease. If any such
thirty (30) days' notice of termination is given by Landlord or Tenant, this
Lease and the Term shall come to an end and expire upon the expiration of said
thirty (30) days with the same effect as if the date of expiration of said
thirty (30) days were the Expiration Date. If a part of the Premises shall be so
acquired or condemned and this Lease and the Term shall not be terminated
pursuant to the foregoing provisions of this Section 11.1, Landlord, at
Landlord's expense, shall restore that part of the Premises not so acquired or
condemned to a self-contained rental unit exclusive of Tenant's Property and
Specialty Alterations. Upon the termination of this Lease and the Term pursuant
to the provisions of this Section 11.1, the Fixed Rent and Escalation Rent
shall be apportioned and any prepaid portion of Fixed Rent and Escalation Rent
for any period after such date shall be refunded by Landlord to Tenant.
-32-
<PAGE>
Section 11.2 In the event of any such acquisition or condemnation of
------------
all or any part of the Real Property, Landlord shall be entitled to receive the
entire award for any such acquisition or condemnation, Tenant shall have no
claim against Landlord or the condemning authority for the value of any
unexpired portion of the Term and Tenant hereby expressly assigns to Landlord
all of its right in and to any such award. Nothing contained in this Section
11.2 shall be deemed to prevent Tenant from making a separate claim in any
condemnation proceedings for the then value of any Tenant's Property included in
such taking, and for any moving expenses, provided same does not reduce
Landlord's award.
Section 11.3 If the whole or any part of the Premises shall be
------------
acquired or condemned temporarily during the Term for any public or quasi-public
use or purpose, Tenant shall give prompt notice thereof to Landlord and the Term
shall not be reduced or affected in any way; provided, however, that during the
term of such temporary acquisition or condemnation, the Fixed Rent and
Escalation Rent payable with respect to the Premises or portion thereof, as the
case may be, shall be abated or reduced, as the case may be, and Landlord shall
be entitled to receive for itself all awards and payments for (i) the use and
occupancy of the Premises, or portion thereof, as the case may be, and (ii) the
costs and expenses of restoration of the Premises.
ARTICLE 12
ASSIGNMENT, SUBLETTING, MORTGAGE, ETC.
--------------------------------------
Section 12.1 (A) Except to the extent provided in Section 12.4 hereof,
------------
Tenant, without the prior consent of Landlord in each instance, may not (a)
assign its rights or delegate its duties under this Lease (whether by operation
of law, transfers of interests in Tenant or otherwise), mortgage or encumber its
interest in this Lease, in whole or in part, (b) sublet, or permit the
subletting of, the Premises or any part thereof, or (c) permit the Premises or
any part thereof to be occupied or used for desk space, mailing privileges or
otherwise, by any Person other than Tenant.
(B) If this Lease is assigned to any person or entity
pursuant to the provisions of the Bankruptcy Code or any state insolvency
related statute, any and all monies or other consideration payable or otherwise
to be delivered in connection with such assignment shall be paid or delivered to
Landlord, shall be and remain the exclusive property of Landlord and shall not
constitute property of Tenant or of the estate of Tenant within the meaning of
the Bankruptcy Code or such state insolvency related statute. Any and all monies
or other consideration constituting Landlord's property under the preceding
sentence not paid or delivered to Landlord shall be held in trust for the
benefit of Landlord and shall be promptly paid to or turned over to Landlord.
Section 12.2 (A) If Tenant's interest in this Lease is assigned in
------------
violation of the provisions of this Article 12, such assignment shall be void
and of no force and effect against Landlord; provided. however, that Landlord
may collect an amount equal to the then Fixed Rent
-33-
<PAGE>
plus any other item of Rental from the assignee as a fee for its use and
occupancy, and shall apply the net amount collected to the Fixed Rent and other
items of Rental reserved in this Lease. If the Premises or any part thereof are
sublet to, or occupied by, or used by, any Person other than Tenant, whether or
not in violation of this Article 12, Landlord, after default by Tenant under
this Lease, including, without limitation, a subletting or occupancy in
violation of this Article 12, may collect any item of Rental or other sums paid
by the subtenant, user or occupant as a fee for its use and occupancy, and shall
apply the net amount collected to the Fixed Rent and other items of Rental
reserved in this Lease. No such assignment, subletting, occupancy or use,
whether with or without Landlord's prior consent, nor any such collection or
application of Rental or fee for use and occupancy, shall be deemed a waiver by
Landlord of any term, covenant or condition of this Lease or the acceptance by
Landlord of such assignee, subtenant, occupant or user as tenant hereunder. The
consent by Landlord to any assignment, subletting, occupancy or use shall not
relieve Tenant from its obligation to obtain the express prior consent of
Landlord to any further assignment, subletting, occupancy or use.
(B) Tenant shall reimburse Landlord on demand for any
reasonable third party out-of-pocket costs that may be incurred by Landlord in
connection with any proposed assignment of Tenant's interest in this Lease or
any proposed subletting of the Premises or any part thereof, including, without
limitation, attorneys' fees and disbursements and the costs of making
investigations as to the acceptability of the proposed subtenant or the proposed
assignee.
(C) Neither an assignment of Tenant's interest in this Lease
nor a subletting, occupancy or use of the Premises or any part thereof by any
Person other than Tenant, nor any collection of Rental by Landlord from any
Person other than Tenant as provided in this Section 12.2, nor any application
of any such Rental as provided in this Section 12.2 shall, in any circumstances,
relieve Tenant of its obligations under this Lease on Tenant's part to be
observed and performed.
(D) Any Person to which this Lease is assigned pursuant to
the provisions of the Bankruptcy Code or any state insolvency related statute
shall be deemed without further act or deed to have assumed all of the
obligations arising under this Lease on and after the date of such assignment.
Any such assignee shall execute and deliver to Landlord upon demand an
instrument confirming such assumption. No assignment of this Lease shall relieve
Tenant of its obligations hereunder and, subsequent to any assignment, Tenant's
liability hereunder shall continue notwithstanding any subsequent modification
or amendment hereof or the release of any subsequent tenant hereunder from any
liability, to all of which Tenant hereby consents in advance.
Section 12.3 (A) If Tenant assumes this Lease and proposes to assign
------------
the same pursuant to the provisions of the Bankruptcy Code or any state
insolvency related statute to any Person who shall have made a bona fide offer
---------
to accept an assignment of this Lease on terms acceptable to Tenant, then notice
of such proposed assignment shall be given to Landlord by Tenant no later than
twenty (20) days after receipt by Tenant, but in any event no later than ten
-34-
<PAGE>
(10) days prior to the date that Tenant shall make application to a court of
competent jurisdiction for authority and approval to enter into such assignment
and assumption. Such notice shall set forth (a) the name and address of such
Person, (b) all of the terms and conditions of such offer, and (c) adequate
assurance of future performance by such Person under the Lease as set forth in
Paragraph (B) below, including, without limitation, the assurance referred to in
Section 365(b)(3) of the Bankruptcy Code. Landlord shall have the prior right
and option, to be exercised by notice to Tenant given at any time prior to the
effective date of such proposed assignment, to accept an assignment of this
Lease upon the same terms and conditions and for the same consideration, if any,
as the bona fide offer made by such Person, less any brokerage commissions which
---------
would otherwise be payable by Tenant out of the consideration to be paid by such
Person in connection with the assignment of this Lease.
(B) The term "adequate assurance of future performance" as
used in this Lease shall mean that any proposed assignee shall, among other
things, (a) deposit with Landlord on the assumption of this Lease the sum of the
then Fixed Rent for a period of one (1) year as security for the faithful
performance and observance by such assignee of the terms and obligations of this
Lease, which sum shall be held by Landlord, (b) furnish Landlord with financial
statements of such assignee for the prior three (3) fiscal years, as finally
determined after an audit and certified as correct by a certified public
accountant (or if not available, by the Chief Financial Officer of the assignee)
which financial statements shall show a net worth of at least six (6) times the
then Fixed Rent for each of such three (3) years, and (c) provide such other
information or take such action as Landlord, in its reasonable judgment shall
determine is necessary to provide adequate assurance of the performance by such
assignee of its obligations under the Lease.
Section 12.4 (A) Tenant shall have the right, subject to the terms and
------------
conditions hereinafter set forth, without the consent of Landlord, to assign its
interest in this Lease to (i) any corporation which is a successor to Tenant
either by merger or consolidation, (ii) a purchaser of all or substantially all
of Tenant's assets (provided such purchaser shall have also assumed
substantially all of Tenant's liabilities) or (iii) an Affiliate of Tenant and
Tenant shall have the right, subject to the terms and conditions hereinafter set
forth, without the consent of Landlord, to sublease all or any portion of the
Premises to an Affiliate of Tenant. Any assignment or subletting described above
may only be made upon the condition that (a) any such assignee or subtenant
shall continue to use the Premises for the conduct of the same business as
Tenant was conducting prior to such assignment or sublease, (b) the principal
purpose of such assignment or sublease is not the acquisition of Tenant's
interest in this Lease (except if such assignment or sublease is to an Affiliate
and is made for a valid intracorporate business purpose) or to circumvent the
provisions of Section 12.1 of this Article, and (c) in the case of an
assignment, any such assignee shall have a net worth and annual income and cash
flow, determined in accordance with generally accepted accounting principles,
consistently applied, after giving effect to such assignment, equal to Tenant's
net worth and annual income and cash flow, as so determined, on the date
immediately preceding the date of such assignment. Tenant shall, within ten (10)
Business Days after execution thereof, deliver to Landlord either (x) a
duplicate original instrument of assignment in form and substance reasonably
satisfactory to
-35-
<PAGE>
Landlord, duly executed by Tenant, together with an instrument in form and
substance reasonably satisfactory to Landlord, duly executed by the assignee, in
which such assignee shall assume observance and performance of, and agree to be
personally bound by, all of the terms, covenants and conditions of this Lease on
Tenant's part to be observed and performed, or (y) a duplicate original sublease
in form and substance reasonably satisfactory to Landlord, duly executed by
Tenant and the subtenant.
(B) If Tenant is a partnership, the admission of new
Partners, the withdrawal, retirement, death, incompetency or bankruptcy of any
Partner, or the reallocation of partnership interests among the Partners shall
not constitute an assignment of this Lease, provided the principal purpose of
any of the foregoing is not to circumvent the restrictions on assignment set
forth in the provisions of this Article 12. The reorganization of Tenant from a
professional corporation into a partnership or the reorganization of a Tenant
from a partnership into a professional corporation, shall not constitute an
assignment of this Lease, provided that immediately following such
reorganization the Partners of Tenant shall include the shareholders of Tenant
existing immediately prior to such reorganization, or the shareholders of Tenant
shall include the Partners of Tenant existing immediately prior to such
reorganization, as the case may be.
(C) Except as set forth above, either a transfer (including
the issuance of treasury stock or the creation and issuance of new stock or a
new class of stock) of a controlling interest in the shares of Tenant (if Tenant
is a corporation or trust) or a transfer of a majority of the total interest in
Tenant (if Tenant is a partnership or other entity) at any one time or over a
period of time through a series of transfers, shall be deemed an assignment of
this Lease and shall be subject to all of the provisions of this Article 12,
including, without limitation, the requirement that Tenant obtain Landlord's
prior consent thereto. The transfer of shares of Tenant (if Tenant is a
corporation or trust) for purposes of this Section 12.4 shall not include the
sale of shares by persons other than those deemed "insiders" within the meaning
of the Securities Exchange Act of 1934, as amended, which sale is effected
through the "over-the-counter market" or through any recognized stock exchange.
(D) Notwithstanding anything to the contrary contained in
this Article 12, Tenant shall have the right from time to time during the Term,
subject to the provisions of Article 2 hereof, to sublease up to an aggregate of
three thousand (3,000) rentable square feet of the Premises without the prior
consent of Landlord and without payment to Landlord of any Sublease Profit
derived therefrom, it being agreed that the provisions of Sections 12.6 and 12.7
hereof shall not apply to any such sublease.
Section 12.5 (A) If, at any time after the originally named Tenant
------------
herein may have assigned Tenant's interest in this Lease, this Lease shall be
disaffirmed or rejected in any proceeding of the types described in paragraph
(D) of Section 16.1 hereof, or in any similar proceeding, or in the event of
termination of this Lease by reason of any such proceeding or by reason of lapse
of time following notice of termination given pursuant to said Article 16 based
upon any of the Events of Default set forth in such paragraph, any prior Tenant,
including, without limitation, the originally named Tenant, upon request of
Landlord given within thirty
-36-
<PAGE>
(30) days next following any such disaffirmance, rejection or termination (and
actual notice thereof to Landlord in the event of a disaffirmance or rejection
or in the event of termination other than by act of Landlord), shall (1) pay to
Landlord all Fixed Rent, Escalation Rent and other items of Rental due and owing
by the assignee to Landlord under this Lease to and including the date of such
disaffirmance, rejection or termination, and (2) as "tenant", enter into a new
lease with Landlord of the Premises for a term commencing on the effective date
of such disaffirmance, rejection or termination and ending on the Expiration
Date, unless sooner terminated as in such lease provided, at the same Fixed Rent
and upon the then executory terms, covenants and conditions as are contained in
this Lease, except that (a) Tenant's rights under the new lease shall be subject
to the possessory rights of the assignee under this Lease and the possessory
rights of any person claiming through or under such assignee or by virtue of any
statute or of any order of any court, (b) such new lease shall require all
defaults existing under this Lease to be cured by Tenant with due diligence, and
(c) such new lease shall require Tenant to pay all Escalation Rent reserved in
this Lease which, had this Lease not been so disaffirmed, rejected or
terminated, would have accrued under the provisions of Article 27 hereof after
the date of such disaffirmance, rejection or termination with respect to any
period prior thereto. If any such prior Tenant shall default in its obligation
to enter into said new lease for a period of ten (10) days next following
Landlord's request therefor, then, in addition to all other rights and remedies
by reason of such default, either at law or in equity, Landlord shall have the
same rights and remedies against such Tenant as if such Tenant had entered into
such new lease and such new lease had thereafter been terminated as of the
commencement date thereof by reason of such Tenant's default thereunder.
(B) In the event of an assignment of this Lease (other than
to an Affiliate of the originally named Tenant), (a) Landlord shall send copies
of all "default notices" given to an assignee of the Lease to the originally
named Tenant, (b) the originally named Tenant shall have the right to cure any
defaults of such defaulting assignee, (c) the originally named Tenant shall have
a period of time to cure such default equal to the grace period granted to such
defaulting assignee hereunder commencing on the day immediately succeeding the
expiration of such defaulting assignee's grace period, and (d) if (i) such
default is not subject to cure by the originally named Tenant without the
originally named Tenant being in physical possession of the Premises, and (ii)
such defaulting assignee has not commenced such cure, then if Landlord has
terminated this Lease upon occurrence of a default and the expiration of any
applicable grace period and, after this Lease has terminated prior to the Fixed
Expiration Date (or the last day of the Renewal Term), Landlord is then looking
to Tenant to cure such default, then Landlord shall immediately thereafter
demise and let the Premises to the originally named Tenant pursuant to a lease
on the same executory terms and conditions contained in this Lease, subject to
the possessory rights of the defaulting assignee, including, without limitation,
the requirement that Tenant cure all defaults existing under this Lease
immediately prior to its termination (other than those defaults which are by
their nature incapable of being cured by anyone other than the defaulting
assignee, such as, for example, the bankruptcy of the defaulting assignee).
Tenant shall reimburse Landlord for all costs, including, without limitation,
reasonable attorney's fees and disbursements, incurred by Landlord in connection
with such new lease.
-37-
<PAGE>
Section 12.6 (A) Notwithstanding the provisions of Section 12.1
------------
hereof, Landlord shall not unreasonably withhold or delay its consent to any
subletting of the Premises or any assignment of this Lease, provided that:
(1) the Premises shall not, without Landlord's prior
consent, have been publicly advertised (including, without limitation, by the
general circulation of written material within the brokerage community) for
subletting at a rental rate less than the prevailing rental rate advertised by
Landlord for comparable space in the Building;
(2) no Material Event of Default shall have occurred and
be continuing;
(3) upon the date Tenant delivers the Tenant Statement to
Landlord and upon the date immediately preceding the commencement date of any
sublease or the effective date of any assignment approved by Landlord, the
proposed subtenant or assignee, as the case may be, shall have a financial
standing (taking into consideration the obligations of the proposed subtenant
under the sublease) reasonably satisfactory to Landlord, be of a character and
be engaged in a business in keeping with the standards in such respects of the
other tenancies in the Building and propose to use the Premises in accordance
with the provisions of Article 2 of this Lease;
(4) if Landlord then has comparable space available in
the Building, the proposed subtenant or assignee shall not be a tenant of any
space in the Building, nor shall the proposed subtenant or assignee be a Person
with whom Landlord is then actively negotiating or discussing to lease space in
the Building at the time of receipt of a Tenant Statement and Landlord notifies
Tenant of such active negotiations within five (5) Business Days after receipt
of a Tenant Statement;
(5) the character of the business to be conducted or the
proposed use of the Premises by the proposed subtenant or assignee shall not
violate any provision or restrictions herein relating to the use or occupancy of
the Premises;
(6) the subletting shall be expressly subject to all of
the terms, covenants, conditions and obligations on Tenant's part to be observed
and performed under this Lease and the further condition and restriction that
the sublease shall not be modified so as to reduce the rent thereunder without
the prior written consent of Landlord, which consent shall not be unreasonably
withheld or delayed, or assigned, encumbered or otherwise transferred or the
subleased premises further sublet by the subtenant in whole or in part, or any
part thereof suffered or permitted by the subtenant to be used or occupied by
others in violation of this Article 12 as if such subtenant were Tenant, without
the prior written consent of Landlord in each instance;
(7) the subletting shall end no later than one (1) day
before the Expiration Date;
-38-
<PAGE>
(8) the assignee shall agree to assume all of the
obligations of Tenant under this Lease from and after the date of the
assignment;
(9) such sublease shall expressly provide that in the
event of termination, re-entry or dispossess of Tenant by Landlord under this
Lease, Landlord may, at its option, take over all of the right, title and
interest of Tenant, as sublessor under such sublease, and such subtenant, at
Landlord's option, shall attorn to Landlord pursuant to the then executory
provisions of such sublease, except that Landlord shall not be:
(i) liable for any act or omission of Tenant under
such sublease, or
(ii) subject to any defense or offsets which such
subtenant may have against Tenant to the extent Tenant does not have the same
defense or offset against Landlord, or
(iii) bound by any previous payment which such
subtenant may have made to Tenant of more than thirty (30) days in advance of
the date upon which such payment was due, unless previously approved by
Landlord, or
(iv) bound by any obligation to make any payment to
or on behalf of such subtenant, or
(v) bound by any obligation to perform any work or
to make improvements to the Premises, or
(vi) bound by any amendment or modification of such
sublease made without its consent in violation of subparagraph (6) above, or
(vii) bound to return such subtenant's security
deposit, if any, until such deposit has come into its actual possession and such
subtenant would be entitled to such security deposit pursuant to the terms of
such sublease; and
(10) no subletting of a portion of the Premises shall be for
less than three thousand (3,000) rentable square feet, and at no time shall
there be more than three (3) occupants, including Tenant, in the Premises.
(B) At least ten (10) Business Days prior to any proposed
subletting of all or any portion of the Premises or any proposed assignment of
this Lease, Tenant shall submit a statement to Landlord (a "Tenant Statement")
----------------
containing the following information: (1) the name and address of the proposed
subtenant or assignee, as the case may be, (2) a description of the portion of
the Premises to be sublet, (3) the essential terms and conditions of the
proposed subletting or assignment, including, without limitation, the rent or
consideration payable and the estimated value (including cost, overhead and
supervision) of any improvements
-39-
<PAGE>
(including any demolition to be performed) to the Premises for occupancy by such
subtenant or assignee, as the case may be, (4) the nature and character of the
business of the proposed subtenant or assignee, as the case may be, and (5) any
other information that Landlord may reasonably request, together with a
statement specifically directing Landlord's attention to the provisions of this
Section 12.6(B) requiring Landlord to respond to Tenant's request within ten
(10) Business Days after Landlord's receipt of the Tenant Statement. If Landlord
shall fail to notify Tenant within said ten (10) Business Day period of
Landlord's consent to or disapproval of the proposed subletting or assignment
pursuant to the Tenant Statement, as contemplated by Section 12.6(A) hereof, or
if Landlord shall have consented to such subletting or assignment as provided in
Section 12.6(A) hereof, Tenant shall have the right to sublease that portion of
the Premises to such proposed subtenant or to assign its interest in this Lease
on the same terms and conditions set forth in the Tenant Statement, subject to
the terms and conditions of this Lease, including paragraph (A) of this Section
12.6. If Landlord shall notify Tenant within such ten (10) Business Day period
of its disapproval of any sublease or assignment, it shall specify its reasons
therefor in such notice. Tenant shall not enter into such sublease or
assignment, as the case may be, within sixty (60) days after the delivery of the
Tenant Statement to Landlord, then the provisions of Section 12.1 hereof and
this Section 12.6 shall again be applicable to any other proposed subletting or
assignment. If Tenant shall enter into such sublease or assignment within sixty
(60) days as aforesaid, Tenant shall deliver a true, complete and fully executed
counterpart of (x) such sublease or (y) such assignment (which shall include an
express assumption by the assignee of the observance and performance of, and an
agreement to be personally bound by, all of the terms, covenants and conditions
of this Lease on Tenant's part to be performed from and after the effective date
thereof) to Landlord within five (5) Business Days after execution thereof.
Section 12.7 (A) In connection with any subletting of all or any
------------
portion of the Premises, except for a subletting pursuant to Section 12.4(D)
hereof, Tenant shall pay to Landlord an amount equal to fifty percent (50%) of
any Sublease Profit derived therefrom. All sums payable hereunder by Tenant
shall be calculated on an annualized basis, but shall be paid to Landlord, as
additional rent, within ten (10) days after receipt thereof by Tenant.
(B) Sublease Profit shall be recalculated from time to time to reflect
any corrections in the prior calculation thereof due to (i) subsequent payments
received or made by Tenant, (ii) the final adjustment of payments to be made by
or to Tenant, and (iii) mistake. Promptly after receipt or final adjustment of
any such payments or discovery of any such mistake, Tenant shall submit to
Landlord a recalculation of the Sublease Profit, and an adjustment shall be made
between Landlord and Tenant, on account of prior payments made or credits
received pursuant to this Section 12.7.
Section 12.8 Tenant shall pay to Landlord, upon receipt thereof, an
------------
amount equal to fifty percent (50%) of all Assignment Proceeds. For purposes of
Section 12.8, "Assignment Proceeds" shall mean all consideration payable to
-------------------
Tenant, directly or indirectly, by any assignee, or any other amount received by
Tenant from or in connection with any assignment (including, but not limited to,
sums paid for the sale or rental, or consideration
-40-
<PAGE>
received on account of any contribution, of Tenant's Property) after deducting
therefrom: (i) in the event of a sale (or contribution) of Tenant's Property,
the then unamortized or undepreciated cost thereof determined on the basis of
Tenant's federal income tax returns, (ii) the reasonable out-of-pocket costs and
expenses of Tenant in making such assignment, such as brokers' fees, attorneys'
fees, and advertising fees paid to unrelated third parties, (iii) any payments
required to be made by Tenant in connection with the assignment of its interest
in this Lease pursuant to any New Jersey statutes or any real property transfer
tax of the United States or the City of Jersey City or the State of New Jersey
(other than any income tax), (iv) any sums paid by Tenant to Landlord pursuant
to Section 12.2(B) hereof, (v) the cost of improvements or alterations made by
Tenant expressly and solely for the purpose of preparing the Premises for such
assignment, as determined by Tenant's federal income tax returns, and/or the
amount of any work allowance paid to such assignee, (vi) the unamortized or
undepreciated cost of any of Tenant's Property leased to and used by such
assignee, (vii) the then unamortized or undepreciated cost of the Alterations
determined on the basis of Tenant's federal income tax returns, and (viii) any
Rent paid by Tenant for the period commencing on the later of the date (a)
Tenant has vacated the Premises for the normal conduct of its business, and (b)
formally lists (i.e. by written agreement and in good faith) the Premises for
rent with one or more real estate brokers or otherwise actively markets the
Premises for rent and ending on the rent commencement date of such assignment.
If the consideration paid to Tenant for any assignment shall be paid in
installments, then the expenses specified in this Section 12.8 shall be
amortized over the period during which such installments shall be payable.
ARTICLE 13
ELECTRICITY
-----------
Section 13.1 (A) Tenant shall at all times comply with the rules,
------------
regulations, terms and conditions applicable to service, equipment, wiring and
requirements of the public utility supplying electricity to the Building. The
risers serving the Premises shall be capable of supplying six (6) watts of
electricity per rentable square foot of the Premises (exclusive of the
electricity required to operate the baseboard heating system and the VAC) on a
demand load basis. Tenant shall not use any electrical equipment which, in
Landlord's reasonable judgment, would exceed such capacity. In the event that,
based upon the demand readings of the utility company supplying electricity to
the Building, in Landlord's reasonable judgment, Tenant's electrical
requirements necessitate installation of an additional riser, risers or other
proper and necessary equipment, Landlord shall so notify Tenant of same and the
estimated cost thereof. Within five (5) Business Days after receipt of such
notice, Tenant shall either cease such use of such additional electricity or
shall request that additional electricity capacity (specifying the amount
requested) be made available to Tenant. Landlord, in Landlord's reasonable
judgment (taking into consideration the potential needs of present and future
tenants of the Building and of the Building itself) shall determine whether to
make available such additional electricity capacity to Tenant and the amount of
such additional electricity capacity to be made available. If Landlord shall
agree to make available additional electrical capacity and the same necessitates
installation of an additional riser, risers or other proper and necessary
equipment, including,
-41-
<PAGE>
without limitation, any switchgear, the same shall be installed by Landlord. Any
such installation shall be made at Tenant's sole cost and expense, and shall be
chargeable and collectible as additional rent and paid within ten (10) days
after the rendition of a bill to Tenant therefor. If Landlord shall not agree to
make such additional electricity capacity available, then upon Tenant's request,
Landlord shall perform such work and purchase such equipment as may be necessary
to increase the electricity capacity of the Building. Any such work and
purchases shall be at Tenant's sole cost and expense, and shall be chargeable
and collectible as additional rent and paid within ten (10) days after the
rendition of a bill to Tenant therefor. Landlord shall not be liable in any way
to Tenant for any failure or defect in the supply or character of electric
service furnished to the Premises by reason of any requirement, act or omission
of the utility serving the Building or for any other reason not attributable to
the gross negligence of Landlord, whether electricity is provided by public or
private utility or by any electricity generation system owned and operated by
Landlord.
(B) Notwithstanding the provisions of Section 13.1(A)
above, Landlord agrees to make available to Tenant an additional electrical
capacity of six (6) watts per rentable square foot of the Premises (for a total
of twelve (12) watts per rentable square foot).
Section 13.2 Tenant shall obtain electricity directly from the public
------------
utility furnishing electric service to the Building. The costs of such service
shall be paid by Tenant directly to such public utility. Such electricity may be
furnished to Tenant by means of the existing electrical facilities serving the
Premises, at no charge.
Section 13.3 (A) As part of the Initial Alterations (but subject to
------------
the terms of Article 3 hereof with respect to Alterations), Tenant shall be
permitted, at Tenant's sole cost and expense, to tap into and utilize the
emergency generator and fuel tank system heretofore installed by Landlord in the
Building (the "Emergency Generator") in order to provide the Premises with up to
--------------------
250 kilowatts of emergency power capacity (the "Emergency Power"), including
-----------------
adequate fuel tank capacity to ensure twenty-four (24) hours of continuous usage
between fuel deliveries. In connection with such installation and as part of
Landlord's Work, Landlord shall install the necessary risers and switch gear to
deliver the Emergency Power to the Premises.
(B) The Emergency Power shall be supplied to Tenant for
an annual fee of Forty-Three Thousand Seven Hundred Fifty Dollars ($43,750)
($3,645.83 per month), commencing on Tenant's Business Occupancy Date, which
charge shall be paid by Tenant to Landlord, as additional rent, within ten (10)
days after Tenant's receipt from Landlord of a bill therefor. In addition,
Tenant shall reimburse Landlord an amount equal to Tenant's pro-rata portion of
Landlord's actual out-of-pocket costs and expenses (based upon the ratio of the
Emergency Power to the total emergency power capacity of the Emergency
Generator) incurred in connection with (i) any actual usage by Tenant of the
Emergency Power, (ii) maintenance and monthly testing of the emergency Generator
under full load, and (iii) regular testing of the purity and quality of the fuel
oil for such system.
-42-
<PAGE>
(C) Landlord shall maintain the Emergency Generator in a
manner consistent with first-class office buildings in the New York/New Jersey
metropolitan area, and in connection therewith shall enter into a maintenance
contract with an independent, reputable third party, on commercially reasonable
terms. Such maintenance contract shall provide, inter alia, for the periodic
----------
testing of the Emergency Generator and for regular and consistent deliveries of
fuel oil so as to ensure that the Emergency Generator shall commence generating
immediately and continue so generating throughout all emergencies.
ARTICLE 14
ACCESS TO PREMISES
------------------
Section 14.1 (A) Tenant shall permit Landlord, Landlord's agents,
------------
representatives, contractors and employees and the agents, representatives,
contractors and employees of public utilities and telecommunications companies
servicing the Building to erect, use and maintain concealed ducts, exhausts,
pipes, cables, risers and conduits in and through the Premises. Landlord,
Landlord's agents, representatives, contractors, and employees and the agents,
representatives, contractors, and employees of public utilities and
telecommunications companies servicing the Building shall have the right to
enter the Premises at all reasonable times upon reasonable prior notice (except
in the case of an emergency in which event Landlord and Landlord's agents,
representatives, contractors, and employees may enter without prior notice to
Tenant), which notice may be oral, to examine the same, to show them to
prospective purchasers, or prospective or existing Mortgagees or Lessors, and to
make such repairs, alterations, improvements, additions or restorations (i) as
Landlord may reasonably deem necessary to the Premises or to any other portion
of the Building, or (ii) which Landlord may elect to perform following ten (10)
days after notice, except in the case of an emergency (in which event Landlord
and Landlord's agents, representatives, contractors, and employees may enter
without prior notice to Tenant), following Tenant's failure within the
applicable time or grace period to make repairs or perform any work which Tenant
is obligated to make or perform under this Lease, or (iii) for the purpose of
complying with any Requirements, a Superior Lease or a Mortgage, and Landlord
shall be allowed to take all material into and upon the Premises that may be
required therefor without the same constituting an eviction or constructive
eviction of Tenant in whole or in part, provided Landlord utilizes not more than
one hundred (100) square feet of contiguous space therefor, and the Fixed Rent
(and any other item of Rental) shall not abate (except to the extent expressly
set forth in Section 14.2 hereof) while said repairs, alterations, improvements,
additions or restorations are being made, by reason of loss or interruption of
business of Tenant, or otherwise. With respect to any access required under this
Section 14.1 (A), other than for the performance of work by Landlord by reason
of clause (ii) above, Landlord, at its expense, but subject to recoupment
pursuant to Article 27 hereof, shall employ contractors or labor at so-called
overtime or other premium pay rates if necessary to make any repairs required to
be made by it hereunder to remedy any condition that either (i) results in a
denial of access to the Premises, (ii) threatens the health or safety of any
occupant of the Premises, (iii) except in the case of a fire or other casualty,
materially interferes with Tenant's ability to conduct its business in the
Premises. In all other cases, at Tenant's
-43-
<PAGE>
request, Landlord shall employ contractors or labor at so-called overtime or
other premium pay rates and incur any other overtime costs or expense in making
any repairs, alterations, additions or improvements, and Tenant shall pay to
Landlord, as additional rent, within ten (10) Business Days after demand, an
amount equal to the difference between the overtime or other premium pay rates
and the regular pay rates for such labor and any other overtime costs or
expenses so incurred. Except in the case of emergency or for the performance of
work by Landlord by reason of clause (ii) above, no access under this Section
14.1(A) shall be permitted to Tenant's trading room during the hours which
Tenant conducts its trading operations.
(B) Any work performed or installations made pursuant to
this Article 14 shall be made with reasonable diligence and otherwise pursuant
to the provisions of Section 4.3 hereof
(C) Except as hereinafter provided, any pipes, cables,
ducts, exhausts or conduits installed in or through the Premises pursuant to
this Article 14 shall be concealed behind, beneath or within partitioning,
columns, ceilings or floors located or to be located in the Premises.
Notwithstanding the foregoing, any such pipes, cables, ducts, exhausts or
conduits may be furred at points immediately adjacent to partitioning columns or
ceilings located or to be located in the Premises, provided that the same are
completely furred and that the installation of such pipes, cables, ducts,
exhausts or conduits, when completed, shall not reduce the usable area of the
Premises beyond a de minimis amount.
----------
Section 14.2 (A) If (1) due to (a) any work, repair or installation
------------
performed by Landlord or failure by Landlord to perform its obligations
hereunder, including by reason of Unavoidable Delays (a "Landlord's
----------
Interruption") or (b) an interruption (a "Qualified Building Service
- ------------ --------------------------
Interruption"), of any service required to be provided to Tenant hereunder,
- ------------
including, without limitation, electricity, water, VAC or other utility services
from the public utility company (other than a general utility company
interruption of electricity, water, VAC or other utility services affecting the
entire Building) all or a portion of the Premises becomes unusable for a least
four (4) consecutive Business Days (or two (2) Business Days if the same has
occurred by reason of Landlord's willful misconduct) such that (x) Tenant shall
be unable to operate its business in all or any portion of the Premises in
substantially the same manner as such business was operated prior to the
occurrence of such Landlord Interruption or Qualified Building Service
Interruption, and (y) Tenant shall have relocated the majority of its employees
from that portion of the Premises which is the subject of such Landlord
Interruption or Qualified Building Service Interruption and ceases to occupy the
same for the conduct of its business and (2) Tenant shall have notified Landlord
of the same, the Fixed Rent, Escalation Rent and other Rental with respect to
the Premises shall be reduced from and after the date of such notice from Tenant
on a per diem basis in the proportion in which the area of the portion of the
Premises which is unusable and so vacated bears to the total area of the portion
of the Premises for each day that such portion of the Premises remains unusable.
Notwithstanding the foregoing, if such inability of Tenant to so operate its
business shall (x) affect more than fifty percent (50%) of the Premises and (y)
continue for at least one hundred twenty (120) consecutive days, then Tenant,
upon not less than thirty (30) days' notice to Landlord, may
-44-
<PAGE>
terminate this Lease. If Landlord shall not complete the cure of such condition
on or before such thirtieth (30th) day, this Lease and the Term shall come to an
end and expire upon the expiration of such thirty (30) days with the same effect
as if the date of the expiration of such thirty (30) days were the Expiration
Date.
(B) If (1) due to (a) a Landlord Interruption or (b) a Qualified
Business Service Interruption, or (c) a diminution of Landlord's services
hereunder (a "Service Diminution") all or a portion of the Premises becomes
-------------------
unusable for at least four (4) consecutive Business Days (or two (2) Business
Days if the same has occurred by reason of Landlord's willful misconduct) such
that (i) Tenant shall be unable to operate its business in all or any portion of
the Demised Premises in substantially the same manner as such business was
operated prior to such Landlord Interruption, or such Qualified Building Service
Interruption, or such Service Diminution, (ii) such Landlord Interruption,
Qualified Business Service Interruption or Service Diminution shall occur during
business hours, and (iii) Tenant continues to occupy such portion of the
Premises, and (2) Tenant shall have notified Landlord of the same, the Fixed
Rent, Escalation Rent and other Rental with respect to the Premises shall be
reduced from and after the date of such occurrence on a per diem basis by fifty
percent (50%) of the portion of such Rental equal to the portion of the Premises
which is unusable (but used) for each day that such portion of the Premises
remains unusable (but used).
Section 14.3 During the twelve (12) month period prior to the
------------
Expiration Date or the expiration of any renewal or extended term, Landlord may
on not less than one (1) day's prior telephonic notice to Tenant, exhibit the
Premises to prospective tenants thereof, subject, however, to Tenant's
reasonable security requirements and provided the same does not unreasonably
interfere with Tenant's business operations.
Section 14.4 If Tenant shall not be present when for any reason entry
------------
into the Premises shall be necessary by reason of an emergency, Landlord or
Landlord's agents, representatives, contractors or employees may enter the same
without rendering Landlord or such agents liable therefor if during such entry
Landlord or Landlord's agents shall accord reasonable care under the
circumstances to Tenant's Property, and without in any manner affecting this
Lease. Nothing herein contained, however, shall be deemed or construed to impose
upon Landlord any obligation, responsibility or liability whatsoever, for the
care, supervision or repair of the Building or any part thereof, other than as
herein provided.
Section 14.5 Landlord also shall have the right at any time, without
------------
the same constituting an actual or constructive eviction and without incurring
any liability to Tenant therefor, to change the arrangement or location of
entrances or passageways, doors and doorways, and corridors, elevators, stairs,
toilets, or other public parts of the Building and to change the name, number or
designation by which the Building is commonly known, provided any such change
does not (a) unreasonably reduce, interfere with or deprive Tenant of access to
the Building or the Premises, or (b) reduce the rentable area (except by a de
minimis amount) of the Premises. All parts (except surfaces facing the interior
of the Premises) of all walls, windows and doors bounding the Premises
(including exterior Building walls, exterior core
-45-
<PAGE>
corridor walls, exterior doors and entrances), all balconies, terraces and roofs
adjacent to the Premises, all space in or adjacent to the Premises used for
shafts, stacks, stairways, chutes, pipes, conduits, ducts, fan rooms, heating,
air cooling, plumbing and other mechanical facilities, service closets and other
Building facilities are not part of the Premises, and Landlord shall have the
use thereof, as well as access thereto through the Premises for the purposes of
operation, maintenance, alteration and repair, in accordance with the provisions
of Section 14.1 or 14.4 hereof.
Section 14.6 If Landlord shall have failed to commence and proceed
------------
with due diligence within thirty (30) days after notice from Tenant, (or
promptly after notice from Tenant in the case of emergency) any repairs required
to be made by Landlord hereunder within the Premises, Tenant may perform such
repairs within the Premises for the account of Landlord (except that Tenant may
not so perform the repairs if such performance affects any portion of the
Building Systems, any structural aspect of the Building or any other area
outside the Premises). To the extent that Tenant incurs any cost or expense for
the performance of the foregoing, Tenant shall submit to Landlord copies of
relevant bills, receipts, invoices and other backup documentation, together with
proof of payment thereof, and Landlord shall reimburse Tenant for such
reasonable costs within ten (10) Business Days after submission of such bills,
receipts, invoices, documentation and proof of payment. If Landlord fails to
reimburse Tenant for any costs or expenses incurred by Tenant under this Section
14.6 within the ten (10) Business Day period provided herein, Tenant may offset
the amount of such expenditures (together with interest at the Applicable Rate
commencing 30 days after Tenant's submission of bills, receipts, invoices,
documentation and proof of payment) against the next installments of Fixed Rent,
Escalation Rent and any other items of Rental becoming due hereunder until
Tenant has been fully reimbursed therefor.
ARTICLE 15
CERTIFICATE OF OCCUPANCY
------------------------
Tenant shall not at any time use or occupy the Premises in violation
of any certificate of occupancy at such time issued for the Premises or for the
Building and in the event that any Governmental Authority shall hereafter
contend or declare by notice, violation, order or in any other manner whatsoever
that the Premises are used for a purpose which is a violation of such
certificate of occupancy, Tenant, upon five (5) Business Days' written notice
from Landlord or any Governmental Authority, shall immediately discontinue such
use of the Premises. Tenant shall obtain a temporary or permanent certificate of
occupancy covering the Premises permitting the Premises to be used as "offices"
and such temporary or permanent certificate of occupancy will be in force upon
the date upon which Tenant shall occupy all or any portion of the Premises for
the conduct of business, provided, however, neither such certificate, nor any
provision of this Lease, nor any act or omission of Landlord, shall be deemed to
constitute a representation or warranty that the Premises, or any part thereof,
lawfully may be used or occupied for any particular purpose or in any particular
manner, in contradistinction to mere "office" use. Landlord covenants that, on
the date Tenant shall apply
-46-
<PAGE>
for any building permit or said temporary or permanent certificate of occupancy,
Landlord shall not have taken any action or failed to comply with any
Requirements (other than those with which Tenant is required to comply under
this Lease) which would prevent Tenant from obtaining said temporary or
permanent certificate of occupancy, and if Landlord has taken any such actions
or failed to so comply, the Rent Commencement Date shall be deferred on a day
for day basis for the first thirty (30) days that Tenant is so prevented from
obtaining any building permit or said temporary or permanent certificate of
occupancy and two (2) days for each day after such thirty (30) day period that
Tenant is so prevented.
ARTICLE 16
DEFAULT
-------
Section 16.1 Each of the following events shall be an "Event of
------------ --------
Default" hereunder:
- -------
(A) if Tenant shall default in the payment when due of any installment
of Fixed Rent or any other item of Rental and such default shall continue for
five (5) Business Days after notice of such default has been given by Landlord
to Tenant; or
(B) if the Premises shall become abandoned for more than sixty (60)
days and Tenant is not actively attempting to sublet the Premises or assign this
Lease; or
(C) if Tenant's interest or any portion thereof in this Lease shall
devolve upon or pass to any person, whether by operation of law or otherwise,
except as expressly permitted under Article 12 hereof; or
(D) (1) if Tenant shall generally not, or shall be unable
to, or shall admit in writing its inability to, pay its debts as they become
due; or
(2) if Tenant shall commence or institute any case, proceeding
or other action (A) seeking relief on its behalf as debtor, or to adjudicate it
a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
property; or
(3) if Tenant shall make a general assignment for the
benefit of creditors; or
(4) if any case, proceeding or other action shall be commenced
or instituted against Tenant (A) seeking to have an order for relief entered
against it as debtor or to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment,
-47-
<PAGE>
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
property, which in either of such cases (i) results in any such entry of an
order for relief, adjudication of bankruptcy or insolvency or such an
appointment or the issuance or entry of any other order having a similar effect
or (ii) remains undismissed for a period of ninety (90) days; or
(5) if any case, proceeding or other action shall be commenced or
instituted against Tenant seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its property which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending appeal
within ninety (90) days from the entry thereof; or
(6) if Tenant shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clauses (2), (3), (4) or (5) above; or
(7) if a trustee, receiver or other custodian is appointed for
any substantial part of the assets of Tenant which appointment is not vacated or
stayed within seven (7) Business Days; or
(E) if this Lease is assigned (or all or a portion of the Premises are
subleased) to an Affiliate of Tenant and on or before the second (2nd)
anniversary of such assignment or sublease such entity shall no longer (i)
control, (ii) be under common control with, or (iii) be under the control of
Tenant (or any permitted successor by merger, consolidation or purchase as
provided herein), unless Tenant shall comply with the provisions of Article 12
of this Lease;
(F) if Tenant shall default in the observance or performance of any
other term, covenant or condition of this Lease on Tenant's part to be observed
or performed and Tenant shall fail to remedy such default within thirty (30)
days after notice by Landlord to Tenant of such default, or if such default is
of such a nature that it cannot with due diligence be completely remedied within
said period of thirty (30) days and Tenant shall not, if practicable, commence
within said period of thirty (30) days, or, if not, as soon as practicable
thereafter, or shall not thereafter diligently prosecute to completion, all
steps necessary to remedy such default.
Section 16.2 (A) If an Event of Default (i) described in Section 16.
------------
1(D) hereof shall occur, or (ii) described in Sections 16. 1(A), (B), (C), (E)
or (F) shall occur and Landlord, at any time thereafter, at its option gives
written notice to Tenant stating that this Lease and the Term shall expire and
terminate on the date Landlord shall give Tenant such notice, then this Lease
and the Term and all rights of Tenant under this Lease shall expire and
terminate as if the date on which the Event of Default described in clause (i)
above occurred or the date such
-48-
<PAGE>
notice is given to Tenant by Landlord, pursuant to clause (ii) above, as the
case may be, were the Fixed Expiration Date and Tenant immediately shall quit
and surrender the Premises, but Tenant shall nonetheless be liable for all of
its obligations hereunder, as provided for in Articles 17 and 18 hereof.
Anything contained herein to the contrary notwithstanding, if such termination
shall be stayed by order of any court having jurisdiction over any proceeding
described in Section 16.1(D) hereof, or by federal or state statute, then,
following the expiration of any such stay, or if the trustee appointed in any
such proceeding, Tenant or Tenant as debtor-in-possession shall fail to assume
Tenant's obligations under this Lease within the period prescribed therefor by
law or within one hundred twenty (120) days after entry of the order for relief
or as may be allowed by the court, or if said trustee, Tenant or Tenant as
debtor-in-possession shall fail to provide adequate protection of Landlord's
right, title and interest in and to the Premises or adequate assurance of the
complete and continuous future performance of Tenant's obligations under this
Lease as provided in Section 12.3(B), Landlord, to the extent permitted by law
or by leave of the court having jurisdiction over such proceeding, shall have
the right, at its election, to terminate this Lease on five (5) days' notice to
Tenant, Tenant as debtor-in-possession or said trustee and upon the expiration
of said five (5) day period this Lease shall cease and expire as aforesaid and
Tenant, Tenant as debtor-in-possession or said trustee shall immediately quit
and surrender the Premises as aforesaid.
(B) If an Event of Default described in Section 16.1(A) hereof shall
occur, or this Lease shall be terminated as provided in Section 16.2(A) hereof,
Landlord, without notice, may dispossess Tenant by summary proceedings or
otherwise.
Section 16.3 If at any time, (i) Tenant shall comprise two (2) or more
------------
persons, or (ii) Tenant's obligations under this Lease shall have been
guaranteed by any person other than Tenant, the word "Tenant," as used in
Section 16.1(D), shall be deemed to mean any one or more of the persons
primarily or secondarily liable for Tenant's obligations under this Lease. Any
monies received by Landlord from or on behalf of Tenant during the pendency of
any proceeding of the types referred to in Section 16.1(D) shall be deemed paid
as compensation for the use and occupation of the Premises and the acceptance of
any such compensation by Landlord shall not be deemed an acceptance of Rental or
a waiver on the part of Landlord of any rights under Section 16.2.
ARTICLE 17
REMEDIES AND DAMAGES
--------------------
Section 17.1 (A) If there shall occur any Event of Default, and this
------------
Lease and the Term shall expire and come to an end as provided in Article 16
hereof:
(1) Tenant shall quit and peacefully surrender the
Premises to Landlord, and Landlord and its agents may immediately, or at any
time after such default or after the date upon which this Lease and the Term
shall expire and come to an end, re-enter the Premises or any part thereof,
without notice, either by summary proceedings, or by any other
-49-
<PAGE>
applicable action or proceeding, and may repossess the Premises and dispossess
Tenant and any other persons from the Premises and remove any and all of their
property and effects from the Premises; and
(2) Landlord, at Landlord's option, may relet the whole or any portion
or portions of the Premises from time to time, either in the name of Landlord or
otherwise, to such tenant or tenants, for such term or terms ending before, on
or after the Expiration Date, at such rental or rentals and upon such other
conditions, which may include concessions and free rent periods, as Landlord, in
its sole discretion, may determine; provided, however, that Landlord shall have
no obligation to relet the Premises or any part thereof and shall in no event be
liable for refusal or failure to relet the Premises or any part thereof, or, in
the event of any such reletting, for refusal or failure to collect any rent due
upon any such reletting, and no such refusal or failure shall operate to relieve
Tenant of any liability under this Lease or otherwise affect any such liability,
and Landlord, at Landlord's option, may make such repairs, replacements,
alterations, additions, improvements, decorations and other physical changes in
and to the Premises as Landlord, in its sole discretion, considers advisable or
necessary in connection with any such reletting or proposed reletting, without
relieving Tenant of any liability under this Lease or otherwise affecting any
such liability.
(B) Tenant hereby waives the service of any notice of intention to
reenter or to institute legal proceedings to that end which may otherwise be
required to be given under any present or future law. Tenant, on its own behalf
and on behalf of all persons claiming through or under Tenant, including all
creditors, does further hereby waive any and all rights which Tenant and all
such persons might otherwise have under any present or future law to redeem the
Premises, or to re-enter or repossess the Premises, or to restore the operation
of this Lease, after (a) Tenant shall have been dispossessed by a judgment or by
warrant of any court or judge, or (b) any re-entry by Landlord, or (c) any
expiration or termination of this Lease and the Term, whether such dispossess,
re-entry, expiration or termination shall be by operation of law or pursuant to
the provisions of this Lease. The words "re-enter," "re-entry" and "re-entered"
as used in this Lease shall not be deemed to be restricted to their technical
legal meanings. In the event of a breach or threatened breach by Tenant, or any
persons claiming through or under Tenant, of any term, covenant or condition of
this Lease, Landlord shall have the right to enjoin such breach and the right to
invoke any other remedy allowed by law or in equity as if re-entry, summary
proceedings and other special remedies were not provided in this Lease for such
breach. The right to invoke the remedies hereinbefore set forth are cumulative
and shall not preclude Landlord from invoking any other remedy allowed at law or
in equity.
Section 17.2 (A) If this Lease and the Term shall expire and come to
------------
an end as provided in Article 16 hereof, or by or under any summary proceeding
or any other action or proceeding, Landlord shall re-enter the Premises as
provided in Section 17.1, or by or under any summary proceeding or any other
action or proceeding, then, in any of said events:
-50-
<PAGE>
(1) Tenant shall pay to Landlord all Fixed Rent. Escalation Rent and
other items of Rental payable under this Lease by Tenant to Landlord to the date
upon which this Lease and the Term shall have expired and come to an end or to
the date of reentry upon the Premises by Landlord, as the case may be;
(2) Tenant also shall be liable for and shall pay to Landlord, as
damages, any deficiency ("Deficiency") between the Rental for the period which
----------
otherwise would have constituted the unexpired portion of the Term and the net
amount, if any, of rents collected under any reletting effected pursuant to the
provisions of paragraph (2) of Section 17.1 (A) for any part of such period
(first deducting from the rents collected under any such reletting all of
Landlord's expenses in connection with the termination of this Lease, Landlord's
re-entry upon the Premises and with such reletting, including, but not limited
to, all repossession costs, brokerage commissions, legal expenses, attorneys'
fees and disbursements, alteration costs, contribution to work and other
expenses of preparing the Premises for such reletting); any such Deficiency
shall be paid in monthly installments by Tenant on the days specified in this
Lease for payment of installments of Fixed Rent, Landlord shall be entitled to
recover from Tenant each monthly Deficiency as the same shall arise, and no suit
to collect the amount of the Deficiency for any month shall prejudice Landlord's
right to collect the Deficiency for any subsequent month by a similar
proceeding; and
(3) whether or not Landlord shall have collected any monthly
Deficiency as aforesaid, Landlord shall be entitled to recover from Tenant, and
Tenant shall pay to Landlord, on demand, in lieu of any further Deficiency as
and for liquidated and agreed final damages, a sum equal to the amount by which
the Rental for the period which otherwise would have constituted the unexpired
portion of the Term exceeds the then fair and reasonable rental value of the
Premises for the same period, both discounted to present worth at the Base Rate
less the aggregate amount of Deficiencies theretofore collected by Landlord
pursuant to the provisions of clause (A) (2) of this Section 17.2 for the same
period; if, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the Premises, or any part thereof, shall have
been relet by Landlord for the period which otherwise would have constituted the
unexpired portion of the Term, or any part thereof, the amount of rent reserved
upon such reletting shall be deemed, prima facie, to be the fair and reasonable
rental value for the part or the whole of the Premises so relet during the term
of the reletting.
(B) If the Premises, or any part thereof, shall be relet together with
other space in the Building, the rents collected or reserved under any such
reletting and the expenses of any such reletting shall be equitably apportioned
for the purposes of this Section 17.2. Tenant shall in no event be entitled to
any rents collected or payable under any reletting, whether or not such rents
shall exceed the Fixed Rent reserved in this Lease. Solely for the purposes of
this Article 17, the term "Escalation Rent" as used in Section 17.2(A) shall
mean the Escalation Rent in effect immediately prior to the Expiration Date, or
the date of re-entry upon the Premises by Landlord, as the case may be, adjusted
to reflect any increase pursuant to the provisions of Article 27 hereof for the
Operating Year immediately preceding such event. Nothing contained in Article 16
hereof or this Article 17 shall be deemed to limit or preclude
-51-
<PAGE>
the recovery by Landlord from Tenant of the maximum amount allowed to be
obtained as damages by any statute or rule of law, or of any sums or damages to
which Landlord may be entitled in addition to the damages set forth in this
Section 17.2.
ARTICLE 18
LANDLORD FEES AND EXPENSES
--------------------------
Section 18.1 If Tenant shall be in default in the performance of any
------------
of its obligations under this Lease beyond any applicable grace period, Landlord
may (1) perform the same for the account of Tenant, or (2) make any expenditure
or incur any obligation for the payment of money, including, without limitation,
attorneys' fees and disbursements in instituting, prosecuting or defending any
action or proceeding, and the cost thereof, with interest thereon at the
Applicable Rate, shall be deemed to be additional rent hereunder and shall be
paid by Tenant to Landlord within ten (10) days of rendition of any bill or
statement to Tenant therefor and if the term of this Lease shall have expired at
the time of making of such expenditures or incurring of such obligations, such
sums shall be recoverable by Landlord as damages.
Section 18.2 If Tenant shall fail to pay any installment of Fixed
------------
Rent, Escalation Rent or any other item of Rental within five (5) Business Days
after such amount is due, Tenant shall pay to Landlord, in addition to such
installment of Fixed Rent, Escalation Rent or other item of Rental, as the case
may be, as a late charge and as additional rent, a sum equal to interest at the
Applicable Rate on the amount unpaid, computed from the date such payment was
due to and including the date of payment.
ARTICLE 19
REPRESENTATIONS BY LANDLORD
---------------------------
Section 19.1 Landlord and Landlord's agents and representatives have
------------
made no representations or promises with respect to the Building, the Real
Property, the Premises or the Site, including, without limitation, any proposed
further or future development of the Site, or any portion thereof, except as
herein expressly set forth, and no rights, easements or licenses are acquired by
Tenant by implication or otherwise except as expressly set forth herein. Subject
to Landlord's compliance with its obligations pursuant to Sections 3.5 and 4.1
hereof, Tenant shall accept possession of the Premises in the condition which
shall exist on the Commencement Date "as is", and Landlord shall have no
obligation to perform any work or make any installations in order to prepare the
Premises for Tenant's occupancy, except for Landlord's Work.
Section 19.2 Landlord represents that Tenant's contemplated use of the
------------
Premises for the purposes set forth in Section 2.1 hereof will not violate the
Newport City Urban Redevelopment Plan.
-52-
<PAGE>
ARTICLE 20
END OF TERM
-----------
Upon the expiration or other termination of this Lease, Tenant shall
quit and surrender to Landlord the Premises, vacant, broom clean, in good order
and condition, ordinary wear and tear and damage by fire or other casualty or
for which Tenant is not responsible under the terms of this Lease excepted, and
otherwise in compliance with the provisions of Article 3 hereof. Tenant
expressly waives, for itself and for any person claiming through or under
Tenant, any rights which Tenant or any such person may have under the provisions
of any Requirements in connection with any holdover summary proceedings which
Landlord may institute to enforce the foregoing provisions of this Article 20.
Tenant acknowledges that possession of the Premises must be surrendered to
Landlord on the Expiration Date. Tenant agrees to indemnify and save Landlord
harmless from and against all claims, losses, damages, liabilities, costs and
expenses (including, without limitation, reasonable attorneys' fees and
disbursements) resulting from delay by Tenant in so surrendering the Premises,
including, without limitation, any claims made by any succeeding tenant founded
on such delay. The parties recognize and agree that the damage to Landlord
resulting from any failure by Tenant to timely surrender possession of the
Premises as aforesaid will be extremely substantial, will exceed the amount of
the monthly installments of the Fixed Rent and Rental theretofore payable
hereunder, and will be impossible to accurately measure. Tenant therefore agrees
that if possession of the Premises is not surrendered to Landlord on the
Expiration Date, in addition to any other rights or remedies Landlord may have
hereunder or at law, and without in any manner limiting Landlord's right to
demonstrate and collect any damages suffered by Landlord and arising from
Tenant's failure to surrender the Premises as provided herein, Tenant shall pay
to Landlord on account of use and occupancy of the Premises for each month and
for each portion of any month during which Tenant holds over in the Premises
after the Expiration Date, a sum equal to two (2) times the aggregate of that
portion of the Fixed Rent, Escalation Rent and Rental which was payable under
this Lease during the last month of the Term. Nothing herein contained shall be
deemed to permit Tenant to retain possession of the Premises after the
Expiration Date or to limit in any manner Landlord's right to regain possession
of the Premises through summary proceedings, or otherwise, and no acceptance by
Landlord of payments from Tenant after the Expiration Date shall be deemed to be
other than on account of the amount to be paid by Tenant in accordance with the
provisions of this Article 20. The provisions of this Article 20 shall survive
the Expiration Date.
ARTICLE 21
QUIET ENJOYMENT
---------------
Provided no Event of Default has occurred and is continuing, Tenant
may peaceably and quietly enjoy the Premises free from any claim by Landlord or
any party claiming by, through or under Landlord subject, nevertheless, to the
terms and conditions of this Lease.
-53-
<PAGE>
ARTICLE 22
POSSESSION
----------
Landlord shall deliver possession of the Premises on the Commencement
Date.
ARTICLE 23
NO WAIVER
---------
Section 23.1 No act or thing done by Landlord or Landlord's agents
------------
during the Term shall be deemed an acceptance of a surrender of the Premises,
and no agreement to accept such surrender shall be valid unless in writing
signed by Landlord. No employee of Landlord or of Landlord's agents shall have
any power to accept the keys of the Premises prior to the termination of this
Lease. The delivery of keys to any employee of Landlord or of Landlord's agents
shall not operate as a termination of this Lease or a surrender of the Premises.
In the event Tenant at any time desires to have Landlord sublet the Premises for
Tenant's account, Landlord or Landlord's agents are authorized to receive said
keys for such purpose without releasing Tenant from any of the obligations under
this Lease, and Tenant hereby relieves Landlord of any liability for loss of or
damage to any of Tenant's effects in connection with such subletting.
Section 23.2 The failure of Landlord to seek redress for violation of,
------------
or to insist upon the strict performance of, any covenant or condition of this
Lease, or any of the Rules and Regulations set forth or hereafter adopted by
Landlord, shall not prevent a subsequent act, which would have originally
constituted a violation of the provisions of this Lease, from having all of the
force and effect of an original violation of the provisions of this Lease. The
receipt by Landlord of Fixed Rent, Escalation Rent or any other item of Rental
with knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. The failure of Landlord to enforce any of the Rules and
Regulations set forth, or hereafter adopted, against Tenant or any other tenant
in the Building shall not be deemed a waiver of any such Rules and Regulations.
No provision of this Lease shall be deemed to have been waived by Landlord or
Tenant, unless such waiver be in writing signed by Landlord or Tenant, as the
case may be. No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly Fixed Rent or other item of Rental herein stipulated shall be deemed
to be other than on account of the earliest stipulated Fixed Rent or other item
of Rental, or as Landlord may elect to apply same, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment as Fixed
Rent or other item of Rental be deemed an accord and satisfaction, and Landlord
may accept such check or payment without prejudice to Landlord's right to
recover the balance of such Fixed Rent or other item of Rental or to pursue any
other remedy provided in this Lease. This Lease contains the entire agreement
between the parties and all prior negotiations and agreements are merged herein.
Any executory agreement hereafter made shall be ineffective to change, modify,
discharge or effect an abandonment of this Lease in whole or
-54-
<PAGE>
in part unless such executory agreement is in writing and signed by the party
against whom enforcement of the change, modification, discharge or abandonment
is sought.
Section 23.3 The failure of Tenant to seek redress for violation of,
------------
or to insist upon the strict performance of, any covenant or condition of this
Lease on Landlord's part to be performed, shall not be deemed a waiver of such
breach or prevent a subsequent act which would have originally constituted a
violation of the provisions of this Lease from having all of the force and
effect of an original violation of the provisions of this Lease. The payment by
Tenant of Fixed Rent, Escalation Rent or any other item of Rental or performance
of any obligation of Tenant hereunder with knowledge of any breach of any
covenant of this Lease shall not be deemed a waiver of such breach, and payment
of the same by Tenant shall be without prejudice to Tenant's right to pursue any
remedy against Landlord in this Lease provided.
ARTICLE 24
WAIVER OF TRIAL BY JURY
-----------------------
The respective parties hereto shall and they hereby do waive trial by
jury in any action, proceeding or counterclaim brought by either of the parties
hereto against the other (except for personal injury or property damage) on any
matters whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises,
or for the enforcement of any remedy under any statute, emergency or otherwise.
If Landlord commences any summary proceeding against Tenant, Tenant will not
interpose any counterclaim of whatever nature or description in any such
proceeding (unless failure to impose such counterclaim would preclude Tenant
from asserting in a separate action the claim which is the subject of such
counterclaim), and will not seek to consolidate such proceeding with any other
action which may have been or will be brought in any other court by Tenant.
ARTICLE 25
INABILITY TO PERFORM
--------------------
This Lease and the obligation of Tenant to pay Rental hereunder and
the obligation of Landlord to make any required payments to Tenant hereunder,
and Landlord's and Tenant's respective obligations to perform all of the other
covenants and agreements hereunder on the part of Landlord or Tenant (as the
case may be) to be performed shall not be affected, impaired or excused because
Landlord or Tenant (as the case may be) is unable to fulfill any of its
obligations under this Lease expressly or impliedly to be performed by Landlord
or because Landlord is unable to make, or is delayed in making any repairs,
additions, alterations, improvements or decorations or is unable to supply or is
delayed in supplying any equipment or fixtures, if Landlord or Tenant (as the
case may be) is prevented or delayed from so doing by reason of strikes or labor
troubles or by accident, or by any cause whatsoever beyond
-55-
<PAGE>
Landlord's or Tenant's control, including, but not limited to, laws,
governmental preemption in connection with a national emergency or by reason of
any Requirements of any Governmental Authority or by reason of failure of the
VAC, electrical, plumbing, or other Building Systems in the Building, or by
reason of the conditions of supply and demand which have been or are affected by
war or other emergency ("Unavoidable Delays"). Under no circumstances shall
------------------
insufficiency or unavailability of funds be deemed an Unavoidable Delay.
ARTICLE 26
BILLS AND NOTICES
-----------------
Except as otherwise expressly provided in this Lease, any bills,
statements, consents, notices, demands, requests or other communications given
or required to be given under this Lease shall be in writing and shall be deemed
sufficiently given or rendered if delivered by hand (against a signed receipt)
or if sent by registered or certified mail (return receipt requested) addressed
if to Tenant (a) at Tenant's address set forth in this Lease, Attn.:
Kenneth Pasternak, if mailed prior to Tenant's taking possession of the
Premises, or (b) at the Building, Attn.: Kenneth Pasternak, if mailed
subsequent to Tenant's taking possession of the Premises, or (c) at any
place where Tenant or any agent or employee of Tenant may be found if
mailed subsequent to Tenant's vacating, deserting, abandoning or
surrendering the Premises, in each case of a notice of default with a copy
to Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York,
New York 10004, Attn.: Harold E. Rosen, Esq., or
if to Landlord c/o The Limited, Inc., Two Limited Parkway, P.O. Box
16000, Columbus, Ohio 43216, Attn: Mr. Samuel Fried, and with copies to (x)
The Limited, Inc., Two Limited Parkway, P.O. Box 16000, Columbus, Ohio
43216, Attn.: Mr. John DeWolf, (y) The Georgetown Group, Inc., 667 Madison
Avenue, New York, New York 10021, Attn: Mr. Edgar A. Lampert, and (z) each
Mortgagee and Lessor which shall have requested same, by notice given in
accordance with the provisions of this Article 26 at the address designated
by such Mortgagee or Lessor, or to such other address(es) as Landlord,
Tenant or any Mortgagee or Lessor may designate as its new address(es) for
such purpose by notice given to the other in accordance with the provisions
of this Article 26.
Any such bill, statement, consent, notice, demand, request or other
communication shall be deemed to have been rendered or given on the date when it
shall have been delivered as evidenced by signed receipt, return receipt or
affidavit of the party making delivery or as of the date of attempted delivery
in the case of refusal to accept delivery or changed address of which no notice
was given.
-56-
<PAGE>
ARTICLE 27
ESCALATION
----------
Section 27.1 For the purposes of this Article 27, the following terms
------------
shall have the meanings set forth below.
(A) (1) "Operating Expenses" shall mean the aggregate of
------------------
those costs and expenses (and taxes, if any, thereon, including without
limitation, sales and value added taxes) paid or incurred by or on behalf of
Landlord (whether directly or through independent contractors) in respect of (x)
the Operation of the Property which are properly chargeable to the Operation of
the Property under generally acceptable accounting procedures together with and
including (without limitation) the costs of gas, oil, steam, water, sewer
rental, electricity (for the portions of the Real Property not leased to and
occupied by tenants or available for occupancy, provided, however, that
electricity used to provide heat through the electrical baseboard heating units
shall be included in Operating Expenses for the entire Building, including those
portions of the Building which are available for leasing and occupancy by
tenants and those portions of the Building which are not leasable), VAC and
other utilities furnished to the Building and utility taxes, and the expenses
incurred in connection with the Operation of the Property such as insurance
premiums, attorneys' fees and disbursements (exclusive of any such fees and
disbursements incurred in applying for any reduction of Taxes or any other
matters expressly excluded herein) and auditing and other professional fees and
expenses, and (y) the maintenance and operation of areas comprising portions of
the Site which areas (1) are not exclusively reserved to the use of individual
owners, tenants or operators of projects within the Site, and (2) Tenant and
other occupants of the Building and their respective agents, representatives,
employees, invitees and customers shall have the right to use or have the
benefit of, in common with Landlord and others, but specifically excluding:
(i) Taxes,
(ii) transfer, gains, inheritance, estate, gift,
corporation, franchise or income taxes imposed upon Landlord,
(iii) debt service (including interest and
amortization) on Mortgages and other indebtedness of Landlord,
(iv) all leasing commissions, and other leasing
costs of any kind or nature in connection with leases in the Building,
(v) capital improvements (except as otherwise
provided herein), which shall include any repair, alteration, addition,
replacement or other items which under generally accepted accounting principles
consistently applied is properly classified as a capital expenditure,
-57-
<PAGE>
(vi) the cost of electrical energy furnished directly
to Tenant and other tenants of the Building or to prepare any space for
occupancy except for the cost of electrical energy used to provide heat for the
entire Building through the electrical baseboard heating units,
(vii) the cost of tenant installations incurred in
connection with preparing space for a new tenant, or payments or other
contributions in lieu thereof,
(viii) salaries, fringe benefits or other compensation
of personnel above the grade of building manager,
(ix) rent or other payments paid under Superior Leases,
(x) any expense for which Landlord is otherwise
compensated through the proceeds of insurance or would have been compensated if
Landlord had carried the insurance coverage required by Section 9.3, or is
otherwise or has the right to be compensated by any tenant (including Tenant) of
the Building other than pursuant to provisions similar to the provisions set
forth in this Article 27 or for services in excess of the services Landlord is
obligated to furnish to Tenant hereunder,
(xi) legal, arbitration, accounting or other
professional fees incurred in connection with any negotiation of, or disputes
arising out of, or enforcement of, any space lease in the Building, or any
amendment, extension or cancellation thereof,
(xii) depreciation and amortization, except as provided
herein,
(xiii) Landlord's entertainment, public relations,
advertising and promotional costs for the Building,
(xiv) any fee or expenditure paid (a) to any Affiliate
of Landlord, or other entity in which Landlord owns directly or indirectly, a
ten percent (10%) interest, or (b) to any shareholder owning at least ten
percent (10%) of the common stock, any general partner, any officer above the
rank of vice president, or member of any Board of Directors of Landlord or of
any Person described in this clause (xiv) or (c) to any person who is a relative
by blood or marriage of any such persons, in each case in excess of the amount
which would be paid in the absence of such relationship,
(xv) costs (including permits, licensing and inspection
fees) incurred in renovating or otherwise improving, decorating or altering
space for tenants or other occupants, or vacant space (excluding common areas)
in the Building,
(xvi) financing and refinancing costs, including without
limitation, legal and accounting fees in connection therewith,
-58-
<PAGE>
(xvii) costs and expenses incurred by Landlord in
connection with a sale or other transfer of the Building or the lessee's
interest in any ground lease or any ownership interest in Landlord, including
without limitation, legal and accounting fees incurred in connection therewith,
(xviii) late payment penalties in the nature of interest
or late fees or any fine or penalty,
(xix) costs and expenses incurred as a result of the
negligence of Landlord or its agents or contractors or as a result of the breach
by a Building tenant of its lease,
(xx) costs of installing, operating and maintaining any
special facility such as an observatory, broadcasting facility, child care
facility, restaurant or luncheon club, athletic or recreational club, theater or
cafeteria,
(xxi) costs and expenses incurred in connection with the
Parking Garage,
(xxii) costs and expenses incurred by Landlord in
maintaining and/or operating the Emergency Generator,
(xxiii) to the extent any costs includable in Operating
Expenses are incurred with respect to both the Building and other properties
(including, without limitation, salaries, fringe benefits and other compensation
of Landlord's personnel who provide services to both the Building and other
properties), there shall be excluded from operating expenses a fair and
reasonable percentage thereof which is properly allocable to such other
properties,
(xxiv) the cost of providing any service customarily
included in management fees (e.g., bookkeeping and accounting costs),
(xxv) the cost of acquiring or replacing any separate
electrical meter Landlord may provide to any of the tenants in the Building,
(xxvi) costs relating to withdrawal liability of
unfunded pension liability under the Multi-Employer Pension Plan Act or similar
law,
(xxvii) costs of acquiring, leasing, restoring or
displaying sculptures, paintings and other objects of art located within or
outside the Building, except only for the costs of maintaining such objects in
the public areas of the Building,
(xxviii) expenses allocable directly and solely to the
retail space of the Building (including, without limitation, plate glass
insurance),
-59-
<PAGE>
(xxix) costs incurred in connection with making any
additions to, or building additional stories on, the Building or its plazas, or
adding buildings or other structures adjoining the Building, or connecting the
Building to other structures adjoining the Building,
(xxx) the costs of repairs or replacements or
restorations by reason of fire or other casualty or condemnation,
(xxxi) the cost paid or incurred in connection with
the removal, replacement, enclosure, encapsulation or other treatment of any
Hazardous Materials in the Building, and
(xxxii) the cost of any judgment, settlement or
arbitration award resulting from any liability of Landlord (including any
Landlord obligation to indemnify Tenant or any other tenant in the Building but
excluding any liability for amounts otherwise includable in Operating Expenses
hereunder) and all expenses incurred by Landlord in connection therewith;
except, however, that if Landlord is not furnishing any particular work or
service (the cost of which if performed by Landlord would constitute an
Operating Expense) to a tenant who has undertaken to perform such work or
service in lieu of the performance thereof by Landlord, Operating Expenses shall
be deemed to be increased by an amount equal to the additional Operating
Expenses which reasonably would have been incurred during such period by
Landlord if it had at its own expense furnished such work or services to such
tenant. Any costs incurred in performing work or furnishing services for any
tenant (including Tenant), whether at such tenant's or Landlord's expense, to
the extent that such work or service is in excess of any work or service that
Landlord is obligated to furnish to Tenant at Landlord's expense shall be
deducted from Operating Expenses otherwise chargeable to the Operation of the
Property. Any insurance proceeds received with respect to any item previously
included as an Operating Expense shall be deducted from Operating Expenses for
the Operating Year in which such proceeds are received; provided, however, to
the extent any insurance proceeds are received by Landlord in any Operating Year
with respect to any item which was included in Base Operating Expenses, the
amount of insurance proceeds so received shall be deducted from Base Operating
Expenses and (a) the Base Operating Expenses shall be retroactively adjusted to
reflect such deduction and (b) all retroactive Operating Payments resulting from
such retroactive adjustment shall be due and payable when billed by Landlord;
(2) In determining the amount of Operating Expenses
(including Base Operating Expenses) for any Operating Year, if less than ninety-
five percent (95%) of the Building rentable area shall have been occupied by
tenant(s) at any time during any such Operating Year, Operating Expenses shall
be determined for such Operating Year to be an amount equal to the like expenses
which would normally be expected to be incurred if ninety-five percent (95%) of
the Building rentable area been occupied throughout such Operating Year.
-60-
<PAGE>
(3) (a) If any capital improvement is made during
any Operating Year to comply with a Requirement, or as a capital replacement in
lieu of a repair, then the cost of such improvement shall be included in
Operating Expenses for the Operating Year in which such improvement was made;
provided, however, to the extent the cost of such improvement is required to be
capitalized under generally accepted accounting principles for federal income
tax purposes, such cost shall be amortized over the useful life of such
improvement as reasonably estimated by Landlord and the annual amortization,
together with interest thereon at the then Base Rate, of such improvement shall
be deemed an Operating Expense in each of the Operating Years during which such
cost of the improvement is amortized.
(b) If any capital improvement is made during
any Operating Year for the purpose of saving or reducing Operating Expenses (as,
for example, a labor-saving improvement), then the cost of such improvement
shall be included in Operating Expenses for the Operating Year in which such
improvement was made; provided, however, (i) such cost shall be amortized over
such period of time as Landlord reasonably estimates such savings or reduction
in Operating Expenses will equal the cost of such improvement and the annual
amortization, together with interest thereon at the then Base Rate, of such
improvement shall be deemed an Operating Expense in each of the Operating Years
during which such cost of the improvement is amortized, and (ii) prior to
including the cost of any such capital improvement in Operating Expenses,
Landlord shall deliver to Tenant statements from an independent contractor or
other appropriate individual qualified to make such judgment to the effect that
such improvement is reasonably expected to produce such savings or reduction in
Operating Expenses.
(B) "Operating Statement" shall mean a statement in
-------------------
reasonable detail setting forth (1) a line item comparison of the Operating
Expenses for an Operating Year with the Base Operating Expenses and (2) the
Operating Payment and the calculation thereof with respect to the preceding
Operating Year pursuant to the provisions of this Article 27.
(C) "Operating Year" shall mean the calendar year within
--------------
which the Commencement Date occurs and each subsequent calendar year for any
part or all of which Escalation Rent shall be payable pursuant to this
Article 27.
(D) "Taxes" shall mean the aggregate amount of real estate
-----
taxes and any general or special assessments (exclusive of penalties and
interest thereon) imposed upon the Real Property (including, without limitation,
(i) assessments made upon or with respect to any "air" and "development" rights
now or hereafter appurtenant to or affecting the Real Property, and (ii) any
taxes or assessments levied after the date of this Lease in whole or in part for
public benefits to the Real Property or the Building) without taking into
account any discount that Landlord may receive by virtue of any early payment of
Taxes; provided, that if because of any change in the taxation of real estate,
any other tax or assessment, however denominated (including, without limitation,
any franchise, income, profit, sales, use, occupancy, gross receipts or rental
tax) is imposed upon Landlord or the owner of the Real Property or the Building,
or the occupancy, rents or income therefrom, in substitution for any
-61-
<PAGE>
of the foregoing Taxes, such other tax or assessment shall be deemed part of
Taxes computed as if Landlord's sole asset were the Real Property. With respect
to any Tax Year, all expenses, including attorneys' fees and disbursements,
experts' and other witnesses' fees, incurred in contesting the validity or
amount of any Taxes or in obtaining a refund of Taxes shall be considered as
part of the Taxes for such Tax Year. Anything contained herein to the contrary
notwithstanding, Taxes shall not be deemed to include (w) any taxes on
Landlord's income, (x) franchise taxes, (y) estate or inheritance taxes or
(z) any similar taxes, imposed on Landlord, unless such taxes are levied,
assessed or imposed in lieu of or as a substitute for the whole or any part of
the taxes, assessments, levies, impositions which now constitute Taxes. Landlord
represents to Tenant that no additional building can be or will be constructed
on the Land.
(E) "Tax Statement" shall mean a statement in reasonable
-------------
detail setting forth a comparison of the Taxes for a Tax Year with the Base
Taxes.
(F) "Tax Year" shall mean the period January 1 through
--------
December 31 (or such other period as hereinafter may be duly adopted by the
Governmental Authority then imposing taxes as its fiscal year for real estate
tax purposes), any portion of which occurs during the Term.
Section 27.2 (A) Notwithstanding the definition of Taxes set forth in
------------
Section 27.1(D) hereof, Tenant expressly acknowledges that the Real Property is
currently subject to the provisions of the Tax Agreement. Accordingly, Landlord
and Tenant hereby agree that-for as long as the Tax Agreement shall be and
remain in full force and effect, Taxes shall mean the aggregate of the payments
which are obligated to be made to the City of Jersey City or any other
appropriate taxing authority pursuant to the Tax Agreement. If, at any time, the
Tax Agreement shall cease to be in full force and effect with respect to the
Real Property, the definition of Taxes set forth in Section 27.1(D) shall
automatically become effective.
(B)(1) Tenant shall pay as additional rent an amount
equal to Tenant's Tax Share of the difference, if any, between current Taxes and
Base Taxes (the "Tax Payment"). Notwithstanding the foregoing, the Tax Payment
-----------
for the period commencing on (i) the Rent Commencement Date and ending on
March 31, 1998, shall be an amount equal to $0; (ii) April 1, 1998 and ending
March 31, 2003, shall be an amount equal to the product of (a) the Space Factor
and (b) $.45; and (iii) April 1, 2003 and ending on March 31, 2008, shall be an
amount equal to the product of (a) the Space Factor and (b) $.90. Tenant shall
pay one-twelfth (1/12) of the Tax Payment to Landlord on the first day of each
month.
(2) At any time during or after the Term for the partial Tax
Year April 1, 2008 though December 31, 2008 and for any Tax Year thereof,
Landlord may render to Tenant a Tax Statement showing (i) a comparison of the
Taxes for the Tax Year with the Base Taxes, and (ii) the amount of the Tax
Payment resulting from such comparison. On the first day of the month following
the furnishing to Tenant of a Tax Statement, Tenant shall pay to Landlord a sum
equal to one-twelfth (1/12th) of the Tax Payment shown thereon to be due for
such Tax Year multiplied by the number of months (and any fraction thereof of
the Term then
-62-
<PAGE>
elapsed since the commencement of such Tax Year. If Landlord furnishes a Tax
Statement for a Tax Year subsequent to the commencement thereof, until the first
day of the month following the month in which the Tax Statement is furnished to
Tenant, (x) Tenant shall continue to pay to Landlord on the first day of each
month an amount equal to the monthly sum payable by Tenant to Landlord with
respect to the next previous Tax Year; (y) promptly after the Tax Statement is
furnished to Tenant, Landlord shall give notice to Tenant stating whether the
amount previously paid by Tenant to Landlord for the current Tax Year was
greater or less than the installments of the Tax Payment to be paid for the
current Tax Year in accordance with the Tax Statement, and (a) if there shall be
a deficiency, Tenant shall pay the amount thereof within ten (10) days after
demand therefor, or (b) if there shall have been an overpayment, Landlord shall
credit. the amount thereof against the next monthly or other installments of
Rental payable under this Lease or shall refund such amount to the extent Rental
credits are not sufficient; and (z) on the first day of the month following the
month on which the Tax Statement is furnished to Tenant, and monthly thereafter
throughout the remainder of the current Tax Year, Tenant shall pay to Landlord
an amount equal to one-twelfth (1/12th) of the Tax Payment shown on the Tax
Statement. Tax Payments shall be collectible by Landlord in the same manner as
Fixed Rent. Landlord's failure to render a Tax Statement shall not prejudice
Landlord's right to render a Tax Statement during or with respect to any
subsequent Tax Year, and shall not eliminate or reduce Tenant's obligation to
make a Tax Payment for such Tax Year. Any such payments for the Tax Year 2008
shall be equitably apportioned to reflect payments made by Tenant pursuant to
Section 27.2(B)(1) above for the period January 1, 2008 through March 31, 2008.
Section 27.3 Only Landlord shall be eligible to institute tax
------------
reduction or other proceedings to reduce the Taxes; provided, however, that
during the period after the expiration or earlier termination of the Tax
Agreement, upon request of tenants occupying more than forty (40%) of the
rentable area of the Building, and to the extent permitted pursuant to
applicable Requirements, Landlord shall commence and in good faith prosecute
(which shall include the right of Landlord to settle any such proceeding)
proceedings to reduce the Taxes. In the event that, after a Tax Statement has
been sent to Tenant, the Taxes set forth in the Tax Statement for such Tax Year
are reduced (as a result of settlement, final determination of legal proceedings
or otherwise), and as a result thereof a refund of Taxes is actually received by
or on behalf of Landlord, then, promptly after receipt of such refund, Landlord
shall send Tenant a Tax Statement adjusting the Taxes for such Tax Year (taking
into account the expenses mentioned in Section 27.1(D) hereof) and setting forth
Tenant's Tax Share of such refund and Tenant shall be entitled to receive such
share either, by way of a credit against the Rental next becoming due after the
sending of such Tax Statement or by a refund to the extent no further Rental is
due; provided, however, that Tenant's Tax Share of such refund shall be limited
to the portion of the Tax Payment, if any, which Tenant had theretofore paid to
Landlord attributable to Taxes for the Tax Year to which the refund is
applicable on the basis of the Taxes before they had been reduced.
Section 27.4 (A) If the Operating Expenses for any Operating Year
------------
shall be greater than the Base Operating Expenses, then Tenant shall pay as
additional rent for each
-63-
<PAGE>
Operating Year (any part or all of which falls within the Term), Tenant's Share
of such increase (the "Operating Payment") as hereinafter provided.
------------------
(B) At any time during or after the Term, Landlord may
render to Tenant an Operating Statement or Operating Statements showing (i) a
line item comparison of the Operating Expenses for the Operating Year in
question with the Base Operating Expenses, and (ii) the amount of the Operating
Payment resulting from such comparison. Landlord's failure to render an
Operating Statement during or with respect to any Operating Year in question
shall not prejudice Landlord's right to render an Operating Statement during or
with respect to any subsequent Operating Year, and shall not eliminate or reduce
Tenant's obligation to make payments of the Operating Payment pursuant to this
Article 27 for such Operating Year; provided, however, if Landlord has not
rendered an Operating Statement for an Operating Year within twenty-four (24)
months after the end of such Operating Year, Landlord shall be deemed to have
waived its right to collect the Operating Payment for such Operating Year.
(C) On the first day of the month following the
furnishing to Tenant of an Operating Statement, Tenant shall pay to Landlord a
sum equal to one-twelfth (1/12th) of the Operating Payment shown thereon to be
due for the preceding Operating Year multiplied by the number of months (and any
fraction thereof) of the Term then elapsed since the commencement of such
Operating Year in which such Operating Statement is delivered, less Operating
Payments theretofore made by Tenant for such Operating Year and thereafter,
commencing with the then current monthly installment of Fixed Rent and
continuing monthly thereafter until rendition of the next succeeding Operating
Statement, Tenant shall pay on account of the Operating Payment for such Year an
amount equal to one-twelfth (1/12th) of the Operating Payment shown thereon to
be due for the preceding Operating Year. Any Operating Payment shall be
collectible by Landlord in the same manner as Fixed Rent.
(D) (1) As used in this Section 27.4, (i) "Tentative
---------
Monthly Escalation Charge" shall mean a sum equal to one-twelfth (1/12th) of the
- -------------------------
product of (a) Tenant's Share, and (b) the amount by which (x) Landlord's
estimate of Operating Expenses for the Current Year exceeds (y) the Base
Operating Expenses, but in no event shall such estimate exceed 105% of the
Operating Expenses for the Operating Year preceding the current Operating Year.
(2) At any time in any Operating Year, Landlord,
at its option, in lieu of the payments required under Section 27.4(C) hereof,
may demand and collect from Tenant, as additional rent, a sum equal to the
Tentative Monthly Escalation Charge multiplied by the number of months in said
Operating Year preceding the demand and reduced by the sum of all payments
theretofore made under Section 27.4(C) with respect to said Operating Year, and
thereafter, commencing with the month in which the demand is made and continuing
thereafter for each month remaining in said Operating Year, the monthly
installments of Fixed Rent shall be deemed increased by the Tentative Monthly
Escalation Charge. Any amount due to Landlord under this Section 27.4(D) may be
included by Landlord in any Operating Statement rendered to Tenant as provided
in Section 27.4(B) hereof.
-64-
<PAGE>
(E) (1) After the end of the Current Year and at any
time that Landlord renders an Operating Statement or Operating Statements to
Tenant as provided in Section 27.4(B) hereof with respect to the Operating
Expenses for said Operating Year or Current Year, as the case may be, the
amounts, if any, collected by Landlord from Tenant under Section 27.4(C) or (D)
on account of the Operating Payment or the Tentative Monthly Escalation Charge,
as the case may be, shall be adjusted, and, if the amount so collected is less
than or exceeds the amount actually due under said Operating Statement for the
Operating Year, a reconciliation shall be made as follows: Tenant shall be
debited with any Operating Payment shown on such Operating Statement and
credited with the amounts, if any, paid by Tenant on account in accordance with
the provisions of subsection (C) and subsection (D)(2) of this Section 27.4 for
the Operating Year in question. Tenant shall pay any net debit balance to
Landlord within fifteen (15) days next following rendition by Landlord of an
invoice for such net debit balance; any net credit balance shall be applied
against the next accruing monthly installments of Rental or Landlord shall
refund the amount thereof to Tenant to the extent no further Rental is due.
(2) If the sum of the Tentative Monthly
Escalation Charges and payments made by Tenant in accordance with subsection (C)
of this Section 27.4 for any Operating Year shall have exceeded the Operating
Payment for such Operating Year by more than ten percent (10%), interest at the
Base Rate on the portion of the overpayment that exceeds the applicable
Operating Payment by more than ten percent (10%) determined as of the respective
dates of such payments by Tenant and calculated from such respective dates to
the dates on which such amounts are credited against the monthly installments of
Fixed Rent, shall be so credited. Any amount owing to Tenant subsequent to the
Term shall be paid to Tenant within ten (10) Business Days after a final
determination has been made of the amount due to Tenant.
Section 27.5 Any Operating Statement sent to Tenant shall be
------------
conclusively binding upon Tenant unless, within one hundred eighty (180) days
after such Operating Statement is sent, Tenant shall send a written notice to
Landlord objecting to such Operating Statement and specifying the respects in
which such Operating Statement is disputed. If such notice is sent, Tenant
(together with its independent certified public accountants or other qualified
representative) may examine Landlord's books and records relating to the
Operation of the Property to determine the accuracy of the Operating Statement.
Tenant recognizes the confidential nature of such books and records and agrees
to maintain the information obtained from such examination in strict confidence,
except that Tenant may disclose such information to necessary employees and
professional consultants or in any suit or other legal action or as required by
law. If after such examination, Tenant still disputes such Operating Statement,
either party may refer the decision of the issues raised to a reputable
independent firm of certified public accountants, selected by Landlord and
approved by Tenant, which approval shall not be unreasonably withheld or delayed
as long as such certified public accounting firm is one of the so-called "big-
six" public accounting firms, and the decision of such accountants shall be
conclusively binding upon the parties. The fees and expenses involved in such
decision shall be borne by the unsuccessful party (and if both parties are
partially successful, such fees and
-65-
<PAGE>
expenses shall be apportioned between Landlord and Tenant in inverse proportion
to the amount by which such decision is favorable to each party).
Notwithstanding the giving of such notice by Tenant, and pending the resolution
of any such dispute, Tenant shall pay to Landlord when due the amount shown on
any such Operating Statement which is not in dispute plus fifty percent (50%) of
the amount which is in dispute, as provided in Section 27.4 hereof. Following
the resolution of such dispute, Tenant shall pay any amount which it is found to
owe to Landlord within fifteen (15) days of such finding, and any amount which
Tenant is found to have overpaid shall be credited against the next accruing
installments of Rental or Landlord shall refund the amount thereof to Tenant to
the extent no further Rental is due.
Section 27.6 The expiration or termination of this Lease during any
------------
Operating Year or Tax Year shall not affect the rights or obligations of the
parties hereto respecting any payments of Operating Payments for such Operating
Year and any payments of Tax Payments for such Tax Year, and any Operating
Statement relating to such Operating Payment and any Tax Statement relating to
such Tax Payment, may be sent to Tenant subsequent to, and all such rights and
obligations shall survive, any such expiration or termination. In determining
the amount of the Operating Payment for the Operating Year or the Tax Payment
for the Tax Year in which the Term shall expire, the payment of the Operating
Payment for such Operating Year or the Tax Payment for the Tax Year shall be
prorated based on the number of days of the Term which fall within such
Operating Year or Tax Year, as the case may be. Any payments or refunds provided
for herein due under such Operating Statement or Tax Statement shall be payable
within twenty (20) days after such Statement is sent to Tenant.
ARTICLE 28
SERVICES
--------
Section 28.1 (A) Landlord shall provide (i) access to the Building
------------
and the Premises twenty-four (24) hours per day, 365 days per year throughout
the Term, and (ii) passenger elevator service to the Premises by no less than
four (4) elevators on Business Days from 7:00 A.M. to 6:00 P.M. and have an
elevator subject to call at all other times.
(B) There shall be two (2) freight elevators serving
the Premises and the entire Building on call on a "first come, first served"
basis on Business Days from 8:00 A.M. to 5:00 P.M. (less one (1) hour for
lunch), and on a reservation, "first come, first served" basis from 5:00 P.M. to
8:00 A.M. on Business Days and at any time on days other than Business Days. If
Tenant shall use the freight elevators serving the Premises between 5:00 P.M.
and 8:00 A.M. on Business Days or at any time on any other days, Tenant shall
pay Landlord, as additional rent for such use, the standard rates then fixed by
Landlord for the Building, or if no such rates are then fixed, at reasonable
rates, and in either case not to exceed 110% of Landlord's actual costs
therefor.
(C) Landlord shall not be required to furnish any
freight elevator services during the hours from 5:00 P.M. to 8:00 A.M. on
Business Days and at any time on
-66-
<PAGE>
days other than Business Days unless Landlord has received advance oral or
written notice from Tenant requesting such services prior to 2:00 P.M. of the
day upon which such service is requested or by 2:00 P.M. of the last preceding
Business Day if such periods are to occur on a day other than a Business Day.
(D) Notwithstanding the provisions of Section 28.1(B)
and (C) hereof, Landlord agrees that during the periods in which (i) Tenant is
constructing the Initial Alterations, and (ii) Tenant is moving into the
Premises, (x) Tenant may use one (i) freight elevator on a priority basis, and
(y) Tenant or its contractor shall hire and pay all costs incurred in connection
with any freight operator required.
Section 28.2 Landlord, at Landlord's expense, (but subject to
------------
recoupment pursuant to Article 27 hereof) shall furnish and distribute to the
Premises through the VAC System, when required for the comfortable occupancy of
the Premises, VAC in accordance with the specifications set forth in Schedule C
----------
annexed hereto and made a part hereof, on a year-round basis from 7:00 A.M. to
9:00 P.M. on Business Days and from 7:00 A.M. to 5:00 P.M. on Saturdays which
are not Holidays. Landlord, throughout the Term, subject to compliance with
Section 14.1, shall have free access to any and all mechanical installations of
Landlord, including, but not limited to, air-cooling, fan, ventilating and
machine rooms and electrical closets; Tenant shall not construct partitions or
other obstructions which may interfere with Landlord's free access thereto, or
interfere with the moving of Landlord's equipment to and from the enclosures
containing said installations. Neither Tenant, nor its agents, employees or
contractors shall at any time enter the said enclosures or tamper with, adjust
or touch or otherwise in any manner affect said mechanical installations. Tenant
shall draw and close the draperies or blinds for the windows of the Premises
whenever the VAC System is in operation and the position of the sun so requires
and shall at all times cooperate fully with Landlord and abide by all of the
reasonable regulations and requirements which Landlord may prescribe for the
proper functioning and protection of the VAC System.
Section 28.3 (A) If Landlord shall furnish VAC to the Premises at
the request of Tenant during periods other than the hours and days set forth
above ("Overtime Periods"), Tenant shall pay Landlord additional rent for such
----------------
services at the standard rates then fixed by Landlord for the Building, or if no
such rates are then fixed, at reasonable rates, but in no event in excess of
110% of Landlord's actual cost therefor. It is understood and agreed that the
VAC System servicing the Premises services the entire floor of the Building of
which the Premises form a part and, accordingly, if Tenant shall be the only
tenant using overtime VAC, Tenant shall pay the entire amount of the overtime
VAC additional rent. Landlord shall not be required to furnish any such services
during any Overtime Periods unless Landlord has received advance oral or written
notice from Tenant requesting such services prior to 2:00 P.M. of the day upon
which such services are requested or by 2:00 P.M. of the last preceding Business
Day if such Overtime Periods are to occur on a day other than a Business Day. If
Tenant fails to give Landlord such advance notice, then, failure by Landlord to
furnish or distribute any such services during such Overtime Periods shall not
constitute an actual or constructive eviction, in whole or in part, or entitle
Tenant to any abatement or diminution of Rental, or relieve Tenant
-67-
<PAGE>
from any of its obligations under this Lease, or impose any liability upon
Landlord or its agents by reason of inconvenience or annoyance to Tenant, or
injury to or interruption of Tenant's business or otherwise. If more than one
tenant utilizing the same system as Tenant requests the same Overtime Periods
for the same services as Tenant, the charge to Tenant shall be adjusted pro
rata.
(B) As part of the Initial Alterations, Landlord shall not
unreasonably withhold its consent to any Alteration consisting of the
installation of a supplementary air conditioning system of up to seventy (70)
tons capacity to service the Premises (the "Supplemental System"). In connection
-------------------
therewith, Tenant, at Tenant's sole cost and expense, may tap into the existing
condenser water pipes of the Building to obtain condenser water for such
Supplemental System without any separate connection charge to be levied by
Landlord. Landlord shall furnish to the Premises such condenser water to service
such system at any time as Tenant shall request, 365 days per year, 24 hours per
day. Condenser water shall be clean, properly treated and delivered at design
conditions at a temperature no higher than 85(degrees). Tenant shall pay
Landlord for the supply of condenser water, as additional rent, on a monthly
basis together with the payment of Fixed Rent an annual charge of Seventeen
Thousand Five Hundred Dollars ($17,500) ($1,458.33 per month) as such amount may
be increased by increases in Landlord's actual incremental cost therefor. Such
charge shall be due and payable beginning on Tenant's Business Occupancy Date,
notwithstanding that the Rent Commencement Date has not occurred. Except as
expressly provided herein, Landlord shall not be liable to Tenant for any
failure or defect in the supply or character of condenser water supplied to
Tenant by reason of any Requirement, act or omission of the public service
company serving the Building or for any other reason not attributable to the
negligence or willful misconduct of Landlord, its agents, contractors and
employees.
(C) Landlord, at Landlord's sole cost and expense, shall cause
Landlord's condenser water system, including, without limitation, the fans,
condenser water pumps, makeup water pumps and other auxiliary systems, to be
connected to the Building's emergency generator so that in the event of a
failure of power, emergency power shall be provided to the Landlord's condenser
water system.
Section 28.4 Landlord, at Landlord's expense, shall cause the
------------
Premises, excluding any portions thereof used for the storage, preparation,
service or consumption of food or beverages, to be cleaned, substantially in
accordance with the standards set forth in Schedule B annexed hereto and made a
----------
part hereof, except that such cleaning shall also be performed on Good Friday.
Tenant shall pay to Landlord the cost of removal of any of Tenant's refuse and
rubbish from the Premises and the Building to the extent that the same exceeds
the refuse and rubbish usually attendant upon the use of such Premises as
offices. Bills for the same shall be rendered by Landlord to Tenant at such time
as Landlord may elect and shall be due and payable when rendered as additional
rent. Tenant, at Tenant's sole cost and expense, shall cause all portions of the
Premises used for the storage, preparation, service or consumption of food or
beverages to be cleaned daily in a manner satisfactory to Landlord, and to be
exterminated against infestation by vermin, rodents or roaches regularly and, in
addition. whenever there shall be evidence of any infestation. Any such
exterminating shall be done at
-68-
<PAGE>
Tenant's sole cost and expense, in a manner satisfactory to Landlord, and by
Persons reasonably approved by Landlord. If Tenant shall perform any cleaning
services in addition to the services provided by Landlord as aforesaid, Tenant
shall employ the cleaning contractor providing cleaning services to the Building
on behalf of Landlord or such other cleaning contractor as shall be reasonably
approved by Landlord. Tenant shall comply with any recycling program and/or
refuse disposal program (including, without limitation, any program related to
the recycling, separation or other disposal of paper, glass or metals) which
Landlord shall impose or which shall be required pursuant to any Requirements.
Section 28.5 If any fire rating bureau or organization or any
------------
Governmental Authority, including, without limitation, any department or
official of the state or city government shall require or recommend that any
changes, modifications, alterations or additional sprinkler heads or other
equipment be made or supplied by reason of Tenant's business, or the location of
the partitions, trade fixtures, or other contents of the Premises, Landlord, at
Tenant's cost and expense, shall promptly make and supply such changes,
modifications, alterations, additional sprinkler heads or other equipment.
Section 28.6 Landlord shall provide to the Premises hot and cold
------------
water for ordinary drinking, cleaning and lavatory purposes and for use in
connection with "dwyer" or similar units. If Tenant requires, uses or consumes
water for any purpose in addition to. ordinary drinking, cleaning or lavatory
purposes or for use in connection with "dwyer" or similar units, Landlord may
install a water meter and thereby measure Tenant's water consumption for all
such additional purposes. In such event (1) Tenant shall pay Landlord for the
cost of the meter and the cost of the installation thereof and through the
duration of Tenant's occupancy Tenant shall keep said meter and equipment in
good working order and repair at Tenant's own cost and expense; (2) Tenant shall
pay for water consumed as shown on said meter, as additional rent, and on
default in making such payment Landlord may pay such charges and collect the
same from Tenant; and (3) Tenant shall pay the sewer rent, charge or any other
tax, rent, levy or charge which now or hereafter is assessed, imposed or shall
become a lien upon the Premises or the Real Property of which they are a part
pursuant to any Requirement made or issued in connection with any such metered
use, consumption, maintenance or supply of water, water system, or sewage or
sewage connection or system. The bill rendered by Landlord for the above shall
be based upon Tenant's consumption and shall be payable by Tenant as additional
rent within ten (10) days after rendition.
Section 28.7 Landlord reserves the right to stop service of the VAC
------------
System or the elevator, electrical, plumbing or other Building Systems when
necessary, by reason of accident or emergency, or for repairs, additions,
alterations, replacements or improvements in the judgment of Landlord desirable
or necessary to be made, until said repairs, alterations, replacements or
improvements shall have been completed (which repairs, additions, alterations,
replacements and improvements shall be performed in accordance with Sections 4.3
and 14. 1 hereof). Except in the case of emergency, Landlord shall give Tenant
five (5) Business Days prior notice of any stoppage. Subject to Section 14.2
hereof, Landlord shall have no responsibility or liability for interruption,
curtailment or failure to supply VAC, elevator,
-69-
<PAGE>
electrical, plumbing or other Building Systems when prevented by Unavoidable
Delays or by any Requirement of any Governmental Authority or due to the
exercise of its right to stop service as provided in this Article 28. The
exercise of such right or such failure by Landlord shall not constitute an
actual or constructive eviction, in whole or in part, or except as provided in
Section 14.2, entitle Tenant to any compensation or to any abatement or
diminution of Rental, or relieve Tenant from any of its obligations under this
Lease, or impose any liability upon Landlord or its agents by reason of
inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's
business, or otherwise.
Section 28.8 Landlord shall maintain a computerized directory in the
------------
lobby of the Building and make available to Tenant listings for all of Tenant's
employees. The initial programming shall be without charge to Tenant. From time
to time, but not more frequently than once every three (3) months, Landlord
shall reprogram the computerized direction to reflect such changes in the
listings therein as Tenant shall request, and Tenant promptly after request
shall pay to Landlord a reasonable reprogramming charge for each reprogramming
Tenant requests.
Section 28.9 (A) Landlord, at Landlord's expense (but subject to
------------
recoupment pursuant to Article 27 hereof), shall provide, or cause to be
provided, security personnel at the Building twenty-four (24) hours a day, three
hundred sixty-five (365) days a year, and shall provide security equipment in
the Building as follows: (i) Landlord shall install and maintain closed circuit
video cameras to monitor the Building's passenger elevators, service halls,
loading docks, public areas, stairways and entrances and exits to the Building,
with monitors located at a central control area; (ii) the passenger elevators
which service the Building shall be designed so as to be capable of controlling
access during hours other than from 8:00 A.M. to 9:00 P.M. on Business Days
through a card-key system; (iii) Landlord shall install and maintain motion
detectors in all stairwells which will be designed to activate the closed
circuit video cameras automatically (with or without an activated alarm, as
elected by Landlord); and (iv) access at the lobby level to all elevators
serving the Premises during hours other than from 8:00 A.M. to 9:00 P.M. on
Business Days shall be controlled. Landlord shall provide to Tenant's officers
and employees one set of card key passes at no cost. Any replacement passes
shall be paid for by Tenant at Landlord's actual cost therefor. Notwithstanding
the foregoing, Landlord shall have no liability to Tenant or to any party
claiming by, through or under Tenant, and shall in no way be responsible, for
any violation of any security procedures established by Landlord or
circumvention of such procedures or any failure of any security equipment
installed at the Building which may occur from time to time, except for any
violation, circumvention or failure resulting from Landlord's negligence.
(B) As part of the Initial Alterations, Tenant shall have the
right to design and install, at its sole cost and expense, a security system for
the Premises compatible with the security system for the Building as set forth
in Section 28.9(A) hereof, which Tenant's security system may be integrated into
the Building's security system. Tenant shall provide Landlord with the security
code or other means of access to the Premises in case of an
-70-
<PAGE>
emergency. Landlord agrees to cooperate with Tenant in the design and
installation of such Tenant's security system.
ARTICLE 29
INTENTIONALLY OMITTED
---------------------
ARTICLE 30
INTENTIONALLY OMITTED
---------------------
ARTICLE 31
SECURITY
--------
Section 31.1 Tenant shall deposit with Landlord on the signing of this
------------
Lease the sum of One Million Seven Hundred Ninety-Two Thousand Dollars
($1,792,000), or at Tenant's option, a "clean", unconditional, irrevocable and
transferable letter of credit (the "Letter of Credit") in the same amount, in
-----------------
the form set forth as Exhibit C attached hereto and made a part hereof, issued
---------
by and drawn on a bank reasonably satisfactory to Landlord and which is a member
of the New York Clearing House Association, for the account of Landlord, for a
term of not less than one (1) year, as security for the faithful performance and
observance by Tenant of the terms, covenants, conditions and provisions of this
Lease, including, without limitation, the surrender of possession of the
Premises to Landlord as herein provided. If an Event of Default shall occur and
be continuing, Landlord may apply or retain the whole or any part of the
security so deposited, or present the Letter of Credit for payment and apply or
retain the whole or any part of the proceeds thereof, as the case may be, and to
the extent necessary (i) for the payment of any Fixed Rent, Escalation Rent or
any other item of Rental as to which Tenant is in default, (ii) for any sum
which Landlord may expend or be required to expend by reason of Tenant's default
in respect of any of the terms, covenants and conditions of this Lease,
including, without limitation, any damage, expense (including, without
limitation, attorneys' fees and disbursements) or liability incurred or suffered
by Landlord, and (iii) against any damages or deficiency which Landlord may
suffer or incur in the reletting of the Premises, whether such damages or
deficiency accrue or accrues before or after summary proceedings or other re-
entry by Landlord. If Landlord applies or retains any part of the proceeds of
the Letter of Credit or the security so deposited, as the case may be, Tenant,
upon demand, shall deposit with Landlord the amount so applied or retained so
that Landlord shall have the full deposit on hand at all times during the Term.
If Tenant shall fully and faithfully comply with all of the terms, provisions,
covenants and conditions of this Lease, the Letter of Credit or the security, as
the case may be, shall be returned to Tenant after the Expiration Date and after
delivery of possession of the Premises to Landlord. In the event of a sale or
leasing of the Real Property or the Building, Landlord shall have the right to
transfer the Letter of Credit or the security, as the case may be, to the vendee
or lessee who shall assume in writing Landlord's obligations under this Lease
including those with respect to such security, a duplicate original copy of
-71-
<PAGE>
which assumption shall be delivered to Tenant and Landlord shall thereupon be
released by Tenant from all liability for the return of such security or the
Letter of Credit, as the case may be, and Tenant shall cause the bank which
issued the Letter of Credit to issue an amendment to the Letter of Credit or
issue a new Letter of Credit naming the vendee or lessee as the beneficiary
thereunder, and Tenant shall look solely to the new landlord for the return of
the Letter of Credit or the security, as the case may be. The provisions hereof
shall apply to every transfer or assignment of the Letter of Credit or the
security made to a new landlord. Tenant shall not assign or encumber or attempt
to assign or encumber the monies deposited herein as security and neither
Landlord nor its successors or assigns shall be bound by any such assignment,
encumbrance, attempted assignment or attempted encumbrance. Tenant shall renew
any Letter of Credit from time to time, at least thirty (30) days prior to the
expiration thereof, and deliver to Landlord a new Letter of Credit or an
endorsement to the Letter of Credit, and any other evidence required by Landlord
that the Letter of Credit has been renewed for a period of at least one (1)
year. If Tenant shall fail to renew the Letter of Credit as aforesaid, Landlord
may present the Letter of Credit for payment and retain the proceeds thereof as
security in a separate interest bearing account in a bank which is a member of
the New York Clearinghouse Association in lieu of the Letter of Credit. Landlord
shall give notice to Tenant of such bank and of the account number within five
(5) Business Days after opening same. Accrued interest shall be paid to Tenant
quarterly.
Section 31.2 The amount of security required to be maintained by
------------
Tenant with Landlord hereunder shall be reduced, provided that no Material Event
of Default has occurred at any time prior thereto (i) to One Million Four
Hundred Ninety-Two Thousand Dollars ($1,492,000) after the third (3rd) Lease
Year; (ii) to One Million One Hundred Ninety-Two Thousand Dollars ($1,192,000)
after the fourth (4th) Lease Year; (iii) to Eight Hundred Ninety-Two Thousand
Dollars ($892,000) after the fifth (5th) Lease Year; and (iv) to Zero ($0) if at
any time after the fifth (5th) Lease Year Tenant provides Landlord with
documentation, reasonably satisfactory to Landlord, that Tenant has achieved a
net capitalization greater than Fifty Million Dollars ($50,000,000). Upon a
reduction of the amount of security required to be maintained by Tenant with
Landlord hereunder, Landlord shall exchange the Letter of Credit for a new one
in a reduced amount, or return such excess security to Tenant, as the case may
be.
ARTICLE 32
CAPTIONS
--------
The captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this Lease nor
the intent of any provision thereof.
-72-
<PAGE>
ARTICLE 33
PARTIES BOUND
-------------
The covenants, conditions and agreements contained in this Lease shall
bind and inure to the benefit of Landlord and Tenant and their respective legal
representatives, successors, and, except as otherwise provided in this Lease,
their assigns.
ARTICLE 34
BROKER
------
Each party represents and warrants to the other that it has not dealt
with any broker or Person in connection with this Lease other than Edward S.
Gordon Company, Inc. and The Georgetown Company (collectively, the "Broker").
------
The execution and delivery of this Lease by each party shall be conclusive
evidence that such party has relied upon the foregoing representation and
warranty. Tenant shall indemnify and hold Landlord harmless from and against any
and all claims for commission, fee or other compensation by any Person (other
than Broker) who shall claim to have dealt with Tenant in connection with this
Lease and for any and all costs incurred by Landlord in connection with such
claims, including, without limitation, reasonable attorneys' fees and
disbursements. Landlord shall indemnify and hold Tenant harmless from and
against any and all claims for commission, fee or other compensation by the
Broker and any person who shall claim to have dealt with Landlord in connection
with this Lease and for any and all costs incurred by Tenant in connection with
such claims, including, without limitation, reasonable attorneys' fees and
disbursements. The provisions of this Article 34 shall survive the Expiration
Date.
ARTICLE 35
INDEMNITY
---------
Section 35.1 (A) Tenant shall not do or permit any act or thing to be
------------
done upon the Premises which may subject Landlord to any liability or
responsibility for injury, damages to persons or property or to any liability by
reason of any violation of any Requirement, and shall exercise such control over
the Premises as to fully protect Landlord against any such liability. Tenant
shall indemnify and save the Indemnitees harmless from and against (a) all
claims of whatever nature against the Indemnitees arising from any act, omission
or negligence of Tenant, its contractors, licensees, agents, servants,
employees, invitees or visitors, (b) all claims against the Indemnitees arising
from any accident, injury or damage whatsoever caused to any person or to the
property of any person and occurring during the Term in the Premises, (c) all
claims against the Indemnitees arising from any accident, injury or damage
occurring outside of the Premises but anywhere within or about the Real
Property, where such accident, injury or damage results or is claimed to have
resulted from the wrongful acts or the negligent acts or omissions of Tenant or
Tenant's contractors, licensees, agents, servants, employees, invitees or
visitors, and (d) any breach, violation or non-performance of any covenant,
condition
-73-
<PAGE>
or agreement in this Lease set forth and contained on the part of Tenant to be
fulfilled, kept, observed and performed. This indemnity and hold harmless
agreement shall include indemnity from and against any and all liability, fines,
suits, demands, costs and expenses of any kind or nature (including, without
limitation, attorneys' fees and disbursements) incurred in or in connection with
any such claim or proceeding brought thereon, and the defense thereof but except
with respect to claims with respect to bodily injury or death, shall be limited
to the extent any insurance proceeds collectible by Landlord under policies
owned by Landlord or such injured party with respect to such damage or injury
are insufficient to satisfy same. Tenant shall have no liability for any
consequential damages suffered either by Landlord or by any party claiming
through Landlord.
(B) Except as otherwise expressly provided in this Lease,
Landlord shall indemnify and save Tenant its shareholders, directors, officers,
Partners, employees, licensees, contractors, visitors and agents ("Tenant
------
Indemnitees") harmless from and against all claims against Tenant arising from
- -----------
any direct damage to the Premises and any bodily injury to Tenant Indemnitees
resulting from the wrongful acts or the negligent acts or omissions of Landlord
or its agents, or any breach, violation or non-performance of any covenant,
condition or agreement in this Lease set forth and contained on the part of
Landlord to be fulfilled, kept, observed and performed. This indemnity and hold
harmless agreement shall include indemnity from and against any and all
liability, fines, suits, demands, costs and expenses of any kind or nature
(including, without limitation, reasonable attorneys' fees and disbursements)
incurred in or in connection with any such claim or proceeding brought thereon,
but shall be limited to the extent any insurance proceeds collectible by Tenant
or such injured party with respect to such damage or injury are insufficient to
satisfy same. Landlord shall have no liability for any consequential damages
suffered either by Tenant or by any party claiming through Tenant.
Section 35.2 If any claim, action or proceeding is made or brought
------------
against either party, which claim, action or proceeding the other party shall be
obligated to indemnify such first party against pursuant to the terms of this
Lease, then, upon demand by the indemnified party, the indemnifying party, at
its sole cost and expense, shall resist or defend such claim, action or
proceeding in the indemnified party's name, if necessary, by such attorneys as
the indemnified party shall approve, which approval shall not be unreasonably
withheld. Attorneys for the indemnifying party's insurer are hereby deemed
approved for purposes of this Section 35.2. The provisions of this Article 35
shall survive the expiration or earlier termination of this Lease.
ARTICLE 36
INTENTIONALLY OMITTED
---------------------
-74-
<PAGE>
ARTICLE 37
MISCELLANEOUS
-------------
Section 37.1 This Lease is offered for signature by Tenant and it is
------------
understood that this Lease shall not be binding upon Landlord or Tenant unless
and until Landlord and Tenant shall have executed and unconditionally delivered
a fully executed copy of this Lease to each other.
Section 37.2 (A) The obligations of Landlord under this Lease shall
------------
not be binding upon Landlord named herein after the sale, conveyance, assignment
or transfer by such Landlord (or upon any subsequent landlord after the sale,
conveyance, assignment or transfer by such subsequent landlord) of its interest
in the Building or the Real Property, as the case may be, and in the event of
any such sale, conveyance, assignment or transfer, Landlord shall be and hereby
is entirely freed and relieved of all covenants and obligations of Landlord
hereunder to the extent that the transferee has assumed the obligations of
Landlord under this Lease. Landlord shall furnish a copy of such assumption to
Tenant, but the failure to do so shall not affect the provisions of the previous
sentence. The partners, shareholders, directors, officers and principals, direct
and indirect, of Landlord (collectively, the "Parties") shall not be liable for
-------
the performance of Landlord's obligations under this Lease. Tenant shall look
solely to Landlord to enforce Landlord's obligations hereunder and shall not
seek any damages against any of the Parties. The liability of Landlord for
Landlord's obligations under this Lease shall be limited to Landlord's interest
in the Real Property and Tenant shall not look to any other property or assets
of Landlord or the property or assets of any of the Parties in seeking either to
enforce Landlord's obligations under this Lease or to satisfy a judgment for
Landlord's failure to perform such obligations.
(B) Notwithstanding anything contained in this Lease to the
contrary, Tenant's liability to Landlord under the terms of this Lease shall be
limited to the assets of Tenant, and the partners, shareholders, directors,
officers and principals, direct and indirect, of Tenant (the "Tenant Parties")
--------------
shall not be liable for the performance of Tenant's obligations under this
Lease. Nothing contained herein shall constitute a wavier or release of any of
Tenant's obligations under this Lease or of any of Landlord's remedies against
Tenant under this Lease or limit the right of Landlord to name any Tenant Party
as a party in any action or suit by Landlord against Tenant and/or any prior
Tenant hereunder to the extent that the applicable state law or court rules or
procedures or any other Requirement requires Landlord to name the Tenant Parties
(rather than Tenant) as parties in order to obtain judgment against, or
otherwise proceed against, Tenant or the assets of Tenant, provided, however,
-------- -------
that no judgment resulting from any such suit or action shall be enforced
against any Tenant Party personally or against any assets of any Tenant Party.
Section 37.3 Notwithstanding anything contained in this Lease to the
------------
contrary, all amounts payable by Tenant to or on behalf of Landlord under this
Lease, whether or not expressly denominated Fixed Rent, Escalation Rent
additional rent or Rental, shall constitute rent for the purposes of Section
502(b)(7) of the Bankruptcy Code.
-75-
<PAGE>
Section 37.4 Tenant's liability for all items of Rental and Landlord's
------------
liability for any amount due to Tenant under this Lease shall survive the
Expiration Date.
Section 37.5 Tenant hereby waives any claim against Landlord which
------------
Tenant may have based upon any assertion that Landlord has unreasonably withheld
or unreasonably delayed any consent or approval requested by Tenant, unless
Landlord acted maliciously or in bad faith, and Tenant agrees that its sole
remedy shall be an action or proceeding to enforce any related provision or for
specific performance, injunction or declaratory judgment, or arbitration
pursuant to Article 41 hereof. In the event of a determination that such consent
or approval has been unreasonably withheld or delayed, the requested consent or
approval shall be deemed to have been granted; however, Landlord shall have no
liability to Tenant for its refusal or failure to give such consent or approval
absent a final determination that Landlord acted maliciously or in bad faith.
Tenant's sole remedy for Landlord's unreasonably withholding or delaying consent
or approval shall be as provided in this Section 37.5. Notwithstanding the
provisions of this Section 37.5, Tenant shall have all remedies available to it
at law or in equity or as provided in Article 41 hereof with respect to any
claim that consent under Article 12 hereof was unreasonably withheld or delayed
by a Landlord other than the Landlord named herein or its Affiliate without the
requirement of claim or proof that such Landlord has acted maliciously or in bad
faith.
Section 37.6 This Lease contains the entire agreement between the
------------
parties and supersedes all prior understandings, if any, with respect thereto.
This Lease shall not be modified, changed, or supplemented, except by a written
instrument executed by both parties.
Section 37.7 The terms and provisions of this Lease shall be governed
------------
by and construed and interpreted in accordance with the laws of the State of New
Jersey.
Section 37.8 (A) All of the Schedules and Exhibits attached hereto are
------------
incorporated in and made a part of this Lease, but, in the event of any
inconsistency between the terms and provisions of this Lease and the terms and
provisions of the Schedules and Exhibits hereto, the terms and provisions of
this Lease shall control. Wherever appropriate in this Lease, personal pronouns
shall be deemed to include the other genders and the singular to include the
plural. All Article and Section references set forth herein shall, unless the
context otherwise specifically requires, be deemed references to the Articles
and Sections of this Lease.
(B) If any term, covenant, condition or provision of this
Lease, or the application thereof to any person or circumstance, shall ever be
held to be invalid or unenforceable, then in each such event the remainder of
this Lease or the application of such term, covenant, condition or provision to
any other Person or any other circumstance (other than those as to which it
shall be invalid or unenforceable) shall not be thereby affected, and each term,
covenant, condition and provision hereof shall remain valid and enforceable to
the fullest extent permitted by law.
Section 37.9 Wherever in this Lease a provision provides that
------------
Landlord's consent "shall not be unreasonably withheld", such provision shall be
deemed to mean that such
-76-
<PAGE>
consent shall not be unreasonably delayed. If Landlord shall fail to respond to
Tenant with respect to any request for its consent under this Lease within ten
(10) Business Days after the giving of notice of such request (or such other
period of time expressly set forth in this Lease), then Landlord shall be deemed
to have consented to such request for all purposes under this Lease.
Section 37.10 All references in this Lease to the consent or approval
-------------
of Landlord shall be deemed to mean the written consent or approval of Landlord
and no consent or approval of Landlord shall be effective for any purpose unless
such consent or approval is set forth in a written instrument executed by
Landlord.
ARTICLE 38
RENT CONTROL
------------
If at the commencement of, or at any time or times during the Term of
this Lease, the Rental reserved in this Lease shall not be fully collectible by
reason of any Requirement, Tenant shall enter into such agreements and take such
other steps (without additional expense to Tenant) as Landlord may request and
as may be legally permissible to permit Landlord to collect the maximum rents
which may from time to time during the continuance of such legal rent
restriction be legally permissible (and not in excess of the amounts reserved
therefor under this Lease). Upon the termination of such legal rent restriction
prior to the expiration of the Term, (a) the Rental shall become and thereafter
be payable hereunder in accordance with the amounts reserved in this Lease for
the periods following such termination, and (b) Tenant shall pay to Landlord, if
legally permissible, an amount equal to (i) the items of Rental which would have
been paid pursuant to this Lease but for such legal rent restriction less (ii)
the rents paid by Tenant to Landlord during the period or periods such legal
rent restriction was in effect.
ARTICLE 39
PARKING
-------
Section 39.1 On the Commencement Date, Landlord shall make available
------------
or cause to be made available to Tenant ten (10) reserved parking spaces which
Landlord is entitled to use in the Parking Garage. All which are made available
to Tenant shall be solely for automobiles. Tenant shall pay, to Landlord, as
additional rent, a monthly rental charge equal to One Hundred Twenty-Five
Dollars ($125) per parking space which is made available to Tenant pursuant
hereto. Such parking spaces shall be assigned for Tenant's exclusive use.
Section 39.2 Landlord shall have no responsibility with respect to any
------------
matter arising in connection with the furnishing of parking spaces to Tenant and
Tenant's employees, including, without limitation, any damage to the automobiles
of Tenant and Tenant's employees not caused by Landlord's negligence. Tenant
shall have no right to charge any person any fee or
-77-
<PAGE>
other consideration for the use of any of the parking spaces and only those
persons designated by Tenant may use the parking spaces.
Section 39.3 Notwithstanding anything in this Lease or this Article 39
------------
to the contrary, Tenant's obligations under this Lease shall not be in any way
affected by Landlord's inability to make available or cause to be made available
any or all of the parking spaces to Tenant or Tenant's employees by reason of
(i) Unavoidable Delays with respect to any further construction of, or
modification to, the Parking Garage, (ii) damage to the Parking Garage not
caused by Landlord's negligence, (iii) subject to the provisions of Section 11.1
hereof, the whole or any part of the Parking Garage being acquired or condemned
for any public or quasi-public use or purpose, or (iv) any other reason beyond
Landlord's reasonable control.
ARTICLE 40
RENEWAL TERM
------------
Section 40.1 Tenant shall have the option (the "Renewal Option") to
------------ ---------------
extend the term of this Lease for one (1) additional period of five (5) years
(the "Renewal Term"), which Renewal Term shall commence on the date immediately
--------------
succeeding the Fixed Expiration Date and end on the fifth (5th) anniversary of
the Fixed Expiration Date, provided that (a) this Lease shall not have been
previously terminated, and (b) no Material Event of Default shall have occurred
and be continuing beyond the applicable grace period (x) on the date Tenant
gives Landlord written notice (the "Renewal Notice") of Tenant's election to
---------------
exercise the Renewal Option, and (y) on the Fixed Expiration Date. The Renewal
Option may be exercised with respect to the entire Premises only and shall be
exercisable by Tenant delivering the Renewal Notice to Landlord at least nine
(9) months prior to the Fixed Expiration Date. Time is of the essence with
respect to the giving of the Renewal Notice. Upon the giving of the Renewal
Notice, Tenant shall have no further right or option to extend or renew the
Term. If Tenant shall fail to deliver the Renewal Notice by the date set forth
herein, the Renewal Option shall be deemed waived and of no further force and
effect, regardless of whether Landlord shall have taken any action in reliance
upon the fact that the notice was not given.
Section 40.2 If Tenant exercises the Renewal Option, the Renewal Term
------------
shall be upon the same terms, covenants and conditions as those contained in
this Lease, except that (i) the Fixed Rent shall be deemed to-mean the Fixed
Rent as determined pursuant to Section 40.3 hereof, (ii) Tenant shall not be
entitled to any free rent period during the Renewal Term, and (iii) the
provisions of Sections 3.5 and 3.6, and the provisions of Section 40.1 relative
to Tenant's right to renew the Term of this Lease shall not be applicable during
the Renewal Term. It is expressly understood that during the Renewal Term,
Tenant shall have no further right to renew this Lease.
Section 40.3 For the Renewal Term, the Fixed Rent shall be determined
------------
as follows:
-78-
<PAGE>
(A) The Fixed Rent for the Premises for the Renewal Term
shall be an amount equal to ninety-five percent (95%) of the annual fair market
rental value of the Premises (the "Fair Market Rent") on the first day of the
----------------
Renewal Term. The Fair Market Rent shall be determined on the basis of the
highest and best use of the Premises as offices assuming that the Premises are
free and clear of all leases and tenancies (including this Lease), that the
Premises are available in the then rental market for comparable first class
office buildings in the Jersey City, New Jersey area, that Landlord has had a
reasonable time to locate a tenant who rents with the knowledge of the uses to
which the Premises can be adapted, and that neither Landlord nor the prospective
tenant is under any compulsion to rent, and taking into account:
(i) the fact that Base Operating Expenses shall be as
set forth herein;
(ii) the fact that as of the commencement of the
Renewal Term, Tenant shall not be required to pay, in addition to the escalation
payments presently provided for under this Lease, Tenant's Share of such other
escalation payments which Landlord is then generally charging tenants under
other leases or offers for leases in the Building;
(iii) the fact that Tenant shall have no further right
to renew this Lease;
(iv) the fact that Landlord shall not be obligated to
perform any work in the Premises to prepare the same for Tenant's occupancy nor
shall Tenant be entitled to any tenant fund of the type described in Section 3.6
hereof;
(v) the fact that Tenant shall not be entitled to any
free rent period;
(vi) the fact that Landlord may or may not be obligated
to pay a brokerage commission with respect to the Renewal Term; and
(vii) whether or not it is reasonably likely that the
Premises would remain vacant for a period of time after the Fixed Expiration
Date if Tenant had not exercised the Renewal Option.
(B) For purposes of determining the Fair Market Rent, the
following procedure shall apply:
(1) Landlord and Tenant shall each contemporaneously
deliver to the other a written notice (each a "Rent Notice"), on a date mutually
-----------
agreed upon but in no event later than the one hundred twentieth (120th) day
prior to the last day of the Term, which Rent Notice shall set forth each of
their respective determinations of the Fair Market Rent (Landlord's
determination of the Fair Market Rent is referred to as "Landlord's
----------
Determination" and Tenant's determination of the Fair Market Rent is referred to
- -------------
as "Tenant's Determination"). If Landlord shall fail or refuse to give such Rent
----------------------
Notice as aforesaid, Landlord's Determination
-79-
<PAGE>
shall be deemed to be equal to the Fixed Rent then payable by Tenant on the last
day of the Term and if Tenant shall fail or refuse to give such Rent Notice as
aforesaid, Tenant's Determination shall be deemed to be the same as Landlord's
Determination. If neither Landlord nor Tenant shall deliver a Rent Notice as
aforesaid, the Fair Market Rent shall be deemed to be equal to the Fixed Rent
then payable by Tenant on the last day of the Term.
(2) If Landlord's Determination and Tenant's Determination are not
equal, Landlord and Tenant shall attempt to agree upon the Fair Market Rent. If
Landlord and Tenant shall mutually agree upon the determination (the "Mutual
------
Determination") of the Rental Value their determination shall be the Fixed Rent
- --------------
for the Renewal Term, and shall be final and binding upon the parties. If
Landlord and Tenant shall be unable to reach a Mutual Determination within ten
(10) Business Days after delivery of both determinations to each party, Landlord
and Tenant shall jointly select an independent real estate broker or appraiser
(the "Appraiser") whose fee shall be borne equally by Landlord and Tenant. In
----------
the event that Landlord and Tenant shall be unable to jointly agree on the
designation of the Appraiser within five (5) Business Days after they are
requested to do so by either party, then the parties agree to allow the AAA, or
any successor organization to designate the Appraiser in accordance with the
rules, regulations and/or procedures then obtaining of the AAA or any successor
organization.
(3) The Appraiser shall conduct such hearings and investigations as he
may deem appropriate and shall, within thirty (30) days after the date of
designation of the Appraiser, choose either Landlord's Determination or Tenant's
Determination, and such choice by the Appraiser shall be conclusive and binding
upon Landlord and Tenant. Each party shall pay its own counsel fees and
expenses, if any, in connection with any arbitration under this Article. The
Appraiser appointed pursuant to this Article shall be an independent real estate
broker or appraiser with at least ten (10) years' experience in leasing and
valuation of properties which are similar in character to the Building, and a
member of the American Institute of Appraisers of the National Association of
Real Estate Boards and a member of the Society of Real Estate Appraisers. The
Appraiser shall not have the power to add to, modify or change any of the
provisions of this Lease.
(4) It is expressly understood that any determination of the Fair
Market Rent pursuant to this Article shall be based on the criteria stated in
Section 40.3 hereof.
(C) After a determination has been made of the Fair Market Rent for the
Renewal Term, the parties shall execute and deliver to each other an instrument
setting forth the Fixed Rent for the Renewal Term as hereinabove determined.
(D) If the final determination of the Fair Market Rent shall not be made
on or before the first day of the Renewal Term in accordance with the provisions
of this Article, pending such final determination Tenant shall pay, as the Fixed
Rent for the Renewal Term, an amount equal to the greater of the Fixed Rent then
payable or Tenant's Determination. If, based upon the final determination
hereunder of the Fair Market Rent, the payments made by Tenant on account of the
Fixed Rent for such portion of the Renewal Term were greater than the Fixed Rent
payable for the Renewal Term, Landlord shall give Tenant a
-80-
<PAGE>
credit in the amount of such excess, together with interest thereon at the Base
Rate against future payments of Fixed Rent, and if less, Tenant shall pay the
deficiency to Landlord within ten (10) Business Days together with interest
thereon at the Base Rate.
ARTICLE 41
ARBITRATION
-----------
Section 41.1 Either party shall have the right to submit any dispute
------------
under this Lease (other than any dispute arising under Articles 17 or 20 (except
as to the condition of the Premises) hereof and any dispute arising under
Article 16 hereof, the substance of which shall theretofore have been arbitrated
in accordance with this Article 40 and other than with respect to the payment of
Fixed Rent) to arbitration under the then prevailing rules of the AAA in
accordance with the provisions of this Article 41. Fifty percent (50%) of the
dollar amount of any monetary obligation in dispute may be withheld by the party
disputing the payment thereof (except that Tenant may not withhold any portion
of Fixed Rent which is subject to such arbitration) until the resolution of such
dispute. Upon resolution of such dispute an appropriate payment (or refund)
shall be made with interest on such amount at the Base Rate.
Section 41.2 If there is a dispute between Landlord and Tenant either
------------
party may, at its option, submit such dispute to arbitration in The City of New
York before a single arbitrator under the Expedited Procedures provisions of the
Commercial Arbitration Rules of the AAA (presently Rules 53 through 57 and, to
the extent applicable, Section 19); provided, however, that with respect to any
such arbitration, (i) the list of arbitrators referred to in Rule 54 shall be
returned within five (5) days from the date of mailing; (ii) the parties shall
notify the AAA by telephone, within four (4) days of any objections to the
arbitrator appointed and will have no right to object if the arbitrator so
appointed was on the list submitted by the AAA and was not objected to in
accordance with the second paragraph of Rule 54; (iii) the Notice of Hearing
referred to in Rule 55 shall be four (4) days in advance of the hearing; (iv)
the hearing shall be held within five (5) days after the appointment of the
arbitrator; and (v) the decision and award of the arbitrator shall be final and
conclusive on the parties.
Section 41.3 The arbitrator conducting any arbitration shall be bound
------------
by the provisions of this Lease and shall not have the power to add to, subtract
from, or otherwise modify such provisions. The arbitrator shall consider only
the specific issues submitted to them for resolution. Landlord and Tenant agree
to sign all documents and to do all other things necessary to submit any such
matter to arbitration and further agree to, and hereby do, waive any and all
rights they or either of them may at any time have to revoke their agreement
hereunder to submit to arbitration and to abide by the decision rendered
thereunder which shall be binding and conclusive on the parties and shall
constitute an "award" by the arbitrator within the meaning of the AAA rules and
applicable law. Judgment may be had on the decision and award of the arbitrators
so rendered in any court of competent jurisdiction. Each arbitrator shall be a
qualified, disinterested and impartial person who shall have had at least ten
(10) years experience in the New York/New Jersey metropolitan area appropriate
to the nature of the dispute being arbitrated. Landlord and Tenant shall each
have the right to appear and be
-81-
<PAGE>
represented by counsel before said arbitrators and to submit such data and
memoranda in support of their respective positions in the matter in dispute as
may be reasonably necessary or appropriate in the circumstances. Each party
hereunder shall pay its own costs, fees and expenses in connection with any
arbitration or other action or proceeding brought under this Article 41, and the
expenses and fees of the arbitrator selected shall be shared equally by Landlord
and Tenant. Notwithstanding any contrary provisions hereof, Landlord and Tenant
agree that the arbitrator shall have the discretion to award damage costs,
attorney's fees and interest.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed
this Lease as of the day and year first above written.
NEWPORT L.G. -I, INC., Landlord
By: /s/ Edgar A. Lampert
--------------------------------------
Edgar A. Lampert,
Authorized Signatory
KNIGHT SECURITIES, L.P.,
Tenant
By: Roundtable Partners, L.L.C., general partner
By: /s/ Walter Raquet
--------------------------------------
Walter Raquet, Chairman
Fed. Id. No.
-------------------------------
-82-
<PAGE>
STATE OF New York )
) ss.:
COUNTY OF New York )
BE IT REMEMBERED, that on this 24th day of March, 1995, in the County and
State aforesaid, before me, the subscriber, a Notary Public authorized to take
acknowledgments and proofs in said County and State, personally appeared Walter
Raquet, who, I am satisfied is the individual named in and who executed the
foregoing instrument and he did acknowledge that he is the Chairman of
Roundtable Partners, L.L.C., a general partner of Knight Securities, L.P. and
that he signed and delivered the foregoing instrument as the act and deed of
such partnership for the uses and purposes therein expressed.
/s/ Harold E. Rosen
----------------------------------------
Name:
A Notary Public of State of N.Y.
HAROLD E. ROSEN
Notary Public. State of New York
No. 80-4993187
Qualified in Westchester County
Commission Expires March 09, 1996
-83-
<PAGE>
Schedule A
----------
RULES AND REGULATIONS
---------------------
(If any provision of this Schedule A conflicts with any other provision of
the Lease to which this Schedule A is attached, such other provisions of the
Lease shall govern)
1. The sidewalks, driveways, entrances, passages, courts, lobbies,
esplanade areas, atrium, plazas, elevators, escalators, stairways, vestibules,
corridors, halls and other public portions of the Building ("Public Areas")
--------------
shall not be obstructed or encumbered by any tenant or used for any purpose
other than ingress and egress to and from the Premises, and no tenant shall
permit any of its employees, agents, licensees or invitees to congregate or
loiter in any of the Public Areas. No tenant shall invite to, or permit to
visit, its premises persons in such numbers or under such conditions as may
interfere with the use and enjoyment by others of the Public Areas. Fire exits
and stairways are for emergency use only, and they shall not be used for any
other purposes by any tenant, or the employees, agents, licensees or invitees of
any tenant. Landlord reserves the right to control and operate, and to restrict
and regulate the use of, the Public Areas and the public facilities, as well as
facilities furnished for the common use of the tenants, in such manner as it
deems best for the benefit of the tenants generally, including the right to
allocate certain elevators for delivery service, and the right to designate
which Building entrances shall be used by persons making deliveries in the
Building. No doormat of any kind whatsoever shall be placed or left in any
public hall or outside any entry door of the Premises.
2. No awnings or other projections shall be attached to the outside
wall of the Building. No curtains, blinds, shades or screens shall be attached
to or hung in, or used in connection with, any window or door of the Premises
without the consent of Landlord, which consent shall not be unreasonably
withheld or delayed. Such curtains, blinds, shades or screens must be of a
quality, type, design and color, and attached in the manner, reasonably approved
by Landlord. In order that the Building can and will maintain a uniform
appearance to those persons outside of the Building, each tenant occupying the
perimeter areas of the Building shall (a) use only building standard lighting in
areas where lighting is visible from the outside of the Building and (b) use
only building standard blinds in window areas which are visible from the outside
of the Building.
3. No sign, insignia, advertisement, lettering, notice or other
object shall be exhibited, inscribed, painted or affixed by any tenant on any
part of the outside of the Premises or the outside or inside of the Building or
on corridor walls without the prior consent of Landlord. Landlord shall not
unreasonably withhold or delay its consent to any Tenant signage on the exterior
doors to the Premises or in the elevator lobby of the floor of the Building on
which the Premises are located. Signs on each entrance door of the Premises
shall conform to building standard signs, samples of which are on display in
Landlord's rental office. Such signs shall, at the expense of Tenant, be
inscribed, painted or affixed by signmakers reasonably approved by Landlord. In
the event of the violation of the foregoing by any tenant, Landlord may remove
the same without any liability, and may charge the expense incurred in such
A-1
<PAGE>
removal to the tenant or tenants violating this rule. Interior signs, elevator
cab designations, if any, and lettering on doors and the Building directory
shall, if and when approved by Landlord, be inscribed, painted or affixed for
each tenant by Landlord, at the expense of such tenant, and shall be of a size,
color and style acceptable to Landlord. Only Tenant named in the Lease, and its
Affiliates and its officers, directors, employees and partners, shall be
entitled to appear on the directory tablet. Additional names may be added in
Landlord's sole discretion under such terms and conditions as the Landlord may
approve.
4. Neither the sashes, sash doors, skylights or windows that reflect
or admit light and air into the halls, passageways or other public places in the
Building nor the heating, ventilating and air conditioning vents and doors shall
be covered or obstructed by any tenant, nor shall any bottles, parcels or other
articles be placed on the window sills or on the peripheral heating enclosures,
Tenant agrees to draw the shades, blinds or other window coverings, as
reasonably required because of the position of the sun. Tenant shall have no
right to remove or change shades, blinds or other window coverings within the
Premises without Landlord's consent.
5. No showcases or other articles shall be put by Tenant in front of
or affixed to any part of the exterior of the Building, nor placed in the Public
Areas.
6. No acids, vapors or other harmful materials shall be discharged,
or permitted to be discharged, into the waste lines, vents or flues of the
Building. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were designed and
constructed, and no sweepings, rubbish, rags, acids or other foreign substances
shall be thrown or deposited therein. Nothing shall be swept or thrown into the
Public Areas or other areas of the Building, or into or upon any heating or
ventilating vents or registers or plumbing apparatus in the Building, or upon
adjoining buildings or land or the street. The cost of repairing any damage
resulting from any misuse of such fixtures, vents, registers and apparatus and
the cost of repairing any damage to the Building, or to any facilities of the
Building, or to any adjoining building or property, caused by any tenant, or the
employees, agents, licensees or invitees of such tenant, shall be paid by such
tenant. Any cuspidors or similar containers or receptacles shall be emptied,
cared for and cleaned by and at the expense of such tenant.
7. No tenant shall mark, paint, drill into, or in any way deface, any
part of the Premises or the Building. No boring, cutting or stringing of wires
shall be permitted, except with the prior written consent of, and as directed
by, Landlord. No tenant shall lay linoleum, or other similar floor covering, so
that the same shall come in direct contact with the floor of its premises, and,
if linoleum or other similar floor covering is desired to be used, an
interlining of building's deadening felt shall be first affixed to the floor, by
a paste or other material, soluble in water, the use of cement or other similar
adhesive material being expressly prohibited.
8. No bicycles, vehicles, animals (except seeing eye dogs), fish, or
birds of any kind shall be brought into, or kept in or about, the Premises.
A-2
<PAGE>
9. No noise, including, but not limited to, music, the playing of
musical instruments, recordings, radio or television, which, in the reasonable
judgment of Landlord, might unreasonably disturb other tenants in the Building,
shall be made or permitted by any tenant. Nothing shall be done or permitted by
any tenant which would unreasonably impair or unreasonably interfere with the
use or enjoyment by any other tenant of any other space in the Building.
10. Nothing shall be done or permitted in the Premises, and nothing
shall be brought into, or kept in or about the Premises, which would impair or
interfere with any of the Building Equipment or the services of the Building or
the proper and economic heating, ventilating, air conditioning, cleaning or
other services of the Building or the Premises, nor shall there be installed by
any tenant any ventilating, air conditioning, electrical or other equipment of
any kind which, in the judgment of Landlord, might cause any such impairment or
interference. No tenant, nor the employees, agents, licensees or invitees of any
tenant, shall at any time bring or keep upon its premises any inflammable,
combustible or explosive fluid, chemical or substance.
11. No additional locks or bolts of any kind shall be placed upon any
of the doors or windows by any tenant, nor shall any changes be made in locks or
the mechanism thereof. Duplicate keys for the Premises and toilet rooms shall be
procured only from Landlord, and Landlord may make a reasonable charge therefor.
Each tenant shall, upon the expiration or sooner termination of the Lease of
which these Rules and Regulations are a part, turn over to Landlord all keys to
stores, offices and toilet rooms, either furnished to, or otherwise procured by,
such tenant, and in the event of the loss of any keys furnished by Landlord,
such tenant shall pay to Landlord the cost of replacement locks. Notwithstanding
the foregoing, Tenant may, with Landlord's prior consent which shall not be
unreasonably withheld or delayed, install a security system in the Premises
which uses master codes or cards instead of keys provided that Tenant-shall
provide Landlord with the master code or card for such system.
12. All removals, or the carrying in or out of any safes, freight,
furniture, packages, boxes, crates or any other object or matter of any
description shall take place only during such hours and in such elevators as
Landlord may from time to time determine, which may involve overtime work for
Landlord's employees. Tenant shall reimburse Landlord for extra costs incurred
by Landlord including but not limited to the cost of such overtime work.
Landlord reserves the right to inspect all objects and matter to be brought into
the Building and to exclude from the Building all objects and matter which
violate any of the Rules and Regulations or the Lease of which these Rules and
Regulations are a part. Landlord may require any person leaving the Building
with any package or other object or matter to submit a pass, listing such
package or object or matter, from the tenant from whose premises the package or
object or matter is being removed, but the establishment and enforcement of such
requirements shall not impose any responsibility on Landlord for the protection
of any tenant against the removal of property from the premises of such tenant.
Landlord shall in no way be liable to any tenant for damages or loss arising
from the admission, exclusion or ejection of any person to or from the Premises
or the Building under the provisions of this Rule 12 or of Rule 15 hereof.
A-3
<PAGE>
13. No tenant shall use or occupy, or permit any portion of its
premises to be used or occupied, as an office for a public stenographer or
public typist, or for the possession, storage, manufacture or sale of narcotics
or dope or as a barber, beauty or manicure shop, telephone or telegraph agency,
telephone or secretarial service, messenger service, travel or tourist agency,
retail, wholesale or discount shop for sale of merchandise, retail service shop,
labor union, classroom, company engaged in the business of renting office or
desk space, or for a public finance (personal loan) business, or as a hiring
employment agency. No tenant shall engage or pay any employee on its premises,
except those actually working for such tenant on its premises, nor advertise for
laborers giving an address at the Building. No tenant shall use its premises or
any part thereof, or permit the Premises or any part thereof to be used, as a
restaurant, shop, booth or other stand, or for the conduct of any business or
occupation which predominantly involves direct patronage of the general public,
or for manufacturing, or for the sale at retail or auction of merchandise, goods
or property of any kind.
14. Landlord shall have the right to prohibit any advertising or
identifying sign by any tenant which, in the judgment of Landlord, tends to
impair the appearance or reputation of the Building or the desirability of the
Building as a building for offices, and upon written notice from Landlord, such
tenant shall refrain from and discontinue such advertising or identifying sign.
15. Landlord reserves the right to exclude from the Building all
employees of any tenant who do not present a pass to the Building signed by such
tenant. Landlord or its agent will furnish passes to persons for whom any tenant
requests same in writing. Landlord reserves the right to require all other
persons entering the Building to sign a register, to be announced to the tenant
such person is visiting, and to be accepted as a visitor by such tenant or to be
otherwise properly identified (and, if not so accepted or identified, reserves
the right to exclude such persons from the Building) and to require persons
leaving the Building to sign a register or to surrender a pass given to such
person by the tenant visited. Each tenant shall be responsible for all persons
for which it requests any such pass or any person who such tenant so accepts,
and such tenant shall be liable to Landlord for all acts or omissions of such
persons. Any person whose presence in the Building at any time shall, in the
judgment of Landlord, be prejudicial to the safety, character, security,
reputation or interests of the Building or the tenants of the Building may be
denied access to the Building or may be ejected from the Building. In the event
of invasion, riot, public excitement or other commotion, Landlord may prevent
all access to the Building during the continuance of the same by closing the
doors or otherwise, for the safety of tenants and the protection of property in
the Building.
16. All entrance doors in the Premises shall be kept locked by each
tenant when its premises are not in use. Entrance doors shall not be left open
at any time.
17. Each tenant shall, at the expense of such tenant, provide light,
power and water for the employees of Landlord, and the agents, contractors and
employees of Landlord, while doing janitor service or other cleaning in the
Premises demised to such tenant and while making repairs or alterations in its
premises.
A-4
<PAGE>
18. The Premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
19. The requirements of tenants will be attended to only upon
application at the office of the Building. Employees of Landlord shall not
perform any work or do anything outside of their regular duties, unless under
special instructions from Landlord.
20. Canvassing, soliciting and peddling in the Building are
prohibited and each tenant shall cooperate to prevent the same.
21. The employees, agents, licensees and invitees of any tenant shall
not loiter around the Public Areas or the front, roof or any part of the
Building used in common by other occupants of the Building.
22. There shall not be used in any space, or in the Public Areas,
either by any tenant or by others, in the moving or delivery or receipt of
safes, freight, furniture, packages, boxes, crates, paper, office material or
any other matter or thing, any hand trucks except those equipped with rubber
tires, side guards and such other safeguards as Landlord shall require. No hand
trucks shall be used in passenger elevators.
23. No tenant shall cause or permit any odors of cooking or other
processes, or any unusual or objectionable odors, to emanate from its premises
which would annoy other tenants or create a public or private nuisance. No
cooking shall be done in the Premises except as is expressly permitted in the
Lease of which these Rules and Regulations are a part.
24. All paneling, doors, trim or other wood products not considered
furniture shall be of fire-retardant materials. Before installation of any such
materials, certification of the materials' fire-retardant characteristics shall
be submitted to and approved by Landlord, and installed in a manner approved by
Landlord, which approval shall not be unreasonably withheld or delayed.
25. Landlord reserves the right to rescind, alter, waive or add, as
to all tenants, any rule or regulation at any time prescribed for the Building
when, in the reasonable judgment of Landlord, Landlord deems it necessary or
desirable for the reputation, safety, character, security, care, appearance or
interests of the Building, or the preservation of good order therein, or the
operation or maintenance of the Building, or the equipment thereof, or the
comfort of tenants or others in the Building.
26. Anything to the contrary contained in this Lease notwithstanding,
any Improvements to, or visible from, any elevator lobby shall be subject to the
prior approval of Landlord, which approval shall not be unreasonably withheld or
delayed.
A-5
<PAGE>
Schedule B
----------
JANITORIAL AND RELATED SERVICES
-------------------------------
CONTRACTOR will furnish cleaning services to Park Tower Management as Agent for
NEWPORT L.G.-I, INC., hereinafter called the Owner, at 525 Washington Blvd.,
Jersey City, New Jersey 07310, in accordance with the following terms:
GENERAL
- -------
CONTRACTOR shall employ an adequate competent supervisor with proven performance
in a building of similar size and operation. References, if requested by Owner,
shall be submitted by CONTRACTOR prior to assigning him/her to the building.
Furnish proper cleaning materials, implements, machinery and supplies for the
performance of all the services required.
CONTRACTOR'S personnel shall be members in good standing of the various Building
Services Unions, A.F.L.-C.I.O.
CONTRACTOR'S personnel shall be carefully interviewed, screened, reference
checked. They shall be properly uniformed, neat and clean in appearance.
CONTRACTOR agrees to give prior written notification and submit for AGENT'S
approval, any and all supervisory and/or key personnel changes.
All uniforms shall be furnished by CONTRACTOR in accordance with AGENT'S
specifications. Night personnel shall be provided with two changes per week and
day personnel shall receive three changes per week.
CONTRACTOR shall have the uniforms laundered, or dry cleaned, regularly and kept
in good repair.
CONTRACTOR shall furnish the necessary, appropriate, tested and approved
implements, machinery and cleaning supplies for the satisfactory performance of
all services, including exchanging light bulbs in atrium/lobby, and other areas
of interior and exterior.
A log book shall be kept in a place on the premises, to be made promptly of
any occurrences requiring the attention of the AGENT.
Sufficient space in the building shall be given to CONTRACTOR for:
1. Storage of cleaning materials, implements and machinery;
2. Locker space for CONTRACTOR'S employees, and space for supervisory
personnel.
B-1
<PAGE>
CONTRACTOR shall insure that all of its employees and/or agents shall abide by
all safety rules and regulations which may be promulgated from time to time by
either party as they pertain to the CONTRACTOR'S operations.
CONTRACTOR'S personnel shall not disturb papers on desks, tables, cabinets.
Inspections shall be made quarterly by a senior officer of CONTRACTOR and
reviewed with AGENT'S designate.
CONTRACTOR shall execute Owner's standard form of Hold Harmless and
Indemnification Agreement and furnish Public Liability Insurance covering bodily
injury and property damage, along with contractual liability insurance with
minimum limits, and such other insurance as is customarily required by AGENT,
and furnish Workmen's Compensation and Unemployment Insurance as required by
law.
CONTRACTOR shall furnish Public Liability and Property Damage insurance covering
all of its operations in said building in limits of at least
$1,000,000/$5,000,000 for liability and in limits of at least $1,000,000 for
property damage, certificates of which shall be forwarded to the AGENT.
INDEMNITY AND INSURANCE
- -----------------------
Contractor agrees to indemnify and save harmless the OWNER and its AGENTS
against all loss and expense, by reason of liability imposed by law upon the
OWNER or its agent for damages (1) because of bodily injuries, including death
at any time resulting therefrom, sustained by any employee of the CONTRACTOR
while at the premises where service under this contract is being conducted, or
elsewhere, while engaged in the performance of work under this contract,
however, such injuries may be caused, including, but not limited to, such
injuries as are caused by the sole or concurrent negligence of the OWNER or its
Agent, whether attributable to a breach of statutory duty or administrative
regulation or otherwise, and such injuries for which liability is imputed to the
OWNER or its agent, and (2) because of bodily injuries including death at any
time resulting therefrom, sustained by any person, or persons, other than
employees of the CONTRACTOR while on or about the premises of AGENT caused by
the acts or omissions of CONTRACTOR, or (3) because of injury or destruction of
property caused or occasioned directly or indirectly by the CONTRACTOR, or its
servants, agents or employees. The CONTRACTOR agrees to defend promptly and
diligently, at its sole cost and expense, any claim, action or preceding brought
against the OWNER and/or agent or against the OWNER and agent and the CONTRACTOR
jointly or severally (a) arising out of or based upon by law, regulation,
requirement, contact or award relating to the hours of employment, working
conditions and/or wages or compensations of any such employees. It is expressly
understood and agreed that the foregoing provisions shall survive the
termination of the Agreement.
The CONTRACTOR shall maintain Workmen's Compensation Insurance covering
employees as required by law. The CONTRACTOR shall also maintain Contractual
Liability Insurance to insure the indemnifying portions of this contract, such
insurance to include both Bodily Injury Liability and Property Damage Liability.
Before commencing the work, the CONTRACTOR
B-2
<PAGE>
shall furnish a certificate from its insurance carrier showing that it has
complied with the foregoing provisions of this article, and providing that the
said insurance policies will not be changed or canceled during their term until
after at least ten (10) days prior notice by registered mail to the OWNER and
AGENT.
CONTRACTOR shall pay payroll and other taxes levied against payrolls by city,
state and federal agencies.
CONTRACTOR shall comply with all union requirements and make proper payments to
union pension and welfare funds as prescribed in union contracts.
CONTRACTOR shall make reasonable and prompt restitution, by cash, replacement or
repairs, subject to the approval of the AGENT for any damage for which the
contractor is liable.
CONTRACTOR shall purchase the necessary time clocks and lockers for all its
personnel.
Upon completion of the work, all lights shall be extinguished, all windows
closed, all office doors closed and entrance doors locked, Venetian blinds shall
be lowered and tiled to keep out the sun, all slop sinks, locker areas, etc.,
shall be cleaned thoroughly and cleaning equipment stored in a proper location.
All tenant spaces will be locked during cleaning operation and work will be
performed behind locked doors.
AREAS TO BE COVERED
- -------------------
CONTRACTOR shall perform the following throughout the entire premises, including
all office space, first floor and above, entrance lobby, sidewalks, all basement
areas, tenant areas (including all levels below first floor, if applicable),
public halls and/or building corridors, stairways, loading freight area, fire
towers, lavatories, passageways, and elevator cabs, and shall render normal
cleaning of tenant internal lunch areas, if applicable, and include planters
located in interior public areas whether artificial or natural. Service utility
and mechanical areas shall be covered as required and at the direction of the
Building Manager. Where terms "as needed" or "as necessary" are used, the
agent shall be the sole judge.
GENERAL CLEANING
- ----------------
Nightly
- -------
Nightly services shall be rendered five (5) nights each week, Monday through
Friday, excluding only such holidays upon which the building is closed, OWNER
being the sole judge.
Sweep floors as needed to maintain in clean condition throughout the building,
including tenant spaces, entrance foyers and vestibules and all public areas,
including building corridors, all stone, ceramic tile, marble, terrazzo, asphalt
tile, linoleum, rubber, vinyl and other type of flooring to insure dust-free
floors with special attention to hard-to-reach areas.
Carpet sweep nightly and vacuum weekly all carpeted areas and rugs, moving light
furniture other than desks, file cabinets, etc. Spot clean for spillage.
B-3
<PAGE>
Empty and clean all wastepaper baskets and disposal receptacles, wash ash trays,
sanitary cans, wastepaper towel cans and any other receptacles. Damp dust as
necessary. Install liners, if provided by tenant.
Empty and clean all cigarette urns and ashtrays. Replace sand or water in
cigarette urns. Material to be furnished by CONTRACTOR.
Collect and remove daily from building, wastepaper, cardboard boxes (which
CONTRACTOR will flatten) waste materials and all rubbish from normal operation
of building at CONTRACTOR'S expense. Waste and/or rubbish bags shall be
furnished by CONTRACTOR. AGENT shall have the right to approve trash removal
containers and janitorial carts.
Move and dust under all desk equipment, ash trays, telephones and other similar
equipment, replacing and dusting said equipment. Papers and documents will not
be moved.
Sweep building stairways, wash as necessary. Vacuum carpeted inter-connecting
tenant stairways, dust handrails, balustrades and stringers as necessary. Wash
inter-connecting tenant stairways nightly.
Dust and wipe clean all furniture, fixtures, shelving, desk equipment,
telephones, cabinets, window sills, door casings, blackboards and clean all
furniture with impregnated cloths, as needed.
Dust and clean all chair rails, paneling, trim, door and other architectural
louvers, lattices and ornamental work, grilles, pictures, vinyl or fabric of
chairs and settees, ventilating louvers, charts and baseboards.
Vacuum ceilings, as necessary to remove all dust around and on grilles.
Remove all finger marks, smudges, scuff marks, gum or foreign matter from glass
directory boards, metal partitions and other marks from walls, window sill
frames and other similar surfaces, and glass table cabinets, as necessary.
Clean and remove fingermarks and smudges from glass entry doors and side panels.
Scour, wash and clean all water fountains and coolers, emptying waste water, as
needed.
Wash window sills and remove all ink stains and smudges, as necessary.
Keep locker and slop sink rooms in clean and orderly condition.
Dust and wash all closet and coat room shelving, coat racks and flooring.
Wipe clean all brass, stainless steel, metal and other brightwork.
B-4
<PAGE>
Wipe clean all metal door knobs, kick plates, directional signs, door saddles
and all metals.
Nightly cleaning operations will be scheduled to commence after 5:30 p.m.
insofar as practical and possible.
CONTRACTOR agrees to perform all cleaning services as may be necessary by tenant
traffic and building use on holidays at an additional charge.
Lights shall be used only in areas where cleaning operations are being performed
and then turned off upon completion.
Lavatories & Rest Rooms
- -----------------------
Sweep scrub and/or wash and dry all flooring with approved germicidal detergent
solution to remove all spills, smears, scuff marks and foot tracks throughout.
Wash and polish all mirrors, powder shelves, brightwork, enamel surfaces
including flushometers, piping, toilet seat hinges and all metal.
CONTRACTOR shall use only non-abrasive material to avoid damage and
deterioration to chrome fixtures.
Scour, wash and disinfect all basins, bowls and urinals with approved germicidal
detergent solution, including tile walls near urinals.
Wash both sides of all toilet seats with approved germicidal detergent solution.
Disinfect and damp wipe all partitions, enamel surfaces, tile walls, dispensers,
door and receptacles. Remove graffiti on sight, if unable to remove, tenant will
be notified immediately.
Empty and clean paper towel and sanitary disposal receptacles.
Remove wastepaper and refuse, including soiled sanitary napkins, to a designated
area in the premises and dispose of same at CONTRACTOR'S expense. All wastepaper
receptacles to be thoroughly cleaned and washed.
If applicable, wash and wax all resilient tile floors in toilet powder rooms, or
vacuum if carpeted. Spot-clean and shampoo, as needed.
Fill and maintain mechanical operations of all toilet tissue holders, soap
dispensers, towel dispensers and sanitary napkin vending dispensers. Materials,
as approved by AGENT, to be furnished by CONTRACTOR. The filling of such
receptacles to be in such quantity as to last the entire business day wherever
possible and refilled daily as set forth in other parts of this specification.
Remove stains as necessary, clean underside of rims of urinals and bowls.
B-5
<PAGE>
Wash down ceilings (including washable acoustical tile) and walls in washrooms
and stalls from ceiling to floor as often as necessary, but at least once every
thirty (30) days. Scrub floors as needed, but not less than once a month.
It is the intention to keep lavatories thoroughly clean and not to use a
disinfectant to mask odors. If disinfectants are necessary, an odorless
disinfectant shall be used.
CONTRACTOR shall use only non-abrasive material to avoid damage and
deterioration to chrome fixtures.
Entrance Vestibules. Main Lobby. Public Areas. Sidewalks & Elevator Lobbies -
- -----------------------------------------------------------------------------
Nightly It is the intent of this agreement and CONTRACTOR agrees to keep
- -------
entrance ways, outer vestibules and lobby properly maintained, clean and
presentable at all times, commensurate with first-class office buildings.
Sweep and wash flooring. Clean and buff all surfaces of resilient tile to
maintain a highly clean and polished surface at all times. Strip and renew as
needed.
All carpeted corridors to be vacuumed nightly and as needed daily, spot cleaned
and/or shampooed as required.
Dust public corridors and walls.
Sweep, vacuum, spot clean and shampoo all weather mats, if carpeted. Scrub and
clean all weather mats, if rubber.
Clean all cigarette urns and replace sand or water, as necessary. Material to be
furnished by CONTRACTOR.
Maintain floors in elevator cabs as needed and clean thoroughly. If carpeted,
remove soluble spots which safely respond to standard spotting procedure without
risk of injury to color or fabric. Cabs to be vacuumed and shampooed, as
required.
If there are resilient tile floors in elevator cabs, wash, buff wax and polish
nightly. Strip and rewax, as necessary.
Wash flooring, including mats, of main floor area.
Pick up and put out rain mats, when necessary, making sure they are clean at all
times.
Clean entrance floor glass.
Dust and rub down elevator doors, mail depository and walls, metal work and
saddles in elevator cabs. All elevator corridors, car door tracks and thresholds
and saddles are to be cleaned and polished to remove all stains, dirt, paper
clips, cigarette butts and all debris.
B-6
<PAGE>
Maintain metal work throughout, including elevator cabs, by cleaning as
necessary.
Clean exterior of mail chute, mail depository, lobby directories and director's
panel station, including glass, if applicable.
Vacuum sidewalks with powered equipment daily. Clean curb area 18" into street.
Clean telephone booths and storage rooms.
Treat and polish wood and synthetic paneling in the elevator cabs as necessary.
PERIODIC CLEANING
- -----------------
Lavatories & Rest Rooms
- -----------------------
Machine scrub floor as necessary, with approved germicidal detergent solution.
Scrub, wash and polish all partitions, tile walls and enamel surfaces from
ceiling to floor as necessary, but not less than once every month, using proper
disinfectant.
Wash all lighting fixtures as necessary (but not less than once a year).
Do all high dusting approximately once a month.
Wash all painted wall surfaces as needed, but not less than once every two (2)
months.
Clean and disinfect all equipment drains. No acid permitted unless instructed by
AGENT.
Wash all ceilings including washable acoustical tile, as necessary.
Vacuum ceilings, as needed.
Clean urinals and bowls with scale-solvent as needed, but not less than once a
week.
Entrance Lobby/Public Areas/Elevator Landings/Sidewalks
- -------------------------------------------------------
Machine scrub flooring and seal, as necessary (but not less than once a month).
Clean lights, globes, diffusers and fixtures as often as necessary and keep
light fixtures properly lamped, as required. Lamps supplied by CONTRACTOR.
Dust down entrance, elevator, public corridor, lobby and stairway walls, floor
to ceiling, as necessary, but not less than once per month.
Shampoo carpets in elevator cabs, including spare carpets if made available for
replacement, as needed. Shampoo lobby and corridor carpet, as needed. Remove as
necessary soluble spots which safely respond to standard spotting procedure
without risk of injury to color or fabric.
B-7
<PAGE>
High Dusting - Office Area
- --------------------------
Do all high dusting every three months, unless otherwise specified, including
the following:
Vacuum and dust all pictures, frames, charts, graphs and similar wall hangings
not reached in nightly cleaning. Damp dust, as required.
Vacuum and/or dust all vertical surfaces such as walls, partitions, doors, bucks
and ventilating louvers, grilles, high moldings and other surfaces not reached
in nightly cleaning.
Dust all overhead pipes, sprinklers, ventilating and air-conditioning louvers,
ducts, high molding and other areas not reached in nightly cleaning.
Dust all window frames.
Dust all lighting fixtures.
Vacuum and dust ceiling tiles around ventilators.
MISCELLANEOUS - OFFICE AREAS & BUILDING CORRIDORS AND BATHROOMS
- ---------------------------------------------------------------
(To be performed as needed, but not less than once each week unless otherwise
specified)
Sweep all building stairways, dust rails and fire equipment monthly and mop
monthly.
Wipe clean all aluminum, chrome, stainless steel, brass and other metal work,
including trim and hardware, as necessary.
Elevator, stairways, office and utility doors on all floors to be checked for
general cleanliness, as necessary, removing finger prints, smudges and other
marks. Clean exterior of all building elevator doors, as necessary.
If carpeted, remove spots and thoroughly clean all carpets in public corridors
as needed. Public corridors and lobbies will be placed on a shampoo schedule to
be kept on file in building office.
In addition to daily maintenance, steel wool, dry buff or damp mop or wet mop
and wax, as needed, removing all ground in heel marks scuffs and gum, any
asphalt, rubber, linoleum and vinyl flooring throughout public corridors.
Clean all vacant areas, at least once per month.
Clean glass entrance doors, as needed.
Clean all Venetian blinds throughout the building at least once a year.
Once a week, dust and wash all door louvers and other ventilating louvers within
reach.
B-8
<PAGE>
Wash and remove all finger marks, ink stains, smudges, scuff marks and other
marks from metal partitions, sills, all vertical surfaces (doors, walls, window
sills) including elevator doors and other surfaces, as necessary. All marble
walls, elevator, stairway, office and utility doors to be washed as necessary
using clear water or approved cleanser.
Wash and clean electrical fixtures, all baseboards walls and any other fixtures
or fittings in public corridors, as necessary.
Vacuum, clean and polish car and corridor saddles of elevator doors on all
floors, as needed.
Clean interior and exterior of mail depository as required, making arrangements
with postal authorities for interior cleaning.
DAY SERVICE
- -----------
Day services shall be rendered five (5) days each week, Monday through Friday,
excluding only such holidays upon which the building is closed.
CONTRACTOR agrees to furnish sufficient day porters, one of whom shall be a
working supervisor, to perform the following duties and any additional duties
which may be directed by the AGENT.
A Porter shall be assigned to premises on Saturday while the building is open.
CONTRACTOR also agrees to provide sufficient porter for tenant work, which in no
way will delete from building staff, unless approved by AGENT.
Duties of Day Porters and Day Matron
- ------------------------------------
A sufficient porter staff shall be assigned to perform the following services
and any additional chores as directed by building management:
Police lobby area and sidewalk, picking up all foreign matter on sight.
Operate service elevator, as directed.
Police and maintain elevator cabs, including floors, as required. If carpeted
floors in elevators, cabs are to be vacuumed at least twice a day and spots are
to be removed, as required. If floors are of a resilient tile, clean, buff and
wax as required.
Police all lavatories a minimum of twice a day, morning and afternoon. Wipe
clean all sinks, glass, and powder shelves.
Check and fill, as necessary, in all lavatories, toilet tissue, soap, towel and
sanitary dispensers; materials to be furnished by CONTRACTOR. Monies from same
collected by CONTRACTOR.
B-9
<PAGE>
Clean basement, including all levels below first floor, corridors and utility
areas. Police employee's locker rooms so they are kept in a clean condition at
all times.
Sweep, vacuum, remove gum and hose building entrance sidewalks and all sidewalk
areas daily before 8:00 a.m. All equipment, including vacuum and washing
equipment to clean sidewalks, shall be provided by CONTRACTOR and such equipment
to be of a type and manufacturer as approved by the AGENT.
Set out weather mats in inclement weather and keep in clean condition.
Police roof and set backs daily. Clean as necessary.
Keep entrance door glass and frames in clean condition.
Clean and polish standpipes and sprinkler siamese connections, as necessary.
Wipe down outside tenant signage daily.
Properly maintain exterior of the building at ground level, including all metal
work and signs, and store fronts, if required to be maintained by AGENT.
All planted areas shall be policed and debris removed.
Loading dock and truck area shall be cleaned daily and scrubbed as needed.
Sweep and dust stairways and fire tower. Dust handrails, firehose cabinets and
extinguishers, newels and stair stringers. Wash stairs, as necessary. Report any
discrepancies to building office.
All public areas, including building entrance and sidewalks, are to be kept
clean, clear and free from snow. Snow will be removed daily and before 8:00 a.m.
Urea or similar material will be used instead of rock-salt. Materials to be
- ----
supplied by CONTRACTOR at no cost to AGENT.
All materials and equipment, including snow removal equipment, to be furnished
by CONTRACTOR and such equipment to be of a type and manufacture as approved by
AGENT.
As directed by AGENT, equipment rooms, fan rooms and other utility rooms, shall
be swept and damp mopped regularly.
WINDOW CLEANING - General
- -------------------------
Window cleaning contractor shall log in and out with the Building before any
services are performed.
Any materials used for the washing of windows or metal surfaces shall be
approved by the AGENT.
B-10
<PAGE>
CONTRACTOR shall provide adequate protection to the exterior of the building,
during window washing operation.
An additional interior cleaning prior to move-in of new tenants, shall be
provided for by the CONTRACTOR upon instructions from the AGENT at no charge.
Wash and clean all windows, four (4) times a year, inside and outside, including
all adjacent metal surfaces, which shall be wiped clean during the window
cleaning operation including grade level windows where applicable, as determined
by the AGENT. Wipe all interior metal window frames, mullions, terrace doors, if
any, and other unpainted interior metal surfaces of the perimeter walls of the
buildings at the same time that the interior of the windows are washed.
Building entrance doors and director glass shall be cleaned daily and kept in
clean condition at all times during the day. All lobby exterior glass shall be
washed and cleaned once a week and all lobby interior glass, once a month.
Mail chute glass shall be kept in a clean condition at all times.
CONTRACTOR shall provide all labor, materials, tools, equipment and perform all
operations necessary to carry out the apparent intent thereof, for the window
washing operation. CONTRACTOR further agrees to maintain all such equipment
provided at its sole cost and expense including the building supplied scaffold.
INITIAL CLEANING
- ----------------
In addition to all other services specified herein. Prior to tenant occupancy,
- --------------------------------------------------
the CONTRACTOR, shall, at no additional cost to AGENT, render a thorough initial
cleaning of all newly rented space.
This includes dusting, sweeping, polishing of interior metal window frames,
sills and mullion, window washing, cleaning and vacuuming of perimeter H.V.A.C.
metal enclosures including the removal of all debris, so that the premises shall
be in clean and proper condition. The CONTRACTOR shall also provide complete
floor maintenance and initial waxing prior to move-in of all new tenants at no
charge to AGENT or tenant.
PEST CONTROL
- ------------
The CONTRACTOR shall render pest control services throughout the basement and
first floor premises once each month. Public areas above the first floor shall
be serviced monthly. Services shall be performed by thoroughly trained
operators, licensed, if required. Evidence of such service call shall be
presented to AGENT.
B-11
<PAGE>
Special emergency calls shall be made on request at no additional charge.
Service shall be rendered at such hours as will not interfere with normal
business.
FREIGHT ELEVATOR
- ----------------
A. Service elevator shall be operated by porter/operator, as directed by
AGENT.
B. All personnel provided by CONTRACTOR shall be adequately trained and
supervised to perform any duties assigned. All personnel are subject
to approval by AGENT.
LAMPING
- -------
The CONTRACTOR agrees at its cost to furnish and install replacement electric
light bulbs, tubes, ballasts and starters as required for public interior and
exterior building areas, including fan and mechanical equipment room. Work shall
be performed by thoroughly trained and qualified personnel who shall be members
of union having jurisdiction.
SPECIAL SERVICES
- ----------------
It is agreed that CONTRACTOR may perform special additional services to tenants
in the building from time to time. Such special day or night services shall be
billed directly to the tenants.
SCHEDULE
- --------
Each month CONTRACTOR is to supply AGENT a schedule of periodic cleaning items
to be completed for the coming month giving exact dates corridor floors are to
be waxed or carpets cleaned, rest rooms scrubbed, windows washed, drapes cleaned
and any other major item to be done. In the event work is not done at time
scheduled, AGENT is to be informed by the following work day and given a date
when work will be completed.
CONTRACTOR agrees to give AGENT full credit for vacant space and space not
cleaned. The credit for vacant space shall be in accordance with a formula to be
developed and accepted by the parties. CONTRACTOR shall submit unit cost of
cleaning windows not cleaned because of inclement weather or otherwise. Formulas
for vacant space and window cleaning to be separately designated on CONTRACTOR'S
proposal.
Specify staff intended to be used to comply with this specification.
B-12
<PAGE>
Schedule C
----------
VAC SPECIFICATIONS
------------------
The VAC System shall be capable of maintaining 72 degrees Fahrenheit
(no humidity control) when outdoor conditions are 6 degrees Fahrenheit. The VAC
System shall be capable of maintaining 75 degrees Fahrenheit (average
temperature throughout the Building) when outdoor conditions are 95 degrees
Fahrenheit dry bulb and 75 degrees Fahrenheit wet bulb. The VAC System is
designed based upon (i) occupancy rate of one (1) person per net usable 100
square feet, (ii) four (4) watts per net usable square foot, (iii) .15 cfm per
net usable square foot, and (iv) insulated glass windows with venetian blinds
drawn.
C-1
<PAGE>
Schedule D
----------
LANDLORD'S WORK
---------------
1. All perimeter walls and all corridors sheet rocked, spackled and paint
ready.
2. Install drinking fountains.
3. Completion of all bathrooms, windows, perimeter heating and baseboard heat
enclosures.
4. Install base air-conditioning system, including main distribution duct.
5. Install valve connections to the Building's sprinkler risers and the main
sprinkler loop.
6. Provide hook-ups on the floor to Building's fire alarm and detection
systems.
7. All necessary ADA requirements shall be complied with.
8. Landlord shall provide connections for condenser water pipes and
supplemental air conditioning system provided in Section 28.3(B) hereof.
TENANT'S ITEMS
--------------
1. Perform the necessary core work to allow Tenant to install raised flooring
for the trading area directly up to the core on the north side of the
Building.
2. Install a supplementary men's room, and all bathroom modifications and
related scope of work in Building core as shown on the approved layout, SCR
Design Organization, Inc. the drawing dated August 18, 1994.
3. Provide risers and other installations necessary to provide Tenant with up
to twelve (12) watts of electric demand load per rentable square foot
supplied within electric closets in the core areas of Tenant's premises,
and supply such buss duct taps, transformers and distribution boards as may
be necessary to deliver said twelve (12) watts per rentable square foot.
4. Provide direct meters to public utility supplying electricity to the
Building.
5. Provide hook-ups, etc. to Emergency Generator as provided in Section 13.3
of the Lease.
D-1
<PAGE>
Schedule E
----------
HOLIDAYS
--------
New Year's Day
Martin Luther King Day
Washington's Birthday
Good Friday
Memorial Day
Independence Day
Labor Day
Columbus Day
Veteran's Day
Thanksgiving Day
Christmas Day
E-1
<PAGE>
Schedule F
----------
CONTRACTORS
-----------
F-1
<PAGE>
[LETTERHEAD OF NEWPORT OFFICE TOWER APPEARS HERE]
APPROVED CONTRACTORS LIST
General Contractors
- -------------------
Structure Tone
15 East 26th Street
New York City, NY 10010 Tel# 212-481-6100
Herbert Construction
115 West 18th Street
New York City, NY 10011 Tel# 212-463-7111
A.C. Construction
470 Pave Avenue S.
New York City, NY 10015 Tel# 212-889-9100
NICO MDI Construction
1515 Broadway
New York City, NY 10036 Tel# 212-764-7475
H.R.H. Construction
909 3rd Avenue
New York City, NY 10022 Tel# 212-751-3100
Torcor Construction
214 E. Grove Street
Westfield, NJ 07091 Tel# 908-232-8900
Plumbing
- --------
F&G Mechanical/Plumbing
348 New Country Road
Secaucus, NJ 07094 Tel# 201-664-3580
Triangle Plumbing (PAR)
1080 U.S. HWY 22
Mountainside, NJ 07042 Tel# 908-232-0160
Almar Plumbing
116-14 Rockaway Blvd
So. Ozone Park, Queens
New York 11420 Tel# 719-835-5900
Electrical
- ----------
George E. Scholes Electric
18 Gelb Avenue
Union, NJ 07083-6307 Tel# 908-688-3993
Kleinknecht Electric
2 Ninth Avenue
New York City, NY 10014 Tel# 212-999-4500
<PAGE>
[LETTERHEAD OF NEWPORT OFFICE TOWER APPEARS HERE]
Forrest Electric
7 Penn Plaza
New York City, NY 10017 Tel# 212-594-4110
Mechanical
- ----------
F & G Mechanical
348 New Country Road
Secaucus, NJ 07094 Tel# 201-864-3580
Design Air
Route #10
Whippany, NJ Tel# 201-503-0100
Mech. Associates
4823 Bay Pkwy
Brooklyn, NJ 11230 Tel# 718-338-6361
PEMCO Assoc.
169 Richardson Street
Brooklyn, NY 11222 Tel# 718-349-3229
Sprinkler
- ---------
Meadowland Fire Protection Co.
348 New Country Road
Secaucus, NJ 07094 Tel# 201-864-3580
Castle Fire Protection
273 Franklin Ave.
Randolph, NJ 07865 Tel# 201-325-2710
Northeast Fire Protection Co.
187 Route 94
Blairstown, NJ 07825 Tel# 508-362-5400
Structural Engineer
- -------------------
Cantor Seinuk Group P.C.
600 Madison Avenue
New York City, NY 10022 Tel# 212-755-4242
Mechanical Engineer
- -------------------
Cosentini Associates
2 Penn Plaza
New York City, NY 10121 Tel# 212-564-7200
<PAGE>
[LETTERHEAD OF NEWPORT OFFICE TOWER APPEARS HERE]
Glass
- -----
Abbott Glass
59-30 54th Street
Masbeth, NY 11378 Tel# 718-381-8800
General Glass
562 Newark Avenue
Jersey City, NJ 07306 Tel# 201-963-3232
Waterproofing & Roofing
- -----------------------
Avon
210-224 Badger Avenue
Newark, NJ 07108 Tel# 201-824-0352
Carting, Demolition
- -------------------
Five Bros.
264 Broadway
Jersey City, NJ 07306 Tel# 201-433-0077
Curtain Wall
- ------------
Harmon Contractors
650 Kasota Avenue
Minneapolis, Minn 53414 Tel# 612-851-9949
Fire System
- -----------
Simplex
10 Astro Pl.
Rockaway, NJ 07866 Tel# 201-586-8844
BMS
- ---
Energy Options
900 Rt. #9
Woodbridge, NJ 07095 Tel# 908-855-9100
Water Treatment
- ---------------
Diversey
4 Creamary Brook Office Park
East Granby, CT 06025 Tel# 203-653-7722
<PAGE>
[LETTERHEAD OF NEWPORT OFFICE TOWER APPEARS HERE]
Security Card System
- --------------------
NAVCO Security Systems
1300 Kellogg Drive
Anaheim, CA 92807 Tel# 714-779-7499
Security
- --------
Triumph Security
65 East 55th Street
New York, NY 10022 Tel# 212-644-1200
Elevators
- ---------
Schindler Elevator
675 Rt. 10
Randolph, NJ 07869 Tel# 201-989-6220
Cleaning
- --------
Triumph Cleaning
65 East 55th Street
New York, NY 10022 Tel# 212-308-6363
Painting
- --------
Cosmopolitan Decorating
1290 Avenue of the Americas
New York, NY 10104 Tel# 212-586-6438
<PAGE>
EXHIBIT A
---------
THE SITE
<PAGE>
[MAP APPEARS HERE]
NEWPORT
-------
1. Newport Centre Mall
2. Mall Parking Garage
Existing 3. Recruit/Newport Financial Center
Approved 4. PATH Station
Proposed 5. Newport Tower
6. Newport Office Center II
7. Towers of America
8. Rental Apartment Buildings
9. James Morrow Condominiums
10. Health Club/Pool
11. Tennis Courts
12. Child Care Center
13. Waldbaum's/Community/Shopping Center
14. Marina
15. South Parking Garage
16. Residential Parking
17. Newport Financial Center/PATH Parking Garage
<PAGE>
EXHIBIT B
---------
THE PARKING GARAGE
<PAGE>
[MAP APPEARS HERE]
NEWPORT
-------
1. Newport Centre Mall
2. Mall Parking Garage
Existing 3. Recruit/Newport Financial Center
Approved 4. PATH Station
Proposed 5. Newport Tower
6. Newport Office Center II
7. Towers of America
8. Rental Apartment Buildings
9. James Monroe Condominiums
10. Health Club/Pool
11. Tennis Courts
12. Child Care Center
13. Waldbaum's/Community/Shopping Center
14. Marina
15. South Parking Garage
16. Residential Parking
17. Newport Financial Center/PATH Parking Garage
<PAGE>
EXHIBIT C
---------
LETTER OF CREDIT
Dated: ____________, 19__
NEWPORT L.G-I, INC.
c/o The Georgetown Company
667 Madison Avenue
New York, New York 10021
Dear Sirs:
In accordance with instructions received from our client,_________________,
we have established our Irrevocable Letter of Credit No. _________ in your
favor for the amount indicated below, available by your drafts at sight on us
accompanied by:
A statement signed or purporting to be signed by an authorized signatory of
Newport L.G-I, Inc. stating that the amount of the accompanying draft is
presently due and owing Newport L.G.-I, Inc.
The amount of the credit shall be:
Drafts hereunder must be marked "Drawn under ___________________________
Letter of Credit No. ________ dated__________________."
This credit is subject to the Uniform Customs and Practice for Documentary
Credits (1983 Revision), International Chamber of Commerce Publication No. 400.
We hereby agree that drafts drawn in accordance with the terms stipulated
herein will be duly honored upon presentation and delivery of the statement as
specified if presented to our _____________________________________ between
______________ and ____________ on which date this credit expires.
Yours very truly,
Authorized Signature
<PAGE>
Exhibit 10.4
AMENDMENT OF LEASE
------------------
AMENDMENT, dated May 28, 1996, by and between NEWPORT L.G.-I, INC., a
Delaware corporation, having an office c/o The Georgetown Company, 667 Madison
Avenue, New York, New York 10021 ("Landlord"), and KNIGHT SECURITIES, L.P., a
--------
New York limited partnership, having an office at 525 Washington Boulevard,
Jersey City, New Jersey 07310 ("Tenant").
------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, by Agreement of Lease, dated as of December 6, 1994, by and
between Landlord and Tenant (the "Lease"), Tenant leases certain space in the
-----
building known as Newport Office Tower, and located at 525 Washington Boulevard,
Jersey City, New Jersey (the "Building"), consisting of the entire thirtieth
--------
(30th) floor of the Building; and
WHEREAS, Landlord and Tenant desire to amend the Lease to provide for the
addition of certain space located on the 35th floor of the Building to the
premises leased to Tenant under the Lease.
NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00) paid
by Landlord to Tenant and for other good and valuable consideration, the mutual
receipt and legal sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
1. Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed thereto in the Lease.
2. Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord, the portion of the thirty-fifth (35th) floor of the Building shown as
area "C" on the floor plan attached hereto as Exhibit A and made a part hereof
---------
(the "Additional Space"), upon all of the same terms, covenants and conditions
----------------
set forth in the Lease, as amended hereby, for a term to commence upon a date
(the "Additional Commencement Date") which is the earlier of (i) the date which
----------------------------
is three (3) Business Days after Landlord notifies Tenant that Landlord's
Additional Work (hereinafter defined) has been Substantially Completed, and (ii)
September 1, 1996, and to expire on the Expiration Date.
3. The Lease is hereby modified and amended, as follows:
(a) The "Definitions" section of the Lease is amended in the following
respects:
<PAGE>
(i) The definition of "Premises" is amended as of the date hereof
to include the Additional Space, subject to the provisions of the Lease.
(ii) The definition of "Space Factor" is amended as of the
Additional Commencement Date by deleting the phrase "twenty-two thousand one
hundred (22,100)" and inserting in lieu thereof the phrase "twenty-nine thousand
four hundred seventy-five (29,475)".
(iii) The definition of "Tenant's Share" is amended as of the
Additional Commencement Date by deleting the phrase "two and two thousand three
hundred ninety-six ten thousandths percent (2.2396%)" and inserting in lieu
thereof the phrase "two and nine thousand eight hundred seventy ten thousandths
percent (2.9870%)".
(iv) The definition of "Tenant's Tax Share" is amended as of the
Additional Commencement Date by deleting the phrase "two and one thousand one
hundred eighty-nine ten thousandths percent (2.1189%)" and inserting in lieu
thereof the phrase "two and eight thousand two hundred sixty ten thousandths
percent (2.8260%)".
(b) As of the Additional Commencement Date, Section 1.1 is amended to
provide for additional Fixed Rent for the Additional Space in the amount of Two
Hundred Six Thousand Five Hundred Dollars ($206,500.00) per annum, for the
period commencing on the Additional Commencement Date and ending on April 3,
2001 ($17,208.33 per month), and Two Hundred Twenty-One Thousand Two Hundred
Fifty Dollars ($221,250.00) per annum, for the period commencing on April 4,
2001 and ending on April 3, 2006 ($18,437.50 per month).
4. (a) Landlord shall perform the work, and make the installations, in
the Additional Space as set forth on such detailed plans and specifications
(including layout, architectural, mechanical and structural drawings) as have
been prepared by Landlord, provided that the cost of such work and installations
does not exceed Two Hundred Twenty-One Thousand Two Hundred Fifty Dollars
($221,250.00) ("Landlord's Additional Work"). If Landlord shall expend less
--------------------------
than such amount in performing Landlord's Additional Work and paying related
expenses, then Tenant shall receive a credit equal to the difference between
such amount and Landlord's total expenditures, against Tenant's Rental
obligations under the Lease, as amended hereby, next accruing after the
Substantial Completion of Landlord's Additional Work.
-2-
<PAGE>
(b) If Landlord shall be delayed in Substantially Completing
Landlord's Additional Work by reason of any of the following (individually a
"Tenant's Delay" and collectively referred to as "Tenant's Delays"): (1) any
-------------- ---------------
request by Tenant that Landlord delay in proceeding with any segment or part of
Landlord's Additional Work; (2) any changes or requests for changes to
Landlord's Additional Work; (3) any acts or omissions of Tenant or its agents,
employees or contractors; (4) any necessary displacement of any of Landlord's
Additional Work from its place in Landlord's construction schedule resulting
from any of the causes for delay referred to in the foregoing clauses 1 through
3; and (5) any other item designated as a Tenant's Delay pursuant to this
Paragraph 4; then the Additional Commencement Date shall be deemed to be the
date upon which the Additional Commencement Date would have occurred but for
such Tenant's Delay. If Landlord becomes aware of any Tenant's Delay or any
condition which may give rise to a Tenant's Delay, Landlord shall promptly
notify Tenant of such Tenant's Delay or condition and the anticipated length of
time of such Tenant's Delay, provided, however, Landlord shall suffer no
liability for failure to notify Tenant as aforesaid if the anticipated length of
such Tenant's Delay as set forth in Landlord's aforesaid notice shall be
different than any actual Tenant's Delay, or in good faith it was not possible
to reasonably foresee that a Tenant's Delay would arise.
(c) Tenant may request changes in Landlord's Additional Work
consisting of additions, deletions or other changes. If Tenant desires to make a
change, the same shall be communicated to Landlord by a change order signed by
Tenant. If such a change results in the cost of Landlord's Additional Work
exceeding the amount set forth in Paragraph (A) above, then Tenant shall pay to
Landlord the amount of such excess. Upon Landlord's receipt of such change
order, and provided Landlord otherwise approves such changes (which approval
shall be based upon the criteria for approval of Alterations as set forth in
Article 3 of the Lease), Landlord shall promptly prepare and furnish to Tenant a
statement, setting forth Landlord's good faith estimate of the cost, if any, to
Tenant resulting from the proposed change, as well as Landlord's good faith
estimate of any changes in the progress of Landlord's Additional Work which
would result by reason of such change. If within five (5) days of Tenant's
receipt of said statement Tenant countersigns and redelivers a copy of said
statement to Landlord, such statement shall constitute a mutually binding change
order and such change order shall be included in Landlord's Additional Work. The
failure of Tenant to so notify Landlord within said five (5) day period shall be
deemed a withdrawal by Tenant of the request for the change in question.
-3-
<PAGE>
(d) If a delay or any portion of a delay in the Substantial Completion
of Landlord's Additional Work is the result of an Unavoidable Delay, and such
delay would not have occurred but for a Tenant's Delay, such delay shall be
deemed to be a Tenant's Delay for the purposes hereof.
5. Tenant acknowledges that Landlord has made no representation to
Tenant with respect to the condition of the Additional Space, except as set
forth in the Lease, as amended hereby. Tenant represents that it has inspected
the Additional Space and agrees to take possession thereof in the condition
which exists on the date hereof, subject to the obligation of Landlord contained
herein to perform Landlord's Additional Work.
6. Each of Landlord and Tenant represents and warrants that it has dealt
with no broker in connection with this Amendment of Lease or the Additional
Space other than Broker, and each agrees to indemnify the other from and against
any claim for brokerage commission arising from any breach by such party of its
foregoing representation and warranty. Landlord shall pay to Edward S. Gordon
Company, Inc. a negotiated commission pursuant to a separate written agreement.
7. From and after the date hereof, all references in the Lease to "this
Lease", "herein", "hereof", "hereby" and words of similar import shall mean and
refer to the Lease as amended hereby.
8. As modified hereby, the Lease and all covenants, agreements, terms
and conditions thereof shall remain in full force and effect and are hereby in
all respects ratified and confirmed.
9. The Lease, as amended hereby, constitutes the entire understanding
between the parties hereto and may not be changed orally but only by an
agreement in writing signed by the party
-4-
<PAGE>
against whom enforcement of any waiver, change, modification or discharge is
sought.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the date first above written.
NEWPORT L.G.-I, INC.
By: /s/ Marshall Roye
---------------------------------
Name: Marshall Roye
Authorized Signatory
KNIGHT SECURITIES, L.P.
Roundtable Partners, L.L.C.,
general partner
By: /s/ Robert Lazarocuitz
----------------------------------
Name : Robert Lazarocuitz
Title: Chief Operating Officer
-5-
<PAGE>
EXHIBIT A
---------
The Additional Space
<PAGE>
[FLOOR PLAN APPEARS HERE]
NEWPORT OFFICE TOWER
Jersey City, New Jersey
35TH FLOOR
<PAGE>
Exhibit 10.5
SECOND AMENDMENT OF LEASE
-------------------------
AMENDMENT, dated September 30, 1997, by and between NEWPORT L.G.-I,
--
INC., a Delaware corporation, having an office c/o The Georgetown Company, 667
Madison Avenue, New York, New York 10021 ("Landlord"), and KNIGHT SECURITIES,
L.P., a New York limited partnership, having an office at 525 Washington
Boulevard, Jersey City, New Jersey 07310 ("Tenant").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, by Agreement of Lease, dated as of December 6, 1994, by and
between Landlord and Tenant, as amended by Amendment of Lease, dated May 28,
1996, between Landlord and Tenant (collectively the "Lease"), Tenant leases
certain space in the building known as Newport Office Tower, and located at 525
Washington Boulevard, Jersey City, New Jersey (the "Building"), consisting of
--------
the entire thirtieth (30th) floor and a portion of the thirty-fifth (35th) floor
of the Building; and
WHEREAS, Landlord and Tenant desire to amend the Lease to provide for
the addition of certain space located on the 26th floor of the Building to the
premises leased to Tenant under the Lease.
NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00) paid
by Landlord to Tenant and for other good and valuable consideration, the mutual
receipt and legal sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
1. Capitalized terms used but not otherwise defined herein shall have
the meanings ascribed thereto in the Lease.
2. Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord, the portion of the twenty-sixth (26th) floor of the Building shown as
area "E" on the floor plan attached hereto as Exhibit A and made a part hereof
---------
(the Additional Space"), upon all of the same terms, covenants and conditions
-----------------
set forth in the Lease, as amended hereby, for a term to commence upon the date
hereof (the "Additional Commencement Date") and to expire on the Expiration
-----------------------------
Date.
3. The Lease is hereby modified and hereby amended, as follows:
(a) The "Definitions" section of the Lease is hereby amended as of
the Additional Commencement Date, as follows:
<PAGE>
(i) The definition of "Premises" is amended to include the
Additional Space, subject to the provisions of the Lease.
(ii) The definition of "Space Factor" is amended by deleting
the phrase "twenty-nine thousand four hundred seventy-five (29,475)" and
inserting in lieu thereof the phrase "thirty-two thousand one hundred fifty-
eight (32,158)".
(iii) The definition of "Tenant's Share" is amended by
deleting the phrase "two and nine thousand eight hundred seventy ten thousandths
percent (2.9870%)" and inserting in lieu thereof the phrase "three and two
thousand five hundred eighty-nine ten thousandths percent (3.2589%)".
(iv) The definition of "Tenant's Tax Share" is amended by
deleting the phrase "two and eight thousand two hundred sixty ten thousandths
percent (2.8260%)" and inserting in lieu thereof the phrase "three and eight
hundred thirty-two ten thousandths percent (3.0832%)".
(b) Section 1.1 of the Lease is hereby amended as of December 1, 1997
(the "Additional Rent Commencement Date") to provide that Fixed Rent for the
----------------------------------
Premises, including the Additional Space, shall be:
(i) Nine Hundred Eleven Thousand Three Hundred Fifteen
Dollars ($911,315.00) for the period commencing on the Additional Rent
Commencement Date and ending on April 3, 2001 ($75,942.91 per month), and
(ii) Nine Hundred Thirty-Four Thousand One Hundred Fourteen
Dollars ($934,114.00) for the period commencing on April 4, 2001 and ending on
the Fixed Expiration Date ($77,842.83 per month).
4. If Landlord shall fail for any reason to deliver possession of the
Additional Space (a) Tenant waives any right to rescind the Lease, (b) Landlord
shall not be subject to any liability as a result thereof, and (c) Tenant waives
the right to recover any damages which may result from Landlord's failure to
deliver possession of the Additional Space.
5. Tenant acknowledges that Landlord has made no representation to
Tenant with respect to the condition of the Additional Space. Tenant represents
that it has inspected the Additional Space and agrees to take possession thereof
in the condition which exists on the date hereof, "as is", and Landlord shall
have no obligation to perform any work, make any installations or make any
contribution to Tenant in order to prepare the Additional Space for Tenant's
occupancy.
- 2 -
<PAGE>
6. Each of Landlord and Tenant represents and warrants that it has dealt
with no broker in connection with this Amendment of Lease or the Additional
Space other than Cushman & Wakefield, Inc., and each agrees to indemnify the
other from and against any claim for brokerage commission arising from any
breach by such party of its foregoing representation and warranty. Landlord
shall pay to Cushman & Wakefield, Inc. a negotiated commission pursuant to a
separate written agreement. The provisions of this Paragraph 6 shall survive the
Expiration Date.
7. From and after the date hereof, all references in the Lease to "this
Lease", "herein", "hereof", "hereby" and words of similar import shall mean and
refer to the Lease as amended hereby.
8. As modified hereby, the Lease and all covenants, agreements, terms
and conditions thereof shall remain in full force and effect and are hereby in
all respects ratified and confirmed.
9. The Lease, as amended hereby, constitutes the entire understanding
between the parties hereto and may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the date first above written.
NEWPORT L.G.-I, INC.
By: /s/ Marshall Rose
---------------------------------------
Name: Marshall Rose
Authorized Signatory
KNIGHT SECURITIES, L.P.
Roundtable Partners, L.L.C.,
general partner
By: /s/ Robert Turner
----------------------------------
Name: Robert Turner
Title: Secretary
- 3 -
<PAGE>
EXHIBIT A
---------
The Additional Space
<PAGE>
[FLOOR PLAN APPEARS HERE]
26TH FLOOR
Newport Office Tower
Jersey City, New Jersey
<PAGE>
Exhibit 10.6
THIRD AMENDMENT OF LEASE
------------------------
AGREEMENT made as of the 18th day of March, 1998, between TRIZECHAHN
NEWPORT INC., a Delaware corporation having an office at 1411 Broadway, New
York, New York 10018 (hereinafter referred to as "Landlord"), and KNIGHT
SECURITIES, L.P., a New York limited partnership having an office at 525
Washington Boulevard, Jersey City, New Jersey 07310 (hereinafter referred to as
"Tenant").
WHEREAS, Landlord's predecessor-in-interest, Newport L.G.-I, Inc., and
Tenant entered into a lease dated as of December 6, 1994, as amended by (i)
Amendment of Lease dated May 28, 1996 and (ii) Second Amendment of Lease dated
September 30, 1997 (collectively, the "Lease"), of the entire thirtieth (30th)
-----
floor and portions of the twenty-sixth (26th) and thirty-fifth (35th) floors in
the building (the "Building") known as 525 Washington Boulevard, Jersey City,
New Jersey, as more particularly described in the Lease (the "Original
--------
Premises"); and
- --------
WHEREAS, Landlord and Tenant desire to amend the Lease to provide for the
addition of the entire rentable area of the twenty-ninth (29th) floor of the
Building to the Original Premises.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and other good and valuable consideration the receipt and sufficiency of which
are hereby conclusively acknowledged, Landlord and Tenant hereby agree as
follows:
1. Addition of Twenty-Ninth (29th) Floor to Premises Demised Under Lease.
---------------------------------------------------------------------
Effective as of the date of this Agreement (the "Effective Date"), the entire
--------------
rentable area of the twenty-ninth (29th) floor of the Building, as shown on
Exhibit A annexed hereto and made a part hereof (the "Additional Space"), shall
----------------
be added to and become part of the premises demised under the Lease (the
Original Premises and the Additional Space being thereafter collectively deemed
the "Premises"), upon all of the terms, covenants and conditions contained in
the Lease, as amended hereby.
2. Increase in Fixed Rent. Section 1.1 of the Lease is hereby amended,
----------------------
effective as of the one hundred fifth (105th) day following the date hereof (the
"Additional Space Rent Commencement Date"), to provide that the Fixed Rent for
---------------------------------------
the Premises shall be increased by the following amounts by reason of the
addition of the Additional Space to the Premises (it being acknowledged that the
sums set forth in this Paragraph 2 shall be payable in addition to the Fixed
Rent payable under the Lease with respect to the Original Premises):
(i) during and for the period commencing on the Additional Space Rent
Commencement Date and ending on March 31, 2002, the Fixed Rent payable under
Section 1.1 of the Lease shall be increased by Six Hundred Twenty-Nine Thousand
Eight Hundred Fifty and 00/100 ($629,850.00) Dollars per annum ($52,487.50 per
month); and
(ii) during and for the period commencing on April 1, 2002 and ending
on the Fixed Expiration Date, the Fixed Rent payable under Section 1.1 of the
Lease shall be increased by Six Hundred Eighty-Five Thousand One Hundred and
00/100 ($685,100.00) Dollars per annum ($57,091.67 per month).
<PAGE>
3. Modification of Certain Definitions. The "Definitions" section of the
----------------------------------- -----------
Lease is hereby amended, effective as of the Effective Date (as such term is
defined in Paragraph 1 above), as follows:
(i) The definition of "Base Operating Expenses" shall mean, with
-----------------------
respect to the Additional Space only, Operating Expenses for calendar year 1998;
(ii) The definition of "Base Taxes" shall mean, with respect to the
----------
Additional Space only, One Million Seven Hundred Thirteen Thousand ($1,713,000)
Dollars;
(iii) The definition of "Premises" is amended to include the
--------
Additional Space, subject to the provisions of the Lease;
(iv) The definition of "Space Factor" is increased by twenty-two
------------
thousand one hundred (22,100), from 32,158 to 54,258 (it being understood that
the portion of the "Space Factor" allocable to the Additional Space shall be
22,100);
(v) The definition of "Tenant's Share" is increased by two and two
--------------
thousand three hundred ninety-six ten thousandths (2.2396%) percent (it being
understood that the portion of "Tenant's Share" allocable to the Additional
Space is 2.2396%); and
(vi) The definition of "Tenant's Tax Share" is increased by two and
------------------
one thousand one hundred eighty-nine ten thousandths (2.1189%) percent (it being
understood that the portion of "Tenant's Tax Share" allocable to the Additional
Space shall be 2.1189%).
B. The second (2nd) sentence of Section 27.2(B)(l) of the Lease
shall not apply to the Additional Space (it being understood that such sentence
shall remain in full force with respect to the Original Premises). The following
sentence is hereby added as the third sentence of Section 27.2(B)(1) of the
Lease: "With respect to the Additional Space only, notwithstanding the
foregoing, the Tax Payment for the period commencing on (i) the Additional Space
Commencement Date and ending on May 31, 1998 shall be an amount equal to $0;
(ii) June 1, 1998 and ending May 31, 2003 shall be an amount equal to the
product of (a) the Space Factor allocable to the Additional Space and (b) $.41;
and (iii) June 1, 2003 and ending May 31, 2008, shall be an amount equal to the
product of (x) the Space Factor allocable to the Additional Space and (y) $.82."
4. Landlord's Additional Space Contribution.
----------------------------------------
A. Subject to the terms and conditions hereinafter set forth,
Landlord agrees to provide a construction allowance ("Landlord's Additional
Space Contribution") to reimburse Tenant for Tenant's cost of preparing only the
portion of the Additional Space that is currently unimproved (the "Unimproved
Space") for Tenant's initial occupancy thereof ("Tenant's Additional Space
Work"), in an aggregate amount not to exceed One Hundred Eighty-Seven Thousand
Five Hundred ($187,500.00) Dollars. Landlord shall fund the portion of
Landlord's Additional Space Contribution then being requisitioned in the manner
set forth in Subparagraph 4B below, but only if all of the following conditions
shall have been satisfied:
(i) Tenant shall not be in monetary default of any of the terms,
covenants or conditions to be performed or observed by Tenant under the Lease
and there shall be no non-monetary Event of Default continuing;
-2-
<PAGE>
(ii) Tenant shall have obtained, and at all times during the
construction period shall maintain, all necessary and appropriate permits,
licenses, authorizations and approvals from all governmental authorities having
or asserting jurisdiction in connection with such construction, and shall have
delivered true copies thereof to Landlord (it being agreed that Landlord shall
cooperate with Tenant, at Tenant's expense, to obtain all such permits,
licenses, authorizations and approvals from governmental authorities); and
(iii) Tenant shall have delivered to Landlord: (x) a request for
disbursement signed by the chief financial officer of Tenant together with a
completed requisition for payment (in form issued by the American Institute of
Architects), certified and sworn to by Tenant's architect stating or accompanied
by: (1) the amount being requested, (2) receipted invoices and canceled checks
for all labor and materials theretofore performed as part of Tenant's Additional
Space Work together with copies of all contracts, change orders and other
documents covering Tenant's Additional Space Work, (3) to the best of such
architect's knowledge, the amount of Landlord's Additional Space Contribution
previously paid to Tenant, (4) the value of labor and materials previously
performed and incorporated in the Additional Space and the aggregate value of
the entire Tenant's Additional Space Work to be performed and (5) that the work
completed to date has been performed in good and workmanlike manner in
accordance with the plans and specification approved by Landlord and in
compliance with all Laws; and (y) waivers of lien from all contractors,
subcontractors and materialmen who shall have furnished materials or supplies or
performed work or services in connection with Tenant's Additional Space Work to
date.
B. Within thirty (30) days after Tenant shall have complied with all
of the conditions set forth in the foregoing Subparagraph 4A, Landlord shall pay
to Tenant an amount equal to that portion of Landlord's Additional Space
Contribution which shall equal, on a percentage basis, that portion of Tenant's
Additional Space Work then completed in accordance with the provisions hereof,
as certified by Tenant's architect, less all amounts of Landlord's Additional
Space Contribution previously disbursed, provided, however, that Landlord shall
not be required to make more than one (1) payment per calendar month. Landlord
shall have the right to retain ten (10%) percent of each disbursement of
Landlord's Additional Space Contribution until: (i) all of Tenant's Additional
Space Work shall have been completed, (ii) waivers of lien from all contractors,
subcontractors and materialmen who shall have furnished materials or supplies or
performed work or services in connection with Tenant's Additional Space Work
shall have been delivered to Landlord, (iii) all governmental authorities having
or asserting jurisdiction shall have issued final approvals of Tenant's
Additional Space Work to the extent required by law (including, without
limitation, a certificate of occupancy for the Additional Space) and true copies
thereof shall have been delivered to Landlord, and (iv) Tenant shall have
delivered to Landlord "as built" drawings with respect to Tenant's Additional
Space Work.
C. Landlord's obligation to pay Landlord's Additional Space
Contribution shall only apply to that part of Tenant's Additional Space Work
consisting of the installation of walls, partitions, columns, fixtures,
improvements and appurtenances permanently attached to or build into the
Unimproved Space, including the following: mechanical systems, flooring,
ceilings, duct work, electrical wiring, plumbing, millwork and supplemental air
conditioning systems (if any), affixed carpeting and other floor coverings and
any work performed to connect fixtures and equipment in the Additional Space to
an uninterrupted power source in the Building, but shall not include business
and trade fixtures, machinery, equipment or other articles of personal property,
professional fees and/or so-called "soft costs." Notwithstanding the foregoing,
Tenant shall have the right to apply the balance (if any) of Landlord's
Additional Space Contribution (but not to exceed twenty (20%) percent of
Landlord's Additional Space Contribution) remaining after Tenant shall have
completed Tenant's Additional Space
-3-
<PAGE>
Work and complied with all of the conditions set forth in clauses (i) through
(iv) of Subparagraph 4B above against architects' and engineers' fees and permit
costs incurred by Tenant in connection with Tenant's Additional Space Work and
furniture and equipment to be placed in the Additional Space.
5. Condition of Additional Space. Tenant agrees to accept possession of
-----------------------------
the Additional Space in "as is" and "where is" condition on the Effective Date,
and Landlord shall not be obligated to perform any work whatsoever to prepare
the Additional Space or any other portion of the Premises for Tenant's occupancy
thereof. All materials, work, labor, fixtures and installations required for
completion of the Additional Space and the operation of Tenant's business
thereof shall (subject to the provisions of the Lease) be promptly furnished and
performed by Tenant at Tenant's own cost and expense, except as provided in
Paragraph 4 above. All provisions (if any) of the Lease concerning the
performance by Landlord of any work in connection with the preparation of the
Original Premises for Tenant's occupancy thereof and any related contribution,
rent abatement or rent credit shall be deemed inapplicable to the Additional
Space.
6. Inapplicability of Certain Provisions of Lease to Additional Space.
------------------------------------------------------------------
The following provisions of the Lease shall not apply to the Additional Space:
Sections 3.5, 3.6, 3.7, 6.3(B), 12.4(D), 13.1(B), 13.3, 28.1(D) and 28.3(B) and
(C).
7. Modification of Certain Provisions of the Lease.
-----------------------------------------------
A. Article 9.
---------
(i) The following phrase is hereby added in Section 9.2 of the
Lease after the word "negligence" on the tenth (10th) line: "or statutory
liability."
(ii) Supplementing the provisions of Section 9.3 of the Lease,
Tenant hereby advises Landlord that the value of Tenant's existing Alterations
in the Premises, including Special Alterations, as of the date hereof, is
approximately $2,133,238.00.
B. Article 12. Section 12.6(A)(10) of the Lease is hereby amended by
----------
deleting the phrase "three (3)" on the second (2nd) and third (3rd) lines and
inserting in its place the phrase "five (5)."
C. Article 26. Article 26 of the Lease is hereby amended to provide
----------
that all bills, statements, consents, notices, demands, requests or other
communications given by Tenant to Landlord in accordance with the provisions of
Article 26 of the Lease shall be addressed to Landlord at: TrizecHahn Newport
Inc., 500 West Madison, Suite 3650, Chicago, Illinois 60661, Attention:
Portfolio Manager, with a duplicate original given to TrizecHahn Newport Inc.,
1411 Broadway, New York, NY 10018, Attention: General Manager.
D. Article 37.
----------
(i) The last sentence of Section 37.5 of the Lease is hereby
deleted from the Lease.
(ii) Section 37.9 is hereby amended by deleting the same and
substituting the following Section 37.9 in place thereof:
-4-
<PAGE>
"If Landlord shall fail to respond to Tenant with respect to any
request for its consent under this Lease within fifteen (15) Business
Days after the giving of notice of such request (or such other period
of time expressly set forth in this Lease), then, provided that
Tenant's request for consent shall have been accompanied by a
statement from Tenant specifically directing Landlord's attention to
the provisions of this Section 37.9 of this Lease requiring Landlord
to respond to Tenant's request within fifteen (15) Business Day after
Landlord's receipt of Tenant's request, Landlord shall be deemed to
have consented to such request for all purposes under this Lease."
E. Article 40. The phrase "nine (9) months" set forth on the tenth
----------
(10th) line of Section 40.1 of the Lease is hereby changed to "twelve (12)
months".
F. Article 41.
----------
(i) The provisions of Article 41 of the Lease shall not apply
in any instance in which a method of resolution of dispute is otherwise
expressly provided in the Lease.
(ii) The following phrase is hereby substituted for the phrase
"Notwithstanding any contrary provisions hereof" at the beginning of the last
sentence of Section 41.3 of the Lease: "Except as otherwise provided in this
Lease," and the word "damage" is hereby deleted from the last sentence.
7. Broker. Tenant represents and warrants to Landlord that Tenant has not
------
employed, dealt with or negotiated with any broker in connection with this
Agreement, other than Cushman and Wakefield, Inc and The Georgetown Company, and
Tenant shall indemnify, protect, defend and hold Landlord harmless from and
against any and all liability, damage, cost and expense (including attorney's
fees and disbursements) arising out of any claim for a fee or commission by any
broker or other party other than Cushman & Wakefield, Inc. and The Georgetown
Company in connection with this Agreement. Landlord shall pay any commission due
to Cushman & Wakefield, Inc. pursuant to a separate agreement.
8. Miscellaneous.
-------------
A. Except as expressly modified herein, Landlord and Tenant affirm
that the Lease is in full force and effect. By entering into this Agreement,
Landlord does not and shall not be deemed either (i) to waive or forgive any
default, rent arrears or other condition with respect to the Lease or the use of
the Original Premises, whether or not in existence or known to Landlord at the
date hereof, or (ii) to consent to any matter as to which Landlord's consent is
required under the terms of the Lease, except such as may heretofore have been
waived in writing or consented to in writing by Landlord.
B. All capitalized terms and other terms not otherwise defined herein
shall have the meanings ascribed to them in the Lease.
C. The preamble and recitals contained in the "WHEREAS" clauses of
this Agreement are hereby incorporated into this Agreement.
D. Except as expressly modified or amended by this Agreement, all of
the terms, covenants and conditions of the Lease are hereby ratified and
confirmed and, except insofar as reference
-5-
<PAGE>
to the contrary is made in any such instrument, all references to the "Lease" in
any future correspondence or notice shall be deemed to refer to the Lease as
modified by this Agreement.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Third
Amendment of Lease as of the date first above written.
TRIZECHAHN NEWPORT INC., Landlord
By: /s/ Carol A. Meyer
----------------------------------------
Carol A. Meyer, Assistant Secretary
By: /s/ Antonio A. Bismonte
----------------------------------------
Antonio A. Bismonte, Sr. Vice President
KNIGHT SECURITIES, L.P., Tenant
By: Roundtable Partners, L.L.C., General
Partner
By: /s/ Robert Turner
----------------------------------------
Name: Robert Turner
Title: Secretary
Tenant's Federal I.D. #13-3810923
-6-
<PAGE>
STATE OF New Jersey )
) ss.:
COUNTY OF Bergen )
On this 6th day of March 1998, before me personally came Robert
Turner, to me known to be the person who executed the foregoing instrument, and
who, being duly sworn by me, did depose and say that he is a member of
Roundtable Partners, L.L.C., a limited liability company which is a general
partner of Knight Securities, L.P., a New York limited partnership, and that he
had authority to sign the foregoing instrument, and he acknowledged to me that
he executed and delivered the same as the act and deed of said partnership for
the uses and purposes therein mentioned.
Carmelita Demerchant
--------------------
Notary Public
CARMELITA DeMERCHANT
NOTARY PUBLIC OF NEW JERSEY
MY COMMISSION EXPIRES APRIL 23, 2001
-7-
<PAGE>
EXHIBIT A
[29TH FLOOR PLAN APPEARS HERE]
WASHINGTON BOULEVARD
Newport Office Tower
29TH FLOOR Jersey City, New Jersey
<PAGE>
Exhibit 10.7
- --------------------------------------------------------------------------------
LEASE AGREEMENT
between
NESTLE USA, INC.
(as Landlord)
and
TRIMARK SECURITIES
Dated: As of March 20, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
1. Definitions 4
2. Leasing of the Leased Premises 14
3. Rent and Additional Charges 14
4. Common Areas 19
5. Services and Utilities 20
6. Use of Leased Premises 25
7. Care of Leased Premises 29
8. Rules and Regulations 30
9. Alterations 30
10. Tenant's Signs 35
11. Tenant's Insurance 36
12. Landlord's Insurance 38
13. Damage by Fire or Other Casualty 39
14. Condemnation 42
15. Assignment and Subletting 43
16. Default Provisions 46
17. Intentionally Deleted 49
18. Bankruptcy Termination Provision 50
19. Landlord May Perform Tenant's Obligations 50
20. Subordination 51
2
<PAGE>
21. Attornment 53
22. Quiet Enjoyment 54
23. Landlord's Right of Access to Leased Premises 54
24. Limitation on Landlord's Liability 55
25. Estoppel Certificates 56
26. Surrender of Leased Premises 57
27. Holding Over 57
28. Arbitration 58
29. Parking 58
30. Transfer of Landlord's Interest 59
31. Leasing Commissions 59
32. Renewal Option 59
33. Termination Option 61
34. Right of First Offer 62
35. General Provisions 64
EXHIBITS
A Floor Plan of the Leased Premises
B Description of the Land
C Rules and Regulations
D Cleaning Specifications
3
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT is made as of this 20th day of March, 1996, by and
----
between Nestle USA, INC., a Delaware corporation having an address at 100
Manhattanville Road, Purchase, New York 10577 ("Landlord"), and TRIMARK
SECURITIES, a New York corporation having an address at 10 New King Street,
White Plains, NY 10604 ("Tenant").
WITNESSETH:
WHEREAS, Landlord desires to lease the Leased Premises (as hereinafter
defined) to Tenant on the terms, covenants and conditions hereinafter set forth;
and
WHEREAS, Tenant desires to lease the Leased Premises from Landlord on the
terms, covenants and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto, for themselves, their successors and
assigns, hereby covenant and agree as follows:
1. Definitions.
-----------
(a) General Interpretive Principles. For purposes of this Lease, except as
-------------------------------
otherwise expressly provided herein or unless the context otherwise requires,
(i) the terms defined in this Section have the meanings assigned to them in this
Section and include the plural as well as the singular, and the use of any
gender herein includes the other gender; (ii) accounting terms not otherwise
defined herein have the meanings assigned to them in accordance with generally
accepted accounting principles; (iii) references herein to "Sections",
"subsections", "paragraphs" and other subdivisions without reference to a
document are to designated Sections, subsections, paragraphs and other
subdivisions of this Lease; (iv) a reference to a subsection without further
reference to a Section is a reference to such subsection as contained in the
same Section in which the reference appears, and this rule also applies to
paragraphs and other subdivisions; (v) the words "herein", "hereof', "hereunder"
and other words of similar import refer to this Lease a whole and not to any
particular provision; and (vi) the word "including" means "including, but not
limited to."
(b) Definitions. As used in this Lease, the following words and phrases
-----------
have the following meanings:
Additional Charges: All amounts payable by Tenant to Landlord under
------------------
this Lease other than Basic Rent. All Additional Charges shall be deemed to
be
4
<PAGE>
additional rent and all remedies applicable to the nonpayment of Basic Rent
shall be applicable to the nonpayment of Additional Charges.
Additional Insured: Landlord's management agent for the Building, if any.
------------------
Affiliate: When used with respect to a Person, any corporation,
---------
partnership, joint venture, trust or individual controlled by, under common
control with, or which controls such Person (the term "control" for these
purposes shall mean the ability, whether by the ownership of shares or other
equity interests, by contract or otherwise, to elect a majority of the directors
of a corporation, to make management decisions on behalf of, or independently to
select the managing partner of, a partnership, or otherwise to have the power
independently to remove and then select a majority of those individuals
exercising managerial authority over an entity, and control shall be
conclusively presumed in the case of the ownership of fifty percent (50%) or
more of the equity interests).
Alterations: Any alterations, installations, improvements, additions,
-----------
renovations or physical changes made by Tenant to the Leased Premises before or
after the Lease Commencement Date.
Bank: Citibank, N.A., or its successor.
----
Base Rate: The base rate of interest from time to time established and
---------
publicly announced by the Bank, in its sole discretion, as its then applicable
base rate of interest to be used in determining actual interest rates to be
charged to certain of its borrowers (or, if more than one base rate of interest
is publicly announced, the highest base rate of interest), said base rate to
change from time to time as and when the change is announced as being effective.
If the Bank ceases publicly to announce its base rate of interest, Landlord
shall have the right to substitute the base rate of interest publicly announced
by Chemical Bank or its successor and, if Chemical Bank or its successor ceases
to announce its base rate of interest publicly, Landlord shall have the right to
substitute another bank, subject to the reasonable approval of Tenant, whose
base rate shall be used.
Real Estate Tax Base: The amount of Real Estate Taxes assessed for the 1996
--------------------
tax year.
Base Rent: For each Lease Year, an amount equal to the product obtained by
---------
multiplying the Rentable Area by the Rent per Square Foot for such Lease Year.
Annual Base Rent shall be $280,980.00, payable in monthly installments of
$23,415.00 for the period commencing with the Rent Commencement Date
5
<PAGE>
through the fifth (5th) anniversary thereof. From the sixth (6th) through tenth
(10th) anniversary of the Rent Commencement Date, annual Base Rent shall be
$309,078.00, payable in monthly installments of $25,756.50. From the eleventh
(11th) through the fifteenth (15th) anniversary of the Rent Commencement Date,
annual Base Rent shall be $365,274.00, payable in monthly installments of
$30,439.50.
Building: The existing office building located on the Land, which has a
--------
mailing address of 100 Manhattanville Road, Purchase, New York 10577.
Building Rentable Area: The total rentable area of the Building, which, on
----------------------
the date hereof, is represented by Landlord to be 279,180 square feet.
Business Days: All days except Saturdays, Sundays and Legal Holidays.
-------------
Common Areas: All area, spaces and improvements within the Building and on
------------
the Land which are provided by Landlord, without a separate charge, for the
nonexclusive convenience and use of the tenants of the Building and their
agents, employees and invitees, including the Building's cafeteria, public
elevators, public lobbies, public corridors, public stairways and public
stairwells, public corridor restrooms, truck loading areas and public entrances
and exits designated by Landlord for ingress to and egress from the Building.
Cooperating Broker: Jones Lang Wootton USA
------------------
Default Interest Rate: A rate per annum equal to the lesser of (i) the sum
---------------------
of (x) the Base Rate and (y) two percent (2%), or (ii) the maximum rate of
interest chargeable under applicable law, if any, with respect to the applicable
payment.
Event of Default: Any of the events set forth in Section 16(a) as an event
----------------
of default.
First-Class Office Building: A first-class institutional office building
---------------------------
(other than the Building) in the Westchester County, New York area.
Governmental Authority: Any (i) government, municipality or political
----------------------
subdivision thereof, (ii) governmental or quasi-governmental agency, authority,
board, bureau, commission, department, instrumentality or public body, (iii)
court, administrative tribunal or public utility or (iv) central bank or
comparable authority.
6
<PAGE>
HVAC Zones: Each of the heating, ventilating and air conditioning zones of
----------
the Building, as indicated on the plans entitled Nestle Foods Corporate
Headquarters, Centre at Purchase, HVAC Plan, prepared by Design Collaborative
Inc., dated December 6, 1985.
Initial After-Hours HVAC Rate: $12.00 per hour per HVAC Zone or portion of
-----------------------------
an HVAC Zone for which after-hours heating, ventilating and air conditioning is
requested by Tenant.
Initial Calendar Year: The calendar year in which the Operating Expense
---------------------
Commencement Date occurs.
Insurance Requirements: The usual and customary provisions and requirements
----------------------
of all policies of fire, property damage and liability insurance from time to
time maintained by Landlord, and all rules and regulations promulgated by any
Board of Fire Insurance Underwriters or fire insurance rating organization,
applicable from time to time to the Building, the Land or the Parking Spaces.
Land: The parcel of real property described in Exhibit B to this Lease.
----
Landlord: The landlord named herein and any subsequent owner of lessee,
--------
from time to time, of Landlord's interest in the Land and/or the Building during
the period of such owner's or lessee's ownership.
Landlord's Notice Address: Nestle USA, Inc., 100 Manhattanville Road,
-------------------------
Purchase, New York 10577, Attention: Director-Corporate Facilities.
Landlord's Work: The work described in Section 9(g) herein.
---------------
Lease: This Lease Agreement, as amended from time to time, and all
-----
Exhibits, Riders and Addenda attached hereto.
Lease Commencement Date: The date on which both Landlord and Tenant shall
-----------------------
have executed and unconditionally delivered to the other party hereto a copy of
this Lease, and Landlord shall have delivered possession of the Leased Premises
to Tenant upon completion of Landlord's Work as provided herein. Access shall be
available earlier for Tenant's professionals to review the Leased Premises.
Lease Year: The period commencing on the Lease Commencement Date and ending
----------
on the last day of the calendar month in which occurs the first anniversary of
the Lease Commencement Date, and each twelve (12) month period
7
<PAGE>
thereafter commencing on the first day after the end of the immediately
preceding Lease Year, except that the last Lease Year shall end on the last day
of the Term.
Lease Premises: The area located on the first floor of the East wing of the
--------------
Building as such area is outlined on the floor plan attached as Exhibit A to
this Lease.
Leasing Broker: Edward S. Gordon Company, Inc.
--------------
Legal Holidays: New Years Day, Independence Day, Labor Day, Thanksgiving
--------------
Day, the day after Thanksgiving Day, Christmas Day, the days on which
President's Day and Memorial Day are observed and those holidays designated by
an Executive Order of the President of the United States or by Act of Congress
and agreed upon by Landlord and Tenant.
Legal Requirements: All laws, statutes, ordinances, orders, rules,
------------------
regulations and requirements, including all mandatory energy conservation
requirements applicable to the Building, of all federal, state and municipal
governments, and the appropriate agencies, officers, departments, boards and
commissions thereof, whether now or hereafter in force, applicable to the Land,
the Building and the Parking Spaces or any part thereof; all applicable local,
State and Federal laws and regulations relating to the use on, storage in, and
the removal from, the Land and/or the Building of hazardous or toxic material,
petrochemical products or asbestos or products containing asbestos; and all
covenants, conditions and restrictions of record affecting the use or occupancy
of the Building.
Operating Expense Base: The Operating Expenses for the calendar year 1996.
----------------------
Operating Expense Commencement Date: January 1, 1997.
-----------------------------------
Operating Expense Increases: Subsequent to the Operating Expense
---------------------------
Commencement Date and each calendar year thereafter ending within the Term and
for the calendar year which includes the last day of the Term, an amount equal
to Tenant's Proportionate Share of the excess of (x) the Operating Expenses for
such calendar year over (u) the Operating Expense Base.
Operating Expenses: The aggregate of all reasonable costs and expenses
------------------
incurred on an accrual basis by Landlord, without duplication, in connection
with the management, operation, maintenance, repair, cleaning, safety and
administration of the Leased Premises, the Building, the Land and the Parking
8
<PAGE>
Spaces in accordance with this Lease, including employees' wages, salaries,
welfare and pension benefits and other fringe benefits; payroll taxes; telephone
service utilizing the Building's telephone system; costs associated with the
periodic painting, staining and refinishing of the walls, floors, trim and
furniture in Common Areas; exterminating services; detection and security
services; sewer rents and charges; premiums for property, liability, rent,
workmen's compensation, sprinkler; water damage and other insurance; repairs and
maintenance; building supplies; uniforms and dry cleaning; snow removal; the
cost of obtaining and providing electricity, water and other public utilities to
the Common Areas; trash removal; janitorial and cleaning supplies; janitorial
and cleaning services; landscaping maintenance; window cleaning; the costs of
cleaning, maintaining and insuring any artwork displayed in the Common Areas;
service contracts for the maintenance of elevators, boilers, heating,
ventilation and air conditioning equipment and other mechanical, plumbing and
electrical equipment; the cost of providing heating, ventilating and air
conditioning; fees for all licenses and permits required for the ownership and
operation of the Land, the Building and the Parking Spaces; business license
fees and taxes, including those based on Landlord's rental income from the
Building (other than income, franchise and similar taxes); sales and use taxes
payable in connection with tangible personal property and services purchased for
the management, operating, maintenance, repair, cleaning, safety and
administration of the Land, the Building and the Parking Spaces; legal fees;
accounting fees relating to the determination of Operating Expenses and
Operating Expense Increases and the preparation of statements required by
tenants' leases; management fees, whether or not paid to any Person having an
interest in or under common ownership with Landlord (provided such fees shall
not exceed the reasonable rates charged for class A office buildings similar to
the Building) and, if there is no manager employed by Landlord, an amount equal
to a fair market management fee, which shall be included in the Operating
Expense Base; fees for the purchase, Installation and maintenance of indoor
plants in the Common Areas; fees arid expenses under service contracts for the
maintenance of indoor plants in the Common Areas; expenses in connection with
the purchase and installation of additional landscaping not included in the
original landscaping plan for the Building and replacement or substitute
landscaping; and all other expenses now or hereafter reasonably incurred in
connection with the operation, maintenance and management of the Land, the
Building and the parking Spaces in a manner comparable to that of other First-
Class Office Buildings. If Landlord makes an expenditure for a capital
improvement to the Land, the Building or the Parking Spaces, either (i) to
reduce Operating Expenses (whether by installing energy conservation or labor-
saving devices or otherwise) or (ii) to comply with mandated Legal Requirements
(including Legal Requirements applicable to the Building subsequent to the date
hereof), and if, under generally accepted accounting
9
<PAGE>
principles, such expenditure is not a current expense, the cost thereof shall be
amortized over a period equal to the useful life of such improvement, determined
in accordance with generally accepted accounting principles, and the amortized
cost allocated to each calendar year during the Term, together with an imputed
interest amount calculated on the unamortized portion thereof using an interest
rate which is two percent (2%) above the Base Rate at the time of the
expenditure, shall be treated as an Operating Expense. Except as provided in the
preceding sentence, capital expenditures shall not be included in Operating
Expenses. Amounts payable by tenants of the Building for (A) after-hours heating
or air-conditioning, (B) use of the Building's cafeteria for special events, (C)
excess electrical usage, (D) recoveries of expenses and other separate charges
made to tenants of the Building for special services and (E), to the extent that
Operating Expenses include the cost of any repair or reconstruction work, the
amount of any insurance recoveries (net of the costs of collection), all
determined on an accrual basis, shall be credited against Operating Expenses in
computing the amount thereof to the extent the expenses relating to the same
were originally included in the calculation of Operating Expenses. Operating
Expenses shall not include Real Estate Taxes, financing or mortgage costs;
depreciation expenses; the cost of advertising vacant space or other Building
promotions; cafeteria food service operation costs, exclusive of utilities,
maintenance and cleaning of the cafeteria; leasing commissions; executive
salaries; the cost of tenant improvements; ground rent; legal fees for leasing
vacant space in the Building or enforcing Landlord's rights under leases with
tenants for space in the Building (including legal fees and court costs); legal
and other professional fees, interest and penalties arising from or in
connection with Landlord's failure to perform any of its obligations in a timely
manner. Operating Expenses are subject to adjustment as provided in Section
3(d). Operating Expenses shall also not include Real Estate Taxes or any sum in
lieu thereof; the cost of any judgment, settlement or arbitration award
resulting from any tort liability; all expenses for which Landlord has received
any reimbursement to the extent of such reimbursement; any costs for sculptures,
painting and other objects of art located within the Building, excluding the
costs of maintaining, cleaning and insuring such objects in the Common Areas of
the Building; the costs of any repair or work made by Landlord pursuant to or as
a result of condemnation or casualty; the cost of installing, operating and
maintaining any specialty facility, such as an observatory, broadcasting
facilities, athletic or recreational club; expenses incurred in connection with
services or other benefits of a type which are not offered to Tenant but are
provided to other tenants or occupants of the Building; the cost of supplying
and installing any separate electric meter Landlord may require of other tenants
in the Building and the costs of electricity furnished to
10
<PAGE>
the other tenants of the Building; and any compensation paid to clerks,
attendants or other persons in commercial concessions operated by
Landlord.
Parking Spaces: Four (4) undesignated parking spaces for each 1,000
--------------
rentable square feet of Rentable Area (rounded to the nearest whole digit),
which shall be located in the parking lots situated on the Land (other than
visitor parking spaces designated by Landlord, by the placement of a sign
or signs or otherwise, as reserved for other tenants of or visitors to the
Building). Landlord shall designate five (5) reserved, covered parking
spaces for Tenant's usage.
Person: A natural person, a partnership, a corporation and any other
------
form of business or legal association or entity.
Real Estate Tax Increase: Subsequent to the Operating Expense
------------------------
Commencement Date, each Tax Year thereafter ending within the Term and the
Tax Year which includes the last day of the Term, an amount equal to
Tenant's Proportionate Share of the excess of (x) the Real Estate Taxes for
such Tax Year over (y) the Real Estate Tax Base Amount.
Real Estate Taxes: All taxes, assessments, vault rentals, and other
-----------------
charges, if any, general, special or otherwise, including all assessments
for schools, public betterments and general or local improvements, levied
or assessed upon or with respect to the ownership of and/or all other
taxable interests in the Building the Land and the Parking Spaces imposed
by any public or quasi-public authority having jurisdiction and personal
property taxes levied or assessed on Landlord's personal property used in
connection with the management, operation, maintenance, repair, cleaning,
safety and administration of the Land, the Building and the Parking Spaces.
Except for taxes, fees, charges and impositions described in the next
succeeding sentence, Real Estate Taxes shall not include any federal or
state estate or inheritance taxes or taxes on income or any penalty or
interest attributable to any nonpayment or late payment of Real Estate
Taxes by Landlord (unless such nonpayment or late payment is a result of
Tenant's nonpayment or late payment of the applicable Real Estate Tax
Increase). If at any time during the Term the methods of taxation shall be
altered so that in addition to or in lieu of or as a substitute for the
whole or any part of any Real Estate Taxes levied, assessed or imposed
there shall be levied, assessed or imposed (i) a tax, license fee, excise
or other charge on the rents received by Landlord, or (ii) any other type
of tax or other imposition in lieu of, or as a substitute for, or in
addition to, the whole or any portion of any Real Estate Taxes, then the
same shall be included as Real Estate Taxes. In the event all or any
portion of any increase in the assessed valuation of the Building is a
result of any improvements constructed by another tenant leasing
11
<PAGE>
space in the Building (the determination of whether all or any portion of
any such increase is solely and directly a result of the construction of
any such improvements being in Landlord's reasonable discretion), or as a
result of additional tenants occupying the Building, then for so long as
such increase is in effect, Real Estate Taxes shall be calculated by
multiplying the tax rate for the applicable Tax Year by the assessed
valuation that would have applied in the absence of any such increase (or
any portion of such increase to the extent only a portion of the increase
is solely and directly attributable to such improvements) due to such
improvements, or such increase in occupancy. A tax bill or true copy
thereof, together with any explanatory or detailed statement of the area or
property covered thereby, submitted by Landlord to Tenant shall be
conclusive evidence of the amount of taxes assessed or levied, as well as
of the items taxed. If any real property tax or assessment levied against
the land, buildings or improvements covered thereby or the rents reserved
therefrom shall be evidenced by improvement or other bonds, or in other
form, which may be paid in annual installments, only the amount paid or
payable in any Tax Year, including she interest, if any, thereon, shall be
included as Real Estate Taxes for that Tax Year.
Rent Commencement Date: December 15, 1996.
----------------------
Rent per Square Foot: Subject to any adjustment in rental periods
--------------------
occasioned by delays in completion of Landlord's Work, Twenty Dollars
($20.00) per annum per rentable square foot of space in the Leased Premises
for the period from December 15, 1996 to December 14, 2001, inclusive;
Twenty-Two Dollars ($22.00) per annum per rentable square foot of space in
the Leased Premises for the period from December 15, 2001 to December 14,
2006, inclusive; and Twenty-Six Dollars ($26.00) per annum per rentable
square foot of space in the Leased Premises for the period from December
15, 2006 to December 14, 2011, inclusive.
Rentable Area: The rentable area of the Leased Premises, which, on
-------------
the date hereof, is agreed to be approximately 14,049 square feet on the
first floor of the East and West Wings of the Building.
Rules and Regulations: The rules and regulations in effect for
---------------------
tenants of the Building as of the date of this Lease, as modified from time
to time by Landlord pursuant to Section 8, and will apply to all tenants in
the Building.
Security Deposit: Seventy Thousand Two Hundred Forty-Five Dollars
----------------
($70,245.00) representing an amount equal to three (3) months Basic Rent,
as security for the full and faithful performance by Tenant of each and
every term, covenant, and condition of this Lease, which Tenant shall
deposit with Landlord upon execution of this Lease. In the event that
Tenant defaults beyond any applicable grace or notice periods in any of the
terms,
12
<PAGE>
provisions, covenants, and conditions of this Lease, including but not
limited to payment of any rent or additional charges, Landlord may use,
apply, or retain the whole or any part of the Security Deposit for the
payment of any such sum in default, or for any other sum which Landlord may
expend or be required to expend by reason of Tenant's default, including
any damages or deficiencies in the reletting of the Leased Premises,
whether such damage or deficiency may occur before or after some
repossession proceeding or other reentry by Landlord. In the event that
Tenant shall fully and faithfully comply with all the terms and conditions
of this Lease, the Security Deposit or any balance thereof, together with
interest therein, shall be returned to Tenant after expiration of the Term.
The Landlord shall deposit the aforesaid Security Deposit in an interest
bearing account, which interest shall accrue to the benefit of Tenant. If
the Landlord utilizes any of the Security Deposit in curing a default on
the part of Tenant, Tenant shall immediately pay Landlord the amount
necessary to restore the Security Deposit to its original amount. Tenant
shall have the right to substitute the cash Security Deposit with a letter
of credit subject to Landlord's approval within thirty (30) days following
submission of the form and terms of such letter of credit.
The Security Deposit shall not be deemed or construed to be an
advance payment of rent for any month of the Term.
Taking: A taking of property, or any interest therein or right
------
appurtenant or accruing thereto, by condemnation or eminent domain or by
action or proceeding, or agreement in lieu thereof, pursuant to
governmental authority.
Tax Year: Each period of twelve (12) consecutive months, commencing
--------
on the first day of January of each such period in which occurs any part of
the Term.
Tenant: The tenant named herein and any permitted assignee under
------
Section 15.
Tenant's Associates: Tenant's agents, employees, invitees,
-------------------
licensees, customers and clients, and guests or contractors of any of the
foregoing.
Tenant's Billing Address: 100 Manhattanville Road, Purchase, New
------------------------
York 10577, Attention: Director, Facility Services.
Tenant's Notice Address: 10 New King Street, White Plains, NY 10604
-----------------------
Attention: Steve Steinman (before the Lease Commencement Date), or 100
Manhattanville Road, Purchase, New York 10577, Attention: Steve Steinman
(after the Lease Commencement Date, with a copy to Snyder & Snyder, 6 Avery
Court, White Plains, NY 10604).
13
<PAGE>
Tenant's Personal Property: All furniture, furnishings, business
--------------------------
machines, trade fixtures, equipment and other moveable property installed
in the Leased Premises by or at the expense of Tenant.
Tenant's Proportionate Share: The percentage (rounded off to two (2)
----------------------------
decimal points) from time to time which the Rentable Area is of the
Building Rentable Area, which is agreed to be 5.03% and shall remain
-----
constant unless the Rentable Area or the Common Areas is adjusted pursuant
to the provisions hereof.
Term: The period commencing on the Lease Commencement Date and
----
ending on December 14, 2011, but in any event the Term shall end on any
date when this Lease is otherwise terminated pursuant to the terms hereof.
Unavoidable Delays: Delays caused by strikes, acts of God, lockouts,
------------------
labor difficulties, riots, explosions, sabotage, accidents, shortages or
inability to obtain labor or materials, Legal Requirements, governmental
restrictions, enemy action, civil commotion, fire or other casualty or
similar causes beyond the reasonable control of Landlord.
2. Leasing of the Leased Premises.
------------------------------
Subject to the terms of this Lease, Landlord hereby leases to Tenant, and
Tenant hereby leases from Landlord, the Leased Premises, for the Term, except
that Landlord reserves the use of and Tenant shall have no right in or to (a)
the exterior surfaces of all perimeter walls of the Building, (b) the roof of
the Building, except as otherwise provided herein, or (c) the air space above
the Building.
3. Rent and Additional Charges.
---------------------------
(a) Payment of Rent and Additional Charges. Tenant shall pay the Base
--------------------------------------
Rent for each Lease Year in equal monthly installments in advance, commencing on
the Rent Commencement Date and thereafter on the first day of each month during
the Term. If the Rent Commencement Date is not the first day of a month, Base
Rent for the month in which the Rent Commencement Date occurs shall be pro-rated
on the basis of the number of days in the month before and after the Rent
Commencement Date. Landlord acknowledges receipt of the Security Deposit. The
Base Rent and all Additional Charges shall be paid promptly when due, in lawful
money of the United States, without notice or demand and without deduction,
diminution, abatement, counterclaim or setoff of any amount or for any reason
whatsoever, except as otherwise expressly provided in subsection (b) and in
Sections 5(j), 13(b) and 14(a) or otherwise herein, to Landlord at Landlord's
Notice Address or at such other address or to such other Person (including a
successor to Landlord's interest in the Building) as Landlord may from time to
time designate. Such payment shall be sent by check of Tenant. If Landlord shall
maintain an
14
<PAGE>
office in the Building and Tenant shall make payments by check, any such payment
may be delivered by Tenant to Landlord's representative at the Building.
Landlord shall not be required to accept the check of any other Person, and any
check received by Landlord shall be deemed received subject to collection. If
any check is mailed by Tenant, Tenant shall post such check in sufficient time
prior to the date when payment is due so that such check will be received by
Landlord on or before the date when payment is due. Tenant shall assume the risk
of lateness or failure of the mails, and no lateness or failure of the mails
will excuse Tenant from its obligation to make the payment in question when
required under this Lease. If, during any Lease Year, Landlord receives two (2)
or more checks from Tenant which are returned by Tenant's banks for insufficient
funds or are otherwise returned unpaid, Tenant agrees that all checks thereafter
shall be either banks, certified or cashiers' checks. All bank service charges
resulting from any such returned checks shall be borne by Tenant.
(b) Payment of Operating Expense Increases. Tenant shall pay, as
--------------------------------------
additional rent, Operating Expense Increases for each calendar year, commencing
on the Operating Expense Commencement Date. Operating Expense Increases, if any,
for the Initial Calendar Year and each subsequent calendar year during the Term
shall be paid in arrears as provided below. Landlord shall make a reasonable
estimate of Tenant's Operating Expense Increases for each calendar year
commencing with the Initial Calendar Year (based on the Operating Expenses for
the preceding calendar year and anticipated increases in Operating Expenses for
the current calendar year). Tenant shall pay to Landlord a properly pro-rated
share of the estimated amount of Tenant's Operating Expense Increases for each
calendar year, in advance on the first day of each month, beginning on the later
of (i) the Operating Expense Commencement Date or (ii) thirty (30) days after
receipt of Landlord's estimate of the Operating Expense Increases. If Landlord's
estimate of Tenant's Operating Expense Increases for any calendar year is not
received by Tenant on or before January 1 of the calendar year, Tenant shall
continue to pay the monthly installments of Operating Expense Increases at the
rate established for the immediately preceding calendar year until Tenant
receives a new estimate for the calendar year. Landlord's estimate of Tenant's
Operating Expense will include a breakdown of amounts for basic categories of
Operating Expense Increases. Landlord shall have the right to amend any estimate
of Tenant's Operating Expense Increases from time to time (but no more than
twice a year), upon delivery to Tenant of an amended estimate. Within thirty
(30) days after receipt of a new or amended estimate of Operating Expense
Increases for the calendar year, Tenant shall pay to Landlord in a lump sum the
arrearages in the monthly estimates for each month in the calendar year before
receipt of the new or amended estimate, as applicable, if any, and shall pay the
remaining monthly installments for the calendar year on the first day of each
month in advance during the balance of the calendar year in accordance with the
terms of the new or amended estimate, as applicable. After the end of the
Initial Calendar Year and each calendar year
15
<PAGE>
subsequent thereto, Landlord shall submit to Tenant a statement (the "Annual
Operating Expense Statement") setting forth in reasonable detail the Operating
Expenses for such calendar year and the actual amount (if any) of Tenant's
Operating Expense Increases for such calendar year. If Tenant's actual Operating
Expense Increases so stated are more than the amount (if any) theretofore paid
by Tenant for Operating Expense Increases based on Landlord's estimate for the
calendar year, Tenant shall pay to Landlord the deficiency within thirty (30)
days after the submission of the Annual Operating Expense Statement. If Tenant's
actual Operating Expense Increases so stated are less than the amount (if any)
theretofore paid by Tenant for Operating Expense Increases based on Landlord's
estimate for the calendar year, Landlord shall credit the excess against the
next monthly installment of Basic Rent thereafter payable by Tenant under this
Lease, except that Landlord shall refund to Tenant the excess (if any) for the
calendar year within which the last Lease Year ends or terminates, within thirty
(30) days after submission of the Annual Operating Expense Statement for such
calendar year. If the Operating Expense Commencement Date shall not coincide
with the beginning of a calendar year, the amount of Operating Expense Increases
payable for the Initial Calendar Year shall be pro-rated on a daily basis
between Landlord and Tenant based on the number of days in the Initial Calendar
Year occurring on and after the Operating Expense Commencement Date. If the last
day of the Term shall not coincide with the end of a calendar year, the amount
of Operating Expense Increases payable for the calendar year in which the last
day of the Term occurs shall be pro-rated on a daily basis between Landlord and
Tenant based on the number of days in which this Lease is in effect. Tenant's
obligation under this subsection to pay Operating Expense Increases and
Landlord's obligation to reimburse Tenant for an overpayment of Operating
Expense Increases with respect to the calendar year within which the last Lease
Year ends or terminates, shall, for a period of two (2) years, survive the
expiration of the Term or the earlier termination of this Lease.
(c) Tenant's Right to Audit the Annual Operating Expense Statement.
--------------------------------------------------------------
Tenant shall have the right to audit the Annual Operating Expense Statement for
any calendar year at any time within six (6) months after Tenant receives such
Annual Operating Expense Statement. The cost of any such audit shall be paid by
Tenant, except that if it is determined on the basis of such audit (or if, in
accordance with the following provisions, it is otherwise ultimately determined)
that the amount of Tenant's Operating Expense Increases for any calendar year
was overstated by more than five percent (5%), then the cost of the audit shall
be paid by Landlord. Landlord shall credit against the next monthly installment
of Basic Rent payable by Tenant under this Lease the amount of any over-payment
of Tenant's Operating Expense Increases for the calendar year in question (or,
with respect to the calendar year within which the last Lease Year ends,
Landlord shall refund any such overpayment to Tenant) within thirty (30) days
after the amount of the overpayment has been established by the audit or by
arbitration as provided in this subsection. If Tenant fails to exercise its
right of audit within the six (6) month period, the
16
<PAGE>
amount of Tenant's Operating Expense Increases for the calendar year shall be
conclusively established as the amount set forth in the Annual Operating Expense
Statement for such calendar year delivered by Landlord to Tenant pursuant to
subsection (b). If, however, Tenant timely exercises its right of audit, the
amount of Tenant's Operating Expense Increases for such calendar year shall be
conclusively established as the amount determined as a result of such audit
unless, within six (6) months after Landlord's receipt of a report of the same
from the auditors selected by Tenant, Landlord, at its expense, shall contest
the amount thereof, in which event the amount of Tenant's Operating Expense
Increases shall be conclusively established by an arbitration proceeding
conducted pursuant to Section 8.
(d) Gross Up of Operating Expenses. If, during all or any part of a
------------------------------
calendar year, any part of the Building Rentable Area is leased to a tenant
(hereinafter referred to as a "Special Tenant") which, in accordance with the
terms of its lease, provides its own cleaning and janitorial services or is not
otherwise required to pay Operating Expense Increases on the basis of operating
expenses for the Building which include substantially the same components as the
Operating Expenses (as set forth in Section 1(c)), the Operating Expenses for
such calendar year shall be increased by the additional costs for cleaning and
janitorial service and the other expenses, as reasonably estimated by Landlord,
that would have been incurred by Landlord if Landlord had furnished and paid for
cleaning and janitorial services for the space occupied by the Special Tenant or
Landlord had furnished and paid for any other service which the Special Tenant
did not receive and which was not included in operating expenses as defined in
the Special Tenant's lease. If the average occupancy level of the Building for
any calendar year (including the calendar year 1996) is less than ninety-five
percent (95%), the Operating Expenses for such calendar year shall be increased
(both for purposes of calculating the Operating Expense Base and Operating
Expense Increases) by the additional Operating Expenses, as reasonably estimated
by Landlord, that would have been incurred by Landlord in providing the same
services provided to Tenant (and included in Operating Expenses) if the average
occupancy level of the Building for the calendar year had been ninety-five
percent (95%) so that Operating Expenses for purposes of calculating Operating
Expense Base and Operating Expense Increases shall be an amount equal to the
like expenses which would normally be expected to be incurred had such occupancy
been ninety-five percent (95%) throughout the year of the Operating Expense Base
or the year of the Operating Expense Increase; provided, however, in no event
shall Tenant's payment for Operating Expense Increases exceed Landlord's actual
costs incurred in operating and maintaining the Building.
(e) Payment of Real Estate Tax Increases. Tenant shall pay, as
------------------------------------
additional rent, Real Estate Tax Increases for each Tax Year subsequent to the
1996 tax year, in the manner set forth in this subsection. Tenant shall pay each
such installment of Real Estate Tax Increases within thirty (30) days after
Tenant's receipt of a statement therefor from
17
<PAGE>
Landlord with supporting documentation, or, if later, thirty (30) days prior to
the date the applicable Real Estate Taxes are payable by Landlord to the taxing
authorities. The statement to be rendered by Landlord shall set forth in
reasonable detail the computation of the particular installment of Real Estate
Tax Increase being billed. In no event shall payments of Real Estate Taxes by
tenants in the Building exceed the Real Estate Taxes for the building. If,
during the Term, Landlord is required to pay Real Estate Taxes in full or in
monthly, quarterly or other installments on any other date or dates than are
presently required, then at Landlord's option, Tenant's obligation to pay Real
Estate Tax Increases shall be correspondingly accelerated or revised so that
Real Estate Tax Increases are due thirty (30) days prior to the date the
applicable Real Estate Tax payments are due to the taxing authorities. If the
Operating Expense Commencement Date shall not coincide with the beginning of a
Tax Year, the amount of Real Estate Tax Increases payable for the Tax Year in
which the Operating Expense Commencement Date occurs shall be pro-rated on a
daily basis between Landlord and Tenant based on the number of days in the Tax
Year in which the Lease Commencement Date occurs occurring on and after the
Lease Commencement Date. If the last day of the Term shall not coincide with the
end of a Tax Year, the amount of Real Estate Tax Increases payable for the Tax
Year in which the last day of the Term occurs shall be pro-rated on a daily
basis between Landlord and Tenant based on the number of days in which this
Lease is in effect. Tenant's obligation under this subsection to pay Real Estate
Tax Increases shall survive for a period of two (2) years following the
expiration of the Term or the earlier termination of this Lease.
(f) Adjustments to Real Estate Tax Increases. If, during the first two
----------------------------------------
years following the Lease Commencement Date, there shall be a Real Estate Tax
Increase which, in the aggregate, shall exceed fifty cents ($.50) per square
foot charge to Tenant then, in such event, Landlord and Tenant shall each absorb
one-half of the Real Estate Tax Increase in excess of fifty cents ($.50) per
square foot on a pro rata basis. This apportionment, if any, shall terminate on
and after the second anniversary of the Lease Commencement Date and Tenant shall
pay the entire Real Estate Tax Increase which may occur during the first two
years subsequent to the Lease Commencement Date, which in the aggregate shall
not exceed a charge to Tenant of fifty cents ($.50) per square foot. If there
shall be any increase or decrease in the Real Estate Taxes for any Tax Year,
whether during or after such Tax Year, so as to increase or decrease the amount
of the Real Estate Tax Increase for such Tax Year, the Real Estate Tax Increase
for such Tax Year shall be appropriately adjusted and the difference paid or
refunded, as the case may be, in accordance herewith. If Landlord shall receive
a refund of Real Estate Taxes allocable to any period after July 1, 1996, or
thereafter, Landlord shall either pay to Tenant or credit against the Basic Rent
and Additional Charges Payable by tenant hereunder the portion of the refund
attributable to any Real Estate Tax Increases paid by Tenant hereunder, after
deducting from any such refund the costs and expenses incurred by Landlord in
obtaining the same, including appraisal costs and the cost of legal and
accounting fees and
18
<PAGE>
disbursements. Landlord and Tenant's obligations under this paragraph shall
survive the expiration of the Term or the earlier termination of this Lease.
Nothing contained in this Lease shall obligate Landlord to bring any application
or proceeding seeking a reduction in Real Estate Taxes or the assessed valuation
of the Land or the Building. Tenant, for itself and its permitted subtenants and
successors in interest hereunder, hereby waives, to the fullest extent permitted
by law, any right Tenant may now or in the future have to protest or contest any
Real Estate Taxes or to bring any application or proceeding seeking a reduction
in Real Estate Taxes or the assessed valuation of the Land or the Building or
otherwise challenging the determination thereof.
(g) Interest. If Tenant fails to make any payment of Basic Rent or
--------
Additional Charges within ten (10) days after the due date thereof, interest
shall accrue on the unpaid portion thereof from the due date at the Default
Interest Rate, and shall be payable on demand.
(h) Accord and Satisfaction. No Payment by Tenant or receipt by
-----------------------
Landlord of any lesser amount than the amount stimulated to be paid hereunder
shall be deemed other than on account of the earliest stipulated Basic Rent or
Additional Charges, nor shall any endorsement or statement on any check or
letter be deemed an accord and satisfaction, and Landlord may accept any check
or payment without prejudice to Landlord's right to recover the balance due or
to pursue any other remedy available to Landlord.
(i) No Setoff. Except as otherwise expressly provided in this Lease,
---------
Tenant shall not have the right to setoff or deduct any amount allegedly owed by
Landlord to Tenant under this Lease from any of the Basic Rent or Additional
Charges payable by Tenant under this Lease. Tenant's remedy with respect to any
claim against Landlord shall be to commence an independent legal action against
Landlord.
4. Common Areas.
------------
Throughout the Term, Tenant and Tenant's Associates shall have the
nonexclusive right, in common with others, to use the Common Areas. Landlord
shall have the right at any time, without Tenant's consent, subject, however, to
the provisions of Section 5(j) hereof, (a) to change the arrangement or location
of entrances, passageways, doors, doorways, corridors, stairs or other public
portions of the Land or the Building, provided any such change does not
unreasonably obstruct Tenant's access to the Leased Premises or the Parking
Spaces; (b) to grant to any Person an exclusive right to conduct a particular
business or undertaking in the Building that is not inconsistent with Tenant's
permitted use of the Leased Premises or with the use of a first class office
building; (c) to use and/or lease the roof of the Building and the Common Areas
for any purposes not inconsistent with the terms of this Lease, including,
without limitation, Section 9(h) herein; (d) to subdivide the Land or to combine
the Land with other adjoining real property; (e) to add
19
<PAGE>
additional covered parking spaces on the Land or to add additional levels of
parking spaces to the existing covered Parking Spaces, to erect additional
buildings or additions on the Land and to erect temporary scaffolds and other
devices in connection with the construction, repair and maintenance of the Land
or the Building, or both; and (f) to relocate or alter the existing Parking
Spaces and to add new parking areas in connection with any future development of
new buildings on the Land or on adjoining real property. Landlord's exercise of
any of the foregoing rights shall not constitute an actual or constructive
eviction, in whole or in part, or entitle Tenant to any abatement or diminution
of rent, or relieve Tenant from any of its obligations under this Lease, or
impose any liability upon Landlord, by reason of inconvenience or annoyance to
Tenant, or injury to or interruption of Tenant's business, or otherwise.
Notwithstanding anything to the contrary set forth above, in the event Landlord
converts any Common Areas to rentable areas so as to prevent Tenant from using
such Common Areas in accordance with the terms of this Lease, the Building
Rentable Area shall be increased and Tenant's Proportionate Share shall be
reduced accordingly and Tenant's share of Operating Expense Increases and Real
Estate Tax Increases shall be likewise reduced accordingly.
5. Services and Utilities.
----------------------
(a) Building Services. Throughout the Term, Landlord agrees that the
-----------------
Building will be maintained and operated in the same manner as other First-Class
office Buildings and that, subject to Unavoidable Delays and Legal Requirements,
it will furnish. or cause to be furnished, the following services:
(1) Subject to the provisions of subsections (b) and (c), normal and
usual electricity for the operation of ordinary office equipment consisting
of an average of eight (8) watts of demand load per square foot of Rentable
Area, exclusive of existing ceiling lighting, plus electricity for the
operation of the existing ceiling lighting;
(2) Adequate supplies for core or Building standard toilet rooms
located in the Building;
(3) Subject to Tenant's right to furnish its own cleaning and
janitorial services as described in subsection (k) hereof, normal and usual
cleaning and janitorial services on Business Days in accordance with the
standards set forth in Exhibit D to this Lease, provided, however, that any
cleaning and janitorial services requested by Tenant with respect to any
bathrooms in the Leased Premises other than core or Building standard
bathrooms shall be furnished by Landlord only upon Tenant's request and at
a reasonable additional charge to be agreed upon by Landlord and Tenant;
20
<PAGE>
(4) Hot and cold running water in the toilet rooms located in the
core areas of the Building and at the valved outlets in the Leased Premises
(if any);
(5) Subject to the provisions of subsections (d) and (g), heating,
ventilating and air-conditioning to the Leased Premises between the hours
of 8:00 A.M. and 6:00 P.M. on Business Days; provided that the computer
room in the Leased Premises shall have 24-hour HVAC service;
(6) Automatically operated elevator service twenty-four (24) hours a
day, seven (7) days a week;
(7) Intentionally Deleted;
(8) Installation of all initial and replacement electric bulbs and
fluorescent tubes in light fixtures in the Common Areas;
(9) In addition, an individual shall be stationed in the lobby
reception area during business hours. A security access system for the
Common Areas of the Building, including ten (10) card entry cards for
Tenant's usage with any additional cards to be issued at Tenant's sole cost
and expense, which identification cards shall be compatible with the
Building's card access system;
(10) Two (2) keys for 24-hour access to each of the Building's
telephone and janitorial closets pertaining solely to the Leased Premises
and, if the Leased Premises is not equipped with a card access system, two
(2) keys to the Leased Premises, such keys being at no cost to Tenant, but
all additional keys, including replacements for lost keys, shall be issued
only upon Tenant's payment of a reasonable cost for each additional key;
and
(11) Upon occupancy of the Leased Premises by Tenant's employees,
cafeteria services in the Building's cafeteria, which Tenant's employees
and invitees shall be entitled to use, together with the employees and
invitees of Landlord and any other tenants occupying space in the Building,
during the cafeteria's normal operating hours (which hours shall be
comparable to the hours of cafeterias in other First-Class Office
Buildings), and, upon reasonable notice to Landlord and subject to
availability, and at Tenant's sole cost and expense, the use of the seating
area in the Building's cafeteria at other times for meetings and special
events.
(b) Electricity. Landlord shall not be liable in any way to Tenant for any
-----------
failure or defect in the supply or character of electrical energy furnished to
the Leased Premises by reason of any requirement, act or omission of the public
utility providing the Building with electricity.
21
<PAGE>
(c) Measure of Tenant's Electrical Usage. Landlord shall install or cause
------------------------------------
Tenant to install in accordance with Section 9(g) hereof, in the Building one
(1) or more separate electric submeters, at Landlord's sole cost and expense, in
order to monitor electricity use in the Leased Premises. Tenant agrees to
reimburse Landlord, within thirty (30) days of Tenant's receipt of a bill and
supporting documentation from Landlord therefor, for the cost of the electricity
Tenant consumes, as recorded by such submeter or submeters at Landlord's actual
cost of electricity. In the event submetering of electricity is prohibited by
any law hereafter enacted, Tenant's consumption of electricity shall be measured
from time to time by a survey made at the expense of the party requesting same
(other than the first such survey made after the date hereof, which shall be
made at Landlord's expense), the first such survey being made within 180 days
after Landlord's receipt of Tenant's notice indicating that it is fully
occupying the area to be surveyed and that it has installed all of the
electrical equipment it plans to install in the reasonably foreseeable future.
Thereafter and from time to time, during the term of this Lease, Landlord and
Tenant shall have the right to cause additional surveys of Tenant's electrical
usage to be made. In the event any of the foregoing surveys shall determine that
there has been an increase or decrease in Tenant's usage of electricity, then
effective as of the date of such change in usage, the charges payable by Tenant
for its electricity usage shall be increased or decreased accordingly. In the
event from time to time after the initial survey the charges by the utility
company supplying electric current to Landlord are increased or decreased, then
in such event the monthly charge shall be creased or decreased accordingly on
account of such charges. All surveys shall be conducted by an independent
electrical engineer or electrical consulting firm selected by Landlord, and
Tenant shall pay to Landlord, within thirty (30) days of Tenant's receipt of a
bill from Landlord therefor, the cost of the electricity it consumes as
determined by such electrical engineer or consulting firm. Pending (i)
Landlord's installation of the aforementioned submeter or submeters or, (ii) in
the event submetering of electricity becomes prohibited as described above,
pending completion of the initial survey following the effective date of such
prohibition, Landlord shall furnish electricity to Tenant at a rate of $2.15 per
kilowatt hour per rentable square foot of space in the Leased Premises, subject,
however, in the event submetering or electricity becomes prohibited as described
above, to retroactive adjustment upon receipt of the aforementioned survey based
on Landlord's average cost of electricity and such survey.
(d) After-Hours Heating, Ventilating and Air-Conditioning. Landlord shall
-----------------------------------------------------
provide heat and air-conditioning at times in addition to those specified in
paragraph 5 of subsection (a) of this Section 5 at Tenant's expense, if Tenant
gives Landlord notice before 3:00 P.M. (in the case of after-hours service on
weekdays) and before 12:00 noon on Fridays or the day preceding a Legal Holiday
(in the case of after-hours service on Saturdays, Sundays or Legal Holidays),
provided, however, that to the extent feasible, Landlord shall use reasonable
efforts to implement, at Tenant's sole cost and expense, a
22
<PAGE>
system that will permit Tenant to regulate after-hours heating, ventilation and
air conditioning to the Leased Premises without Landlord's assistance. Landlord
shall have the right throughout the Term to charge Tenant for after-hours use of
heat or air--conditioning at an hourly rate which represents Landlord's
reasonable estimate of its actual cost of providing such after-hours service,
including labor, cost of fuel, cost of electricity, depreciation and wear and
tear on equipment. During the first Lease Year, Landlord's charge for after-
hours service shall not exceed the Initial After-Hours HVAC Rate. If the same
after-hours service is also requested by other tenants in the same heating,
ventilating and air-conditioning zone of the Building as Tenant, the charge
therefor to each tenant requesting such after-hours service shall be a pro-rated
amount based upon the square footage of the leased premises of all tenants in
the same HVAC Zone requesting such after-hours services. Landlord agrees not to
discriminate against Tenant in calculating the allocation of after-hours
heating, ventilating and air-conditioning costs among tenants. Tenant shall pay
such charges to Landlord within thirty (30) days after Tenant's receipt of an
invoice therefor. Notwithstanding anything stated herein, Landlord shall provide
cooling water to the Liebert Units to be utilized by Tenant 24-hours, 365 days a
year so that HVAC will be provided to the computer room at the Leased Premises,
24-hours, 365 days a year.
(e) Intentionally Deleted.
(f) Landlord's Right to Maintain Pipes and Conduits. Landlord reserves the
-----------------------------------------------
right to erect, install, use, maintain and repair pipes, ducts, conduits,
cables, plumbing, vents and wires in, to and through the Leased Premises as and
to the extent that Landlord may now or hereafter deem to be necessary or
appropriate for the proper operation and maintenance of the Building, or other
tenants' installations in the Building, and the right at all times to transmit
water, heat, air-conditioning and electric current through such pipes, conduits,
cables, plumbing, vents and wires. Landlord's rights set forth in this
subsection shall be subject to the terms of Sections 5(j), 23(a) and 35(k).
(g) Heating, Ventilating and Air-Conditioning Specifications. Landlord
--------------------------------------------------------
represents to Tenant that the heating, ventilating and air-conditioning system
for the Leased Premises has been designed to provide for the comfortable
occupancy of the Leased Premises, including the following features: (i) all HVAC
base building systems have fan-powered VAV boxes for cooling throughout the
Leased Premises; (ii) heating provided by gas fired hot water boilers via
perimeter convectors throughout the Leased Premises; and (iii) HVAC system
controlled by a Novar Energy Management System and will accommodate an occupancy
schedule of one person per 100 usable square feet. Landlord shall not be
responsible if the normal operation of the Building's air-conditioning system
shall fail to provide conditioned air within such temperature levels (A) in any
portions of the Leased Premises which have a connected electrical load for all
purposes (exclusive of existing ceiling lighting) in excess of eight (8) watts
of demand
23
<PAGE>
load per square foot of Rentable Area or which have a human occupancy factor in
excess of one individual for each 125 square feet of Rentable area (the average
electrical load and human occupancy factors for which the Building's air-
conditioning system is designed), (B) because of the arrangement of partitioning
or other Alterations made by or on behalf of Tenant or any person claiming
through or under Tenant, (C) in any portions of the Leased Premises exposed to
direct sunlight in which Tenant fails to keep the blinds closed, or (D) because
of the failure by Tenant or its employees to use the heating, ventilating and
air-conditioning system in the manner in which it was designed to be used and
Landlord had notified Tenant of same. Tenant agrees to observe and comply with
all reasonable rules from time to time prescribed by Landlord for the proper
functioning and protection of the heating, ventilating and air-conditioning
systems in the Building.
(h) Landlord's Access to Heating, Ventilating and Air-Conditioning
--------------------------------------------------------------
Facilities. Landlord shall have unrestricted access to all heating, ventilating
- ----------
and air-conditioning facilities in the Leased Premises for the purposes of
repairs, maintenance, alterations and improvements. Landlord s rights set forth
in this subsection shall be subject to the terms of Sections 5(j), 23(a) and
35(k).
(i) Cessation of Heating, Ventilating and Air-Conditioning and Other
----------------------------------------------------------------
Mechanical Services. Landlord reserves the right to stop the service of heating,
- -------------------
ventilating, air-conditioning, elevator, plumbing, electricity, telephone or
other mechanical systems or facilities in the Building, if necessary by reason
of accident or emergency, or for repairs, alterations, replacements, additions
or improvements which, in the reasonable judgment of Landlord, are desirable or
necessary, until said repairs, alterations, replacements, additions or
improvements have been completed. The exercise of such right by Landlord shall
not constitute an actual or constructive eviction, in whole or in part, or
relieve Tenant from any of its obligations under this Lease, or impose any
liability upon Landlord or its agents by reason of inconvenience or annoyance to
Tenant, or injury to, or interruption of, Tenants business, or otherwise, or
entitle Tenant to any abatement or diminution of rent. Except in cases of
emergency repairs, Landlord will give Tenant reasonable advance notice of any
contemplated stoppage of any such systems or facilities. In all cases, Landlord
will use due diligence to complete any such repairs, alterations, replacements,
additions or improvements with reasonable promptness. Landlord's rights set
forth in this subsection shall be subject to the terms of Sections 5(j) 23(a)
and 35(k).
(j) Unavoidable Delays in Providing Building Services or Repairs. Landlord
------------------------------------------------------------
shall use its reasonable efforts to provide a two (2) hour response to
maintenance requirements affecting the Leased Premises. In the event of any
Unavoidable Delay which may prevent Landlord from providing such a two (2) hour
response for maintenance, Tenant shall have the right to contact Landlord's
approved vendor to obtain its maintenance requirements at Landlord's cost. If
Landlord shall fail to supply, or be
24
<PAGE>
delayed in supplying, any service expressly or impliedly to be supplied by
Landlord under this Lease, or shall be unable to provide the Parking Spaces, or
shall be unable to make, or be delayed in making, any repairs, alterations,
additions, improvements or decorations, or shall be unable to supply, or be
delayed in supplying, any equipment or fixtures, and if such failure, delay or
inability shall result from Unavoidable Delays, such failure, delay or inability
shall not constitute an actual or constructive eviction, in whole or in part,
or, except as expressly provided in this subsection (j), relieve Tenant from any
of its obligations under this Lease, or impose any liability upon Landlord or
its agents by reason of inconvenience to Tenant, or injury to, or interruption
of, Tenant's business, or otherwise, or entitle Tenant to any abatement or
diminution of rent. Landlord shall use reasonable efforts to provide Tenant with
alternative parking arrangements on the Land or in the vicinity of the Building
in the event Landlord shall be unable, as a result of such Unavoidable Delay, to
provide the Parking Spaces. Notwithstanding anything to the contrary in this
subsection (j), in the event that Landlord shall fail to supply or be delayed in
supplying any service or any repairs or maintenance to any equipment or systems
which provide service to the Leased Premises or in the performance of any work
which shall result in Tenant's inability to occupy the Leased Premises and which
such failure, delay or inability shall continue for five (5) consecutive
Business Days and Tenant shall not, as a result thereof, be able to use the
Leased Premises or any material portion thereof for the conduct of its business,
the Basic Rent and Additional Charges shall be abated for the portion of the
Leased Premises effected thereby, for the period from such fifth (5th) Business
Day to the date such failure, delay or inability is cured.
(k) Sundry Shop. Landlord reserves the right to lease a portion of the
-----------
Building to the operator of a sundry shop for the sale of newspapers, magazines,
cigarettes, soft drinks, candy and related items, provided that such sundry shop
is operated in a manner consistent with the character and dignity of the
Building.
6. Use of Leased Premises.
----------------------
(a) Permitted Use. Tenant, at its expense, shall make any Alterations
-------------
required after the Lease Commencement Date to comply with Legal Requirements to
the extent the obligation to comply with such Legal Requirements arises from
Tenant's particular use of the Leased Premises. Tenant shall use and occupy the
Leased Premises solely for general office purposes, including, without
limitation, a stock trading and data center in accordance with the applicable
Legal Requirements and consistent with the character and dignity of the
Building, and shall not use or permit or suffer the use of the Leased Premises
for any other purpose whatsoever without the prior written consent of Landlord.
Landlord, upon completion of Landlord's Work, shall deliver the Leased Premises
to Tenant in compliance with Legal Requirements. Any additional work performed
by Tenant shall likewise be completed in conformance with Legal Requirements.
Landlord represents and warrants that the Leased Premises may be used for
general office purposes
25
<PAGE>
including, without limitation, a stock trading and data center, in accordance
with the terms and conditions of this subsection. Tenant shall control its
business and control Tenant's Associates so as to ensure that tenant and
Tenant's Associates do not create a nuisance or unreasonably interfere with,
annoy or disturb other Tenants or Landlord. Tenant shall not permit or suffer
the Leased Premises to be occupied by anyone other than Tenant except as
provided in Section 15. Tenant shall at all times have access to the Leased
Premises, the Building, and the Parking Spaces twenty-four (24) hours a day,
seven (7) days a week, subject, however, in all respects to all the terms
contained in this Lease. However, Landlord may regulate and restrict access to
the Building, the Land and the Parking Spaces at all times for security purposes
so long as Tenant's employees, agents and business invitees have reasonable
access to the Leased Premises and the Parking Spaces without unreasonable
inconvenience.
(b) Payment of Taxes. Throughout the Term, Tenant covenants and agrees to
----------------
pay any and all taxes, assessments and public charges levied, assessed or
imposed upon Tenant's business conducted in the Leased Premises, upon the
leasehold estate created by this Lease, upon any Alterations made by Tenant or
upon Tenant's Personal Property to the extent said tax is Tenant's obligation
under the tax law.
(c) Restrictions on Use. Throughout the Term, Tenant shall not, without
-------------------
obtaining Landlord's prior consent in each instance: (i) use or permit or suffer
the use of any portion of the Leased Premises, the Building or the Parking
Spaces for any unlawful purpose; (ii) use the plumbing facilities for any
purpose other than that for which they were constructed, or dispose of any
foreign substances therein; (iii) place a load on any floor exceeding the floor
load per square foot which such floor was designed to carry; (iv) install,
operate or maintain in the Leased Premises any heavy item of equipment except in
such manner as to achieve a proper distribution of weight. Landlord represents
and warrants that the floors in the Building were designed to a specification of
seventy (70) pounds per square foot of live load; (v) strip, overload, damage or
deface the Leased Premises or the Common Areas or the fixtures therein or used
therewith; (vi) move any bulky furniture or equipment into or out of the Leased
Premises during normal business hours, unless Tenant can demonstrate to
Landlord's reasonable satisfaction that any such move shall not interfere with
the use of the Building by any other tenants, in which event Tenant shall be
permitted to conduct such move at such times during normal business hours as
Landlord may from time to time reasonably designate; (vii) install in the Leased
Premises any other equipment of any kind or nature which will or may necessitate
any changes, replacements or additions to, or in the use of, the water system,
heating, ventilating and air-conditioning system, plumbing system, or electrical
system serving the Leased Premises or the Building; or (viii) permit food
service or catering of meals in the Leased Premises or elsewhere in the Building
by anyone except the operator of the Building cafeteria; provided, however, that
Landlord will not unreasonably withhold its
26
<PAGE>
approval for Tenant's request for catered functions to be held by other than the
operator of the Building cafeteria in the Leased Premises.
(d) Compliance with Legal Requirements. Landlord shall be responsible to
----------------------------------
maintain the Building and Parking Spaces in accordance with Legal Requirements.
Tenant shall not use, occupy or alter the Leased Premises, or permit the Leased
Premises, the Building or the Parking Spaces to be used, occupied or altered, in
violation of any Legal Requirements, including the Americans With Disabilities
Act. If, after the commencement of the Term, any governmental authority shall
contend or declare that the Leased Premises are being used for a purpose which
is in violation of any Legal Requirements, Tenant shall, upon five (5) days'
notice from Landlord, immediately discontinue such use of the Leased Premises.
Tenant shall indemnify and hold harmless Landlord from and against any and all
liability for any such violation or violations.
(e) Compliance with Insurance Requirements. Tenant shall not use or occupy
--------------------------------------
the Leased Premises, the Building or the Parking Spaces, or permit the Leased
Premises, the Building or the Parking Spaces to be used or occupied, in
violation of any Insurance Requirements. Tenant shall not do, or permit anything
to be done, in or on the Leased Premises, the Building or the Parking Spaces, or
bring or keep anything therein, which shall increase the premiums payable for
casualty and property damage insurance for the Land, the Building or the Parking
Spaces or on any property located therein. If, by reason of the failure of
Tenant to comply with the provisions of this subsection, the premiums payable
for casualty and property damage insurance for the Land, the Building or the
Parking Spaces shall at any time be higher than they otherwise would be, then
Landlord shall provide Tenant copies of available supporting documentation and
Tenant shall reimburse Landlord and any other tenant of the Building, on demand,
for that part of all Premiums for any insurance coverage that shall have been
charged because of such violation by Tenant and which Landlord or such other
tenant, or both, shall have paid on account of an increase in the rate or rates
in its own policies of insurance.
(f) No Flammable Substances. Tenant shall not bring or permit to be brought
-----------------------
or kept in or on the Leased Premises any flammable, combustible or explosive
substance except standard cleaning fluid, standard equipment and materials
(including magnetic tape) customarily used in conjunction with business machines
and equipment of the type used from time to time by Tenant, in reasonable
quantities. Landlord agrees that it shall not designate the Building as a "non-
smoking" building unless required to do so by any Legal Requirement or Insurance
Requirement
(g) Environmental. Throughout the Term, Tenant shall not undertake or
-------------
permit any Environmental Activity (as defined below) other than (i) in
compliance with all applicable Legal Requirements, (ii) as is customary for
office tenants in First-Class Office Buildings and (iii) in such a manner as
shall keep the Leased Premises, the Building and
27
<PAGE>
the Land free from any lien imposed pursuant to any Legal Requirements in
respect of such Environmental Activity. Tenant shall take all necessary steps to
ensure that any Environmental Activity undertaken or permitted at the Leased
Premises is undertaken in a manner as to provide prudent safeguards against
potential risks to human health or the environment. Tenant shall notify Landlord
immediately of any release of Hazardous Materials (as hereinafter defined) from
or at the Leased Premises. Landlord shall have the right from time to time, upon
reasonable notice to Tenant, to conduct an environmental audit of the Leased
Premises at its sole cost and expense, subject to the terms of Section 35(k)
and Tenant shall cooperate in the conduct of such environmental audit. If Tenant
shall breach the covenants provided in this Section, then, in addition to any
other rights and remedies which may be available to Landlord under this Lease or
otherwise at law, Landlord may require Tenant either to take all actions as are
necessary or reasonably appropriate to cure such breach, or to reimburse
Landlord for the costs of any and all such actions taken by Landlord. For
purposes of this Section, "Environmental Activity" means any use, storage,
installation, release, threatened release, discharge, generation, abatement,
removal, disposal, handling or transportation from, under, into or on the Leased
Premises of (A) any "hazardous substance" as defined in (S) 101(14) of the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U S C
n 9601(14), as amended, (B) any hazardous wasted as defined in (S) 271301(1)
of the New York Environmental Conservation Law; (C) petroleum, crude oil or any
fraction thereof, natural gas or synthetic gas used for fuel; (3) asbestos or
asbestos-containing materials as defined at 40 C.F.R. (S) 763.83; and (E) any
additional substances or materials which at such time are classified or
considered to be hazardous or toxic under the laws of the State of New York or
any other Legal Requirements (the materials described in clauses (A) through (E)
above are collectively referred to herein as "Hazardous Materials"). The
obligations of Tenant under this Section shall survive for a period of two (2)
years following the expiration or sooner termination of this Lease.
(h) Environmental. Landlord represents that except for such Hazardous
-------------
Materials (such as cleaning and photocopying fluids) as are customarily used in
connection with the operation of First Class Office Buildings and in compliance
with all Legal Requirements and Insurance Requirements, (i) there are no
asbestos-containing materials (as defined at 40 C.F.R. (S) 763.83) and (ii) to
the best of Landlord's knowledge, there are no other Hazardous Materials present
at or in the Building, the nature, concentration or condition of which violates
any Legal Requirements, and Landlord agrees that it shall not undertake or
permit any Environmental Activity in the Common Areas or the Building other than
(A) in compliance with all applicable Legal Requirements, (B) as is customary in
connection with the operation of First-Class Office Buildings and (C) in such a
manner as to provide prudent safeguards against potential risks to human health
or the environment. If, at any time during the Term, Landlord becomes aware that
the foregoing representation or covenant was inaccurate or breached
28
<PAGE>
in any material respect, Landlord shall notify Tenant of the inaccuracy of any
representation or the breach of any covenant provided in this subsection and
shall take all actions reasonably necessary to correct any condition or
conditions the existence of which renders such representation inaccurate or
results in a breach of such covenant and indemnify Tenant with respect to such
breach to the extent of out-of-pocket losses (excluding any consequential or
special damages) resulting directly from such breach.
7. Care of Leased Premises.
-----------------------
(a) Maintenance and Repairs by Tenant. Tenant shall act with care in its
---------------------------------
use and occupancy of the Leased Premises, and the fixtures in the Leased
Premises and, at Tenant's sole cost and expense, shall furnish its own electric
bulbs and fluorescent tubes for all light fixtures in the Leased Premises
(consistent with Building standard; i.e. energy efficient bulbs) and, except as
otherwise provided herein in the case of damage due to fire or casualty, shall
make all repairs and replacements to the Leased Premises, structural or
otherwise, necessitated or caused by the willful or negligent acts or omissions
of Tenant, Tenant's Associates or any Person claiming through or under Tenant or
by the use or occupancy of the Leased Premises by Tenant, Tenants Associates or
any such Person. Without affecting Tenant's obligations set forth in the
preceding sentence, Tenant, at Tenant's sole cost and expense, shall also (i)
make all repairs and replacements, as and when necessary, to any Alternations
made or performed by or on behalf of Tenant or any Person claiming through or
under Tenant, and (ii) perform all maintenance and make all repairs and
replacements, as and when necessary, to any air-conditioning equipment,
conveyors or mechanical systems (other than the standard equipment and systems
serving the Building) which may be installed in the Leased Premises by Tenant.
In addition to the foregoing, all damage or injury to the Leased Premises or the
fixtures, appurtenances and equipment in the Leased Premises or to the Building
or to its fixtures, appurtenances and equipment caused by Tenant moving property
in or out of the Building or by installation or removal of furniture, fixtures
or other property by Tenant shall be repaired, restored or replaced promptly by
Tenant, at its sole cost and expense, to the reasonable satisfaction of
Landlord. All such aforesaid repairs, restoration and replacements shall be in
quality and class equal to the original work or installation and shall be made
in accordance with accepted construction practices by contractors reasonably
approved by Landlord in the Leased Premises.
(b) Landlord's Responsibility for Maintenance and Repairs. Except as
-----------------------------------------------------
otherwise provided in subsection (a), Landlord shall make or cause to be made
the following repairs as and when necessary: (i) structural repairs to the
Building; (ii) repairs required in order to provide the elevator, plumbing,
electrical, heating, alarms/security, ventilating and air-conditioning system
and other services to be furnished by Landlord pursuant to this Lease; (iii)
maintenance and repairs to exterior portions of the Building, including the
windows and roof; and (iv) repairs to the Common Areas and the Building.
29
<PAGE>
Landlord's obligations under the preceding sentence with respect to the Leased
Premises shall not accrue until notice by Tenant to Landlord of the necessity
for any specific repair.
8. Rules and Regulations.
---------------------
Tenant shall, and shall cause Tenant's Associates to, comply with and
observe all reasonable rules and regulations concerning the use, management,
operation, safety and good order of the Leased Premises, the Common Areas, the
Parking Spaces, the Building and the Land which may from time to time be
promulgated by Landlord, including the recycling program instituted by Landlord,
provided that such rules and regulations are not inconsistent with the
provisions of this Lease and do not materially interfere with Tenant's use of
the Leased Premises. Initial rules and regulations, which shall be effective
until amended by Landlord, are attached as Exhibit C to this Lease. Tenant shall
be deemed to have received notice of any amendment to the rules and regulations
when a copy of such amendment has been delivered to Tenant at the Leased
Premises or has been delivered to Tenant in the manner prescribed herein for the
giving of notices. Any dispute between Landlord and Tenant regarding the
reasonableness of any additional rule or regulation hereafter made or adopted by
Landlord shall be submitted to arbitration pursuant to Section 28. Tenant may
not dispute the reasonableness of any additional rule or regulation unless
Tenant's intention to do so is asserted by notice given to Landlord within
thirty (30) days after notice is given to Tenant of the adoption of any such
additional rule or regulation. Landlord shall not be responsible to Tenant for
any violation of the Rules and Regulations, or the covenants or agreements
contained in any other lease, by any other tenant of the Building, or such
tenant's subtenants, agents, employees, invitees, licensees, customers and
clients, or guests or contractors of any of the foregoing, and Landlord may
waive in writing, or otherwise, any or all of the Rules and Regulations with
respect to any one or more tenants. Notwithstanding anything contained in this
subsection to the contrary, Landlord shall not enforce the Rules and Regulations
in a manner that would discriminate against Tenant to this Lease.
9. Alterations.
-----------
(a) Tenant's Alterations. Tenant shall not make or perform, or permit the
--------------------
making or performance of, any Alterations (other than minor, non-structural
Alterations that do not effect the Building's electrical systems, heating,
ventilating and air conditioning systems or other Building systems, which
Alterations may be performed without Landlord's prior consent) without
Landlord's prior consent. Notwithstanding the foregoing provisions of this
subsection or Landlord's consent to any Alterations, all Alterations made during
the Term shall be made and performed in conformity with and subject to the
following provisions: (i) all Alterations shall be made and performed at
Tenant's sole cost and expense (excluding Landlord's Contribution as provided in
Section 9(b)) and at such time and in such manner as Landlord may reasonably
designate; (ii) all
30
<PAGE>
Alterations shall be made only by contractors or mechanics approved by Landlord,
such approval not to be unreasonably withheld or delayed; (iii) no Alteration
shall affect any part of the Building other than the Leased Premises or
adversely affect any mechanical system in the Building (including the Building's
heating, ventilating and air conditioning system) or any service required to be
furnished by Landlord to Tenant or to any other tenant or occupant of the
Building; (iv) all business machines and mechanical equipment, shall be placed
and maintained by Tenant in settings sufficient in Landlord's reasonable
judgment to absorb and prevent vibration, noise and annoyance to other tenants
or occupants of the Building; (v) Tenant shall submit to Landlord reasonably
detailed plans and specifications for each proposed Alteration and shall not
commence any such Alteration without first obtaining Landlord's approval of such
plans and specifications, which approval will not be unreasonably withheld or
delayed, but Landlord shall have the right to withhold its consent to
Alterations involving structural changes or changes affecting the Common Areas
or the exterior of the Building for any reason whatsoever; (vi) all Alterations
in or to the electrical facilities in or serving the Leased Premises shall be
subject to the provisions of Section 5(b); (vii) notwithstanding Landlord's
approval of plans and specifications for any Alteration, all Alterations shall
be made and performed in full compliance with all Legal Requirements and
Insurance Requirements and in accordance with the Rules and Regulations; (viii)
all materials and equipment to be incorporated in the Leased Premises as a
result of all Alterations shall be of good quality and equivalent to the
Materials and equipment incorporated in the Building at the time it was
constructed; (ix) Tenant shall either carry and maintain or shall require any
contractor performing Alterations to carry and maintain at all times during the
performance of the Alterations, at no expense to Landlord, (A) a policy of
commercial general liability insurance, including contractor's liability
coverage, completed operations coverage and contractor's protective liability
coverage, naming Landlord and the Additional Insured, with such Policy to afford
protection to the limit of not less than $5,000,000 combined single limit annual
aggregate for bodily injury, death and property damage, and (B) workmen's
compensation or similar insurance in the form and amounts required by the laws
of the jurisdiction in which the Building is located; and (x) Tenant shall carry
(or shall cause its contractor to carry) at all times during the performance of
the Alterations, at no expense to Landlord, a policy of builders risk insurance
written on the completed value form covering the Alterations in an amount equal
to 100% of the replacement cost thereof.
(b) Landlord's Contribution. Tenant has submitted schematic plans and
-----------------------
specifications (the "Plans") for Tenant's work prior to occupancy of the Leased
Premises ("Tenant's Initial Work") and Landlord has approved same. In the event
Tenant's final plans materially differs from the Plans, Tenant shall submit same
to Landlord for its approval. Landlord shall respond to Tenant's Plans within
five (5) business days after Landlord's receipt of the Plans and in the event of
any disapproval indicate the reasons
31
<PAGE>
therefor. If Tenant subsequently revises the Plans, Landlord shall respond to
the Plans within five (5) business days after Landlord's receipt of such revised
Plans. Landlord agrees to pay to Tenant, in accordance with the terms and
conditions set forth in this Section, $37.50 per rentable square foot of the
Leased Premises ("Landlord's Contribution"), as reimbursement to Tenant for
costs actually incurred by Tenant in performing Tenant's Initial Work, including
(i) architects', engineers', decorators' and other professional fees and
expenses, (ii) the cost of furniture and equipment to be located in the Leased
Premises, (iii) moving expenses and (iv) related moving costs, provided that at
the time Landlord's Contribution (or any portion thereof) is otherwise payable
to Tenant hereunder, no Event of Default shall have occurred and be continuing
hereunder. Landlord shall pay Landlord's Contribution in periodic payments, to
Tenant, within thirty (30) days after Tenant shall have submitted to Landlord a
requisition for payment specifying in reasonable detail the items for which
Tenant is requesting reimbursement and certifying to Landlord that all monies
owed or payable with respect to such items have been paid and that Tenant has
obtained lien waivers and general releases from each contractor, subcontractor
and supplier to the extent of the amount paid to such parties. Tenant shall
maintain in its files and shall permit Landlord to inspect (upon reasonable
advance notice) at reasonable times during Tenant's normal business hours,
detailed records including, without limitation, all such lien waivers and
general releases and receipts and invoices evidencing the expenditures for which
Tenant requests reimbursement. Tenant shall not submit to Landlord more than one
(1) such requisition each month.
(c) Tenant's Right to Cure. If Tenant shall be in default under this
----------------------
Section by reason of the making of any Alteration not hereby authorized or by
reason of failure to give any notice or to obtain any approval required herein,
Tenant may cure such default within the applicable grace period provided in this
Lease for curing such default by immediately commencing the removal of such
Alteration and restoring the Leased Premises to the condition they were in
before the Alteration was made.
(d) Title to, and Removal of, Alterations. Title to all Alterations made by
-------------------------------------
Tenant, at its expense, after the Lease Commencement Date shall be and remain in
Tenant throughout the Term, but on the expiration or earlier termination of this
Lease, Tenant hereby covenants and agrees that title to all Alterations, and the
right to possess and use the same, shall automatically pass to and be vested in
Landlord without payment or consideration of any kind. Although the provisions
of the preceding sentence are intended to be self-executing, Tenant hereby
agrees, upon such earlier expiration or termination of this Lease, to execute
any further deed, bill of sale or document requested by Landlord to confirm
Landlord's title to any Alterations and Tenant's grant and conveyance thereof to
Landlord pursuant to this subsection. Tenant hereby appoints Landlord
irrevocably as its attorney-in-fact with an interest to execute, acknowledge and
deliver on its behalf any such deed, bill of sale or document. Except as
otherwise provided in this paragraph,
32
<PAGE>
during the Term, Tenant shall not, without Landlord's consent, remove any
Alterations except for the purpose of replacing worn out or obsolete items with
new items having a value at least equal to the value of the worn out or obsolete
items, free and clear of all liens and security interests; provided, however,
that as long as an Event of Default has not occurred and is not continuing,
Tenant may, at its expense, remove from the Leased Premises before the
expiration of the Term, any Alterations made by Tenant after the Lease
Commencement Date and with respect to the removal of which Landlord shall have
consented before the Alteration was made. Tenant shall repair all damage to the
Leased Premises caused by the removal of such Alterations and shall repair and
replace, to the extent necessary, all adjoining surfaces to a condition
equivalent to the condition thereof prior to the removal of such Alterations.
Any Alterations which Tenant has the right to remove and which are not removed
from the Leased Premises at the expiration of the Term shall be deemed to have
been abandoned by Tenant and may be disposed of by Landlord without thereby
incurring liability to Tenant
(e) Removal of Tenant's Personal Property. Notwithstanding anything stated
-------------------------------------
herein, all of Tenant's Personal Property shall remain the property of Tenant
and may, at its expense, be removed from the Leased Premises at any time during
the Term. Tenant shall, at its expense, remove all of Tenant's Personal Property
at the expiration or the earlier termination of this Lease pursuant to the terms
hereof. Tenant shall repair all damage to the Leased Premises caused by the
removal of Tenant's Personal Property, to the condition the Leased Premises were
in before the installation of the item removed. Any of Tenant's Personal
Property which is not removed from the Leased Premises at the expiration of the
Term shall be deemed to have been abandoned by Tenant and may be disposed of by
Landlord without thereby incurring liability to Tenant. If Tenant fails to
remove Tenant's Personal Property and make the repairs required by this
subsection, Landlord shall have the right to remove such Tenant's Personal
Property and/or make such repairs and Tenant shall reimburse Landlord, on
demand, for any costs incurred by Landlord as a result of such removal or
repair.
(f) Mechanics' Liens. Notice is hereby given that Landlord shall not be
----------------
liable to any Person for any labor or materials furnished or to be furnished to
Tenant upon credit, and that no mechanic's, materialman's or other lien for any
such labor or materials shall attach to or affect the reversion or other estate
or interest of Landlord in and to the Leased Premises, the Building or the Land.
Whenever and as often as any mechanic's lien or materialman's lien shall have
been filed against the Leased Premises, the Building or the Land based upon any
act or interest of Tenant or of anyone claiming through or under Tenant, or if
any lien with respect thereto shall have been filed affecting any materials,
machinery or fixtures used in the construction, repair or operation thereof or
annexed thereto by Tenant or anyone claiming through or under Tenant, Tenant
shall, at its expense, immediately take such action by bonding, deposit or
payment as will remove or satisfy the lien or other security interest. If Tenant
fails to remove, bond or discharge the
33
<PAGE>
lien or other security interest within forty-five (45) days after receipt of
demand therefor by Landlord, Landlord, in addition to any other remedy under
this Lease and without waiving or releasing Tenant's default in not timely
discharging the lien or security interest, may pay the amount secured by such
lien or security interest or discharge the same by deposit, bonding or otherwise
and the amount so paid, deposited or employed to obtain such bond shall be
collectible as Additional Charges. The provisions of this subsection shall not
be applicable to liens filed with respect to work done for Tenant's account by
Landlord at Landlord's expense.
(g) Landlord's Work. Landlord shall, with diligence and dispatch, at its
---------------
sole cost and expense, demolish the existing tenant installation as necessary,
install the electric submeters referred to in Section 5(c), construct such
demising walls as are necessary to separate the Leased Premises from the
remainder of the Building based upon plans prepared by Tenant's architect and
approved by Landlord pursuant to the terms and provisions of Section 9(a)
hereof, and, to the extent required as a result of such division, adjust the
Building's fire alarm system and damper. In addition, Landlord shall deliver the
Leased Premises to Tenant with the following work completed: (i) primary HVAC
distribution system up to and including the main HVAC duct serving the Leased
Premises; (ii) electrical services of 8 watts per rentable square foot, (iii)
the sprinkler system which is currently installed in the Leased Premises,
including the existing branch distribution, and (iv) uninterruptable power
service/emergency power service ("UPS/EPS") capability of 175 KVA. Tenant shall
be responsible for the connection of the UPS/EPS system to Tenant's equipment.
Landlord's current estimate of Tenant's prorated annual cost for use of the
UPS/EPS system is Eight Thousand Dollars ($8,000.00); however, this shall not be
intended nor construed as a representation as to future costs for operation of
this system. Tenant acknowledges that the Leased Premises have been fully built
out with a modern computer installation, including substantial Building and
tenant enhancements and alterations, and, subject only to the foregoing
provisions concerning Landlord's Work, Tenant agrees to accept the Leased
Premises in the current "as is" condition. Tenant agrees to reimburse Landlord
upon request for any out-of-pocket third-party costs reasonably incurred by
Landlord in reviewing Tenant's plans. Landlord and Tenant hereby agree that (i)
if at any time after the commencement of the Term, any Governmental Authority
shall contend or declare that the Common Areas do not comply with the Americans
with Disabilities Act (the "Act"), Landlord shall promptly perform such work as
is necessary to cause the Common Areas to comply with the Act, at Landlord's
sole cost and expense to the extent the Common Areas do not comply in all
material respects with the Act as of the date hereof, and (ii) if at any time
after the commencement of the Term, any Governmental Authority shall contend or
declare that the Leased Premises do not comply with the Act, Tenant shall
promptly perform such work as is necessary to cause the Leased Premises to
comply with the Act, at Tenant's sole cost and expense. It is expressly
understood and agreed that once
34
<PAGE>
Landlord's Work is completed. Landlord shall deliver possession of the Leased
Premises so that Tenant's sole obligation is to obtain a building permit, if
necessary, for Tenant's Initial Work to the Leased Premises.
Landlord shall provide Tenant with the use of two (2) 40 ton Liebert Air
Handler Units (the "Liebert Units") with dehumidification for Tenant's data
center on an "as-is" basis", which shall be in working condition at the time of
turnover to Tenant. Landlord expressly disclaims all warranties and
representations express or implied, as to such Units or the condition thereof,
including warranties of merchantability and fitness for use. Tenant to be
responsible for any costs associated with relocation of the Units, as well as
the operation, replacement and maintenance of these Units. Landlord shall be
responsible for the costs of repiping chilled water connections to the Liebert
Units. Said Units shall, however, remain the property of Landlord.
(h) Installation of Satellite Dish on Roof. To the extent that space is
--------------------------------------
available, installation may be accomplished without interfering with any other
dish, antennae or building equipment on the date hereof, Tenant shall have the
right to install two (2) satellite dishes on the roof of the Building, at
Tenant's sole cost and expense. Such installation shall be subject to applicable
zoning requirements and local building codes. Any such installed dish shall not
be visible from the street and Tenant shall provide screening approved by
Landlord, as permitted by local building codes, at Tenant's sole cost and
expense. At the end of the Term, or the earlier termination of this Lease,
Tenant shall, at the request of Landlord, remove the satellite dishes at
Tenant's sole cost and expense.
10. Tenant's Signs.
--------------
(a) Exterior Signs. Except as provided in Section 9(h), Landlord has not
--------------
granted to Tenant any rights in or to the roof or the exterior surfaces of the
perimeter walls of the Building, control of which is hereby reserved to
Landlord. Tenant shall not display or erect any lettering, signs,
advertisements, awnings or other projections on the exterior of the Leased
Premises or in the interior of the Leased Premises if visible from outside the
Building. Landlord shall provide entry door lettering at the entrance to the
Leased Premises and signage located on the Building's outdoor monument
identifying Tenant in the style and color selected by Landlord for the Building.
The number, size, color, style and configuration of such lettering shall be
determined by Landlord consistent with other tenants' signage at the Building.
(b) Building Directory and Reception. In the event Landlord maintains a
--------------------------------
building directory in the lobby of the Building listing the Tenants occupying
the Building, Tenant shall have the right to have its name and the names of its
senior personnel listed
35
<PAGE>
on such directory. The listing of any name other than Tenant on the directory
shall not operate to vest in the named party any interest in this Lease or in
the Leased Premises.
11. Tenant's Insurance.
------------------
(a) Liability Insurance. Tenant, at Tenant's sole cost and expense, shall
-------------------
obtain and maintain in effect throughout the Term a policy of commercial general
liability insurance (ISO form or equivalent), including contractual liability
insurance or a contractual liability endorsement as described in subsection (f)
hereof, naming Landlord and the Additional Insured as additional insureds,
protecting Landlord, Tenant and the Additional Insured against liability for
bodily injury, death and property damage occurring upon or in the Leased
Premises, with such policy to afford protection to the limit of not less than
$5,000,000 combined single limit annual aggregate for bodily injury, death and
property damage. If such policy also covers locations other than the Leased
Premises, the policy shall include a provision to the effect that the aggregate
limit of $5,000,000 shall apply separately at the Leased Premises and that the
insurer will provide notice to Landlord if the aggregate is reduced either by
payment of claims or the establishment of reserves for claims if the payments or
reserves exceed $250,000. If the aggregate limit of $5,000,000 is reduced by the
payment of a claim or the establishment of a reserve, Tenant agrees to take
immediate steps to have the aggregate limit restored by endorsement to the
existing policy or the purchase of an additional insurance policy which complies
with this subsection.
(b) Property Damage Insurance. Tenant, at Tenant's sole cost and expense,
-------------------------
shall, throughout the Term, keep all Alterations and Tenant's Personal Property
insured under a policy of property damage insurance providing all-risk coverage
in an amount sufficient to prevent Tenant from becoming a co-insurer.
(c) Policy Requirements. The insurance policies required to be obtained by
-------------------
Tenant under this Section: (i) shall be issued by an insurance company of
recognized responsibility qualified to do business in the jurisdiction in which
the Building is located and which is rated BX or better by Best's Key Rating
Guide or which has an equivalent financial rating from a comparable insurance
rating organization or which is otherwise acceptable to Landlord, and (ii) in
the case of liability insurance, shall be written as primary policy coverage.
Neither the issuance of any insurance policy required under this Lease nor the
minimum limits specified herein with respect to Tenant's insurance coverage
shall be deemed to limit or restrict in any way Tenant's liability arising under
or out of this Lease.
(d) Evidence of Insurance. With respect to each insurance policy required
---------------------
to be obtained by Tenant under this Section, on or before the Lease Commencement
Date, and upon request, at least ten (10) days before the expiration of any
expiring certificate
36
<PAGE>
previously furnished, Tenant shall deliver to Landlord a certificate of
insurance therefor. Each insurance policy required to be carried hereunder by or
on behalf of Tenant shall provide (and any certificate evidencing the existence
of each such insurance policy shall certify) that such insurance policy shall
not be canceled or amended (other than to increase the amount of coverage)
unless Landlord shall have received ten (10) days' prior written notice of such
cancellation or amendment (or, in the case of cancellation for nonpayment of
premiums, ten (10) days' prior written notice).
(e) Landlord's Indemnification. Except for the willful or negligent acts or
--------------------------
omissions of Landlord or its agents, employees or contractors, Tenant hereby
agrees to indemnify and hold harmless Landlord, the Additional Insured and the
officers, directors, agents and employees of Landlord and the Additional
Insured, from and against any and all claims, losses, actions, damages,
liabilities and expenses (including reasonable attorneys' fees and
disbursements) that (i) directly arise from or are in connection with Tenant's
possession, use, occupancy, management, repair, maintenance or control of the
Leased Premises, or any portion thereof, the making or removal of Alterations,
or the business conducted by Tenant in the Leased Premises, or (ii) directly
arise from or are in connection with any willful or negligent act or omission of
Tenant or Tenant's Associates, or (iii) directly result from any default,
breach, violation or nonperformance of its obligations under this Lease by
Tenant. Tenant shall, at its own cost and expense, defend any and all actions,
suits and proceedings which may be brought against Landlord, the Additional
Insured and the officers, directors, agents and employees of, and any partners
in, Landlord and the Additional Insured, or any of them, with respect to the
foregoing or in which Landlord, the Additional Insured and the officers,
directors, agents and employees of, and any partners in, Landlord and the
Additional Insured, or any of them, may be named or impleaded. Tenant shall pay,
satisfy and discharge any and all final money judgments which may be established
or recovered against Landlord, the Additional Insured and the officers,
directors, agents and employees of, and any partners in , Landlord and the
Additional Insured, or any of them, in connection with the foregoing.
(f) Contractual Liability Insurance. Tenant agrees to keep and maintain, as
-------------------------------
part of the coverage of its policy(ies) of liability insurance, contractual
liability coverage or a contractual liability endorsement covering Tenant's
liability to Landlord for bodily injury or damage to property of others or
otherwise under subsection (e), in the same limits required by subsection (a).
(g) Prohibition Against Concurrent Insurance. Except with respect to the
----------------------------------------
insurance required by subsection (a), Tenant shall not take out separate
insurance concurrent in form or contributing in the event of loss with that
required in Section 12 to be carried by, or which may reasonably be required to
be carried by, Landlord unless Landlord and the Additional Insured are included
therein as insureds and Landlord is promptly notified of the existence, nature,
carrier and extent of such insurance.
37
<PAGE>
12. Landlord's Insurance.
--------------------
(a) Property Damage Insurance. Landlord, at its cost and expense, shall,
-------------------------
throughout the Term, keep the Building and the Parking Spaces, but not any
Alterations or Tenant's Personal Property, insured under a policy of property
damage insurance providing all-risk coverage in an amount sufficient to prevent
Landlord from becoming a coinsurer.
(b) Liability Insurance. From and after the Lease Commencement Date,
-------------------
Landlord shall obtain and maintain in effect at all times during the Term a
policy of commercial general liability insurance, including contractual
liability insurance or a contractual liability endorsement comparable to that
required to be maintained by Tenant pursuant to Section 11, naming Tenant as an
additional insured, insuring Landlord and Tenant against liability for bodily
injury, death and property damage arising out of or relating to the negligence
of Landlord and occurring upon, in or about the Land, the Building and the
Parking Spaces, with such policy to afford protection to the limit of not less
than $5,000,000 combined single limit annual aggregate for bodily injury, death
and property damage.
(c) Blanket Policy. Landlord shall have the right to comply with and
--------------
satisfy its obligations under subsections (a) and (b) by means of a so-called
blanket policy or policies of insurance covering this and other liability and
locations of Landlord and its Affiliates, provided that such policy or policies
by the terms thereof shall allocate to the Building and the liabilities to be
insured hereunder an amount not less than the amount of insurance required to be
carried pursuant to this Section, so that the proceeds from such insurance shall
not be less than the amount of proceeds that would be available if Landlord were
insured under a unitary policy.
(d) Waiver of Subrogation. Landlord and Tenant shall each cause to be
---------------------
included in each of its policies insuring against loss, damage to or destruction
of property by fire or other insured peril, including Landlord's policies of
rent insurance, a waiver of the insurer's right of subrogation against the other
party hereto and the officers, directors, agents and employees of, and any
partners in, the other party (and, in the case of Tenant's policies, against the
Additional Insured and its officers, directors, agents and employees), or, if
such waiver at any time becomes unobtainable (i) an express agreement that such
policy shall not be invalidated if the insured waives or has waived before she
loss the right of recovery against any party responsible for an insured
casualty, or (ii) any other form of permission for the release of such
responsible party, provided such waiver, agreement or permission is obtainable
under normal commercial insurance practice at the time. If such waiver,
agreement or permission shall not be, or shall cease to be, obtainable without
additional charge or at all, the insured party shall so notify the other party
promptly after notice thereof. If the other party shall agree in writing to pay
the insurer's
38
<PAGE>
additional charge therefor, such waiver, agreement or permission shall (if
obtainable) be included in the policy. Landlord and Tenant hereby acknowledge
and agree that such waiver is obtainable under normal commercial insurance
practice on the date of this Lease at no additional charge.
(e) Waiver of Recovery. Subject to obtaining the above described clauses
------------------
or endorsements of waiver of subrogation or consent to a waiver of right of
recovery, Landlord and Tenant hereby agree not to make any claim against or seek
to recover from the other for any loss or damage to its property or the property
of others resulting from fire or other hazards covered by such property
insurance; provided, however, that the release, discharge, exoneration and
covenant not to sue herein contained shall be limited by and coextensive with
the terms and provisions of the waiver of subrogation clause or endorsements or
clauses or endorsements consenting to a waiver of right to recovery.
13. Damage by Fire or Other Casualty.
--------------------------------
In the event of loss of, or damage to, the Leased Premises or the Building
by fire or other casualty, the rights and obligations of Landlord and Tenant
shall be as follows:
(a) Repair of Damage. If the Leased Premises or any part thereof shall be
----------------
damaged by fire or other casualty, Tenant shall give prompt notice thereof to
Landlord. Landlord, upon receiving such notice and adjustment of the insurance
loss, shall proceed promptly and with reasonable diligence, subject to
Unavoidable Delays, to repair, or cause to be repaired, such damage, but not
damage to any Alterations or Tenant's Personal Property.
(b) Abatement of Basic Rent and Additional Charges. If the Leased Premises
----------------------------------------------
or any part thereof shall be rendered untenantable by reason of such damage,
whether to the Leased Premises or the Building and shall not in fact be used by
Tenant, the Basic Rent and Additional Charges shall be abated for the proportion
of the Leased Premises rendered untenantable for the period from the date of
such damage to the date when the damage which Landlord is obligated to repair
shall have been repaired or the date on which this Lease is terminated pursuant
to subsection (c), whichever occurs first. However, if, before the date when all
of the damage required to be repaired by Landlord shall have been repaired, any
part of the Leased Premises so damaged shall be repaired to the condition
required by subsection (e), then the amount by which the Basic Rent and
Additional Charges shall be abated shall be equitably apportioned for the period
from the date of completion of such repair. If Tenant reoccupies a portion of
the Leased Premises during the period of repair, the Basic Rent and Additional
Charges allocable to such reoccupied portion, based upon the proportion which
the re-occupied portion of the Leased Premises bears to the total area of the
Leased Premises, shall be payable by Tenant from the date of such occupancy. For
purposes of this Section, all or a part of the Leased
39
<PAGE>
Premises shall be deemed to be "untenantable" if, because of the fire or other
casualty, Tenant is unable to use all or such part of the Leased Premises for
the uses permitted by Section 6(a).
(c) Termination of Lease by Landlord or Tenant. If as a result of fire or
------------------------------------------
other casualty more than fifty percent (50%) of the Building is rendered
untenantable, Landlord may, within sixty (60) days from the date of such fire or
casualty, terminate this Lease by notice to Tenant, specifying a date, not less
than twenty (20) nor more than forty (40) days after the giving of such notice,
on which the Term shall expire as fully and completely as if such date were the
date herein originally fixed for the expiration of the Term. If the Leased
Premises are damaged as a result of fire or other casualty and if Landlord
reasonably determines that the damage to the Leased Premises (but not the damage
to any Alterations or Tenant's Personal Property) is so extensive that such
damage cannot be substantially repaired within 120 days from the date of the
fire or other casualty, Landlord shall notify Tenant of that fact. Within
fifteen (15) days after receipt of Landlord's notice, Tenant may terminate this
Lease by notice to Landlord, specifying a date, not less than twenty (20) nor
more than forty (40) days after the giving of such notice, on which the Term
shall expire as fully and completely as if such date were the date originally
fixed for the expiration of the Term, except that neither party shall have the
right to terminate this Lease if the fire or other casualty was caused by
Tenant's willful or negligent act. If either Landlord or Tenant terminates this
Lease pursuant to this subsection, the Basic Rent and Additional Charges shall
be apportioned as of the date of such termination, subject to any partial
abatement provided for in subsection (b). Any dispute between Landlord and
Tenant concerning the time periods within which the Leased Premises can be
repaired shall be submitted to arbitration pursuant to Section 28. If neither
Landlord nor Tenant so elects to terminate this Lease, then Landlord shall
proceed to repair the damage to the Building and the damage to the Leased
Premises (but not the damage to any Alterations or Tenant's Personal Property,
if any shall have occurred), and the Basic Rent and Additional Charges shall
meanwhile be apportioned and abated, all as provided in subsection (b). If
Landlord shall fail to repair the damage to the Building and the Leased Premises
as so required then, in such event, Tenant shall have the right to terminate
this Lease and shall have no further obligations hereunder.
(d) Insurance Proceeds. The proceeds payable under all policies of property
------------------
damage insurance maintained by Landlord on the Building shall belong to and be
the property of Landlord, and Tenant shall not have any interest in such
proceeds. Tenant agrees to look to its own policies of property damage insurance
in the event of damage to any Alterations or Tenant's Personal Property.
(e) Limitation on Landlord's Duty to Repair. Landlord shall not be required
---------------------------------------
to repair or replace any Alterations or any of Tenant's Personal Property, but
Landlord's only obligation under subsection (a) shall be to repair or replace
the damaged portions of
40
<PAGE>
the Building to the condition necessary to enable Tenant, in accordance
with accepted construction practices, to begin the repair or replacement of the
Alterations and Tenant's Personal Property. Landlord shall not be obligated to
make any payment to Tenant for damages or compensation for inconvenience, loss
of business or annoyance arising from any damage to or repair or restoration of
any portion of the Leased Premises or of the Building.
(f) Inapplicability of Other Laws. The provisions of this Section shall be
-----------------------------
considered an express agreement governing any instance of damage or destruction
of the Building or the Leased Premises by fire or other casualty, and any law
now or hereafter in force providing for such a contingency in the absence of
express agreement to the contrary shall have no application.
(g) Landlord Released from Liability. As long as Tenant's policies of
--------------------------------
property damage insurance include the waiver of subrogation or agreement or
permission to release liability referred to in Section 12(d), Tenant, to the
extent that such insurance is in force and collectible, hereby waives (and
agrees to cause all other occupants of the Leased Premises to execute and
deliver to Landlord instruments waiving) any right of recovery against Landlord,
the Additional Insured and any of their respective officers, directors, agents,
employees, partners, contractors or invitees, for any loss or damage to any
Alterations or Tenant's Personal Property caused by fire or other insured peril.
If at any time any of Tenant's policies shall not include such waiver of
subrogation or agreement or permission or similar provisions, the waiver set
forth in the preceding sentence shall, upon notice given by Tenant to Landlord,
be of no further force or effect from and after the giving of such notice (or,
if such insurer shall not grant such waiver for all of the required parties,
such waiver shall be of no force or effect only with respect to the required
parties not included in such waiver). If Tenant fails to obtain and maintain the
policy of property damage insurance required by Section 11(b), Tenant hereby
waives (and agrees to cause all occupants of the Leased Premises to execute and
deliver to Landlord instruments waiving) any right of recovery against Landlord,
the Additional Insured and any of their respective officers, directors, agents,
employees, partners, contractors and invitees for any loss or damage to any
Alterations or Tenant's Personal Property caused by fire or other peril of the
type that would have been insured against by the policy of property damage
insurance required by Section 11(b) if Tenant had obtained such policy and such
policy had been in effect on the date of the fire or other insured peril.
(h) Tenant Released from Liability. As long as Landlord's policies of
------------------------------
property damage insurance include the waiver of subrogation or agreement or
permission to release liability referred to in Section 12(d), Landlord, to the
extent that such insurance is in force and collectible, hereby waives any right
of recovery against Tenant, any other permitted occupant of the Leased Premises
and any of their respective officers, directors,
41
<PAGE>
agents, employees, partners, contractors or invitees, for any loss or damage to
the Building caused by fire or other insured peril. If at any time any of
Landlord's policies of property damage insurance shall not include such waiver
of subrogation or agreement or permission or similar provisions, the waiver set
forth in the foregoing sentence shall be of no further force or effect (or, if
the insurer shall not grant such waiver for all of the required parties, such
waiver shall be of no force or effect only with respect to the required parties
not included in such waiver).
14. Condemnation.
------------
(a) Effect of Taking. In the event of a Taking of the whole of the Leased
----------------
Premises, this Lease shall terminate as of the date of such Taking. If only a
part of the Leased Premises shall be so taken then, except as otherwise provided
in this subsection, this Lease shall continue in force and effect but, from and
after the date of the Taking, the Basic Rent and Additional Charges shall be
equitably reduced on the basis of the Rentable Area so taken. If a part of the
Building shall be taken, and if either (i) the part of the Building so taken
contains more than twenty-five percent (25%) of the Rentable Area immediately
before such Taking, or (ii) in Landlord's reasonable opinion, it shall be
impracticable to continue to operate the Building, then Landlord, at Landlord's
option, may give to Tenant within sixty (60) days after the date upon which
Landlord shall have received notice of the Taking, a thirty (30) days' notice of
termination of this Lease. If a part of the Building shall be taken, and if
either (i) the part of the Building so taken contains more than twenty-five
percent (25%) of the Rentable Area immediately before such Taking, or (ii) by
reason of such Taking all or substantially all of the Leased Premises becomes
untenantable (within the meaning of Section 13(b)), then Tenant, at Tenant's
option, may give to Landlord within sixty (60) days after the date upon which
Tenant shall have received notice of such Taking, a thirty (30) days' notice of
termination of this Lease. If a thirty (30) days' notice of termination is given
by Landlord or Tenant, this Lease shall terminate upon the earlier of (x) the
date on which title to the part of the Building taken vests in the condemning
authority, or (y) the expiration of the thirty (30) day period. If a Taking
occurs which does not result in the termination of this Lease, Landlord shall
repair, alter and restore the remaining portions of the Leased Premises (but not
Alterations) to their former condition to the extent that the same may be
feasible.
(b) Award. Landlord shall have the exclusive right to receive any and all
-----
awards made with respect to the Leased Premises, the Building and the Land
accruing by reason of a Taking or by reason of anything lawfully done in
pursuance of public or other authority. Tenant hereby releases and assigns to
Landlord all of Tenant's rights to such awards and covenants to deliver such
further assignments and assurances thereof as Landlord may from time to time
request, hereby irrevocably designating and appointing Landlord as its attorney-
in-fact coupled with an interest to execute and deliver in Tenant's name and
behalf all such further assignments. Tenant shall not have the right to claim
any
42
<PAGE>
award for the value of the leasehold estate under this Lease, but Tenant shall
have the right to make its own claim against the condemning authority for a
separate award for the value of any Alterations made by Tenant, or Tenant's
Personal Property, at its expense, reduced by the amount (if any) of any
contribution paid by Landlord to Tenant in connection with such Alterations, and
Tenant's personal Property and for moving and relocation expenses, as may be
allowed by law and which do not constitute part of the compensation for the
Building or the Land, or both, and do not diminish the amount of the award to
which Landlord would otherwise be entitled.
15. Assignment and Subletting
-------------------------
(a) Assignment and Subletting Prohibited. Except as otherwise provided in
------------------------------------
this Section, Tenant shall not, directly or indirectly, mortgage, pledge,
encumber, sell, assign or transfer this Lease, in whole or in part, by operation
of law or otherwise, or sublease all or any part of the Leased Premises, without
Landlord's prior consent, which consent will be timely communicated (but in no
event later than thirty (30) days after receipt) and may be withheld for any
reason whatsoever except as otherwise provided in this Section. In connection
with any request by Tenant for such consent to assign or sublet, Tenant shall
submit to Landlord, in writing, at least thirty (30) days before the proposed
effective date, a statement containing the name of the proposed assignee or
subtenant, such information as to its financial responsibility and standing as
Landlord may reasonably require, and all of the terms and provisions upon which
the proposed assignment or subletting is to be made, and, unless the proposed
sublet area shall constitute the entire Leased Premises, such statement shall be
accompanied by a floor plan delineating the proposed sublet area. Any attempted
transfer, assignment, subletting, mortgaging or encumbering of this Lease in
violation of the provisions of this Section shall be void and confer no rights
upon any Person. No permitted assignment or subletting shall relieve Tenant of
any of its obligations under this Lease. Landlord and Tenant agree that except
as otherwise provided in subsection (f), (i) any consideration paid to Tenant in
connection with a subletting of all or any part of the Leased Premises which is
in excess of the Basic Rent and Additional Charges payable under this Lease, and
(ii) any consideration paid to Tenant or any subtenant or other Person claiming
through or under Tenant in connection with an assignment of the Tenant's
interest in this Lease or the interest of any subtenant or other Person claiming
through or under Tenant under any sublease, shall accrue to the benefit of
Landlord and not to the benefit of Tenant or any subtenant or other Person
claiming through or under Tenant, and Landlord shall have the right to condition
its consent to any such assignment or subletting upon receipt by Landlord of
Tenant's or any subtenant's or other Person's written confirmation of, and other
evidence of compliance with, the provisions of clause (i) or (ii), as the case
may be.
(b) Permitted Assignments. Notwithstanding anything to the contrary set
---------------------
forth in this Section 15, Tenant shall have the privilege, without the consent
of Landlord, or
43
<PAGE>
incurring any payment to Landlord, but subject to the requirements of subsection
(g), to assign its interest in this Lease to any Person who (i) acquires all, or
substantially all, of Tenant's assets, either by merger, consolidation or
otherwise and (ii) has a net worth, determined in accordance with generally
accepted accounting principles consistently applied, immediately after the
assignment, which is not less than the net worth of Tenant as of the date
hereof.
(c) Subletting to Affiliates. Notwithstanding anything to the contrary set
------------------------
forth in this Section 15, Tenant shall have the privilege, without the consent
of Landlord, or incurring any payment to Landlord, but subject to the
requirements of subsection (g), to sublet all or any portion of the Leased
Premises to Affiliates of Tenant. In addition, Tenant shall have the right to
sublet, without Landlord's prior consent, any portion of the Leased Premises to
any consultants retained by Tenant who are actively involved in the business
Tenant is conducting in the Leased Premises, provided that any such subtenant
does not generate direct income or profits to Tenant.
(d) Change of Corporate Control. If Tenant is a corporation, any transfer
--------- -----------------
of any of Tenant's issued and outstanding capital stock or any issuance of
additional capital stock, as a result of which the majority of the issued and
outstanding capital stock of Tenant is held by a Person or Persons who do not
hold a majority of the issued and outstanding capital stock of Tenant on the
date of this Lease, in the case of the original Tenant, or on the date on which
Tenant acquires the leasehold estate under this Lease, in the case of a direct
or indirect assignee of the original Tenant, shall be deemed an assignment under
this Section; provided, however, that this sentence shall not apply to a
corporation if all of the outstanding voting stock of such corporation is
registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934,
as amended. If Tenant is a partnership, any transfer of any interest in the
partnership or any other change in the composition of the partnership which
results in a change in the control of Tenant from the Person or Persons
controlling the partnership on the date of this Lease, in the case of the
original Tenant, or on the date on which Tenant acquires the leasehold estate
under this Lease, in the case of a direct or indirect assignee of the original
Tenant, shall be deemed an assignment under this Section.
(e) Permitted Sublettings. Unless an Event of Default has occurred and is
---------------------
continuing, Landlord shall not unreasonably withhold or delay Landlord's consent
to sublettings by Tenant of a part or parts of the Leased Premises, but Landlord
shall not be obligated to consent to a subletting that would result in more than
two (2) tenants (including Tenant to the extent Tenant continues to occupy a
portion of the Leased Premises) or, if greater, the number of tenants to which
Landlord has leased comparable space on any floor in the Building, occupying any
floor of the Leased Premises or what is for a use prohibited by Section 6(a).
Each such subletting shall be for undivided occupancy by the subtenant of that
part of the floor of the Building affected thereby for
44
<PAGE>
the use permitted under this Lease. Landlord may, however, withhold such consent
if, in Landlord's reasonable judgment, the proposed subtenant (i) is not engaged
in a business consistent with the character and dignity of the Building, (ii)
the proposed subtenant does not have sufficient financial resources to perform
its obligations under the sublease, or (iii) the proposed subtenant will impose
any additional material burden upon Landlord in the operation of the Building
(to an extent greater than the burden to which Landlord would have been put if
Tenant continued to use, or used, such part of the Leased Premises for its own
purposes). In the event of any dispute between Landlord and Tenant as to the
reasonableness of Landlord's refusal to consent to any subletting, such dispute
shall be submitted to arbitration pursuant to Section 28. If any portion or
portions of the Leased Premises are sublet in accordance with the terms of this
Section 15, any such subtenant shall not, directly or indirectly, mortgage,
pledge, encumber, sell, assign or transfer its interest in the sublease, in
whole or in part, by operation of law or otherwise, or sublease all or any part
of the Leased Premises without Landlord's prior consent, which may be withheld
for any reason whatsoever.
(f) Assignment and Subletting Profit. Except as provided in Section 15(b)
--------------------------------
hereof, if Tenant's interests under this Lease are assigned in accordance with
the terms hereof, Tenant shall promptly pay to Landlord an amount equal to fifty
percent (50%) of all consideration received by Tenant in respect of such
assignment after deducting from such consideration any actual, reasonable and
customary out-of-pocket expenses incurred by Tenant for advertising, brokerage
commissions and legal fees in obtaining the assignee and in preparing the
assignment documents and any cost of preparing such space for occupancy by the
assignee. If any portion or portions of the Leased Premises are sublet (other
than to an Affiliate pursuant to Section 15(c) hereof in which Tenant or an
Affiliate owns a fifty percent 50% or more equity interest) and if the rent
received by Tenant on account of such subletting exceeds the Basic Rent and
Additional Charges allocated to the space that is subject to the sublease in the
proportion that the area of such space bears to the Rentable Area, after
deducting actual, reasonable and customary out-of-pocket expenses incurred by
Tenant in connection with such sublease for any work allowance, advertising,
brokerage commissions and legal fees in obtaining a subtenant and preparing a
sublease and the cost of preparing such space for occupancy by the subtenant (as
such costs are amortized over the term of the sublease) (such excess being
hereinafter referred to as "Subletting Profit"), then Tenant shall pay to
Landlord fifty percent (50%) of Tenant's Subletting Profit, monthly as received
by Tenant from the subtenant(s). Tenant shall be entitled to retain 100% of
Tenant's Subletting Profit resulting from a sublease to an Affiliate pursuant to
Section 15(c) hereof.
(g) Documentation. No permitted assignment or subletting shall be valid
-------------
unless, within ten (10) days after the consummation thereof, Tenant shall
deliver to Landlord (i) in the case of an assignment, (x) a duplicate original
instrument of assignment in form reasonably satisfactory to Landlord, duly
executed by Tenant, and (y)
45
<PAGE>
an instrument in form and substance reasonably satisfactory to Landlord, duly
executed by the assignee, in which such assignee shall agree to observe and
perform, and to be personally bound by, all of the terms, covenants and
conditions of this Lease on Tenant's part to be observed and performed, whether
or not accruing before or after the date of such assignment and whether or not
relating to matters arising before or after such assignment, or (ii) in the case
of a subletting, a duplicate original counterpart of the sublease signed by
Tenant and the subtenant.
(h) Landlord's Right to Collect Rent. If Tenant's interest in this Lease is
--------------------------------
assigned, whether or not in violation of the provisions of this Section,
Landlord may collect rent from the assignee. If the Leased Premises or any part
thereof are sublet to, or occupied or used by, any Person other than Tenant,
whether or not in violation of this Section, Landlord, after an Event of Default
has occurred and while such Event of Default is continuing, may collect rent
from the subtenant, user or occupant. In either case, Landlord shall apply the
amount collected to the Basic Rent and Additional Charges Payable under this
Lease, but neither any such assignment, subletting, occupancy or use, whether
with or without Landlord's prior consent, nor any such collection or
application, shall be deemed to be a waiver of any term, covenant or condition
of this Lease or the acceptance by Landlord of such assignee, subtenant,
occupant or user as Tenant. The consent by Landlord to any assignment or
subletting shall not relieve Tenant from its obligation to obtain the express
prior consent of Landlord to any further assignment or subletting. Landlord
agrees to list the name of any assignee or sublessee on the Building directory;
however, the listing of any name other than that of Tenant on any door of the
Leased Premises or on any directory in the Building, or otherwise, shall not
operate to vest in the Person so named any right or interest in this Lease or in
the Leased Premises or be deemed to constitute, or serve as a substitute for,
any prior consent of Landlord required under this Section, and is understood
that any such listing shall constitute a privilege extended by Landlord which
shall be revocable at Landlord's will by notice to Tenant. Neither an assignment
of Tenant's interest in this Lease nor a subletting, occupancy or use of the
Leased Premises or any part thereof by any Person other than Tenant, nor the
collection of rent by Landlord from any Person other than Tenant as provided in
this subsection, nor the application of any such rent as provided in this
subsection shall, in any circumstances, relieve Tenant from its obligation fully
to observe and perform the terms, covenants and conditions of this Lease on
Tenants part to be observed and performed.
16. Default Provisions.
------------------
(a) Events of Default. Each of the following events shall be deemed to be,
-----------------
and is referred to in this Lease as, an "Event of Default":
46
<PAGE>
(1) A default by Tenant in making any payment of Basic Rent or Additional
Charges on the day such payment is due and payable, which default continues for
more than five (5) days after Landlord shall have given Tenant a written notice
specifying such default; or
(2) If, within any period of six (6) consecutive months, Landlord shall
have given two (2) written notices of default to Tenant pursuant to paragraph
(1), a further default by Tenant occurs, within the six (6) month period after
the giving of the second such notice, in making any payment of Basic Rent or
Additional Charges on the date such payment is due and payable which continues
for more than five (5) days; or
(3) The neglect or failure of Tenant to perform or observe any of the
terms, covenants or conditions contained in this Lease on Tenant's part to be
performed or observed (other than those referred to in paragraphs (1) above and
(4) and (5) below) which is not remedied by Tenant (i) within thirty (30) days
after Landlord shall have given to Tenant notice specifying such neglect or
failure, or (ii) in the case of any such neglect or failure which cannot with
due diligence and in good faith be cured within thirty (30) days, within such
additional period, if any, as may be reasonably required to cure such default
with due diligence and in good faith, provided that Tenant commences the curing
of the same within the thirty (30) day period (it being intended that, in
connection with any such default which is not susceptible of being cured with
due diligence and in good faith within thirty (30) days, the time within which
Tenant is required to cure such default shall be extended For such additional
period as may be necessary for the curing thereof with due diligence and in good
faith); or
(4) The assignment, transfer, mortgaging or encumbering of this Lease or
the subletting of the Leased premises in a manner not permitted by Section 15;
or
(5) The taking of this Lease or the Leased Premises, or any part thereof,
upon execution or by other process of law directed against Tenant, or upon or
subject to any attachment at the instance of any creditor of or claimant against
Tenant, which execution or attachment shall not be discharged or disposed of
within sixty (60) days after the levy thereof; or
(6) The abandonment of the Leased Premises by Tenant and failure by Tenant
to pay the Basic Rent and the Additional Charges hereunder.
47
<PAGE>
(b) Landlord's Rights upon Event of Default. Upon the occurrence of an
------------------------------- -------
Event of Default, Landlord shall have the right, at its election, then or at any
time thereafter, either:
(i) To give notice to Tenant that this Lease will terminate on a date
to be specified in such notice, which date shall not be less than ten (10)
days after such notice, and on the date specified in such notice Tenant's
right to possession of the Leased Premises shall cease and this Lease shall
thereupon be terminated, but Tenant shall remain liable as provided in
subsection (c); or
(ii) Without demand or notice, to re-enter and take possession of the
Leased Premises, or any part thereof, and repossess the same and expel
Tenant and those claiming through or under Tenant and remove the effects of
both or either, either by summary proceedings, or by action at law or in
equity, without being deemed guilty of any manner of trespass and without
prejudice to any remedies for arrears of rent or preceding breach of
covenant.
If Landlord elects to re-enter under paragraph (ii), Landlord may terminate this
Lease, or, from time to time, without terminating this Lease, may relet the
Leased Premises, or any part thereof, as agent for Tenant for such term or terms
and at such rental or rentals and upon such other terms and conditions as
Landlord may deem advisable, with the right to make alterations and repairs to
the Leased Premises. No such re-entry or taking of possession of the Leased
Premises by Landlord shall be construed as an election on Landlord's part to
terminate this Lease unless a written notice of such intention is given to
Tenant under paragraph (i) or unless the termination thereof is decreed by a
court of competent jurisdiction.
(c) Tenant's Liability for Damages. If Landlord terminates this Lease
------------------------------
pursuant to subsection (b), Tenant shall remain liable (in addition to accrued
liabilities) to the extent legally permissible for (i) the sum of (x) all Basic
Rent and Additional Charges provided for in this Lease until the date this Lease
would have expired had such termination not occurred, and (y) any and all
reasonable expenses incurred by Landlord in re-entering the Leased Premises,
repossessing the same, making good any default of Tenant, painting, altering or
dividing the Leased Premises, combining the same with any adjacent space for any
new tenants, putting the same in proper repair, reletting the same (including
any and all reasonable attorneys fees and disbursements and reasonable brokerage
fees incurred in so doing), and any and all expenses which Landlord may incur
during the occupancy of any new tenant (other than expenses of a type that are
Landlord's responsibility under the terms of this Lease); less (ii) the proceeds
of any reletting actually received by Landlord. Tenant agrees to pay to Landlord
the difference between items (i) and (ii) above with respect to each month
during the period that would have constituted the balance of the Term, at the
end of such month. Any suit brought by
48
<PAGE>
Landlord to enforce collection of such difference for any one month shall not
prejudice Landlord's right to enforce the collection of any difference for any
subsequent month. In addition to the foregoing, Tenant shall promptly pay to
Landlord such sums as the court which has jurisdiction thereover may adjudge
reasonable as attorneys fees with respect to any successful legal proceeding or
action instituted by Landlord to enforce the provisions of this Lease. Landlord
shall use reasonable efforts to relet the whole or any part of the Leased
Premises for the whole of the unexpired Term, or longer, or from time to time
for shorter periods, for any rental then obtainable, giving such concessions of
rent and making such alterations, decorations and paintings for any new tenant
as Landlord, in its sole and absolute discretion, may deem advisable, provided,
however, that Landlord shall not be obligated to use any efforts to relet any of
the Leased Premises to the extent Landlord is attempting to lease any comparable
space in the Building. Tenant's liability under this subsection shall survive
the institution of summary proceedings and the issuance of any warrant
thereunder.
(d) Liquidated Damages. If Landlord terminates this Lease pursuant to
------------------
subsection (b), Landlord shall have the right, at any time, at its option, to
require Tenant to pay to Landlord, on demand, as liquidated and agreed final
damages in lieu of Tenant's liability under subsection (c), an amount equal to
the difference, discounted to the date of such demand at an annual rate of
interest equal to the then-current yield on actively traded U.S. Treasury bills
having a maturity substantially comparable to the remaining term of this Lease
as of the date of such termination, as published in the Federal Reserve
Statistical Release for the week before the date of such termination, between
(i) the Basic Rent and Additional Charges, computed on the basis of the then-
current annual rate of Basic Rent and Additional Charges and all fixed and
determinable increases in Basic Rent, which would have been payable from the
date of such demand to the date when this Lease would have expired, if it had
not been terminated, and (ii) the then fair rental value of the Leased Premises
for the same period (taking into account reletting expenses, including the cost
to paint, alter or divide the space, combine the same with any adjacent space
for any new tenants, put the same in proper repair, reasonable attorneys' fees
and disbursements, reasonable brokerage fees and any and all expenses that
Landlord would incur during the occupancy of any new tenant (other than expenses
of a type that are Landlord's responsibility under the terms of this Lease)).
Upon payment of such liquidated and agreed final damages, Tenant shall be
released from all further liability under this Lease with respect to the period
after the date of such demand if, after the Event of Default giving rise to the
termination of this Lease, but before presentation of proof of such liquidated
damages, the Leased Premises, or any part thereof, shall be relet by Landlord
for a term of one year or more, the amount of rent reserved upon such reletting
shall be deemed to be the fair rental value for the part of the Leased Premises
so relet during the term of such reletting.
17. Intentionally Deleted.
49
<PAGE>
18. Bankruptcy Termination Provision.
--------------------------------
This Lease shall automatically terminate and expire, without the
performance of any act or the giving of any notice by Landlord, upon the
occurrence of any of the following events: (a) Tenant's admitting in writing its
inability to pay its debts generally as they become due, or (b) the commencement
by Tenant of a voluntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other applicable federal or state
bankruptcy, insolvency or other similar law, or (c) the entry of a decree or
order for relief by a court having jurisdiction over the premises in respect of
Tenant in an involuntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other applicable federal or state
bankruptcy, insolvency or other similar law, and the continuance of any such
decree or order unstayed and in effect for a period of 30 consecutive days, or
(d) Tenant's making an assignment of all or a substantial part of its property
for the benefit of its creditors, or (e) Tenant's seeking or consenting to or
acquiescing in the appointment of, or the taking of possession by, a receiver,
trustee or custodian for all or a substantial part of its property, or (f) the
entry of a court order without Tenant's consent, which order shall not be
vacated, set aside or stayed within thirty (30) days from the date of entry,
appointing a receiver, trustee or custodian for all or a substantial part of its
property. The provisions of this Section shall be construed with due recognition
for the provisions of the federal bankruptcy laws, where applicable, but shall
be interpreted in a manner which results in a termination of this Lease in each
and every instance, and to the fullest extent, that such termination is
permitted under the federal bankruptcy laws, it being of prime importance to the
Landlord to deal only with tenants who have, and continue to have, a strong
degree of financial strength and financial stability.
19. Landlord May Perform Tenant's Obligations.
----------------------------------------
If Tenant shall fail to keep or perform any of its obligations as provided
in this Lease with respect to (a) maintenance of insurance, (b) repairs and
maintenance of the Leased Premises, (c) compliance with Legal Requirements or
Insurance Requirements, or (d) the making of any other payment or performance of
any other obligation, then Landlord may (but shall not be obligated to do so)
upon the continuance of such failure on Tenant's part for fifteen (15) days
after notice to Tenant, or without notice in the case of an emergency, and
without waiving or releasing Tenant from any obligation, and as an additional
but not exclusive remedy, make any such payment or perform any such obligation.
All reasonable sums so paid by Landlord and all necessary incidental costs and
expenses, including attorneys' fees and disbursements, incurred by Landlord in
making such payment or performing such obligation, together with interest
thereon from the date of payment at the Default Interest Rate, shall be deemed
Additional Charges and shall be paid to Landlord on demand, or at Landlord's
option may be added to any installment of Basic Rent thereafter falling due.
50
<PAGE>
20. Subordination.
-------------
(a) Mortgages. This Lease and Tenant's interest hereunder shall have
---------
priority over, and be senior to, the Lien of any mortgage, deed of trust or
similar instrument ("Mortgage") made by Landlord after the date of this Lease.
Landlord hereby represents that there is no mortgage encumbering the Building as
of the date of this Lease. However, if at any time or from time to time during
the Term, a holder or beneficiary under a Mortgage (a "Mortgagee") or a
prospective Mortgagee requests that this Lease be subject and subordinate to its
Mortgage, and if Landlord consents to such subordination, this Lease and
Tenant's interest hereunder shall be subject and subordinate so the lien of such
Mortgage and to all renewals, modifications, replacements, consolidations and
extensions thereof and to any and all advances made thereunder and interest
thereon, provided that the Mortgagee shall have delivered to Tenant a
nondisturbance agreement as described in Section 20(c) of this Lease. Tenant
agrees that, within ten (10) days after receipt of a request therefor from
Landlord, it will, from time to time, execute and deliver any instrument or
other document required by any such Mortgagee to evidence the subordination of
this Lease and its interest in the Leased Premises to the lien of such Mortgage,
subject to Tenant's receipt of a nondisturbance agreement as described in
Section 20(c) of this Lease. In any event, however, if this Lease shall have
priority over the lien of a first Mortgage, this Lease shall not become subject
or subordinate to the lien of any subordinate Mortgage, and Tenant shall not
execute any subordination documents or instruments for any subordinate
Mortgagee, without a nondisturbance agreement as described in Section 20(c) of
this Lease.
(b) Ground Leases. Landlord represents that there is no ground lease
-------------
relating to either the Land or the Building as of the date of this Lease. This
Lease and Tenant's interest hereunder shall be subject and subordinate to each
and every ground or underlying lease hereafter made of the Building or the Land,
or both, and to all renewals, modifications, replacements and extensions
thereof, provided that the lessor under any such ground or underlying lease
shall have delivered to Tenant a nondisturbance agreement as described in
Section 20(c) of this Lease. Tenant agrees that, within ten (10) days after
receipt of a request therefor from Landlord, it will, from time to time,
execute, acknowledge and deliver any instrument or other document required by
any such lessor to subordinate this Lease and its interest in the Leased
Premises to such ground or underlying lease, subject to Tenant's receipt of a
nondisturbance agreement as described in Section 20(c) of this Lease.
(c) Nondisturbance Agreement. Notwithstanding anything to the contrary set
------------------------
forth in Sections 20(a) and (b) of this Lease, this Lease and Tenant's interest
hereunder shall only be subject and subordinate to a Mortgage or a ground or
underlying lease made by Landlord after the date hereof if (i) such Mortgagee
executes and delivers to Tenant an agreement reasonably satisfactory both in
form and in substance to such Mortgagee,
51
<PAGE>
Landlord and Tenant, providing that if there shall be a foreclosure of
its Mortgage, then provided no Event of Default shall have occurred and be
continuing hereunder, such Mortgagee will not join Tenant as a party defendant
in any foreclosure action or proceeding that may be instituted or taken by such
Mortgagee (unless required by law to make such proceeding effective), evict
Tenant, disturb Tenant's possession of the Leased Premises, or terminate or
disturb Tenant's Leasehold estate or rights under this Lease or (ii) any such
lessor under any such ground or underlying lease executes and delivers to Tenant
an agreement reasonably satisfactory both in form and in substance to such
lessor, Landlord and Tenant, providing that if the ground or underlying lease
shall terminate, then provided no Event of Default shall have occurred and be
continuing hereunder, such Lessor will recognize Tenant as the direct tenant of
such Lessor on the same terms and conditions as are contained in this Lease and
Tenant's rights under this Lease shall not be affected in any way by reason of
the termination of such ground or underlying lease (any such agreement being a
"Nondisturbance Agreement"). Any such Nondisturbance Agreement may be made on
the condition that neither the Mortgagee nor the lessor under any such ground or
underlying lease, as the case may be, nor any parties claiming by, through or
under such Mortgagee or lessor, as the case may be, including a purchaser at a
foreclosure sale, shall be (A) liable for any act or omission of any prior
landlord, (B) subject to any defenses or offsets which shall have theretofor
accrued to Tenant against any prior landlord, (C) bound by any prepayment of
rent which Tenant may have paid to any prior Landlord other than for the then-
current month (except to the extent such Prepayment was actually received by
such Mortgagee or lessor), (D) bound by any obligation to perform any
alterations or to reimburse Tenant for any alterations performed by Tenant,
excluding Landlord's Work and Landlord's Contribution, as described herein, or
(E) bound by any previous modification or other agreement with respect to this
Lease, unless such modification shall have been expressly approved in writing by
such Mortgagee or lessor.
(d) Mortgagee's Right to Cure. If (i) the Building or the Land, or both, is
-------------------------
at any time subject to a Mortgage, and (ii) this Lease, or the Basic Rent and
Additional Charges payable under this Lease, is assigned to the Mortgagee, and
(iii) the Tenant is given notice of such assignment, including the name and
address of the assignee, then, in that event, Tenant shall not terminate this
Lease or be entitled to any abatement in the Basic Rent or Additional Charges
payable hereunder for any default on the part of the Landlord without first
giving notice, in the manner provided elsewhere in this Lease for the giving of
notices, to such Mortgagee, specifying the default in reasonable detail, and
affording such Mortgagee a reasonable opportunity to make performance, at its
election, for and on behalf of the Landlord, except that (x) the Mortgagee shall
have at least thirty (30) days to cure such default; (y) where such default
cannot be cured within thirty (30) days, the Mortgagee shall have any additional
time as may be reasonably necessary to cure the default with reasonable
diligence and continuity; and (z) if such default cannot reasonably
52
<PAGE>
be cured without the Mortgagee having obtained possession of the Building, the
Mortgagee shall have such additional time as may be reasonably necessary under
the circumstances to obtain possession of the Building and thereafter to cure
the default with reasonable diligence and continuity; provided that such default
shall not unreasonably interfere with Tenant's use of the Leased Premises. If
more than one Mortgagee makes a written request to Landlord to cure the default,
the Mortgagee making the request whose lien is the most senior shall have such
right.
21. Attornment.
----------
In the event of (a) a transfer of Landlord's interest in the Building, (b)
the termination of any ground or underlying lease of the Building or the Land,
or both, or (c) the purchase or other acquisition of the Building or Landlord's
interest therein in a foreclosure sale or by deed in lieu of foreclosure under
any Mortgage or pursuant to a power of sale contained in any Mortgage, then in
any of such events Tenant shall, at the request of Landlord or Landlord's
successor in interest attorn to and recognize the transferee or purchaser of
Landlord's interest or the lessor under the terminated ground or underlying
lease, as the case may be, as Landlord under this Lease for the balance then
remaining of the Term, and thereafter this Lease shall continue as a direct
lease between such Person, as "Landlord," and Tenant, as "Tenant," except that,
in the case of (b) and (c) above, such lessor, transferee or purchaser shall not
be (i) liable for any act or omission or negligence of any prior landlord (other
than to cure any default of a continuing nature); (ii) subject to any
counterclaim, defense or offset which theretofore shall have accrued to Tenant
against any prior landlord; (iii) bound by the payment of any Basic Rent or
Additional Charges for more than one month in advance (unless actually received
by such party); or (iv) bound by any modification or amendment of this Lease
with respect to which the consent of such Mortgagee or of the lessor under such
ground or underlying lease is required pursuant to the terms of such Mortgage or
ground or underlying lease, as applicable, unless such modification or amendment
shall have been approved in writing by such Mortgagee or lessor, as applicable;
(v) in the event of damage to the Building by fire or other casualty, obligated
to repair the Premises or the Building or any part thereof beyond such repair as
may be reasonably accomplished from the net proceeds of insurance actually made
available to Landlord; or (vi) in the event of partial condemnation, obligated
to repair the Premises or the Building or any part thereof beyond such repair as
may be reasonably accomplished from the net proceeds of any award actually made
available to Landlord as consequential damages allocable to the part of the
Premises or the Building not taken. Tenant shall, within ten (10) days after
request by Landlord or the transferee or purchaser of Landlord's interest or the
lessor under the terminated ground or underlying lease, as the case may be,
execute and deliver an instrument or instruments confirming the foregoing
provisions of this Section. Tenant hereby waives the provisions of any present
or future law or regulation which gives or purports to give Tenant any right to
terminate or otherwise adversely affect this Lease, or
53
<PAGE>
the obligations of Tenant hereunder, upon or as a result of the termination of
any such ground or underlying lease or the completion of any such foreclosure
and sale.
22. Quiet Enjoyment.
---------------
Landlord covenants that as long as Tenant is paying the Basic Rent and the
Additional Charges provided for in this Lease and performing and observing all
of the terms, covenants, conditions and provisions of this Lease on Tenant's
part to be kept, observed and performed, Tenant shall quietly hold, occupy and
enjoy the Leased Premises during the Term without hindrance, ejection or
molestation by Landlord or any Person lawfully claiming through or under
Landlord.
23. Landlord's Right of Access to Leased Premises.
---------------------------------------------
(a) Landlord's Right of Entry. Subject to the provisions of Section 5(B)
-------------------------
hereof, Landlord and its agents, employees and contractors shall have the
following rights in and about the Leased Premises: (i) to enter the Leased
Premises at all reasonable times to examine the Leased Premises or for any of
the purposes set forth in this Section or for the purpose of performing any
obligation of Landlord under this Lease or exercising any right or remedy
reserved to Landlord in this Lease, and if, in the case of an emergency, Tenant
or its officers, partners, agents or employees shall not be personally present
or shall not open and permit an entry into the Leased Premises at any time when
such entry shall be necessary due to such emergency, forcibly to enter the
Leased Premises; (ii) to exhibit the Leased Premises to prospective lessees of
the Leased Premises at reasonable times during the last twelve (12) months of
the Term and to prospective mortgagees or purchasers of the Building and others
(other than prospective lessees) at reasonable times and upon reasonable prior
notice and for reasonable purposes during the Term; (iii) to make such repairs,
alterations, improvements or additions, or to Perform such maintenance,
including the maintenance of all plumbing, electrical and other mechanical
facilities installed by Landlord, as Landlord may deem necessary or desirable,
all in accordance with the terms and conditions of this Lease; and (iv) to make
such repairs, alterations or improvements, or to perform maintenance of all
heating, ventilating and air conditioning, elevator, plumbing, electrical and
other mechanical facilities installed by Landlord, as may be required from time
to time by this Lease to be made or performed by Landlord. Landlord agrees to
give reasonable prior notice before it exercises its rights under this
subsection, except that Landlord may enter the Leased Premises without notice in
the case of an emergency. Landlord and Tenant further agree that in cases of
regularly-scheduled, routine maintenance with respect to systems services in the
Leased Premises, Landlord shall contact Tenant in advance and Tenant shall
provide a representative to escort Landlord's employees and contractor while
performing such maintenance within the Leased Premises. Landlord's rights and
obligations described in this subsection shall be subject to the terms of
Section 35(k).
54
<PAGE>
(b) Landlord's Reservation of Rights in Adjacent Areas. Landlord reserves
--------------------------------------------------
the right to use all parts (except surfaces facing the interior of the Leased
Premises) of all exterior walls, windows and doors bounding the Leased Premises
(including exterior Building walls, corridor walls, doors and entrances), all
terraces and roofs adjacent to the Leased Premises, all space adjacent to the
Leased Premises used for shafts, stacks, stairways, chutes, pipes, conduits,
ducts, fan rooms, heating, air-conditioning, plumbing, electrical and other
mechanical facilities installed by Landlord, service closets and other Building
facilities. Nothing contained in this Section shall impose any obligation upon
Landlord with respect to the operation, maintenance, alteration or repair of the
Leased Premises or the Building, except that Landlord shall repair any damage
caused in connection with the exercise of such rights and as otherwise expressly
provided in this Lease and shall indemnify and hold Tenant harmless in
connection with any damages or losses which may result from any negligent act or
omission in the performance of the work described herein.
(c) Effect of Landlord's Entry. The exercise by Landlord or its agents,
--------------------------
employees or contractors of any right reserved to Landlord in this Section shall
not constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of rent, or relieve Tenant from
any of its obligations under this Lease, or impose any liability upon Landlord,
or its agents, or upon any lessor under any ground or underlying lease, by
reason of Inconvenience or annoyance to Tenant, or injury to or interruption of
Tenant's business, or otherwise. Provided, however, Landlord's rights described
in this subsection shall be subject to the terms of Section 5(j) and 35(k).
24. Limitation on Landlord's Liability.
----------------------------------
(a) Accidents. Except for damages resulting from the willful or negligent
---------
act or omission of Landlord, its agents and employees, Landlord shall not be
liable to Tenant or Tenant's Associates for any damage or loss to the property
of Tenant or others located in or on the Leased Premises, the Building or the
Land, or for any accident or injury, including death, to Persons or for any
loss, compensation or claim, including claims for interruption or loss of
Tenant's business, based on, arising out of or resulting from the necessity of
maintaining or repairing any portion of the Building or the Parking Spaces; the
use or operation (by Tenant or any other Person or Persons whatsoever) of any
elevators, or heating, cooling, electrical, plumbing or other equipment or
apparatus; the termination of this Lease by reason of, or the occurrence of,
damage or destruction of the Building or the Leased Premises; any fire, robbery,
theft, and/or any other casualty; any leaking in any part or portion of the
Leased Premises or the Building; any water, wind, rain, or snow that may leak
into, or flow from, any part of the Leased Premises or the Building; any acts or
omissions of any occupant of any space in the Building; any water, gas, steam,
fire, explosion, electricity or falling plaster; the bursting, stoppage or
leakage
55
<PAGE>
of any pipes, sewer pipes, drains, conduits, appliances, sprinkler system,
plumbing or other works; or any other cause whatsoever whether similar or
dissimilar to the foregoing.
(b) Parking Spaces. Except for damages resulting from the willful or
--------------
negligent act or omission (where applicable law imposes a duty to act) of
Landlord, its agents and employees, Landlord shall not be liable for any damage
or loss to any automobile (or any personal property therein) parked in or on the
Parking Spaces or any other part of the Land, or for any injury sustained by any
individual in, on or about the Parking Spaces or any other part of the Land.
(c) Liability Limited to Landlord's Estate. Notwithstanding any provision
--------------------------------------
to the contrary, Tenant agrees that (i) the liability of Landlord for the
satisfaction of any Claim (as hereinafter defined) shall be limited to
Landlord's Estate (as hereinafter defined), (ii) no other properties or assets
of Landlord or the Additional Insured or the officers, directors, agents or
employees of Landlord or the Additional Insured shall be subject to levy,
execution or other enforcement procedures for the satisfaction of any Claim or
any judgment based on a Claim, and (iii) if Tenant shall acquire a lien on or
interest in any other properties or assets of Landlord, or of any of the
officers, directors, agents or employees of Landlord by judgment or otherwise,
Tenant shall promptly release such lien on or interest in such other properties
and assets by executing, acknowledging and delivering to Landlord an instrument
to that effect prepared by Landlord's attorneys. For purposes of this
subsection, (x) the term "Landlord's Estate" shall mean the estate and property
of Landlord in and to the Building and the Land and (y) the term "Claim" shall
mean any claim which Tenant may have against Landlord arising out of or in
connection with this Lease, the relationship of Landlord and Tenant or Tenant's
use of the Leased Premises.
(d) Consequential Damages. Notwithstanding anything to the contrary set
---------------------
forth in this Lease, in no event shall Landlord or Tenant be liable for
consequential or special damages.
25. Estoppel Certificates.
---------------------
Tenant agrees from time to time, within fifteen (15) days after request
therefor by Landlord, to execute, acknowledge and deliver to Landlord a
statement in writing certifying to Landlord, any Mortgagee, any assignee of a
Mortgagee, or any purchaser, of the Building or the Land, or both, or any other
Person designated by Landlord, as of the date of such statement, (a) that Tenant
is in possession of the Leased Premises; (b) that this Lease is unmodified and
in full force and effect (or, if there have been modifications, that this Lease
is in full force and effect as modified and settling forth such modifications);
(c) whether or not there are then existing any setoffs or defenses known to
Tenant against the enforcement of any right or remedy of Landlord, or any duty
or
56
<PAGE>
obligation of Tenant, hereunder (and, if so, specifying the same in detail); (d)
the dates, if any, to which any Basic Rent or Additional Charges have been paid
in advance; (e) that Tenant has no knowledge of any uncured defaults on the part
of Landlord under this Lease (or, if Tenant has knowledge of any such uncured
defaults, specifying the same in detail); (f) that Tenant has no knowledge of
any event having occurred that authorizes the termination of this Lease by
Tenant (or, if Tenant has such knowledge, specifying the same in detail); and
(g) any additional facts reasonably requested by Landlord or any such Mortgagee,
assignee of a Mortgagee or purchaser.
26. Surrender of Leased Premises.
----------------------------
(a) Possession of Leased Premises. Tenant shall, on or before the last day
-----------------------------
of the Term, except as otherwise expressly provided elsewhere in this Lease,
remove all of its property and peaceably and quietly leave, surrender and yield
up to the Landlord the Leased Premises, free of subtenancies, broom clean and in
good order and condition except for reasonable wear and tear, damage by fire or
other casualty, or conditions requiring repair by Landlord hereunder at
Landlord's expense.
(b) Inspection of Leased Premises. At the time Tenant surrenders the
-----------------------------
Leased Premises at the end of the Term, or within three (3) days thereafter,
Landlord and Tenant, or their respective agents, shall make an inspection of the
Leased Premises and shall prepare and sign an inspection form to describe the
condition of the Leased Premises at the time of surrender. The inspection form
shall be conclusive of any claims made by Landlord against Tenant in connection
with such surrender.
27. Holding Over.
------------
In the event of any holding over by Tenant after expiration or termination
of this Lease without the consent of Landlord, Tenant's obligations under this
Lease shall continue in full force and effect during Tenant's occupancy of the
Leased Premises and Tenant shall pay as holdover rental for each month of the
holdover tenancy (i) an amount equal to the greater of (A) the fair market
rental value of the Premises for such month or (B) (x) during each of the first
two (2) months after the expiration or termination of this Lease, one hundred
twenty-five percent (125%) of the Basic Rent that Tenant was obligated to pay
for the month immediately preceding the end of the Term and (y) during each
month thereafter for the remainder of Tenant's occupancy of the Leased Premises,
one hundred fifty percent (150%) of the Basic Rent that Tenant was obligated to
pay for the month immediately preceding the end of the Term and (ii) the
Additional Charges payable hereunder with respect to each such month.
No holding over by Tenant after the Term shall operate to extend the Term.
Anything in this Article to the contrary notwithstanding, the acceptance of any
rent paid
57
<PAGE>
by Tenant pursuant to this Section 27 shall not preclude Landlord from
commencing and prosecuting a holdover or summary eviction proceeding, and the
preceding sentence shall be deemed to be an "agreement expressly providing
otherwise" within the meaning of Section 223-C of the Real Property Law of the
State of New York and any successor law of like import.
28. Arbitration.
-----------
In any case in which it is provided by the terms of this Lease that any
matter shall be determined by arbitration, then such arbitration shall be in
accordance with the Commercial Arbitration Rules then in effect of the American
Arbitration Association (the "AAA"). The arbitration proceeding shall be
conducted in White Plains, New York, by one arbitrator selected jointly by the
parties within ten (10) days of the dispute being submitted to the AAA or, if
the parties cannot so agree, then the AAA shall appoint an arbitrator to decide
the matter in accordance with the "baseball-style" arbitration rules of such
association; that is, where each party hereto shall submit its position and the
arbitrator shall (within twenty (20) days of such arbitrator's appointment,
during which time the arbitrator shall conduct such hearings, investigations and
discovery as he/she may determine appropriate), in his/her determination (which
determination shall be in writing), select the position which such arbitrator
believes most closely approximates the proper resolution of the dispute, such
arbitrator not having, within his/her power, the ability or right to make an
independent determination other than selecting one of the two submitted
proposals. The termination of the arbitrator shall be conclusive and be deemed
to be binding on the parties. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction with respect thereto.
All direct and reasonable costs of the arbitration proceeding, including
compensation of the arbitrator but excluding any compensation paid to counsel,
agents, employees, and witnesses of either party, shall be borne equally by the
parties or as the arbitrator shall determine.
29. Parking.
-------
Throughout the Term, Landlord agrees to lease to Tenant, and Tenant agrees
to lease from Landlord without additional charge, the Parking Spaces for use by
Tenant and/or its employees. Tenant agrees to use the Parking Spaces for the
parking of passenger automobiles and for no other purposes. Tenant acknowledges
that any parking spaces designated by Landlord as being reserved for other
tenants of the Building shall not be available for Tenant's use, and Tenant
agrees that it will not use, and it shall cause its Affiliates, directors,
partners, employees, agents, independent contractors, licensees and invitees not
to use, such reserved parking spaces.
58
<PAGE>
30. Transfer of Landlord's Interest.
-------------------------------
If the original Landlord named in this Lease, or any successor to the
original Landlord's interest in the Building, conveys or otherwise disposes of
its interest in the Land and/or the Building, then upon such conveyance or other
disposition all liabilities and obligations on the part of the original
Landlord, or such successor Landlord, as Landlord under this Lease, which accrue
after such conveyance or disposition shall cease and terminate and each
successor Landlord shall, without further agreement, be bound by Landlord's
covenants and obligations under this Lease, but only during the period of such
successor Landlord's ownership of the Building. A copy of the recorded deed
conveying the interest in the Building shall be satisfactory evidence of a
successor Landlord's interest. In the event of a sale or other transfer of
Landlord's interest in the Building, Landlord may transfer or assign the
Security Deposit to Landlord's grantee or assignee, provided said grantee or
assignee by written undertaking addressed to Landlord assumes all Landlord's
obligations hereunder. Tenant agrees to look to such grantee or assignee solely
for the return of any said Security Deposit. The provisions hereof shall apply
to each and every sale or other transfer of the Building.
31. Leasing Commissions.
-------------------
Landlord and Tenant each represent and warrant to the other that, except
for the Leasing Broker and the Cooperating Broker, if any, neither of them has
employed or dealt with any broker or finder in carrying on the negotiations
relative to this Lease. Landlord and Tenant shall each indemnify and hold
harmless the other from and against any claim or claims for brokerage or other
commission arising from or out of any breach of the foregoing representation and
warranty. Landlord recognizes that the Leasing Broker and the Cooperating
Broker, if any, are entitled to the payment of a commission for services
rendered in the negotiation and obtaining of this Lease, and Landlord has agreed
to pay such commission pursuant to a separate agreement. This obligation shall
survive expiration or termination of this Lease.
32. Renewal Option.
--------------
(a) Provided (i) this Lease is in effect and Tenant is not in default
hereunder beyond any applicable grace period, either at the time of any exercise
of this option or at the time of the commencement of the applicable Renewal Term
(as hereinafter defined), and (ii) Tenant shall be in occupancy of all of the
Leased Premises, Tenant shall have the option to renew this Lease for two (2)
consecutive five (5) year renewal terms (each a "Renewal Term") upon the same
terms as in this Lease, except that (A) the Basic Rent during each Renewal Term
shall be determined as provided in this Section, (B) the terms of this Lease
relating to Landlord's Contribution shall not apply to such Renewal Terms and
(C) Tenant shall have no right to renew the term of this Lease for any period
beyond
59
<PAGE>
the second Renewal. Tenant shall exercise such option, if at all, by written
notice ("Tenant's Notice") to Landlord given at least eighteen (18) calendar
months prior to the expiration of the Term (as the same may have been extended
by any Renewal Term). Upon Landlord's receipt of Tenant's Notice, this Lease
shall be automatically extended for the applicable Renewal Term with the same
force and effect as if the applicable Renewal Term had been originally included
in the Term, subject to the terms and conditions of this Section.
(b) The Basic Rent for each Renewal Term shall be (i) the fair market Basic
Rent for the Leased Premises, as agreed upon by Landlord and Tenant or in the
absence of agreement, as determined by arbitration in accordance with the terms
of Section 28, as of the commencement of the applicable Renewal Term.
(c) Following the giving of Tenant's Notices, on a date which is not less
than six (6) months prior to the expiration of the Term, Landlord shall send a
notice ("Landlord's Notice") to Tenant of Landlord's estimate of the annual fair
market Basic Rent for the Leased Premises during the applicable Renewal Term. If
Tenant shall not accept Landlord's estimate, Landlord and Tenant shall attempt
to agree on the Basic Rent to be paid during such Renewal Term. In the event
that Landlord and Tenant shall not have agreed upon the Basic Rent to be paid by
Tenant during the Renewal Term by the date which is three (3) months prior to
the expiration of the Term, such dispute shall be submitted to arbitration in
accordance with the provisions of Section 28 and this Section, and the
arbitrator shall determine the annual fair market Basic Rent of the Leased
Premises (taking into account the terms of this Lease relating to the payment of
Additional Charges during the Renewal Term), and the Basic Rent to be paid
during such Renewal Term shall be determined based upon the Arbitrator's
determination, subject to the provisions of this Lease.
(d) If, upon the commencement of any Renewal Term, the Basic Rent payable
by Tenant during such Renewal Term shall not have been determined, Tenant shall,
effective as the commencement of such Renewal Term, pay an amount equal to the
Base Rent and Additional Charges payable by Tenant during the twelve (12) months
immediately preceding the applicable Renewal Term, subject to adjustment upon
determination of such Basic Rent. Upon the determination of such Basic Rent,
Tenant shall promptly pay to Landlord any underpayment of Basic Rent by Tenant
since the beginning of the Renewal Term and, in the event of any overpayment of
such Basic Rent by Tenant since the beginning of such Renewal Term, Landlord
shall pay Tenant the amount of such overpayment.
(e) Nothing in this Section shall affect Tenant's obligation to pay
Additional Charges under this Lease. During each Renewal Term, Tenant shall pay
Additional Charges in accordance with the provisions of this Lease, with the
Operating Expense
60
<PAGE>
Base for each such Renewal Term being the Operating Expenses for the calendar
year in which the Renewal Term commences and the Base Real Estate Tax Amount for
each such Renewal Term being the Real Estate Taxes for the Tax Year in which the
Renewal Term commences. In determining the annual fair market Basic Rent of the
Premises, no value shall be allocated (by Landlord, Tenant or the arbitrator) to
any Alterations made by Tenant in or to the Leased Premises, but there shall be
taken into account the rental for comparable premises in comparable Buildings in
the Westchester County area and the rentable area of the Leased Premises.
(f) In the event that Tenant exercises its option in respect of a Renewal
Term in accordance with this Section, the term "Term" as defined in Section 1
shall mean the Original Term as extended by such Renewal Term.
(g) Any termination, cancellation or surrender of this Lease shall
terminate any right of renewal for any remaining Renewal Term. Neither the
option granted to Tenant in this Lease to renew the Term, nor the exercise of
such option by Tenant, shall prevent Landlord from exercising any option or
right granted or reserved to Landlord in this Lease or that Landlord may
otherwise have to terminate this Lease during the Term or any Renewal Term. Any
termination of this Lease shall serve to terminate any such renewal of the Term
and any right of Tenant to any such renewal, whether or not Tenant shall have
exercised the option to renew the Term. Any such option or right on the part of
Landlord to terminate this Lease shall continue during the Renewed Term. No
option granted to Tenant to renew the Term shall be deemed to give Tenant any
further option to renew or extend.
(h) Upon the determination of the Basic Rent for the Renewal Term, Landlord
and Tenant, upon the demand of either of them, shall enter into a supplementary
agreement in form reasonably acceptable to both, setting forth such Basic Rent.
(i) Time shall be of the essence with respect to the exercise by Tenant of
its options under this Section.
33. Termination Option.
------------------
Tenant shall have the right to terminate this Lease, effective December
14, 2006 (the "Early Termination Date"), by delivering to Landlord on or before
June 14, 2005 (i) written notice of Tenant's election to exercise such right,
and (ii) on or before June 14, 2006 a termination payment in the form of an
irrevocable letter of credit drawn upon Bank of New York Bank (the "Bank") in
the amount of Three Hundred Sixty-Five Thousand Two Hundred Seventy-Four Dollars
($365,274.00) plus one hundred percent (100%) of the Additional Charges for the
period commencing on December 14, 2005 and terminating on December 14, 2006,
which shall be payable to Landlord on demand on or
61
<PAGE>
after December 14, 2006 upon Landlord's presentation of the letter of credit to
the Bank. The documentation of the aforesaid letter of credit shall be in a form
reasonably satisfactory to Landlord's counsel. In the event Tenant delivers such
notice and makes such termination payment, this Lease and the term and estate
hereby granted (unless the same shall have expired sooner pursuant to any of the
other conditions of limitation or provisions of this Lease or pursuant to law)
shall terminate on December 14, 2006 with the same effect as if such date were
the date hereinbefore specified for the expiration of the Term, and the Basic
Rent and Additional Charges hereunder shall be apportioned as of the date of
such termination. Time shall be of the essence with respect to the giving of
such notice and the making of such payment.
34. Right of First Offer.
--------------------
(a) If at any time during the Term, Landlord intends to lease between five
thousand (5,000) to fifteen thousand (15,000) square feet of tenant space in the
Building to bona fide third-party tenants (any such space being the "Offer
Space") (unless, as of the date of this Lease, Landlord shall be actively
involved in ongoing negotiations with one or more prospective tenants for the
initial letting of such space, in which event the right of first offer described
in this Section shall not apply to the initial letting of such space to any such
prospective tenants), Landlord shall give to Tenant notice thereof (the "Offer
Space Notice") setting forth the material terms and conditions pursuant to which
Landlord is willing to lease the Offer Space to Tenant. For the purposes of the
immediately preceding sentence, the letting of certain space in the Building to
Transamerica Leasing Inc. ("Transamerica") pursuant to that certain Lease
Agreement dated as of February 16, 1993, by and between Landlord and
Transamerica, shall not be subject to the provisions of this Section 34(a). The
Offer Space Notice shall set forth (i) a specific description of the Offer
Space, the commencement date of the proposed letting (the "Offer Space Lease
Commencement Date") and the expiration date of the proposed letting (the "Offer
Space Lease Expiration Date"), (ii) the Basic Rent payable during the Offer
Space Term (as hereinafter defined), (iii) any material Additional Charges
payable with respect to the Offer Space, including, without limitation, any
additional rent related to increases in real estate taxes or operating expenses
for the Building, increases in any price index or wage or labor rate, and any
spinkler or water charges, (iv) the amount of any rent abatement and
construction reimbursement; and (v) any other terms and conditions which
Landlord deems material. Provided that at the time of the giving of the Offer
Space Notice and the Exercise Notice (as hereinafter defined), this Lease shall
be in full force and effect and no Event of Default shall have occurred and be
continuing hereunder, Tenant shall have the option (the "Offer Space option"),
during the ten (10) day period commencing on the date that Landlord gives the
Offer Space Notice to Tenant, to lease the Offer Space from Landlord, for the
period (the "Offer Space Term") commencing on the Offer Space Lease Commencement
Date and expiring on the Offer Space Lease Expiration Date, by giving Landlord
notice thereof (the "Exercise Notice") on or before the last day of such ten
(10)
62
<PAGE>
day period (which last day is herein referred to as the "Exercise Notice Date").
Any such notice that amends, modifies or supplements the terms set forth in the
Offer Space Notice shall not be deemed an Exercise Notice. The Offer Space
Option shall be subject to, and governed by, the terms, covenants and conditions
contained in the balance of this Section.
(b) Except as otherwise expressly provided in Section (e) below, if Tenant
fails to give the Exercise Notice to Landlord on or before the Exercise Notice
Date, or if Tenant fails to duly execute and deliver to Landlord a lease
agreement (the "Offer Space Lease") with respect to the Offer Space, prepared by
Landlord and in the form and content set forth in Section (c) below, within ten
(10) days after Landlord delivers counterparts of the offer Space Lease to
Tenant, then the Offer Space Option (only with respect to the specific Offer
Space that is the subject of such Offer Space Notice) shall be deemed revoked,
null and void, and of no further force or effect.
(c) If Tenant shall send the Exercise Notice to Landlord on or before the
Exercise Notice Date and in the manner set forth in Section (a) hereof, the
parties hereto shall enter into the Offer Space Lease, which Offer Space Lease
shall contain all of the same terms, covenants and conditions contained in this
Lease, except that:
(i) Those terms and conditions set forth in the Offer Space Notice
that are expressly different than the corresponding provisions in this
Lease shall supersede and replace such corresponding provisions, or shall
modify such corresponding provisions accordingly; and
(ii) Those terms and conditions set forth in the Offer Space Notice
that are in addition to the terms and conditions of this Lease shall be
added to the Offer Space Lease.
(d) Except as otherwise provided in Section 34(a), the Offer Space Option
shall apply only after the first letting of the Offer Space after the date
hereof. Except as otherwise expressly provided in Section (e) below, if Landlord
gives to Tenant the Offer Space Notice and (i) Tenant fails to give the Exercise
Notice to Landlord on or before the Exercise Notice Date, or (ii) Tenant fails
to duly execute and deliver to Landlord the Offer Space Lease within ten (10)
days after Landlord delivers counterparts thereof to Tenant, or (iii) if at the
time of the giving of the Offer Space Notice or the Exercise Notice, this Lease
shall not be in full force and effect or an Event of Default shall have occurred
and be continuing hereunder, then, in any of such events, the Offer Space Option
shall be deemed revoked, null and void, and of no further force or effect, but
only with respect to the Offer Space that is the subject of such Offer Space
Option.
63
<PAGE>
(e) If Landlord gives to Tenant the Offer Space Notice and if Tenant fails
to give the Exercise Notice to Landlord on or before the Exercise Notice Date,
and thereafter Landlord intends to lease the Offer Space to a bone fide third
party tenant on terms and conditions that are materially more favorable to such
bona fide third party than the terms and conditions set forth in the Offer Space
Notice (i.e., less than ninety percent (90%) of the net present value of the
financial terms offered in the Offer Space Notice), then, subject to, and in
accordance with, the provisions of this Section, Landlord shall give to Tenant
an Offer Space Notice, and Tenant shall have an additional Offer Space Option,
as set forth above, except that the Offer Space Notice shall set forth such new
terms and conditions.
(f) Time is of the essence with respect to the giving of the Exercise
Notice and the execution of the Offer Space Lease. In the event Tenant fails to
exercise the Offer Space Option or, pursuant to subsection (b) hereof, shall be
deemed to have waived the Offer Space Option, Tenant shall confirm such waiver
in writing within five (5) days of Landlord's request for such a confirmation.
(g) Notwithstanding anything to the contrary stated herein, Landlord
agrees that, in any event, it will give to Tenant at least one Offer Space
Notice between the fourth anniversary and the sixth anniversary of the Lease
Commencement Date for an Offer Space on the first floor of the Building,
containing between four thousand (4000) and six thousand (6000) rentable square
feet of space. Said Offer Space Option shall be subject to, and governed by, the
terms, covenants and conditions set forth in this Section; provided, however,
that this commitment shall supersede any arrangement Landlord may have with any
other tenant or prospective tenant in the Building.
35. General Provisions.
------------------
(a) Binding Effect. The terms contained in this Lease shall be binding
--------------
upon, and shall inure to the benefit of, the parties hereto and, subject to the
provisions of Section 15, each of their respective legal representatives,
successors and assigns.
(b) Governing Law. It is the intention of the parties hereto that this
-------------
Lease shall be construed and enforced in accordance with the laws of the
jurisdiction in which the Building is located.
(c) Waivers. No failure by Landlord or Tenant to insist upon the strict
-------
performance of any term of this Lease or to exercise any right or remedy
consequent upon a breach thereof, and no acceptance by Landlord of full or
partial rent during the continuance of any such breach by Tenant, shall
constitute a waiver of any such breach or of any such term. No term of this
Lease to be kept, observed or performed by Landlord or by Tenant, and no breach
thereof, shall be waived, altered or modified except by a written
64
<PAGE>
instrument executed by Landlord or by Tenant, as the case may be. No waiver of
any breach shall affect or alter this Lease, but each and every term of this
Lease shall continue in full force and effect with respect to any other then
existing or subsequent breach thereof.
(d) Notices. Every notice, request, consent, approval or other
-------
communication (hereafter in this subsection collectively referred to as
"notices" and singly referred to as a "notice") which Landlord or Tenant is
required or permitted to give to the other pursuant to this Lease shall be in
writing and shall be delivered personally or by overnight courier service or
shall be sent by certified or registered mail, return receipt requested, first-
class postage prepaid, if to Landlord, at Landlord's Notice Address, or if to
Tenant, at Tenant's Notice Address, or at any other address designated by either
party by notice to the other party pursuant to this subsection. Any notice
delivered to a party's designated address by (i) personal delivery, (ii)
recognized overnight national courier service, or (iii) registered or certified
mail, return receipt requested, shall be deemed to have been received by such
party at the time the notice is delivered to such party's designated address.
Confirmation by the courier delivering any notice given pursuant to this
subsection shall be conclusive evidence of receipt of such notice. Landlord and
Tenant each agree that it will not refuse or reject delivery of any notice given
hereunder, that it will acknowledge, in writing, receipt of the same upon
request by the other party and that any notice rejected or refused by it shall
be deemed for all purposes of this Lease to have been received by the rejecting
party on the date so refused or rejected, as conclusively established by the
records of the United States Postal Service or the courier service. Any notice
required to be given within a stated period of time which is sent by certified
or registered mail shall be considered timely if postmarked before midnight of
the last day of such period.
(e) Entire Agreement. This Lease contains the final and entire agreement
----------------
between said parties, and they shall not be bound by any terms, statements,
conditions or representations, oral or written, express or implied, not
contained in this Lease. However, the terms of this Lease shall be modified, if
so required, for the purpose of complying with or fulfilling the requirements of
any Mortgagee secured by a first Mortgage that may hereafter become a lien on
the Building, provided, however, that such modification shall not result in a
change, other than a de minimis change, in any of the rights of Tenant
hereunder, nor impose on Tenant any additional financial obligations or
liabilities.
(f) Jury Trial. Landlord and Tenant each hereby waives all right to trial
----------
by jury in any claim, action, proceeding or counterclaim by either Landlord or
Tenant against the other (except for personal injury or property damage) on any
matters arising out of or in any way connected with this Lease, the relationship
of Landlord and Tenant and/or Tenant's use or occupancy of the Leased Premises.
65
<PAGE>
(g) Venue. Tenant hereby waives any objection to the venue of any action
-----
filed by Landlord against Tenant in any state or federal court in the
jurisdiction in which the Building is located, and Tenant further waives any
right, claim or power, under the doctrine of forum non conveniens or otherwise,
to transfer any such action filed by Landlord to any other court.
(h) Corporate Authority. Tenant hereby represents and warrants that: (i)
-------------------
Tenant is a duly organized corporation in good standing under the laws of the
jurisdiction of the State of New York; (ii) Tenant is qualified to do business
in good standing in the jurisdiction in which the Building is located; (iii)
Tenant has the power and authority to enter into this Lease; and (iv) all
corporate action requisite to authorize Tenant to enter into this Lease has been
duly taken.
(i) Invalidity. If any provision of this Lease shall be invalid, illegal
----------
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not be affected thereby.
(j) Captions. The captions in this Lease are for convenience only and
--------
shall not affect the interpretation of the provisions hereof.
(k) Overtime. Landlord shall use reasonable efforts, in exercising its
--------
rights under Section 4 and subsections 5(f), 5(h), 5(i), 6(g), 23(a) and 23(c)
hereof and in fulfilling its obligations set forth in subsections 7(b), 9(g),
13(a) and 23(a) hereof, to minimize any inconvenience or annoyance to Tenant or
any interference with the conduct of Tenant's business in the Leased Premises,
provided, however, that except in cases of emergency or where conditions
threatening life or limb exist, where Landlord shall act reasonably in employing
labor at overtime or other premium pay rates, Landlord shall be under no
obligation to employ labor at overtime or other premium pay rates in order to do
so. Notwithstanding the foregoing, in the event Tenant requests that Landlord
employ labor at overtime or other premium pay rates in connection with
Landlord's exercise of such rights or in fulfilling such obligations, Landlord
shall use reasonable efforts to do so, provided, however, that Tenant shall be
responsible for, and shall pay to Landlord within thirty (30) days of Landlord's
delivery to Tenant of an invoice therefor, the difference between the costs
incurred by Landlord to employ such labor at overtime or other premium rates and
the costs Landlord would have incurred to employ such labor during regular
business hours at non-overtime or other premium rates.
(1) No Partnership. This Lease is not intended to create a partnership or
--------------
joint venture between Landlord and Tenant in the conduct of their respective
businesses.
66
<PAGE>
(m) Counterparts. This Lease may be executed in several counterparts, each
------------
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
(n) Authority. If Tenant is a corporation, partnership or other legal
---------
entity, the individual who executes and delivers this Lease on behalf of Tenant
represents and warrants to Landlord that he or she is duly authorized to do so.
(o) No Offer. The submission of an unsigned counterpart of this Lease to
--------
Tenant shall not constitute an offer or option to lease the Leased Premises.
This Lease shall become effective and binding only upon the execution and
delivery by Landlord and Tenant
(p) Survival. Tenant's obligations under Sections 3(b), 3(e), 3(f), 3(g),
--------
6(d), 6(e), 9(d), 9(e), 9(f), 11(e), 14(b), 16(c), 16(d), 19, 21, 24(c), 26, 27
and 31 shall survive for a period of two (2) years the expiration of the Term or
the earlier termination of this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be signed
by a duly authorized representative as of the day and year first above written.
NESTLE USA, INC.
By: /s/ Kenneth L. Jalen
--------------------------------------
Name: KENNETH L. JALEN
------------------------------------
Title: V.P. CORPORATE ACCOUNTING
-----------------------------------
TRIMARK SECURITIES
By: /s/ Steven Steinman
--------------------------------------
Name: STEVEN STEINMAN
------------------------------------
Title: CHIEF EXECUTIVE OFFICER
-----------------------------------
67
<PAGE>
AGREEMENT effective as of the 5th day of April, 1995 (the "Effective Date")
by and between Automated Securities Clearance Ltd., a New Jersey corporation,
having its principal office at 800 Harbor Boulevard, Weehawken, New Jersey 07087
("ASC"), and Knight Securities, a LP ______________ , having its principal
office at 525 Washington Boulevard, 35th Floor, Jersey City, New Jersey 07320
("Customer").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, ASC has developed and owns a computer software program for the
financial services industry, which program is an order entry and execution
system as more fully described in Schedule "A" attached hereto (the "BRASS
System"); and
WHEREAS, Customer desires to obtain a non-exclusive, non-transferable,
permanent license from ASC to use the BRASS System for the use of Customer.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and promises set forth below, the parties hereto agree as follows:
1. Grant of License. Subject to the terms and conditions of this
----------------
Agreement, ASC hereby grants to Customer, and Customer hereby accepts from ASC,
a non-transferable, non-exclusive license in perpetuity (subject to termination
as provided in Section 3 and Section 11 hereof) to use the BRASS System (the
"License") for the use of Customer. ASC shall provide to Customer all
documentation required to allow Customer to use and operate the BRASS System in
accordance with, and subject to, all of the terms,
<PAGE>
conditions and provisions of this Agreement. The BRASS System, together with all
source codes, object codes and all enhancements, adaptations and modifications
thereof, and any related documentation of any type whatsoever is sometimes
hereinafter referred to collectively as the "Licensed Software."
Modifications or enhancements may be made by Customer to any Licensed
Software, without ASC's prior written consent; provided, however, that ASC shall
have no obligation to provide maintenance, software support, or daily
operations support (including, without limitation, the maintenance, software
support and daily operations support services to be provided by ASC under this
Agreement) with respect to all or any portion of the BRASS System and/or the
Licensed Software so modified or enhanced, unless ASC (in its sole and absolute
discretion) has consented in writing to such modifications or enhancements prior
to their being made to the Licensed Software.
2. Computer Equipment.
------------------
(a) Customer hereby agrees to acquire, at its sole cost and
expense, the data communications and terminal equipment necessary to utilize the
BRASS System and support its trading operation, including, without limitation,
Sun Microsystems computer hardware and system software (i.e., AIX, Sybase)
(collectively, the "Computer Equipment"). The Computer Equipment will be
delivered and installed at Customer's premises located at 525 Washington
Boulevard, 35th floor, Jersey City, New Jersey 07320 ("Customer's Premises").
For the purpose of enabling ASC to perform its
2
<PAGE>
obligations under Sections 8 and 9 hereof, Customer agrees to provide ASC, at
Customer's sole cost and expense, with a dedicated line to access the BRASS
System at Customer's premises which will enable ASC from its facility in
Weehawken, New Jersey, to diagnose a promblem with the operation of the Brass
System at Customer's Premises.
(b) Site Preparation. Customer, at its sole cost and expense,
----------------
with the advice and assistance of ASC, will prepare the space at Customer's
Premises at which the Computer Equipment will be installed. The location of such
installation shall be selected sensitive to power, environmental HVAC and
related concerns necessary for the proper operation of the Computer Equipment.
3. Term. The term of the License granted hereunder (the "License
----
Term") shall commence on the Effective Date and continue in perpetuity, unless
this Agreement is terminated pursuant to Section 11 hereof, in which event the
License Term will terminate; provided, however, that Customer may terminate this
Agreement at anytime after the one (1) year anniversary of the Acceptance Date
(as defined in Section 7 (e)) upon six (6) months prior written notice to ASC,
in which event the License Term will terminate.
4. Fees.
----
(a) License Fee. In consideration for the License granted by ASC
-----------
to Customer hereunder and for other good and
3
<PAGE>
valuable consideration, Customer hereby agrees to pay ASC a fee (the "License
Fee") in accordance with the following:
(i) Commencing with the third (3rd) day that Customer has
utilized the BRASS System for the actual processing of its trading operation
(hereinafter referred to as the "Utilization Date") and continuing for each
month, or part thereof, until ASC provides Customer with application programming
interfaces which will enable Customer to receive order, trade and profit and
loss data from the BRASS System and to send order data to the BRASS System (the
"APIs"), the sum of $3,000 per month for the use of the BRASS System by up to
three (3) traders of Customer; $4,000 for four (4) traders; $5,000 for (5)
traders; $6,000 for (6) traders; and $15,000 per month for the use of the BRASS
System by more than six (6) traders of Customer, until such time ASC provides
Customer with the APIs, whereupon the License Fee shall be increased to $17,500
per month until the fifth (5th) year anniversary of the Utilization Date; and
(ii) Commencing with the month immediately following and
continuing for each month during the subsequent sixth (6th) and seventh (7th)
years, the sum of $8,750 per month.
The License Fee shall be payable on the first (1st) day of each month
during this seven (7) year period. After the expiration of this 7 year
period, and provided that Customer has performed all of its obligations
hereunder, Customer will have the License in perpetuity without any further
obligation to pay the License Fee unless this Agreement is terminated pursuant
to Section 11 hereof, in which event the License Term will terminate.
4
<PAGE>
(b) Software Support and Maintenance Fee. In consideration for
------------------------------------
the software support and the maintenance service provided hereunder, Customer
hereby agrees to pay ASC a fee in the sum of Fourteen Thousand ($14,000) Dollars
on the Utilization Date and on the first (1st) day of each month thereafter
during the Maintenance Term (as hereinafter defined) and each renewal thereof
(the "Maintenance Fee").
(c) Daily Operations Support Fee. In consideration for the Daily
----------------------------
Operations Support (as hereinafter defined) to be provided by ASC hereunder,
Customer hereby agrees to pay ASC a fee in sum of Six Thousand ($6,000) Dollars
on the Utilization Date and on the first (1st) day of each month thereafter
during the Daily Operations Support Term (as hereinafter defined) and each
renewal thereof (the "Daily Operations Fee").
(d) Initial Fee. Customer will pay to ASC a non-refundable fee
-----------
in the sum of Forty Thousand ($40,000) Dollars upon the execution of this
Agreement as an advance payment for the License Fee (the "Initial Fee").
(e) Late Charges. In the event that payment of any one or more
------------
of the Initial Fee, the License Fee, the Maintenance Fee and the Daily
Operations Fee is received more than thirty (30) days after the date any such
fee is due pursuant hereto, Customer shall pay a late payment charge of one and
one-half (1 1/2%) percent per month on the unpaid balance of such fee.
(f) CPI Increase. The Maintenance Fee and the Daily Operations
------------
Fee shall each be subject to annual increases based upon the percentage increase
in the CPI from the first year
5
<PAGE>
of the Maintenance Term and Daily Operations Support Term as compared to
subsequent years of these terms. ASC reserves the right to charge Customer with
a compounded CPI increase for those years in which it does not impose a CPI
increase on a Customer for either or each of the Maintenance Fee and the Daily
Operations Fee.
The term "CPI" as used in this Article shall mean the United
States Consumer Price Index, All Urban Customers, for the Northeastern New
Jersey-New York, New York Metropolitan Area, United States City Average, All
Items Category, Based 1982-1984 = 100. If the CPI is no longer calculated
utilizing the 1982-1984 = 100 base at the time any adjustment is to be
calculated pursuant to this Section, then the CPI figure shall be calculated by
referring to the CPI figure for the categories set forth above, and converting
that figure to the 1982-1984 = 100 base by utilizing the conversion factor
published by the Bureau of Labor Statistics.
5. Proprietary Rights; Non-Disclosure. All Licensed Software is, and
----------------------------------
shall remain, the exclusive property of ASC. Customer has no right to use the
Licensed Software for any purpose other than that expressly stated in this
Agreement or authority to sublicense, sell, disclose, reveal or otherwise
communicate except as permitted by Section 6 hereof), directly or indirectly,
information about the BRASS System or any Licensed Software to any third party.
6
<PAGE>
6. Confidentiality; Source Code.
----------------------------
(a) ASC and Customer shall acquire and hold in a fiduciary
capacity for each other all information, knowledge and data relating to or
concerned with each organization's operations, sales, customers, business and
affairs, and shall not, at any time, use such information, knowledge and/or data
(hereinafter "Confidential Information") other than for the purpose of
performing their respective obligations hereunder, or disclose or divulge any
Confidential Information to any person, firm, partnership limited liability
company, corporation or other entity other than those officers, directors and
employees (collectively "Employees") of ASC or Customer who have a need to know
such Confidential Information and only if such Employees agree in writing to be
bound by the restrictions of Section 5 hereof and this Section 6. Confidential
Information does not include information which is (i) in the public domain, (ii)
within the custody or control of either party hereto before the Effective Date,
or (iii) disclosed to either party hereto by a third party who is legally
entitled to make such disclosure.
(b) ASC will provide Customer with a copy of the BRASS System
source codes and the related documentation which comprises the Licensed Software
for the sole purpose of off-site storage. Customer acknowledges and agrees that
the Licensed Software is the property of and a trade secret of ASC and
constitutes "Confidential Information" hereunder. Customer shall be fully
responsible for the actions of each of its Employees with respect to maintaining
the confidentiality of the Licensed
7
<PAGE>
Software, whether or not any such individual is or was acting within the scope
of his or her employment while breaching such confidentiality. Simultaneously
with the execution of this Agreement, Customer, on its own behalf and on behalf
of its Employees, will execute a Confidentiality Agreement in the form of that
set forth in Schedule "B" attached hereto (the "Confidentiality Agreement"). Any
non-Employee of Customer (i.e., consultants, agents, representatives) shall
execute a Confidentiality Agreement in a form substantially similar to Schedule
"B", prior to his, her or its access to the Licensed Software or any part
thereof.
7. ESTABLISHMENT OF BRASS SYSTEM FOR CUSTOMER.
------------------------------------------
(a) Programming Services. As soon as practicable after the
--------------------
installation of all the Computer Equipment, ASC will (i) deliver the entire
BRASS System to Customer at Customer's Premises, (ii) provide Customer with
application programming interfaces which will enable Customer to receive order,
trade and profit and loss data from the BRASS System, (iii) provide Customer
with an application programming interface which will enable Customer to send
order data to the BRASS System, and (iv) prior to the full implementation of the
BRASS System, ASC will demonstrate the operation of the BRASS System to Customer
at Customer's Premises.
ASC will provide Customer with an interface to Customer's Trimark System by
the 45th day after the Effective Date or on such date Customer is ready to test
the interface, whichever is later. If ASC is unable to complete this interface
to the Trimark System
8
<PAGE>
by the date due to no fault of Customer, then Customer may declare ASC to be in
default pursuant to Section 11(b) hereof.
ASC will provide Customer with the capability to support a "third market"
trading operation within six (6) months from Customer's written request therefor
to ASC in accordance with the attached schedule.
(b) Training and Education. ASC will provide comprehensive
----------------------
training and education to Customer's order entry and execution terminal
operators on the actual use of the BRASS System; provided, however, that
Customer will bear the expenses for travel and accommodations incurred by ASC in
providing such training and education.
(c) Daily Operations Training on the BRASS System. In connection
---------------------------------------------
with the expiration of the Daily Operations Support Term and all renewals
thereof, ASC will provide comprehensive training and education to Customer's
data processing personnel on the structure, design and internal coding
conventions of the BRASS System applications, provided, however, that Customer
will bear the expenses for travel and accommodations incurred by ASC in
providing such training and education.
(d) Obligations of Customer. In connection with the
-----------------------
establishment of the BRASS System, Customer shall perform the following
obligations:
(i) provide accurate and complete data to ASC for
conversion to the BRASS System; and
9
<PAGE>
(ii) assign Customer personnel adequately trained in the
appropriate technical skills to assist in the implementation of the BRASS
System.
(e) Acceptance of BRASS System. The BRASS System shall be
--------------------------
deemed accepted by Customer on a date (the "Acceptance Date") which will occur
on the earlier of: (i) the first day that Customer is able to execute not less
than five thousand (5,000) trades per day through the BRASS System; or (ii) the
one hundred eightieth (180th) day after the Utilization Date. Customer shall use
its best efforts to achieve execution through the BRASS System of no less than
five thousand (5,000) trades per day until such time as the BRASS System has
been deemed accepted in accordance with this Section 7(e).
8. Maintenance; Software Support.
-----------------------------
(a) Subject to earlier termination pursuant to Section 3, 8(d)
or 11 hereof, the term during which the agreements set forth in this Section 8
shall remain in effect (the "Maintenance Term") shall commence on the
Utilization Date and shall continue until the first anniversary of the
Acceptance Date; provided, however, that Customer shall have the option to renew
the Maintenance Term for successive one (1) year periods, subject to earlier
termination pursuant to Section 3, 8(d) or 11 hereof, by giving ASC notice of
its exercise of said option within thirty (30) days prior to the expiration of
the then current Maintenance Term or renewal thereof, as the case may be.
10
<PAGE>
(b) In consideration of Customer's payment of the Maintenance
Fee, ASC shall provide Customer with maintenance service with respect to the
BRASS System during the Maintenance Term and each renewal thereof, upon the
following terms and conditions:
(i) During the Daily Operations Support Term. During the
----------------------------------------
Daily Operations Support Term (as hereinafter defined) and each renewal thereof,
ASC shall monitor the operation of the BRASS System to detect problems with such
operation. In the event that ASC detects such a problem, it will endeavor to
determine whether the problem relates to a problem with (A) the Computer
Equipment, (B) non-BRASS System Software utilized in connection with the BRASS
System (the "System Software") or (C) the application of the BRASS System to
Customer's trading operation (a "BRASS Application Problem"). ASC will notify
Customer if the problem relates to a problem with the Computer Equipment or the
System Software. Customer shall be responsible for resolving any problems with
the Computer Equipment, and ASC will reasonably cooperate in the resolution of
the same. ASC will exercise reasonable efforts to correct System Software
problems arising at ASC's premises. In the event that it is unable to resolve
any such System Software problem after exercising reasonable efforts, it shall
notify Customer, whereupon Customer shall be responsible for resolving such
System Software problem. ASC will use reasonable efforts to correct all BRASS
Application Problems. The foregoing obligations of ASC shall be in addition to
its obligation to provide second level desk support as provided in Sections
11
<PAGE>
9(b)(i)(d) and 9(b)(iii) hereof. Customer shall fully cooperate with ASC's
maintenance efforts, including, without limitation, by giving ASC prompt
telephonic notice of any and all problems in the operation of the BRASS System
that Customer detects or of which Customer is aware, and by taking whatever
action at Customer's Premises that ASC reasonably requests in order to correct
problems with the operation of the BRASS System.
(ii) When ASC is No Longer Providing Daily Operation
-----------------------------------------------
Support. Upon the expiration of the Daily Operations Support Term (as
- -------
hereinafter defined) and all renewals thereof, ASC shall provide maintenance
services in accordance with the following:
(A) First Level Support. Customer will designate
-------------------
certain qualified employees to be responsible for determining whether a problem
in the operation of the BRASS System relates to a problem with the Computer
Equipment or the System Software or whether the problem is a BRASS Application
Problem. Customer will be solely responsible for resolving problems with the
Computer Equipment and the System Software. Upon Customer's request. ASC will
assist Customer in determining the nature of the problem. If it is determined
that the problem is a BRASS Application Problem, then Customer will promptly
provide telephonic notice to ASC, who will then respond with Second Level
Support.
(B) Second Level Support. ASC will designate, with
--------------------
Customer's consent, which consent will not be unreasonably withheld, certain
qualified employees as "Second Level
12
<PAGE>
Support Representatives" to receive notices from Customer with respect to a
BRASS Application Problem.
Customer will have access to Second Level Support
Representatives to answer questions with respect to a BRASS Application Problem
by way of a telephone hot-line which will be available during the hours of 7:00
a.m. through 5:30 p.m. Eastern Time on weekdays, excluding holidays during which
the stock exchanges are closed ("Telephone Hot-line Support"). There will also
be 24-hour emergency beeper service.
If the BRASS Application Problem is causing a complete
system level service interruption, ASC will have fifteen (15) minutes from its
receipt of telephonic notice from Customer requesting Second Level Support to
solve the problem. Should ASC be unable to solve the problem within 15 minutes,
it shall dispatch its Second Level Support Representative to Customer's
Premises. Said Second Level Support Representative will use reasonable efforts
to promptly correct the problem.
(c) After the expiration of the Maintenance Term and each
renewal thereof, Customer shall only be entitled to receive maintenance service
from ASC with respect to the BRASS System on a time-charge basis and, in
addition, Customer shall be responsible to Pay for ASC's cost of all materials
used by ASC in connection with its providing such maintenance service. Payment
of the foregoing by Customer shall be made upon receipt of an invoice for the
same from ASC and shall be subject to assessment of a late payment charge as
provided in Section 4)e) hereof.
13
<PAGE>
(d) In the event that (i) Customer fails to comply with the
provisions of Sections 5 and 6 hereof, (ii) Customer fails to make any payment
due under this Agreement within ten (10) business days after ASC gives Customer
notice of Customer's failure to make such payment, or (iii) Customer fails to
comply with any other material provision of this Agreement within thirty (30)
days after ASC gives Customer notice of Customer's non-compliance, then the
obligations of ASC under this Section 8 shall terminate; provided, however, that
Customer shall be obligated to pay ASC for any then unpaid Maintenance Fee
payments.
(e) During the Maintenance Term and each renewal thereof, ASC
will provide Customer with any standard BRASS System Software reports, updates
and enhancements, regulatory or otherwise, which it creates pertaining to both
the source codes and object codes therefor.
9. DAILY OPERATIONS SUPPORT.
------------------------
(a) Subject to earlier termination pursuant to Section 3, 9(c)
or 11 hereof, the term during which the agreements set forth in this Section 9
shall remain in effect (the "Daily Operations Support Term") shall commence on
the Utilization Date and shall continue until the first anniversary of the
Acceptance Date; provided, however, that Customer shall have the option to
renew the Maintenance Term for successive one (1) year periods, subject to
earlier termination pursuant to Section 3, 9(c) or 11 hereof, by giving ASC
notice of its exercise of said option within
14
<PAGE>
thirty (30) days prior to the expiration of the then current Daily Operations
Support Term or renewal thereof, as the case may be.
(b) In consideration of Customer's payment of the Daily
Operations Fee, ASC shall provide Customer with daily operations support of the
BRASS System during the Daily Operations Support Term and each renewal thereof,
upon the following terms and conditions ("Daily Operations Support"):
(i) In connection with the daily operation of Customer's
BRASS System, ASC agrees to undertake responsibility for the following:
(A) the morning start-up operation of Customer's BRASS
System;
(B) process monitoring of Customer's BRASS System;
(C) the evening batch cycle of Customer's BRASS
System;
(D) second level desk support for Customer's BRASS
System;
(E) support for up to six external correspondent
circuits at no additional charge, and for each additional correspondent circuit
thereafter as to which Customer gives ASC thirty (30) days' prior notice, at the
rate of One Hundred Fifty ($150.00) Dollars per circuit, per month (charges for
all such additional correspondents, if any, shall be added to and paid as part
of the Daily Operations Support Fee); and
15
<PAGE>
(F) the provision of on-site operation support in
the event that the primary and secondary communication links between ASC and
Customer become inoperable.
(ii) With respect to the process monitoring of Customer's
BRASS System, upon detection thereof, ASC agrees to undertake to correct a BRASS
Application Problem with Customer's BRASS System, including, for example,
responding to Customer's BRASS System error messages that are delivered to
Customer's printer; provided, however, that, in the event that ASC is unable to
correct such a BRASS Application Problem, nothing provided herein shall afford
Customer with any rights, or subject ASC to any liability, beyond that which is
provided for in this Agreement.
(iii) Second level desk support for Customer's BRASS System
shall consist of the following:
(A) ASC will designate certain qualified employees
as "Second Level Support Representatives" to receive notices from Customer with
respect to a BRASS Application Problem with the order entry and execution
terminals located at Customer's Premises.
(B) Customer will have access to Second Level
Support Representatives to answer questions with respect to such BRASS
Application Problems by ??? of Telephone Hot-Line Support.
(C) If the BRASS Application Problem is causing
complete terminal service interruption, ASC will have fifteen (15) minutes
from its receipt of telephonic notice from Customer requesting Second Level
Support to solve the problem.
16
<PAGE>
Should ASC be unable to solve the problem within 15 minutes, it shall dispatch
its Second Level Support Representative to Customer's Premises. Said Second
Level Support Representative will use reasonable efforts to promptly correct the
problem.
(iv) Notwithstanding anything to the contrary set forth in
this Section 9, in connection with the daily operation of Customer's BRASS
System, Customer agrees to retain responsibility for the following:
(A) network support for Customer's BRASS System;
(B) hardware and operating system support for
Customer's BRASS System; and
(C) primary desk support for Customer's BRASS
System.
(v) If in connection with the performance of ASC's
obligations under this Section 9 hereof, ASC discovers any problems with
Customer's BRASS System relating to the network, hardware, operating system or
primary desk for Customer's BRASS System, ASC agrees to notify the designated
representative of Customer as soon as is reasonably practicable after ASC's
discovery of any such problem.
(c) If the event that (i) Customer fails to comply with the
provisions of Sections 5 and 6 hereof, (ii) Customer fails to make any payment
due under this Agreement within ten (10) business days after ASC gives Customer
notice of Customer's failure to make such payment, or (iii) Customer fails to
comply with any other material provision of this Agreement within thirty (30)
days
17
<PAGE>
after ASC gives Customer notice of Customer's non-compliance; then the
obligations of ASC under this Section 9 shall terminate, provided, however, that
Customer shall be obligated to pay ASC for any then unpaid Daily Operations Fee
payments.
10. BRASS PERFORMANCE STANDARDS.
---------------------------
(a) Defined Terms. For purposes of this Section 10 the following
-------------
definitions shall apply:
(i) the "Actual Performance Rate" shall mean a percentage
equal to 100% minus (A) (1) the total number of minutes during a given
Performance Month (as hereinafter defined) that the BRASS Transmission Service
failed to operate minus (2) the Permitted Operational Failures (as hereinafter
defined) for such Performance Month, divided by (B) the total number of minutes
of such Performance Month.
(ii) a "Monthly Performance Failure" shall mean the failure
of the BRASS Transmission Service to operate at less than the Target Performance
Rate (as hereinafter defined) during any Performance Month.
(iii) a "Performance Day" shall mean any weekday during a
Performance Month, except holidays during which the stock exchanges are closed,
commencing at 9:30 A.M. and ending at 4:00 P.M. There are 390 minutes in each
Performance Day.
(iv) a "Performance Month" shall mean all of the
Performance Days in a given month during the Term.
18
<PAGE>
(v) the "Permitted Operational Failures" for any given
Performance Month shall mean a number of minutes equal to the total number of
minutes during such Performance Month that the BRASS Transmission Service failed
to operate due to events which would constitute a force majeure under Section 15
hereof.
(vi) the "Target Performance Rate" shall mean the satisfactory
operation of the BRASS Transmission Service for 99.6% or more of the total
number of minutes during any given Performance Month.
(b) Performance Rebate. In the event that a Monthly Performance
------------------
Failure occurs during any Performance Month, Customer shall be entitled to
receive a rebate off the License Fee for such Performance Month (the "Monthly
Performance Rebate"); provided, however, that in no event shall the Monthly
Performance Rebate exceed the amount of the License Fee for such Performance
Month. The Monthly Performance Rebate for such Performance Month shall be
calculated by multiplying the License Fee for such Performance Month by a
percentage equal to five (5) times difference between the Target Performance
Rate and the Actual Performance Rate. For purposes of making and calculations
pursuant to this Section 10(b), each fraction of a minute shall be rounded off
to the nearest whole minute.
(c) Notice of Claim for Monthly Performance Rebate. It is a condition
----------------------------------------------
precedent to Customer's entitlement to receive any Monthly Performance Rebate
pursuant to this Section 10 that Customer provide ASC with written notice of its
claim within ten (10) business days after the end of the month for
19
<PAGE>
which Customer claims a Monthly Performance Rebate. Such notice shall specify
the exact date, time and duration (rounded off to the nearest minute) of each
operational failure of the BRASS Transmission Service included in the
calculation of the Monthly Performance Failure giving rise to such Performance
Rebate and shall set forth the calculations used to determine the Monthly
Performance Rebate for the applicable period.
(d) Terminal Servers. It is a condition precedent to Customer's
----------------
entitlement to receive any Monthly Performance Rebate pursuant to this Section
10 that Customer maintain at Customer's Premises during the Term and any renewal
term hereof adequate terminal server capability. The failure by Customer to
comply with this condition precedent shall render this entire Section 10 null
and void.
(e) Disputes. If after receiving Customer's notice of claim for
--------
a Monthly Performance Rebate, ASC shall dispute any specified operational
failure of the BRASS Transmission Service, and/or the Monthly Performance
Rebate, ASC shall promptly give notice of such dispute to Customer, and,
thereafter, ASC and Customer shall work in good faith towards a mutually
acceptable resolution of such dispute. In the event that ASC and Customer are
unable to reach such a mutually acceptable resolution within ten (10) business
days after ASC receives Customer's notice of claim for the Monthly Performance
Rebate, the dispute shall be referred for resolution by a mutually acceptable
third party whose determination as to such dispute shall be final.
20
<PAGE>
(f) Award of Performance Rebate. Any Monthly Performance Rebate
---------------------------
required to be given under this Section 10 shall be credited to Customer's
account with ASC on the later of (i) the due date of the License Fee for the
second month next succeeding the month with respect to which the Monthly
Performance Rebate is claimed, or (ii) the date that any dispute as to
Customer's claim for such Monthly Performance Rebate has been resolved in
accordance with Section 10(c) hereof, or shall be paid to Customer by such date
if the License to use the BRASS System granted hereunder or if this Agreement
has been terminated. On or after the date that Customer's account is so
credited, Customer shall be entitled to offset from the amount of any License
Fee which is then or thereafter due to ASC the amount of such credit. The
Monthly Performance Rebate will be awarded solely in accordance with the
foregoing provisions of this Section 10(f).
(g) Customer Remedies Still Apply. Nothing provided in this
-----------------------------
Section 10 shall be deemed to preclude the termination of this Agreement under
Section 11(b) hereof.
11. Defaults and Termination.
------------------------
(a) Events of Default by Customer. Customer shall be in default
-----------------------------
under this Agreement if any of the following occur:
(i) Customer fails to make any payment to ASC hereunder
after the expiration of ten (10) days written notice;
21
<PAGE>
(ii) Customer fails to comply with the provisions of
Sections 5 and 6 hereof; or
(iii) Customer fails to perform or comply with any other
term or condition of this Agreement and such non-performance or non-compliance
has not been cured after the expiration of thirty (30) days prior written
notice.
In the event of a default by Customer, ACS may, upon notice to
Customer, declare all amounts owed to it hereunder immediately due and payable
and/or declare this Agreement to be terminated. The election by ASC of either or
both of such remedies shall not exclude the election of any other remedy.
(b) Events of Default by ASC. ACS shall be in default under this
------------------------
Agreement if it fails to perform or comply with any material term or condition
of this Agreement and such non-performance or non-compliance has not been cured
after the expiration of thirty (30) days prior written notice from Customer. In
the event of such a default, this Agreement will be terminated and neither party
shall have any further liability to the other, except Customer shall pay to ASC
all due but unpaid amounts which it is required to pay under this Agreement.
(c) Upon termination of this Agreement, the License granted
hereunder to use the BRASS System will automatically terminate without the
requirement of any notice.
(d) Upon termination of this Agreement, for any reason
whatsoever, Customer shall immediately return and cause to be returned to ASC
all Licensed Software and all copies made thereof.
22
<PAGE>
12. Warranties; Limitation of Liability; Remedies.
---------------------------------------------
(a) ASC warrants that it owns all the rights required to grant
this license to Customer. ASC does not warrant that the Licensed Software will
meet Customer's desired results or that any defects in the Licensed Software can
or will be corrected.
(b) ASC MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, INCLUDING,
BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE AND ALL SUCH OTHER WARRANTIES ARE HEREBY DISCLAIMED.
(c) THE COMMITMENTS SET FORTH IN THIS AGREEMENT ARE IN LIEU OF
ALL OTHER OBLIGATIONS OR LIABILITIES ON THE PART OF ASC FOR DAMAGE OR OTHER
RELIEF, INCLUDING, WITHOUT LIMITATION, SPECIAL, INDIRECT OR CONSEQUENTIAL
DAMAGES THAT IN ANY WAY ARISE FROM OR ARE IN CONNECTION WITH THE USE AND/OR
PERFORMANCE OF THE BRASS SYSTEM.
13. Taxes; Communication Costs.
--------------------------
(a) Taxes. The fees set forth in this Agreement and in any
-----
schedules attached hereto are exclusive of all sales or use taxes levied on the
License of the BRASS System or any of the services or support to be provided by
ASC hereunder, however designated and levied by any state, local or federal
government. Customer shall be solely responsible for the payment of such taxes
and the filing of any tax returns applicable thereto.
(b) Communication Costs. ASC will be solely responsible for the
-------------------
cost of the telephone line charges for the
23
<PAGE>
NASDAQ Level I and CTCI lines, and dial-up charges up to Fifty ($50) Dollars per
month. Customer will be solely responsible for the NASDAQ and stock exchange
service charges associated with the implementation of the BRASS System, the cost
of the installation of the telephone lines and the leased line charges and dial
back-up charges from the ASC data center to Customer's processing facility and
trading location, and the cost of all ancillary services rendered by
third-parties in connection with Customer's use of the BRASS System. These
charges will be included in ASC's monthly invoice to Customer. A schedule of the
one-time installation charge for the telephone lines and the current fees
charged for the telephone lines and the current fees charged by third parties in
connection with the Customer's use of the BRASS System is set forth on Schedule
"C" attached hereto. The fees set forth on Schedule "C" are subject to
adjustment from time to time in the event the fees charged by such third parties
change, and additional third party fees may be added to Schedule "C" from time
to time in the event that new third party value-added services become available
in connection with the Customer's use of the BRASS Transmission Service.
14. Arbitration. Any controversy or claim arising out of, or relating
-----------
to, this Agreement, or the breach thereof, with the exception of any claim
arising out of, or relating to, Sections 5 and/or 6 hereof or any
Confidentiality Agreement executed pursuant thereto, or the breach of any of the
foregoing, shall be settled by arbitration in accordance with the Commercial
Arbitration rules of the American Arbitration Association, and
24
<PAGE>
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
15. Force Majeure. Neither party hereto shall be held responsible for
-------------
any failure or delay in the performance of its obligations hereunder if such
failure is due to Force Majeure, which shall include acts of God, fire, flood,
strikes or other labor disorders, acts of Government, war or civil disturbance,
and telephone and other communication line failures. During the period of any
such failure or delay, the obligations of the parties hereto shall be suspended
and shall resume when resolved.
16. Assignment. ASC may transfer or assign this Agreement, or any
----------
right or obligation hereunder, without the prior written consent of Customer,
provided that the assignee executes and delivers to Customer an assumption
agreement pursuant to which it will assume all obligations on its part to be
performed hereunder. Customer may not transfer or assign this Agreement, or any
right or obligation hereunder, without the prior written consent of ASC which
shall be in ASC's absolute and sole discretion.
17. Notice. Whenever notice or any other communication is required or
------
permitted pursuant to any provision of this Agreement, the parities hereto agree
that, except as otherwise expressly provided in this Agreement, such notice or
other communication shall be made by hand delivery, telefacsimile
25
<PAGE>
transmission, a recognized overnight courier or by certified mail, return
receipt requested, addressed to the address of the other party hereto set forth
above, or to such other address as may be designated by written notice. If sent
by certified mail, return receipt requested, notices shall be deemed to have
been made on the date which is two (2) days after the date postmarked by the
United States Post Office. In all other cases, notices shall be deemed to have
been made when delivered.
18. Non-Waiver. Waiver by any party hereto of any breach of this
----------
Agreement or the failure to exercise any right hereunder shall not be deemed to
be a waiver of any other breach or right, nor shall the failure of any party
hereto to take action by reason of any such breach or to exercise any such right
deprive such party of the right to take action at any time while such breach or
condition giving rise to such right continues in effect.
19. Time Limitations. Any cause of action arising out of or related
----------------
to this Agreement must be brought no later than one year after the cause of
action has accrued.
20. Severability. If any of the covenants, terms, conditions or
------------
provisions of this Agreement are held invalid for any reason, such invalidity
shall not affect the other provisions hereof which can be given effect without
the invalid provision,
26
<PAGE>
as the provisions of this Agreement are intended to be and shall be deemed
severable.
21. Applicable Law. This Agreement shall be governed by, and
--------------
construed in accordance with, the laws of the State of New York, applicable to
contracts executed and to be fully performed therein, without giving effect to
the principles of conflicts of law.
22. Captions and Headings. The captions and headings used in this
---------------------
Agreement are for convenience only and are not to be considered in construing
the terms of this Agreement.
23. Entire Agreement. This Agreement contains the entire agreement of
----------------
the parties hereto concerning the subject matter hereof, and supersedes any and
all prior agreements among the parties hereto concerning the subject matter
hereof, which prior agreements are hereby canceled. This Agreement may only be
changed, modified, amended, by an agreement in writing, signed by the parties
hereto.
24. Counterparts. This Agreement may be executed simultaneously in
------------
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the date of the day, month
and year first above written.
AUTOMATED SECURITIES
CLEARANCE, LTD.
By: /s/ Robert Greifeld
------------------------------------
Name: Robert Greifeld
Title: President
Date:
KNIGHT SECURITIES
By: /s/ Kenneth Pasternak
------------------------------------
Name: Kenneth Pasternak
Title: President
Date: 04/10/95
28
<PAGE>
SCHEDULE A
----------
The major functionality modules of the BRASS System is as follows:
Position Management
. BRASS will provide a real time updating of all positions
maintained by the Customer with the BRASS System.
Automatic Regulatory Reporting
. As a part of the trade processing cycle, BRASS will automatically
perform the following reporting functions:
* ACT Reporting
* 90 Second Reporting
* Tick Reporting
* Pink Sheet Reporting
* Generation of Form T Report
Automatic Execution
. BRASS will support the automatic execution of incoming orders at
the price of the NASDAQ Level I inside market. This will be
controlled by parameters established by the Customer.
. BRASS will directly interface to the automated trading systems
established by NASDAQ (i.e., SOES, ACES, Selectnet).
Open Order Management
. BRASS will continually monitor the open order file against the
NASDAQ Level I inside market. When an open order hits a market
condition, BRASS will process that order based upon parameters
established by the Customer.
Trade Entry Support
. BRASS will support the direct entry of dealer to dealer trades,
and Customer to dealer trades.
Real-time Profitability Analysis
. BRASS will provide a real-time profitability analysis of all
trades processed through the system.
Real Reporting
Manning I and Manning II Compliance
Short Sale Compliance
Customer Terminal Support
Institutional Sales Commission Calculation
<PAGE>
Exhibit 10.9
MASTER
PROGRAM PRODUCT
LICENSE AGREEMENT
-----------------
Customer:
Agreement made this 1st day of May, 1990 between TCAM Systems, Inc., a
---
New York Corporation, having its corporate headquarters at 50 Broad Street, New
York, New York 10004, hereinafter referred to as "TCAM"; and Trimark Securities,
Inc. with its offices located at 10 New King Street, West Air Plaza, White
Plains, New York 10604, its successors and assigns of its entire business,
hereinafter referred to as "Customer."
1. License
-------
TCAM hereby grants and the Customer accepts upon the terms and conditions
hereinafter set forth a nontransferable, non-exclusive, and irrevocable (so
long as no breach of this Agreement has been committed by Customer) license
to use the Licensed Program(s). "Licensed Program(s)" as used in this
Agreement shall mean program products to the extent identified on Schedule
A hereto (as the same may be added to or amended from time to time),
including program flow charts, file layouts, report layouts, screen
layouts, program source code (except those identified on Schedule B
attached hereto) and object code.
2. Usage
-----
Licenses granted under this Agreement authorize the Customer to utilize the
Licensed Program(s), in machine readable form and are granted for the
Customer's exclusive use in its normal business operation, as presently
conducted, on only one of Customer's central processing and associated
units (hereinafter collectively referred to as "CPU") which is identified
on Schedule A annexed to this Agreement. Customer shall not use the
Licensed Program(s) in the operation of a service bureau or any other
manner which would permit or allow the use of the Licensed Program(s) for
processing any transaction not involving Customer. The Customer agrees that
all Licensed Program(s) developed by TCAM shall remain the property of
TCAM. This Agreement and any Licensed Program(s) to which it applies may
not be assigned, sublicensed, or otherwise transferred by the Customer.
<PAGE>
3. Disclosure
----------
(a) The Customer agrees that the Licensed Program(s) and all related
information received from TCAM under this Agreement as hereinafter amended
or supplemented or any other agreement, whether written or oral, have been
developed by TCAM at great expenditures of time, resources and money.
Therefore, Customer shall keep the Licensed Program(s) and all related
information received from TCAM, whether designated as confidential or not,
in the strictest confidence and will exercise the highest degree of care to
safeguard the confidentiality of the Licensed Program(s) and related
information received from TCAM. It is further agreed that no part of the
Licensed Program(s) shall be duplicated and/or disclosed to others, in
whole or in part, without the prior written consent of TCAM. The foregoing
restriction shall not apply to officers and necessary personnel of the
Customer to the extent that such duplication or disclosure is reasonably
necessary to the Customer's use of the Licensed Program(s). However, it is
agreed that the Customer will take all precautions to insure that all such
officers and personnel of the Customer who may make duplicates or to whom
disclosure thereof is made shall be under an express obligation in writing
to maintain confidentiality with respect thereto and shall have been
advised of the confidential nature thereof by the Customer. It is expressly
understood and agreed that the structures of confidentiality imposed by
this Agreement shall survive the termination of this Agreement or any part
thereof. A copyright notice on the Licensed Program(s) shall not be deemed
in and of itself to constitute or evidence a publication or public
disclosure.
(b) The Licensed Program(s), its logos, product names and other support
materials, if any, are either patented, copyrighted, trademarked, or
otherwise proprietary to TCAM. Customer agrees never to remove any such
notices and product identification.
(c) TCAM agrees that it shall not disclose to any third party Customer's
confidential information concerning the Customer's business, trade secrets,
methods or processes [except when any or all of the foregoing are
incorporated into the Licensed Program(s)] which TCAM learns during the
performance of this Agreement, without the prior written consent of the
Customer. This obligation shall survive the termination of this Agreement.
4. Modification
------------
The Customer, upon notice to TCAM, shall have the right to modify the
Licensed Program(s) through the services of its duly qualified employees
who shall prior to any such modification be under an express obligation, in
writing, to maintain the confidentiality of such Licensed Program(s) and
any modification thereto.
2
<PAGE>
The right of the Customer to modify the Licensed Program(s) shall be
subject to the following conditions:
(a) prior to making any modifications to the Licensed Program, Customer
shall first make an archive tape of the Licensed Program which shall
be maintained by Customer and at TCAM's request, made available to
TCAM at no charge;
(b) all modifications shall become the sole property of TCAM;
(c) the strictures of confidentiality imposed by this Agreement upon the
Customer shall apply to all modifications;
(d) modification to the Licensed Program(s) shall be strictly for the
purpose of tailoring and conforming the Licensed Program(s) to the
Customer's particular business requirements for which the Customer
initially requested the license granted by this Agreement; and
(e) no modification shall allow the Customer to utilize the Licensed
Program(s) for applications other than those specified in the
functional specifications (attached as Schedule C) without TCAM's
prior written consent.
5. Price
-----
The license fees for Licensed Program(s) are specified in Schedule A
annexed to this Agreement. The license fees set forth herein do not include
federal, state, county or local sales, property, use and/or other
applicable taxes except franchise and income taxes, however designated.
Such taxes, wherever applicable, shall be paid by Customer. If any such
taxes are hereafter levied or charged against and are paid or are payable
by TCAM, retroactively or otherwise, such taxes shall be the responsibility
of the Customer and shall be added to such fees and charges and shall be
paid by the Customer when billed as additional amounts due hereunder.
6. Invoicing and Payment
---------------------
All invoices shall be payable within fifteen (15) days of the date of
invoice.
7. Maintenance
-----------
The license fees listed in Schedule A annexed to this Agreement shall
include three (3) months of maintenance service (from the time the Licensed
Program(s) are delivered to Customer) for correction of program errors in
connection with the Licensed Program(s). Should any changes be necessitated
to the Licensed Program(s) during the three (3) month maintenance period as
the result of (i) industry or Customer requirements; or (ii) modifications
made by the Customer to the Licensed Program (as
3
<PAGE>
determined by TCAM in its sole judgement), the Customer may request from
TCAM development and installation of such changes on a time and cost basis.
Any work performed by TCAM as a result of such modifications, industry or
Customer requirements will not increase any remaining portion of the
maintenance period. TCAM'S OBLIGATION TO PROVIDE THE MAINTENANCE SHALL
CEASE UPON ANY MODIFICATION MADE TO THE LICENSED PROGRAM(S) BY CUSTOMER.
8. LIMITED WARRANTY
----------------
A) TCAM MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION
THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, EXCEPT THAT TCAM, SUBJECT TO SUB-PARAGRAPH B OF THIS SECTION 8,
WARRANTIES THAT THE LICENSED PROGRAM(S), WHEN DELIVERED AND FOR A PERIOD OF
THREE (3) MONTHS THEREAFTER, WILL OPERATE IN ALL MATERIAL RESPECTS AS
DESCRIBED IN THE PROGRAM PRODUCT FUNCTIONAL DESCRIPTIONS ATTACHED HERETO AS
SCHEDULE C. CUSTOMER'S SOLE AND EXCLUSIVE REMEDY FOR THE BREACH OF ANY
PROVISION OF THIS AGREEMENT OR FOR BREACH OF WARRANTY SHALL BE LIMITED TO
THE CORRECTION OF THE LICENSED PROGRAM DEFECT BY TCAM OR THE REFUND (EITHER
IN FULL OR ON A PRO-RATA BASIS DETERMINED BY TCAM BASED UPON THE PERCENTAGE
OF THE LICENSED PROGRAM WHICH CONTAINS THE DEFECT) OF THE LICENSE FEE
ACTUALLY PAID FOR THE AFFECTED LICENSED PROGRAM; THE CHOICE OF REMEDIES
SHALL BE EXCLUSIVELY MADE AT THE OPTION OF TCAM.
THE WARRANTY PROVIDED HEREIN SHALL IMMEDIATELY CEASE AND BE OF NO
FORCE OR EFFECT UPON ANY MODIFICATION MADE BY THE CUSTOMER TO THE
LICENSED PROGRAM(S).
B) SELECTION OF THE COMPUTER HARDWARE AND OPERATING SYSTEM WHICH
THE LICENSED PROGRAM(S) SHALL OPERATE IN CONJUNCTION WITH HAS BEEN
MADE BY CUSTOMER. TCAM MAKES NO WARRANTY THAT THE HARDWARE, ITS
CAPACITY AND ITS OPERATING SYSTEMS ARE ADEQUATE TO ALLOW THE
LICENSED PROGRAM(S) TO EXECUTE EFFICIENTLY.
9. Patent and Copyright Indemnification
------------------------------------
TCAM will defend at its expense any action brought against the Customer to
the extent that it is based on a claim that the Licensed Program(s), used
within the scope of the license hereunder, infringes a United States
copyright or patent. TCAM will pay any costs and damages finally awarded
against the Customer in such action which are attributable to such claim,
provided that: (i) the Customer notifies TCAM immediately upon receiving
notice that such a claim has been threatened or instituted (whichever is
4
<PAGE>
first to occur) in writing; (ii) such claim is not based upon designs,
information or materials supplied to TCAM by the Customer; and (iii) that
such claim is not based upon or attributable to any modifications made to
the Licensed Program(s) by or at the request of the Customer. TCAM shall be
entitled to control the defense of any such claim, including without
limitation (i) the selection of counsel, (ii) defense strategy, and (iii)
settlement. Customer shall fully cooperate and assist TCAM (at TCAM's
expense) in all aspects of the defense of such claim. If, as a result of
any such claim, litigation or threat thereof, the Customer is permanently
enjoined from using the Licensed Program(s) by a final, non-appealable
decree, TCAM at its sole option and expense may procure for Customer the
right to continue to use the Licensed Program(s), or at its sole option and
expense, may replace or modify the Licensed Program(s) so as to settle such
claim, litigation or the threat thereof. If such settlement, replacement or
modification of the Licensed Program(s) is not reasonably practical in the
sole opinion of TCAM, after giving due consideration to all factors
including financial expense, TCAM may discontinue and terminate the License
upon written notice to Customer and shall refund to Customer the
unamortized portion of the fees payable hereunder based upon a four (4)
year straight-line depreciation. The foregoing states the entire liability
of TCAM with respect to infringement of any copyrights or patents by the
Licensed Program(s) or any parts thereof, and Customer hereby expressly
waives any other such liabilities.
TCAM's responsibility to indemnify and hold harmless Customer for the
infringement of a patent by the Licensed Program(s) and its related
processes is strictly limited to patents for the Licensed Program(s) that
have been registered with the Patent and Trademark Office prior to the
execution of this License Agreement. TCAM will in no event be liable to
indemnify Customer for infringement by the Licensed Program(s) of any
patent acquired by any third party subsequent to the execution of this
Agreement.
10. LIMITED LIABILITY
-----------------
THE CUSTOMER AGREES THAT TCAM'S LIABILITY HEREUNDER FOR ANY
DAMAGES INCLUDING LIABILITY FOR ANY BREACH OF WARRANTY, NEGLIGENCE,
STRICT LIABILITY IN TORT, OR OTHERWISE, REGARDLESS OF FORM OF ACTION,
SHALL BE LIMITED AS SET FORTH UNDER PARAGRAPHS 8 AND 9. TCAM'S TOTAL
LIABILITY TO CUSTOMER SHALL NOT EXCEED THE LICENSE FEE ACTUALLY PAID
BY CUSTOMER FOR THE LICENSED PROGRAM GIVING RISE TO SUCH LIABILITY.
NO ACTION, REGARDLESS OF FORM, ARISING OUT OF THE TRANSACTIONS
UNDER THIS AGREEMENT MAY BE BROUGHT BY THE CUSTOMER MORE THAN
TWELVE (12) MONTHS AFTER DELIVERY OF THE APPLICABLE LICENSED
PROGRAM TO THE CUSTOMER EXCEPT TO THE EXTENT ALLOWED UNDER
PARAGRAPH 9 HEREOF FOR LIABILITY, BASED ON PATENT OR COPYRIGHT
INFRINGEMENT.
5
<PAGE>
IN NO EVENT SHALL TCAM BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL
DAMAGES EVEN IF TCAM HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
11. No Sublicense
-------------
Customer shall not sublicense, assign or transfer the Licensed Program(s).
Any attempt to otherwise sublicense, assign or transfer any of the rights,
duties or obligations hereunder shall be void.
12. Term
----
This license is effective until terminated as follows: Customer may
terminate the license with respect to any Licensed Program at any time by
returning the Licensed Program(s) together with all copies, modifications
and merged portions in any form. This Agreement shall terminate immediately
upon the following events: If Customer (i) shall fail to comply with any
term or, condition of this Agreement or (ii) shall become insolvent or a
party to any bankruptcy or receivership proceeding or any similar action
affecting the affairs or the property of the Customer. Customer shall upon
such termination return to TCAM the Licensed Program(s) together with all
copies, modifications and merged portions in any form. Customer shall not
be entitled to any refund of the license fees specified on Schedule A
annexed hereto in the event that this Agreement is terminated except as
provided in Paragraph 9. Without limitation to the foregoing, TCAM upon
default by Customer as provided herein, shall have the right to take
immediate possession of the Licensed Program(s) wherever located without
notice or demand.
13. Cooperation & Support
---------------------
The Customer agrees to cooperate with TCAM with respect to this Agreement
including without limitation, providing TCAM at no charge and as requested,
reasonable computer hardware, communication networks, computer operators,
terminal operators, test data and facilities required for development,
unit, volume and network testing of the Licensed Program(s), and in
general, Customer agrees to provide all information and access to key
personnel needed to develop and implement the Licensed Program(s).
14. General
-------
(a) No modifications of this Agreement shall be valid or binding on TCAM
unless acknowledged in writing by its duly authorized representative.
All notices or other communications given under this Agreement shall
be in writing, sent to the address hereinbefore set forth as principal
place of business or such other addresses as TCAM or the Customer may
designate in writing.
6
<PAGE>
(b) Customer understands and agrees that violation of any provision of this
Agreement may cause damage to TCAM in an amount which is impossible or
extremely difficult to ascertain. Accordingly, without limitation to any
other remedy available at law, TCAM shall be entitled to seek injunctive
relief restraining the Customer from continuing to violate the terms and
provisions of this Agreement.
(c) TCAM shall not be liable to Customer for any delay or failure by TCAM to
perform its obligations under this Agreement or otherwise if such delay or
failure arises from any cause or causes beyond the reasonable control of
TCAM, including but not limited to labor disputes, strikes, other labor or
industrial disturbances, acts of God, floods, lightning, shortages of
materials, rationing, utility or communication failures, earthquakes,
casualty, war, acts of the public enemy, riots, insurrections, embargoes,
blockages, actions, restrictions, regulations or orders of any government,
agency or subdivision thereof.
(d) The Customer acknowledges that it has read all the terms of this Agreement
and is authorized to enter into it and agrees to be bound by its terms and
conditions and that it is the complete and exclusive statement of the
agreement between the parties, which supersedes all prior communications
and agreements between the parties relating to the subject matter of this
Agreement.
(e) If any provision, or portion thereof, of this Agreement shall be deemed
invalid and/or inoperative, under any applicable statute or rule of law, it
is to that extent to be deemed omitted and shall have no effect as to any
other provision contained in this Agreement.
(f) Customer shall not depict, refer to or in any other manner use the Licensed
Program(s) or any portion thereof in any advertisements, without the prior
written consent of TCAM and provided further that such advertisement
clearly states that TCAM is the owner of the copyright for the Licensed
Program(s).
(g) TCAM and the Customer agree not to hire, attempt to hire, or retain as
consultants or otherwise, employees and/or consultants of the other party
directly or through any third party or entity, for a period of two years
subsequent to employee's last day of work for employee's respective
employer regardless of the circumstances surrounding employee's cause of
termination of employment. It is expressly understood and agreed that the
provisions of this paragraph shall survive the termination of this
Agreement or any part thereof.
7
<PAGE>
(h) This Agreement shall be governed by the laws of the State of New York. The
parties hereby: (i) waive all right to trial by jury; (ii) consent to the
jurisdiction of the Supreme Court of the State of New York and of the
United States District Court for the Southern District of New York; and
(iii) consent that any process or notice of motion or other application to
the court or judge thereof may be served within or without the State of New
York by registered or certified mail, or by personal service, provided a
reasonable time for appearance is allowed.
TRIMARK SECURITIES INC. TCAM SYSTEMS, INC.
By: /s/ Steve Steinman By: /s/ Jeff Monassebian
--------------------------- --------------------------
(Signature) (Signature)
Name: Steve Steinman Name: Jeff Monassebian
--------------------------- -------------------------
Title: President Title: General Counsel
-------------------------- ------------------------
Date: Date:
--------------------------- -------------------------
8
<PAGE>
SCHEDULE A
COMPUTER CURRENT
SYSTEM CUSTOMER LICENSE
LICENSED PROGRAM TYPE LOCATION PRICE
- ---------------- -------- -------- -------
1) Third Market Trading Stratus XA 2000 10 New King $500,000 Subject
System ordered directly Street, West to payment plan
by Customer from Air Plaza, detailed below.
2) Appletree In-memory Stratus White Plains,
Database N.Y. 10604
Trimark Securities, Inc. TCAM Systems, Inc.
By: /s/ Steve Steinman By: /s/ Jeff Monassebian
-------------------------- -------------------------------
(Signature) (Signature)
Title: President Title: General Counsel
------------------------ -----------------------------
PAYMENT PLAN
------------
April 1, 1990 $100,000 November 1, 1990 $ 25,000
May 1, 1990 25,000 December 1, 1990 25,000
June 1, 1990 25,000 January 1, 1991 25,000
July 1, 1990 25,000 February 1, 1991 25,000
August 1, 1990 25,000 March 1, 1991 25,000
September 1, 1990 25,000 April 1, 1991 25,000
October 1, 1990 25,000 May 1, 1991 100,000
9
<PAGE>
SCHEDULE B
----------
Source code for Appletree In-memory Database program is not included in the
license granted hereby.
Trimark Securities Inc. Tcam Systems, Inc.
By: Steven Steinman By: Jeff Monassebian
--------------- ----------------
Title: President Title: General Counsel
10
<PAGE>
First Amendment to Master Program
Product License Agreement ("Agreement")
between TCAM Systems, Inc. ("TCAM") and
Trimark Securities, Inc. ("Customer")
dated as of May 1, 1990.
1. Notwithstanding anything to the contrary in Section 7 of the Agreement,
Customer shall be entitled to receive twelve (12) months of maintenance
service for the Third Market Trading System software commencing from the
day the Third Market Trading System is delivered to the Customer, at no
additional charge.
TRIMARK SECURITIES INC. TCAM SYSTEMS, INC
By: /s/ Steven Steinman By: /s/ Jeff Monassebian
-------------------------- ---------------------------
(Signature) (Signature)
Name: Steven Steinman Name: Jeff Monassebian
------------------------ -------------------------
Title: President Title: General Counsel
----------------------- ------------------------
Date: Date:
------------------------ -------------------------
11
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the
____ day of May, 1998, between KNIGHT/TRIMARK GROUP, INC. (the "Company"), a
corporation of the State of Delaware, and KENNETH PASTERNAK ("the Employee").
WITNESSETH
WHEREAS, the Employee is one of the founders and initial members of
the Company, which, through its subsidiaries, is engaged in the business of
operating a wholesale over-the-counter market maker business and a third-market
broker-dealer business;
WHEREAS, the Company recognizes that the Employee has special skills,
knowledge and expertise essential to the Company's operations; and
WHEREAS, the Company desires to employ the Employee and the Employee
desires to be employed by the Company on the terms provided herein.
NOW, THEREFORE, the Company and the Employee, in consideration of the
agreements contained herein, agree as follows:
<PAGE>
1. EMPLOYMENT.
The Company shall employ the Employee to perform the duties described in
this Agreement, upon the terms and conditions set forth herein, and the Employee
accepts such employment.
2. DUTIES.
The Employee shall serve as President and Chief Executive Officer of the
Company and President and Chief Executive Officer of Knight Securities, Inc., or
such other position or positions as may be agreed in writing between the
Employee and the Company, and shall perform such duties, services and
responsibilities incident to such position or positions as determined from time
to time by the Board of Directors of the Company (the "Board of Directors"). The
Employee shall devote his full business time, attention and skill to the
performance of such duties, services and responsibilities, and will use his best
efforts to promote the interests of the Company. The Employee will not, without
the prior written approval of the Board of Directors, engage in any other
business activity which would interfere with the performance of his duties,
services and responsibilities hereunder or which is in violation of policies
established from time to time by the Company.
2
<PAGE>
3. EMPLOYMENT TERM.
The term of employment under this Agreement (the "Employment Term") shall
be for a period beginning on the date of the closing of the Initial Public
Offering (the "Closing") and ending on the fourth anniversary thereof (the
"Initial Termination Date"), unless earlier terminated as provided herein;
provided, however, that the Employment Term shall be automatically extended for
- -------- -------
one-year periods unless either the Company or the Employee provides the other
party with written notice at least 60 days prior to any extension date that it
or he desires to terminate the Employee's employment under this Agreement. The
term of this Agreement shall be coincident with the Employment Term and the
Employment Term shall include any extensions provided in this Section 3.
4. COMPENSATION.
As full compensation for his services to the Company, and on the condition
that the Employee faithfully keeps and performs every condition and covenant
hereunder:
(A) SALARY. The Company shall during the Employment Term pay the Employee
a salary (the "Salary") at an annual rate of $250,000, payable in equal monthly
installments on the first day of each month ("Salary"). From time to time, the
Board of Directors may increase the Salary as it deems appropriate.
(B) BONUS. The Company agrees to adopt, effective on the first day of the
Employment Term, the Knight/Trimark Group, Inc. 1998 Management Incentive
Performance Plan (the "Plan"). The Plan is incorporated herein by
3
<PAGE>
reference. The Employee shall be eligible to be paid a bonus (the "Bonus") from
the Plan pursuant to the terms and conditions provided therein.
(C) COMMISSION. In accordance with accepted industry practices for head
traders, the Company shall pay the Employee a commission (the "Commission")
equal to thirty-five (35%) of the excess (the "Net Profit"), if any, of the
gross trading profits of his personal trading account (the "Account"), over the
sum (the "Reduction Amount") of gross trading losses, rebates, clearance fees,
traders' assistance, and other direct transaction costs (e.g., Instinet),
associated with the Account. Commissions required by this Section 4(c) shall be
determined and paid on a monthly basis; provided, that in determining the Net
--------
Profit for any month, the Net Profit, if any, for such month shall be reduced by
the excess, if any, of the Reduction Amount over gross trading profits of the
Business with respect to any preceding month occurring after the most recent
month in which a Net Profit existed (determined after the application of this
proviso); provided further, that no such Commission shall be due with respect to
-------- -------
any year until such time as the aggregate amount of such Commissions payable
with respect to such year but for this provision would exceed $250,000, and then
only such excess shall be due.
(D) BENEFITS. In addition to the payment of Salary and any Bonus which may
become payable as described above, the Employee shall be entitled to health,
disability and life insurance benefits generally available to management
employees of the Company having comparable responsibilities and for the
reimbursement of
4
<PAGE>
all reasonable and documented business expenses.
(E) SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. In addition to the Salary
Bonus and Benefits described above, the Company agrees to adopt, effective on
the first day of the Employment Term, a Supplemental Executive Retirement Plan
("SERP"). The SERP is incorporated herein by reference. The employee shall be
eligible to participate in the SERP pursuant to the terms and conditions
provided therein.
The Salary, Bonus and Commission shall be payable in accordance with the
normal payroll practices of the Company then in effect and subject to all
applicable taxes required to be withheld by the Company pursuant to federal,
state or local law. The Employee shall be solely responsible for income and
earnings taxes imposed on the Employee by reason of any cash or non-cash
compensation and benefits provided hereunder.
5. TERMINATION.
The Employee's employment with the Company will terminate at the end of the
Employment Term or upon the earlier occurrence of any of the following events:
(A) The death of the Employee.
(B) The mutual agreement between the Company and the Employee on an early
termination date.
(C) The termination of employment by the Company's unilateral action
5
<PAGE>
without "Cause" (as defined below).
(D) The termination of employment by the Company's unilateral action with
Cause.
(E) The termination of employment by the Employee's unilateral action.
In the event of termination of this Agreement, for whatever reason, the
Employee agrees to cooperate with the Company and to be reasonably available to
the Company with respect to continuing and/or future matters arising out of the
Employee's employment or any other relationship with the Company, whether such
matters are business-related, legal or otherwise. For purposes of this
Agreement, the term "Cause" shall mean (i) misappropriation of any material
amount of money or other assets or properties of the Company or any affiliate of
the Company, (ii) a material breach by the Employee of the terms of this
Agreement, which breach shall remain unremedied for 30 days after notice of the
same shall have been given to the Employee by the Company and (iii) the
conviction of the Employee for a felony. The provisions of this paragraph shall
survive termination of this Agreement.
6
<PAGE>
6. SEVERANCE.
If the Employee's employment with the Company terminates pursuant to
Sections 5(a), (b) or (c), the Company will pay the Employee in one lump sum
within 30 days following such termination a severance payment equal to $500,000.
The severance payment upon termination shall constitute the exclusive payments
due the Employee upon termination under this Agreement, including any payment
which may otherwise be payable pursuant to any other separation or severance
policy established or maintained by the Company.
7. EMPLOYEE COVENANTS.
(A) NON-COMPETE. (i) Subject to section 7(a)(iii), the Employee
agrees that the Employee will not, during the Employment Term and for a period
of two years thereafter, directly or indirectly own, manage, operate, join,
control, be employed by, or participate in the ownership, management, operation
or control of or be connected in any manner, including but not limited to
holding the positions of shareholder, director, officer, consultant, independent
contractor, employee, partner, or investor, with any Competing Enterprise
(defined below); provided, however, that the Employee may invest in stocks,
-------- -------
bonds, or other securities of any person, firm, corporation or their business
organization (but without otherwise participating in the business thereof) if
(i) such stocks, bonds, or other securities are listed on any national
securities exchange or are registered under Section 12(g) of the Securities
Exchange Act of 1934, and (ii) his investment does not exceed, in the case of
any class of the capital stock of any one issuer, one
7
<PAGE>
percent of the issued and outstanding shares, or in the case of bonds or other
securities, one percent of the aggregate principal amount thereof issued and
outstanding.
(ii) The term "Competing Enterprise" shall mean any person,
corporation, partnership or other entity that is engaged in the business of
operating a wholesale over-the-counter market maker business or a third market
broker-dealer business.
(iii) Notwithstanding anything to the contrary contained herein, the
provisions of Section 7(a)(i) shall not apply from and after the Employee's
termination of employment pursuant to Section 5(b) or Section 5(c) above.
(B) TRADE SECRETS. The Employee agrees and understands that in the
Employee's position with the Company, the Employee will be exposed to and
receive information relating to the confidential affairs of the Company,
including but not limited to business and marketing plans, membership lists,
strategies, customer information, other information concerning the Company's
services, development, financing, expansion plans, business policies and
practices, and other forms of information considered by the Company to be
confidential and in the nature of trade secrets. The Employee agrees that during
the Employment Term and at all times thereafter the Employee will keep such
information confidential and not disclose such information, either directly or
indirectly, to any third person or entity without the prior written consent of
the Company. This confidentiality covenant has no temporal, geographical or
territorial restriction. Upon termination
8
<PAGE>
of this Agreement, the Employee will promptly supply to the Company all
property, keys, notes, memoranda, writings, lists, files, reports, customer
lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines,
technical data or any other tangible product or document which has been produced
by, received by or otherwise submitted to the Employee during or prior to the
Employment Term.
(C) NON-SOLICITATION. The Employee agrees that (i) if his employment is
terminated for any reason he will not for one year following the termination of
employment directly or indirectly solicit for employment, including without
limitation recommending to any subsequent employer the solicitation for
employment of, any key employee employed by the Company, and (ii) he will not at
any time during his employment or at any time after termination of employment,
publish any statement or make any statement (under circumstances reasonably
likely to become public or that he might reasonably expect to become public)
critical of the Company, or in any way adversely affecting or otherwise
maligning the business or reputation of the Company or any of its affiliates.
(D) REMEDY. The Employee further agrees that any breach of the terms of
this Section 7 would result in irreparable injury and damage to the Company for
which the Company would have no adequate remedy at law; the Employee therefore
also agrees that in the event of said breach or any threat of breach, the
Company shall be entitled to an immediate injunction and restraining order to
prevent such breach and/or threatened breach and/or continued breach by the
9
<PAGE>
Employee and/or any and all persons and/or entities acting for and/or with the
Employee, without having to prove damages, and to all costs and expenses,
including reasonable attorneys' fees and costs, in addition to any other
remedies to which the Company may be entitled at law or in equity. The terms of
this paragraph shall not prevent the Company from pursuing any other available
remedies for any breach or threatened breach hereof, including but not limited
to the recovery of damages from the Employee.
(E) SURVIVAL. The provisions of this Section 7 shall survive any
termination of this Agreement and the Employment Term, and the existence of any
claim or cause of action by the Employee against the Company, whether predicated
on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of the covenants and agreements of this Section 7.
8. INDEMNIFICATION.
The Company shall indemnify and hold harmless the Employee to the fullest
extent permitted by law from and against any and all losses, claims, demands,
costs, damages, liabilities (joint or several), expenses of any nature
(including reasonable attorneys' fees and disbursements), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits, or proceedings, whether civil, criminal, administrative or
investigative, in which the Employee may be involved, or threatened to be
involved as a party or otherwise, arising out of or incidental to the formation,
business, or activities of or relating to the Company in the Employee's capacity
as an employee, officer,
10
<PAGE>
member or representative of the Company, regardless of whether the Employee
continues to be an employee, officer, member or representative at the time any
such liability or expense is paid or incurred; provided, however, that this
-------- -------
provision shall not eliminate or limit the liability of the Employee (i) for any
breach of the Employee's duty of loyalty to the Company or its members, (ii) for
acts or omissions which involve intentional misconduct or a knowing violation of
law, (iii) for any transaction from which the Employee received any improper
personal benefit and (iv) for any breach of any provision of this Agreement.
9. NOTICES.
All notices, demands, requests or other communications which may be or are
required to be given, served, or sent by a party pursuant to this Agreement
shall be in writing and shall be hand delivered (including delivery by courier),
mailed by first-class, registered or certified mail, return-receipt requested,
postage prepaid, or transmitted by telegram, telex or facsimile transmission,
addressed as follows:
(a) If to the Company:
Knight/Trimark Group, Inc.
525 Washington Blvd.
Jersey City, New Jersey 07310
Attn: Mr. Kenneth Pasternak
(a) If to the Employee:
Kenneth Pasternak
35 Mill Road Extension
Woodcliff Lake, New Jersey 07673
11
<PAGE>
Each Party may designate by notice in writing a new address to which any
notice, demand, request or communication may thereafter be so given, served or
sent.
10. SEVERABILITY.
The invalidity of any one or more provisions hereof shall not affect the
remaining portions of this Agreement, all of which are inserted conditionally on
their being held valid in law; and in the event that one or more of the
provisions contained herein should be invalid, or should operate to render this
Agreement invalid, this Agreement shall be construed as if such invalid
provisions had not been inserted.
11. WAIVERS.
Neither the waiver by either party of a breach of or a default under any of
the provisions of this Agreement, nor the failure of either party, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right, remedy or privilege hereunder, shall thereafter be construed
as a waiver of any subsequent breach or default of a similar nature, or as a
waiver of any such provisions, rights, remedies or privileges hereunder.
12. ENTIRE AGREEMENT, AMENDMENTS.
This Agreement contains the entire agreement between the parties with
respect to the transactions contemplated herein, and supersedes all prior oral
or written agreements, commitments or understandings with respect to the matters
provided for herein and therein. Any amendment or change relating hereto shall
12
<PAGE>
be in writing and duly executed by the Employee and the Company.
13. GOVERNING LAW.
This Agreement, the rights and obligations of the parties hereto, and any
claims or disputes relating thereto, shall be governed by and construed in
accordance with the laws of the State of New York (but not including the choice
of law rules thereof).
14. ASSIGNMENT.
All of the provisions hereof shall be binding upon and inure to the benefit
of the parties and the heirs, executors, administrators and permitted assigns of
Employee and the successors and assigns of the Company; provided that Employee's
obligations hereunder are personal and nondelegable, whether by operation of law
or otherwise, and except pursuant to the laws of testate or intestate
distribution upon the death of Employee, Employee's rights hereunder are not
assignable whether by operation of law or otherwise. The Company's rights and
obligations hereunder may be freely assigned provided such assignee assumes all
of the Company's duties and obligations hereunder.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Employment
Agreement as of the date first above written.
KNIGHT/TRIMARK GROUP, INC.
By: _________________________________
Walter Raquet, Executive Vice President
and
Chief Operating Officer of Knight
Securities, Inc.
Kenneth Pasternak
_________________
14
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the
____ day of May, 1998, between KNIGHT/TRIMARK GROUP, INC. (the "Company"), a
corporation of the State of Delaware, and WALTER RAQUET ("the Employee").
WITNESSETH
WHEREAS, the Employee is one of the founders and initial members of
the Company, which, through its subsidiaries, is engaged in the business of
operating a wholesale over-the-counter market maker business and a third-market
broker-dealer business;
WHEREAS, the Company recognizes that the Employee has special skills,
knowledge and expertise essential to the Company's operations; and
WHEREAS, the Company desires to employ the Employee and the Employee
desires to be employed by the Company on the terms provided herein.
NOW, THEREFORE, the Company and the Employee, in consideration of the
agreements contained herein, agree as follows:
<PAGE>
1. EMPLOYMENT.
The Company shall employ the Employee to perform the duties described in
this Agreement, upon the terms and conditions set forth herein, and the Employee
accepts such employment.
2. DUTIES.
The Employee shall serve as Executive Vice President of the Company and
Chief Operating Officer of Knight Securities, Inc., or such other position or
positions as may be agreed in writing between the Employee and the Company, and
shall perform such duties, services and responsibilities incident to such
position or positions as determined from time to time by the Board of Directors
of the Company (the "Board of Directors"). The Employee shall devote his full
business time, attention and skill to the performance of such duties, services
and responsibilities, and will use his best efforts to promote the interests of
the Company. The Employee will not, without the prior written approval of the
Board of Directors, engage in any other business activity which would interfere
with the performance of his duties, services and responsibilities hereunder or
which is in violation of policies established from time to time by the Company.
2
<PAGE>
3. EMPLOYMENT TERM.
The term of employment under this Agreement (the "Employment Term") shall
be for a period beginning on the date of the closing of the Initial Public
Offering (the "Closing") and ending on the fourth anniversary thereof (the
"Initial Termination Date"), unless earlier terminated as provided herein;
provided, however, that the Employment Term shall be automatically extended for
- -------- -------
one-year periods unless either the Company or the Employee provides the other
party with written notice at least 60 days prior to any extension date that it
or he desires to terminate the Employee's employment under this Agreement. The
term of this Agreement shall be coincident with the Employment Term and the
Employment Term shall include any extensions provided in this Section 3.
4. COMPENSATION.
As full compensation for his services to the Company, and on the condition
that the Employee faithfully keeps and performs every condition and covenant
hereunder:
(A) SALARY. The Company shall during the Employment Term pay the Employee
a salary (the "Salary") at an annual rate of $250,000, payable in equal monthly
installments on the first day of each month ("Salary"). From time to time, the
Board of Directors may increase the Salary as it deems appropriate.
(B) BONUS. The Company agrees to adopt, effective on the first day of the
Employment Term, the Knight/Trimark Group, Inc. 1998 Management
3
<PAGE>
Incentive Performance Plan (the "Plan"). The Plan is incorporated herein by
reference. The Employee shall be eligible to be paid a bonus (the "Bonus") from
the Plan pursuant to the terms and conditions provided therein.
(C) BENEFITS. In addition to the payment of Salary and any Bonus which may
become payable as described above, the Employee shall be entitled to health,
disability and life insurance benefits generally available to management
employees of the Company having comparable responsibilities and for the
reimbursement of all reasonable and documented business expenses.
(D) SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. In addition to the Salary
Bonus and Benefits described above, the Company agrees to adopt, effective on
the first day of the Employment Term, a Supplemental Executive Retirement Plan
("SERP"). The SERP is incorporated herein by reference. The employee shall be
eligible to participate in the SERP pursuant to the terms and conditions
provided therein.
The Salary and Bonus shall be payable in accordance with the normal payroll
practices of the Company then in effect and subject to all applicable taxes
required to be withheld by the Company pursuant to federal, state or local law.
The Employee shall be solely responsible for income and earnings taxes imposed
on the Employee by reason of any cash or non-cash compensation and benefits
provided hereunder.
4
<PAGE>
5. TERMINATION.
The Employee's employment with the Company will terminate at the end of the
Employment Term or upon the earlier occurrence of any of the following events:
(A) The death of the Employee.
(B) The mutual agreement between the Company and the Employee on an early
termination date.
(C) The termination of employment by the Company's unilateral action
without "Cause" (as defined below).
(D) The termination of employment by the Company's unilateral action with
Cause.
(E) The termination of employment by the Employee's unilateral action.
In the event of termination of this Agreement, for whatever reason, the
Employee agrees to cooperate with the Company and to be reasonably available to
the Company with respect to continuing and/or future matters arising out of the
Employee's employment or any other relationship with the Company, whether such
matters are business-related, legal or otherwise. For purposes of this
Agreement, the term "Cause" shall mean (i) misappropriation of any material
amount of money or other assets or properties of the Company or any affiliate of
the Company, (ii) a material breach by the Employee of the terms of this
Agreement, which breach shall remain unremedied for 30 days after notice of the
same shall have been given to the Employee by the Company and (iii) the
5
<PAGE>
conviction of the Employee for a felony. The provisions of this paragraph shall
survive termination of this Agreement.
6. SEVERANCE.
If the Employee's employment with the Company terminates pursuant to
Sections 5(a), (b) or (c), the Company will pay the Employee in one lump sum
within 30 days following such termination a severance payment equal to $500,000.
The severance payment upon termination shall constitute the exclusive payments
due the Employee upon termination under this Agreement, including any payment
which may otherwise be payable pursuant to any other separation or severance
policy established or maintained by the Company.
7. EMPLOYEE COVENANTS.
(A) NON-COMPETE. (i) Subject to section 7(a)(iii), the Employee agrees that
the Employee will not, during the Employment Term and for a period of two years
thereafter, directly or indirectly own, manage, operate, join, control, be
employed by, or participate in the ownership, management, operation or control
of or be connected in any manner, including but not limited to holding the
positions of shareholder, director, officer, consultant, independent contractor,
employee, partner, or investor, with any Competing Enterprise (defined below);
provided, however, that the Employee may invest in stocks, bonds, or other
- -------- -------
securities of any person, firm, corporation or their business organization (but
6
<PAGE>
without otherwise participating in the business thereof) if (i) such stocks,
bonds, or other securities are listed on any national securities exchange or are
registered under Section 12(g) of the Securities Exchange Act of 1934, and (ii)
his investment does not exceed, in the case of any class of the capital stock of
any one issuer, one percent of the issued and outstanding shares, or in the case
of bonds or other securities, one percent of the aggregate principal amount
thereof issued and outstanding.
(ii) The term "Competing Enterprise" shall mean any person,
corporation, partnership or other entity that is engaged in the business of
operating a wholesale over-the-counter market maker business or a third market
broker-dealer business.
(iii) Notwithstanding anything to the contrary contained herein, the
provisions of Section 7(a)(i) shall not apply from and after the Employee's
termination of employment pursuant to Section 5(b) or Section 5(c) above.
(B) TRADE SECRETS. The Employee agrees and understands that in the
Employee's position with the Company, the Employee will be exposed to and
receive information relating to the confidential affairs of the Company,
including but not limited to business and marketing plans, membership lists,
strategies, customer information, other information concerning the Company's
services, development, financing, expansion plans, business policies and
practices, and other forms of information considered by the Company to be
confidential and in the nature of trade secrets. The Employee agrees that during
the Employment Term
7
<PAGE>
and at all times thereafter the Employee will keep such information confidential
and not disclose such information, either directly or indirectly, to any third
person or entity without the prior written consent of the Company. This
confidentiality covenant has no temporal, geographical or territorial
restriction. Upon termination of this Agreement, the Employee will promptly
supply to the Company all property, keys, notes, memoranda, writings, lists,
files, reports, customer lists, correspondence, tapes, disks, cards, surveys,
maps, logs, machines, technical data or any other tangible product or document
which has been produced by, received by or otherwise submitted to the Employee
during or prior to the Employment Term.
(C) NON-SOLICITATION. The Employee agrees that (i) if his employment is
terminated for any reason he will not for one year following the termination of
employment directly or indirectly solicit for employment, including without
limitation recommending to any subsequent employer the solicitation for
employment of, any key employee employed by the Company, and (ii) he will not at
any time during his employment or at any time after termination of employment,
publish any statement or make any statement (under circumstances reasonably
likely to become public or that he might reasonably expect to become public)
critical of the Company, or in any way adversely affecting or otherwise
maligning the business or reputation of the Company or any of its affiliates.
(D) REMEDY. The Employee further agrees that any breach of the terms
8
<PAGE>
of this Section 7 would result in irreparable injury and damage to the Company
for which the Company would have no adequate remedy at law; the Employee
therefore also agrees that in the event of said breach or any threat of breach,
the Company shall be entitled to an immediate injunction and restraining order
to prevent such breach and/or threatened breach and/or continued breach by the
Employee and/or any and all persons and/or entities acting for and/or with the
Employee, without having to prove damages, and to all costs and expenses,
including reasonable attorneys' fees and costs, in addition to any other
remedies to which the Company may be entitled at law or in equity. The terms of
this paragraph shall not prevent the Company from pursuing any other available
remedies for any breach or threatened breach hereof, including but not limited
to the recovery of damages from the Employee.
(E) SURVIVAL. The provisions of this Section 7 shall survive any
termination of this Agreement and the Employment Term, and the existence of any
claim or cause of action by the Employee against the Company, whether predicated
on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of the covenants and agreements of this Section 7.
8. INDEMNIFICATION.
The Company shall indemnify and hold harmless the Employee to the fullest
extent permitted by law from and against any and all losses, claims, demands,
costs, damages, liabilities (joint or several), expenses of any nature
9
<PAGE>
(including reasonable attorneys' fees and disbursements), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits, or proceedings, whether civil, criminal, administrative or
investigative, in which the Employee may be involved, or threatened to be
involved as a party or otherwise, arising out of or incidental to the formation,
business, or activities of or relating to the Company in the Employee's capacity
as an employee, officer, member or representative of the Company, regardless of
whether the Employee continues to be an employee, officer, member or
representative at the time any such liability or expense is paid or incurred;
provided, however, that this provision shall not eliminate or limit the
- -------- -------
liability of the Employee (i) for any breach of the Employee's duty of loyalty
to the Company or its members, (ii) for acts or omissions which involve
intentional misconduct or a knowing violation of law, (iii) for any transaction
from which the Employee received any improper personal benefit and (iv) for any
breach of any provision of this Agreement.
10
<PAGE>
9. NOTICES.
All notices, demands, requests or other communications which may be or are
required to be given, served, or sent by a party pursuant to this Agreement
shall be in writing and shall be hand delivered (including delivery by courier),
mailed by first-class, registered or certified mail, return-receipt requested,
postage prepaid, or transmitted by telegram, telex or facsimile transmission,
addressed as follows:
(a) If to the Company:
Knight/Trimark Group, Inc.
525 Washington Blvd.
Jersey City, New Jersey 07310
Attn: Mr. Kenneth Pasternak
(a) If to the Employee:
Walter Raquet
41 Welsh Lane
New Vernon, New Jersey 07976
Each Party may designate by notice in writing a new address to which any
notice, demand, request or communication may thereafter be so given, served or
sent.
10. SEVERABILITY.
The invalidity of any one or more provisions hereof shall not affect the
remaining portions of this Agreement, all of which are inserted conditionally on
their being held valid in law; and in the event that one or more of the
provisions
11
<PAGE>
contained herein should be invalid, or should operate to render this Agreement
invalid, this Agreement shall be construed as if such invalid provisions had not
been inserted.
11. WAIVERS.
Neither the waiver by either party of a breach of or a default under any of
the provisions of this Agreement, nor the failure of either party, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right, remedy or privilege hereunder, shall thereafter be construed
as a waiver of any subsequent breach or default of a similar nature, or as a
waiver of any such provisions, rights, remedies or privileges hereunder.
12. ENTIRE AGREEMENT, AMENDMENTS.
This Agreement contains the entire agreement between the parties with
respect to the transactions contemplated herein, and supersedes all prior oral
or written agreements, commitments or understandings with respect to the matters
provided for herein and therein. Any amendment or change relating hereto shall
be in writing and duly executed by the Employee and the Company.
12
<PAGE>
13. GOVERNING LAW.
This Agreement, the rights and obligations of the parties hereto, and any
claims or disputes relating thereto, shall be governed by and construed in
accordance with the laws of the State of New York (but not including the choice
of law rules thereof).
14. ASSIGNMENT.
All of the provisions hereof shall be binding upon and inure to the benefit
of the parties and the heirs, executors, administrators and permitted assigns of
Employee and the successors and assigns of the Company; provided that Employee's
obligations hereunder are personal and nondelegable, whether by operation of law
or otherwise, and except pursuant to the laws of testate or intestate
distribution upon the death of Employee, Employee's rights hereunder are not
assignable whether by operation of law or otherwise. The Company's rights and
obligations hereunder may be freely assigned provided such assignee assumes all
of the Company's duties and obligations hereunder.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Employment
Agreement as of the date first above written.
KNIGHT/TRIMARK GROUP, INC.
By: _________________________________
Kenneth Pasternak, President and
Chief Executive Officer
WALTER RAQUET
_____________
14
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the
____ day of May, 1998, between KNIGHT/TRIMARK GROUP, INC. (the "Company"), a
corporation of the State of Delaware, and STEVEN STEINMAN ("the Employee").
WITNESSETH
WHEREAS, the Employee is one of the founders and initial members of
the Company, which, through its subsidiaries, is engaged in the business of
operating a wholesale over-the-counter market maker business and a third-market
broker-dealer business;
WHEREAS, the Company recognizes that the Employee has special skills,
knowledge and expertise essential to the Company's operations; and
WHEREAS, the Company desires to employ the Employee and the Employee
desires to be employed by the Company on the terms provided herein.
NOW, THEREFORE, the Company and the Employee, in consideration of the
agreements contained herein, agree as follows:
<PAGE>
1. EMPLOYMENT.
The Company shall employ the Employee to perform the duties described in
this Agreement, upon the terms and conditions set forth herein, and the Employee
accepts such employment.
2. DUTIES.
The Employee shall serve as Chairman of the Board of Directors of the
Company and Chief Executive Officer of Trimark Securities Inc., or such other
position or positions as may be agreed in writing between the Employee and the
Company, and shall perform such duties, services and responsibilities incident
to such position or positions as determined from time to time by the Board of
Directors of the Company (the "Board of Directors"). The Employee shall devote
his full business time, attention and skill to the performance of such duties,
services and responsibilities, and will use his best efforts to promote the
interests of the Company. The Employee will not, without the prior written
approval of the Board of Directors, engage in any other business activity which
would interfere with the performance of his duties, services and
responsibilities hereunder or which is in violation of policies established from
time to time by the Company.
2
<PAGE>
3. EMPLOYMENT TERM.
The term of employment under this Agreement (the "Employment Term") shall
be for a period beginning on the date of the closing of the Initial Public
Offering (the "Closing") and ending on the fourth anniversary thereof (the
"Initial Termination Date"), unless earlier terminated as provided herein;
provided, however, that the Employment Term shall be automatically extended for
- -----------------
one-year periods unless either the Company or the Employee provides the other
party with written notice at least 60 days prior to any extension date that it
or he desires to terminate the Employee's employment under this Agreement. The
term of this Agreement shall be coincident with the Employment Term and the
Employment Term shall include any extensions provided in this Section 3.
4. COMPENSATION.
As full compensation for his services to the Company, and on the condition
that the Employee faithfully keeps and performs every condition and covenant
hereunder:
(A) SALARY. The Company shall during the Employment Term pay the Employee
a salary (the "Salary") at an annual rate of $250,000, payable in equal monthly
installments on the first day of each month ("Salary"). From time to time, the
Board of Directors may increase the Salary as it deems appropriate.
(B) BONUS. (i) The Company agrees to adopt, effective on the first day
of the Employment Term, the Knight/Trimark Group, Inc. 1998 Management
3
<PAGE>
Incentive Performance Plan (the "Plan"). The Plan is incorporated herein by
reference. The Employee shall be eligible to be paid a bonus (the "Bonus") from
the Plan pursuant to the terms and conditions provided therein.
(ii) Immediately following each of the Company's fiscal years
following the date hereof through March 31, 2000, the Company shall pay the
Employee a bonus (the "Earnings Bonus", and collectively with the Profit Pool
Bonus, the "Bonus") equal to five percent (5%) of the pre-tax earnings for such
fiscal year of Trimark Securities, Inc.
(C) BENEFITS. In addition to the payment of Salary and any Bonus which
may become payable as described above, the Employee shall be entitled to health,
disability and life insurance benefits generally available to management
employees of the Company having comparable responsibilities and for the
reimbursement of all reasonable and documented business expenses.
(D) SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. In addition to the Salary
Bonus and Benefits described above, the Company agrees to adopt, effective on
the first day of the Employment Term, a Supplemental Executive Retirement Plan
("SERP"). The SERP is incorporated herein by reference. The employee shall be
eligible to participate in the SERP pursuant to the terms and conditions
provided therein.
The Salary and Bonus shall be payable in accordance with the normal payroll
practices of the Company then in effect and subject to all applicable taxes
required to be withheld by the Company pursuant to federal, state or local law.
4
<PAGE>
The Employee shall be solely responsible for income and earnings taxes imposed
on the Employee by reason of any cash or non-cash compensation and benefits
provided hereunder.
5. TERMINATION.
The Employee's employment with the Company will terminate at the end of the
Employment Term or upon the earlier occurrence of any of the following events:
(A) The death of the Employee.
(B) The mutual agreement between the Company and the Employee on an early
termination date.
(C) The termination of employment by the Company's unilateral action
without "Cause" (as defined below).
(D) The termination of employment by the Company's unilateral action with
Cause.
(E) The termination of employment by the Employee's unilateral action.
In the event of termination of this Agreement, for whatever reason, the
Employee agrees to cooperate with the Company and to be reasonably available to
the Company with respect to continuing and/or future matters arising out of the
Employee's employment or any other relationship with the Company, whether such
matters are business-related, legal or otherwise. For purposes of this
Agreement, the term "Cause" shall mean (i) misappropriation of any material
5
<PAGE>
amount of money or other assets or properties of the Company or any affiliate of
the Company, (ii) a material breach by the Employee of the terms of this
Agreement, which breach shall remain unremedied for 30 days after notice of the
same shall have been given to the Employee by the Company and (iii) the
conviction of the Employee for a felony. The provisions of this paragraph shall
survive termination of this Agreement.
6. SEVERANCE.
If the Employee's employment with the Company terminates pursuant to
Sections 5(a), (b) or (c), the Company will pay the Employee (i) in one lump sum
within 30 days following such termination a severance payment equal to $500,000
and (ii) any amount which would have been payable, and at such time as payment
would have been required under Section 4(b)(ii) hereof. The severance payments
referred to in the preceding sentence shall constitute the exclusive payments
due the Employee upon termination under this Agreement, including any payment
which may otherwise be payable pursuant to any other separation or severance
policy established or maintained by the Company.
7. EMPLOYEE COVENANTS.
(A) NON-COMPETE. (i) Subject to section 7(a)(iii), the Employee agrees
that the Employee will not, during the Employment Term and for a period of two
years thereafter, directly or indirectly own, manage, operate, join, control,
6
<PAGE>
be employed by, or participate in the ownership, management, operation or
control of or be connected in any manner, including but not limited to holding
the positions of shareholder, director, officer, consultant, independent
contractor, employee, partner, or investor, with any Competing Enterprise
(defined below); provided, however, that the Employee may invest in stocks,
-------- -------
bonds, or other securities of any person, firm, corporation or their business
organization (but without otherwise participating in the business thereof) if
(i) such stocks, bonds, or other securities are listed on any national
securities exchange or are registered under Section 12(g) of the Securities
Exchange Act of 1934, and (ii) his investment does not exceed, in the case of
any class of the capital stock of any one issuer, one percent of the issued and
outstanding shares, or in the case of bonds or other securities, one percent of
the aggregate principal amount thereof issued and outstanding.
(ii) The term "Competing Enterprise" shall mean any person,
corporation, partnership or other entity that is engaged in the business of
operating a wholesale over-the-counter market maker business or a third market
broker-dealer business.
(iii) Notwithstanding anything to the contrary contained herein, the
provisions of Section 7(a)(i) shall not apply from and after the Employee's
termination of employment pursuant to Section 5(b) or Section 5(c) above.
(B) TRADE SECRETS. The Employee agrees and understands that in the
Employee's position with the Company, the Employee will be exposed to and
7
<PAGE>
receive information relating to the confidential affairs of the Company,
including but not limited to business and marketing plans, membership lists,
strategies, customer information, other information concerning the Company's
services, development, financing, expansion plans, business policies and
practices, and other forms of information considered by the Company to be
confidential and in the nature of trade secrets. The Employee agrees that
during the Employment Term and at all times thereafter the Employee will keep
such information confidential and not disclose such information, either directly
or indirectly, to any third person or entity without the prior written consent
of the Company. This confidentiality covenant has no temporal, geographical or
territorial restriction. Upon termination of this Agreement, the Employee will
promptly supply to the Company all property, keys, notes, memoranda, writings,
lists, files, reports, customer lists, correspondence, tapes, disks, cards,
surveys, maps, logs, machines, technical data or any other tangible product or
document which has been produced by, received by or otherwise submitted to the
Employee during or prior to the Employment Term.
(C) NON-SOLICITATION. The Employee agrees that (i) if his employment is
terminated for any reason he will not for one year following the termination of
employment directly or indirectly solicit for employment, including without
limitation recommending to any subsequent employer the solicitation for
employment of, any key employee employed by the Company, and (ii) he will not at
any time during his employment or at any time after termination of employment,
8
<PAGE>
publish any statement or make any statement (under circumstances reasonably
likely to become public or that he might reasonably expect to become public)
critical of the Company, or in any way adversely affecting or otherwise
maligning the business or reputation of the Company or any of its affiliates.
(D) REMEDY. The Employee further agrees that any breach of the terms of
this Section 7 would result in irreparable injury and damage to the Company for
which the Company would have no adequate remedy at law; the Employee therefore
also agrees that in the event of said breach or any threat of breach, the
Company shall be entitled to an immediate injunction and restraining order to
prevent such breach and/or threatened breach and/or continued breach by the
Employee and/or any and all persons and/or entities acting for and/or with the
Employee, without having to prove damages, and to all costs and expenses,
including reasonable attorneys' fees and costs, in addition to any other
remedies to which the Company may be entitled at law or in equity. The terms of
this paragraph shall not prevent the Company from pursuing any other available
remedies for any breach or threatened breach hereof, including but not limited
to the recovery of damages from the Employee.
(E) SURVIVAL. The provisions of this Section 7 shall survive any
termination of this Agreement and the Employment Term, and the existence of any
claim or cause of action by the Employee against the Company, whether predicated
on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of the covenants and agreements of this Section 7.
9
<PAGE>
8. INDEMNIFICATION.
The Company shall indemnify and hold harmless the Employee to the fullest
extent permitted by law from and against any and all losses, claims, demands,
costs, damages, liabilities (joint or several), expenses of any nature
(including reasonable attorneys' fees and disbursements), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits, or proceedings, whether civil, criminal, administrative or
investigative, in which the Employee may be involved, or threatened to be
involved as a party or otherwise, arising out of or incidental to the formation,
business, or activities of or relating to the Company in the Employee's capacity
as an employee, officer, member or representative of the Company, regardless of
whether the Employee continues to be an employee, officer, member or
representative at the time any such liability or expense is paid or incurred;
provided, however, that this provision shall not eliminate or limit the
- -------- -------
liability of the Employee (i) for any breach of the Employee's duty of loyalty
to the Company or its members, (ii) for acts or omissions which involve
intentional misconduct or a knowing violation of law, (iii) for any transaction
from which the Employee received any improper personal benefit and (iv) for any
breach of any provision of this Agreement.
10
<PAGE>
9. NOTICES.
All notices, demands, requests or other communications which may be or are
required to be given, served, or sent by a party pursuant to this Agreement
shall be in writing and shall be hand delivered (including delivery by courier),
mailed by first-class, registered or certified mail, return-receipt requested,
postage prepaid, or transmitted by telegram, telex or facsimile transmission,
addressed as follows:
(a) If to the Company:
Knight/Trimark Group, Inc.
525 Washington Blvd.
Jersey City, New Jersey 07310
Attn: Mr. Kenneth Pasternak
(a) If to the Employee:
Steven Steinman
10 Avery Court
West Harrison, New York 10604
Each Party may designate by notice in writing a new address to which any
notice, demand, request or communication may thereafter be so given, served or
sent.
10. SEVERABILITY.
The invalidity of any one or more provisions hereof shall not affect the
remaining portions of this Agreement, all of which are inserted conditionally on
their being held valid in law; and in the event that one or more of the
provisions
11
<PAGE>
contained herein should be invalid, or should operate to render this Agreement
invalid, this Agreement shall be construed as if such invalid provisions had not
been inserted.
11. WAIVERS.
Neither the waiver by either party of a breach of or a default under any of
the provisions of this Agreement, nor the failure of either party, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right, remedy or privilege hereunder, shall thereafter be construed
as a waiver of any subsequent breach or default of a similar nature, or as a
waiver of any such provisions, rights, remedies or privileges hereunder.
12. ENTIRE AGREEMENT, AMENDMENTS.
This Agreement contains the entire agreement between the parties with
respect to the transactions contemplated herein, and supersedes all prior oral
or written agreements, commitments or understandings with respect to the matters
provided for herein and therein. Any amendment or change relating hereto shall
be in writing and duly executed by the Employee and the Company.
12
<PAGE>
13. GOVERNING LAW.
This Agreement, the rights and obligations of the parties hereto, and any
claims or disputes relating thereto, shall be governed by and construed in
accordance with the laws of the State of New York (but not including the choice
of law rules thereof).
14. ASSIGNMENT.
All of the provisions hereof shall be binding upon and inure to the benefit
of the parties and the heirs, executors, administrators and permitted assigns of
Employee and the successors and assigns of the Company; provided that Employee's
obligations hereunder are personal and nondelegable, whether by operation of law
or otherwise, and except pursuant to the laws of testate or intestate
distribution upon the death of Employee, Employee's rights hereunder are not
assignable whether by operation of law or otherwise. The Company's rights and
obligations hereunder may be freely assigned provided such assignee assumes all
of the Company's duties and obligations hereunder.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Employment
Agreement as of the date first above written.
KNIGHT/TRIMARK GROUP, INC.
By: _________________________________
Kenneth Pasternak, President and
Chief Executive Officer
STEVEN STEINMAN
_____________________________________
14
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the
____ day of May, 1998, between KNIGHT/TRIMARK GROUP, INC. (the "Company"), a
corporation of the State of Delaware, and ANTHONY M. SANFILIPPO ("the
Employee").
WITNESSETH
WHEREAS, the Company, through its subsidiaries, is engaged in the
business of operating a wholesale over-the-counter market maker business and a
third-market broker-dealer business;
WHEREAS, the Company recognizes that the Employee has special skills,
knowledge and expertise essential to the Company's operations; and
WHEREAS, the Company desires to employ the Employee and the Employee
desires to be employed by the Company on the terms provided herein.
NOW, THEREFORE, the Company and the Employee, in consideration of the
agreements contained herein, agree as follows:
<PAGE>
1. EMPLOYMENT.
The Company shall employ the Employee to perform the duties described in
this Agreement, upon the terms and conditions set forth herein, and the Employee
accepts such employment.
2. DUTIES.
The Employee shall serve as Executive Vice President of the Company and
President of Trimark Securities, Inc., or such other position or positions as
may be agreed in writing between the Employee and the Company, and shall perform
such duties, services and responsibilities incident to such position or
positions as determined from time to time by the Board of Directors of the
Company (the "Board of Directors"). The Employee shall devote his full business
time, attention and skill to the performance of such duties, services and
responsibilities, and will use his best efforts to promote the interests of the
Company. The Employee will not, without the prior written approval of the Board
of Directors, engage in any other business activity which would interfere with
the performance of his duties, services and responsibilities hereunder or which
is in violation of policies established from time to time by the Company.
2
<PAGE>
3. EMPLOYMENT TERM.
The term of employment under this Agreement (the "Employment Term") shall
be for a period beginning on the date of the closing of the Initial Public
Offering (the "Closing") and ending on the fourth anniversary thereof (the
"Initial Termination Date"), unless earlier terminated as provided herein;
provided, however, that the Employment Term shall be automatically extended for
- -------- -------
one-year periods unless either the Company or the Employee provides the other
party with written notice at least 60 days prior to any extension date that it
or he desires to terminate the Employee's employment under this Agreement. The
term of this Agreement shall be coincident with the Employment Term and the
Employment Term shall include any extensions provided in this Section 3.
4. COMPENSATION.
As full compensation for his services to the Company, and on the condition
that the Employee faithfully keeps and performs every condition and covenant
hereunder:
(A) SALARY. The Company shall during the Employment Term pay the Employee
a salary (the "Salary") at an annual rate of $250,000 payable in equal monthly
installments on the first day of each month ("Salary"). From time to time, the
Board of Directors may increase the Salary as it deems appropriate.
(B) BONUS. The Company agrees to adopt, effective on the first day of the
Employment Term, the Knight/Trimark Group, Inc. 1998 Management Incentive
Performance Plan (the "Plan"). The Plan is incorporated herein by
reference. The
3
<PAGE>
Employee shall be eligible to be paid a bonus (the "Bonus") from the Plan
pursuant to the terms and conditions provided therein.
(C) COMMISSION. The Company shall pay Employee a commission (the
"Commission") which shall be based on a percentage (consistent with the
percentage paid to the Company's other senior traders) of the excess (the "Net
Profit"), if any, of the gross trading profits of his personal trading account
(the "Account"), over the sum of gross trading losses, rebates, clearance fees,
traders' assistance, and other direct transaction costs (e.g., Instinet)
(collectively, the "Reduction Amount"), associated with the Account.
Commissions required by this Section 4(c) shall be determined and paid on a
monthly basis; provided, that in determining the Net Profit for any month, the
--------
Net Profit, if any, for such month shall be reduced by the excess, if any, of
the Reduction Amount over gross trading profits of the Business with respect to
any preceding month occurring after the most recent month in which a Net Profit
existed (determined after the application of this proviso); provided further,
----------------
that no such Commission shall be due with respect to any year until such time as
the aggregate amount of such Commissions payable with respect to such year but
for this provision would exceed $250,000, and then only such excess shall be
due.
(D) BENEFITS. In addition to the payment of Salary and any Bonus which may
become payable as described above, the Employee shall be entitled to health,
disability and life insurance benefits generally available to management
employees of the Company having comparable responsibilities and for the
reimbursement of
4
<PAGE>
all reasonable and documented business expenses.
(E) SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. In addition to the Salary
Bonus and Benefits described above, the Company agrees to adopt, effective on
the first day of the Employment Term, a Supplemental Executive Retirement Plan
("SERP"). The SERP is incorporated herein by reference. The employee shall be
eligible to participate in the SERP pursuant to the terms and conditions
provided therein.
The Salary, Commission and Bonus shall be payable in accordance with the
normal payroll practices of the Company then in effect and subject to all
applicable taxes required to be withheld by the Company pursuant to federal,
state or local law. The Employee shall be solely responsible for income and
earnings taxes imposed on the Employee by reason of any cash or non-cash
compensation and benefits provided hereunder.
5. TERMINATION.
The Employee's employment with the Company will terminate at the end of the
Employment Term or upon the earlier occurrence of any of the following events:
(A) The death of the Employee.
(B) The mutual agreement between the Company and the Employee on an early
termination date.
(C) The termination of employment by the Company's unilateral action
5
<PAGE>
without "Cause" (as defined below).
(D) The termination of employment by the Company's unilateral action with
Cause.
(E) The termination of employment by the Employee's unilateral action.
In the event of termination of this Agreement, for whatever reason, the
Employee agrees to cooperate with the Company and to be reasonably available to
the Company with respect to continuing and/or future matters arising out of the
Employee's employment or any other relationship with the Company, whether such
matters are business-related, legal or otherwise. For purposes of this
Agreement, the term "Cause" shall mean (i) misappropriation of any material
amount of money or other assets or properties of the Company or any affiliate of
the Company, (ii) a material breach by the Employee of the terms of this
Agreement, which breach shall remain unremedied for 30 days after notice of the
same shall have been given to the Employee by the Company and (iii) the
conviction of the Employee for a felony. The provisions of this paragraph shall
survive termination of this Agreement.
6
<PAGE>
6. SEVERANCE.
If the Employee's employment with the Company terminates pursuant to
Sections 5(a), (b) or (c), the Company will pay the Employee in one lump sum
within 30 days following such termination a severance payment equal to $500,000.
The severance payment upon termination shall constitute the exclusive payments
due the Employee upon termination under this Agreement, including any payment
which may otherwise be payable pursuant to any other separation or severance
policy established or maintained by the Company.
7. EMPLOYEE COVENANTS.
(A) NON-COMPETE. (i) Subject to section 7(a)(iii), the Employee agrees
that the Employee will not, during the Employment Term and for a period of two
years thereafter, directly or indirectly own, manage, operate, join, control, be
employed by, or participate in the ownership, management, operation or control
of or be connected in any manner, including but not limited to holding the
positions of shareholder, director, officer, consultant, independent contractor,
employee, partner, or investor, with any Competing Enterprise (defined below);
provided, however, that the Employee may invest in stocks, bonds, or other
- -------- -------
securities of any person, firm, corporation or their business organization (but
without otherwise participating in the business thereof) if (i) such stocks,
bonds, or other securities are listed on any national securities exchange or are
registered under Section 12(g) of the Securities Exchange Act of 1934, and (ii)
his investment does not exceed, in the case of any class of the capital stock of
any one issuer, one
7
<PAGE>
percent of the issued and outstanding shares, or in the case of bonds or other
securities, one percent of the aggregate principal amount thereof issued and
outstanding.
(ii) The term "Competing Enterprise" shall mean any person,
corporation, partnership or other entity that is engaged in the business of
operating a wholesale over-the-counter market maker business or a third market
broker-dealer business.
(iii) Notwithstanding anything to the contrary contained herein, the
provisions of Section 7(a)(i) shall not apply from and after the Employee's
termination of employment pursuant to Section 5(b) or Section 5(c) above.
(B) TRADE SECRETS. The Employee agrees and understands that in the
Employee's position with the Company, the Employee will be exposed to and
receive information relating to the confidential affairs of the Company,
including but not limited to business and marketing plans, membership lists,
strategies, customer information, other information concerning the Company's
services, development, financing, expansion plans, business policies and
practices, and other forms of information considered by the Company to be
confidential and in the nature of trade secrets. The Employee agrees that
during the Employment Term and at all times thereafter the Employee will keep
such information confidential and not disclose such information, either directly
or indirectly, to any third person or entity without the prior written consent
of the Company. This confidentiality covenant has no temporal, geographical or
territorial restriction. Upon termination
8
<PAGE>
of this Agreement, the Employee will promptly supply to the Company all
property, keys, notes, memoranda, writings, lists, files, reports, customer
lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines,
technical data or any other tangible product or document which has been produced
by, received by or otherwise submitted to the Employee during or prior to the
Employment Term.
(C) NON-SOLICITATION. The Employee agrees that (i) if his employment is
terminated for any reason he will not for one year following the termination of
employment directly or indirectly solicit for employment, including without
limitation recommending to any subsequent employer the solicitation for
employment of, any key employee employed by the Company, and (ii) he will not at
any time during his employment or at any time after termination of employment,
publish any statement or make any statement (under circumstances reasonably
likely to become public or that he might reasonably expect to become public)
critical of the Company, or in any way adversely affecting or otherwise
maligning the business or reputation of the Company or any of its affiliates.
(D) REMEDY. The Employee further agrees that any breach of the terms of
this Section 7 would result in irreparable injury and damage to the Company for
which the Company would have no adequate remedy at law; the Employee therefore
also agrees that in the event of said breach or any threat of breach, the
Company shall be entitled to an immediate injunction and restraining order to
prevent such breach and/or threatened breach and/or continued breach by the
9
<PAGE>
Employee and/or any and all persons and/or entities acting for and/or with the
Employee, without having to prove damages, and to all costs and expenses,
including reasonable attorneys' fees and costs, in addition to any other
remedies to which the Company may be entitled at law or in equity. The terms of
this paragraph shall not prevent the Company from pursuing any other available
remedies for any breach or threatened breach hereof, including but not limited
to the recovery of damages from the Employee.
(E) SURVIVAL. The provisions of this Section 7 shall survive any
termination of this Agreement and the Employment Term, and the existence of any
claim or cause of action by the Employee against the Company, whether predicated
on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of the covenants and agreements of this Section 7.
8. INDEMNIFICATION.
The Company shall indemnify and hold harmless the Employee to the fullest
extent permitted by law from and against any and all losses, claims, demands,
costs, damages, liabilities (joint or several), expenses of any nature
(including reasonable attorneys' fees and disbursements), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits, or proceedings, whether civil, criminal, administrative or
investigative, in which the Employee may be involved, or threatened to be
involved as a party or otherwise, arising out of or incidental to the formation,
business, or activities of or relating to the Company in the Employee's capacity
as an employee, officer,
10
<PAGE>
member or representative of the Company, regardless of whether the Employee
continues to be an employee, officer, member or representative at the time any
such liability or expense is paid or incurred; provided, however, that this
-------- -------
provision shall not eliminate or limit the liability of the Employee (i) for any
breach of the Employee's duty of loyalty to the Company or its members, (ii) for
acts or omissions which involve intentional misconduct or a knowing violation of
law, (iii) for any transaction from which the Employee received any improper
personal benefit and (iv) for any breach of any provision of this Agreement.
9. NOTICES.
All notices, demands, requests or other communications which may be or are
required to be given, served, or sent by a party pursuant to this Agreement
shall be in writing and shall be hand delivered (including delivery by courier),
mailed by first-class, registered or certified mail, return-receipt requested,
postage prepaid, or transmitted by telegram, telex or facsimile transmission,
addressed as follows:
(a) If to the Company:
Knight/Trimark Group, Inc.
525 Washington Blvd.
Jersey City, New Jersey 07310
Attn: Mr. Steven Steinman
(a) If to the Employee:
Anthony M. Sanfilippo
TradeTech Securities, L.P.
227 West Monroe Street
Suite 5000
11
<PAGE>
Chicago, Illinois 60606
Each Party may designate by notice in writing a new address to which any
notice, demand, request or communication may thereafter be so given, served or
sent.
10. SEVERABILITY.
The invalidity of any one or more provisions hereof shall not affect the
remaining portions of this Agreement, all of which are inserted conditionally on
their being held valid in law; and in the event that one or more of the
provisions contained herein should be invalid, or should operate to render this
Agreement invalid, this Agreement shall be construed as if such invalid
provisions had not been inserted.
11. WAIVERS.
Neither the waiver by either party of a breach of or a default under any of
the provisions of this Agreement, nor the failure of either party, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right, remedy or privilege hereunder, shall thereafter be construed
as a waiver of any subsequent breach or default of a similar nature, or as a
waiver of any such provisions, rights, remedies or privileges hereunder.
12. ENTIRE AGREEMENT, AMENDMENTS.
This Agreement contains the entire agreement between the parties with
respect to the transactions contemplated herein, and supersedes all prior oral
12
<PAGE>
or written agreements, commitments or understandings with respect to the matters
provided for herein and therein. Any amendment or change relating hereto shall
be in writing and duly executed by the Employee and the Company.
13. GOVERNING LAW.
This Agreement, the rights and obligations of the parties hereto, and any
claims or disputes relating thereto, shall be governed by and construed in
accordance with the laws of the State of New York (but not including the choice
of law rules thereof).
14. ASSIGNMENT.
All of the provisions hereof shall be binding upon and inure to the benefit
of the parties and the heirs, executors, administrators and permitted assigns of
Employee and the successors and assigns of the Company; provided that Employee's
obligations hereunder are personal and nondelegable, whether by operation of law
or otherwise, and except pursuant to the laws of testate or intestate
distribution upon the death of Employee, Employee's rights hereunder are not
assignable whether by operation of law or otherwise. The Company's rights and
obligations hereunder may be freely assigned provided such assignee assumes all
of the Company's duties and obligations hereunder.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Employment
Agreement as of the date first above written.
KNIGHT/TRIMARK GROUP, INC.
By: _________________________________
Steven Steinman, Chairman of the Board of Directors,
Chief Executive Officer of Trimark Securities, Inc.
ANTHONY M. SANFILIPPO
_____________________________________
14
<PAGE>
EXHIBIT 10.15
Knight/Trimark Group, Inc.
- ------------------------------------------------------
1998 LONG-TERM INCENTIVE PLAN
MAY 20, 1998
FINAL DRAFT
_______________________
SIBSON & COMPANY
830 THIRD AVENUE
NEW YORK, NY 10022
CHICAGO . LOS ANGELES
PRINCETON . RALEIGH
AUCKLAND . JOHANNESBURG
SYDNEY . TORONTO
<PAGE>
KNIGHT/TRIMARK GROUP, INC.
1998 LONG-TERM INCENTIVE PLAN
1. PURPOSE
The purpose of the Knight/Trimark Group, Inc., 1998 Long-Term Incentive Plan
(the "Plan") is to provide long-term incentive compensation opportunities to
selected employees, independent contractors, and non-employee directors of
Knight/Trimark Group, Inc., (the "Company"), or any Subsidiary or Affiliate
which now exists or hereafter is organized or acquired, to help retain their
services as employees or independent contractors, as the case may be, to
increase their efforts on behalf of the Company and to promote the success of
the Company's business in the interest of its stockholders.
2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "AFFILIATE" means, with respect to any individual, entity or group, any
other individual, entity or group that controls, is controlled by or is
under common control with, such individual, entity or group. For
purposes of this definition, the term "control" (and its correlative
terms) means the possession, directly or indirectly, of the power to
direct or cause the direction of management and policies, whether
through the ownership of voting securities, by contract or otherwise.
(b) "AWARD" means any Option, Restricted Stock or Restricted Stock Unit
granted under the Plan.
(c) "AWARD AGREEMENT" means any written agreement, contract, or other
instrument or document evidencing an Award.
1
<PAGE>
(d) "BENEFICIARY" means the person, persons, trust or trusts which have
been designated by a Grantee in his or her most recent written
beneficiary designation filed with the Company to receive the benefits
specified under the Plan upon his or her death, or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the
person, persons, trust or trusts entitled by will or the laws of
descent and distribution to receive such benefits.
(e) "BOARD" means the Board of Directors of the Company.
(f) "CHANGE IN CONTROL" means:
(i) the acquisition by any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) of "beneficial ownership"
(within the meaning of Rule 13d-3 of the Exchange Act), directly or
indirectly, of securities of the Company representing twenty
percent (20%) or more of either the then outstanding Stock or the
combined voting power of the Company's then outstanding voting
securities entitled to vote generally in the election of directors;
provided, however, that for purposes of this subsection (i), the
following transactions shall not constitute a Change in Control:
(A) an acquisition by the Company, (B) an acquisition by any
employee benefit plan (or related trust) sponsored or maintained by
the Company, (C) an acquisition by an entity owned, directly or
indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of Stock or (D) an acquisition
by an entity pursuant to a Business Combination (as defined in
subsection (iii) of this Section 2(f)) that satisfies clauses (A),
(B) and (C) of such subsection;
2
<PAGE>
(ii) the following individuals cease for any reason to constitute a
majority of the Company's directors then serving: individuals who
as of the date hereof constitute the Board (the "Initial
Directors") and any new director (a "New Director") whose
appointment or election by the Board or nomination for election
by the Company's stockholders was approved or recommended by a
vote of at least two-thirds of the directors then in office who
either are Initial Directors or New Directors; provided, however,
that a director whose initial assumption of office is in
connection with an actual or threatened election contest
(including but not limited to a consent solicitation) relating to
the election of directors of the Company shall not be considered
a New Director;
(iii) the stockholders of the Company approve a reorganization, merger
or consolidation or a sale or disposition of all or substantially
all of the Company's assets (a "Business Combination"), other
than a Business Combination in which (A) the voting securities of
the Company outstanding immediately prior thereto and entitled to
vote generally in the election of directors continue to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent thereof)
more than fifty percent (50%) of the combined voting power of the
voting securities of the Company or such surviving entity or
parent outstanding immediately after such Business Combination
and entitled to vote generally in the election of directors; (B)
no "person" (as hereinabove defined), other than the Company, an
employee benefit plan (or related trust) sponsored or maintained
by the Company, or an entity
3
<PAGE>
resulting from such Business Combination, acquires more than
twenty percent (20%) of the combined voting power of the Company's
then outstanding securities entitled to vote generally in the
election of directors and (C) at least a majority of the members
of the board of directors of the entity resulting from such
Business Combination were Initial Directors or New Directors at
the time of the execution of the initial agreement, or action of
the Board, providing for such Business Combination; or
(iv) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company.
(g) "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
(h) "COMMITTEE" means the committee established by the Board to administer
the Plan.
(i) "COMPANY" means Knight/Trimark Group, Inc., or any successor
corporation.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
(k) "FAIR MARKET VALUE" means, with respect to Stock or other property, the
fair market value of such Stock or other property determined by such
methods or procedures as shall be established from time to time by the
Committee. Unless otherwise determined by the Committee in good faith,
the per share Fair Market Value of Stock as of a particular date shall
mean (i) the average of the high and low sales prices per share of
Stock on the national securities exchange on which the Stock is
principally traded, for
4
<PAGE>
the last preceding date on which there was a sale of such Stock on such
exchange, or (ii) if the shares of Stock are then traded in an
over-the-counter market, the average of the high and low prices for the
shares of Stock in such over-the-counter market for the last preceding
date on which there was a sale of such Stock in such market, or (iii)
if the shares of Stock are not then listed on a national securities
exchange or traded in an over-the-counter market, such value as the
Committee, in its sole discretion, shall determine.
(l) "GRANTEE" means a person who, as an employee, or independent contractor
of the Company, a Subsidiary or an Affiliate, has been granted an Award
under the Plan.
(m) "ISO" means any Option intended to be and designated as an incentive
stock option within the meaning of Section 422 of the Code.
(n) "NQSO" means any Option that is designated as a nonqualified stock
option.
(o) "OPTION" means a right, granted to a Grantee under Section 6(b) to
purchase shares of Stock. An Option may be either an ISO or an NQSO,
provided that ISO's may be granted only to employees of the Company or
a Subsidiary.
(p) "PLAN" means this Knight/Trimark Group, Inc., 1998 Long-Term Incentive
Plan, as amended from time to time.
(Q) "RESTRICTED STOCK" means an Award of shares of Stock to a Grantee under
Section 6(c) that are subject to certain restrictions and to a risk of
forfeiture.
5
<PAGE>
(r) "RESTRICTED STOCK UNIT" means an Award of cash based on the Fair
Market Value of one share of Stock made to a Grantee under section
6(d) that are subject to certain restriction and to a risk of
forfeiture.
(s) "STOCK" means shares of the common stock of the Company.
(t) "SUBSIDIARY" means any corporation or other legal entity in an
unbroken chain of corporations or other legal entities beginning with
the Company if, at the time of granting of an Award, each of the
corporations or other legal entities (other than the last corporation
or other legal entity in the unbroken chain) owns securities
possessing 50% or more of the total combined voting power of all
classes of securities in one of the other corporations or other legal
entities in the chain.
3. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall have the
authority in its discretion, subject to and not inconsistent with the express
provisions of the Plan, to administer the Plan and to exercise all the powers
and authorities either specifically granted to it under the Plan or necessary or
advisable in the administration of the Plan, including, without limitation, the
authority to grant Awards; to determine the persons to whom and the time or
times at which Awards shall be granted; to determine the type and number of
Awards to be granted; the number of shares of Stock to which an Award may relate
and the terms, conditions, restrictions and performance criteria relating to any
Award; and to determine whether, to what extent, and under what circumstances an
Award may be settled, canceled, forfeited, exchanged, or surrendered; to make
adjustments in the terms and conditions of, and the criteria and performance
objectives (if any) included in, Awards in recognition of unusual or non-
recurring events affecting the Company or any Subsidiary or Affiliate or the
financial statements of the Company or any Subsidiary or Affiliate, or in
response to changes in applicable laws, regulations, or accounting principles;
to designate Affiliates; to construe and interpret the Plan and any Award; to
prescribe,
6
<PAGE>
amend and rescind rules and regulations relating to the Plan; to
determine the terms and provisions of the Award Agreements (which need not be
identical for each Grantee); and to make all other determinations deemed
necessary or advisable for the administration of the Plan.
No member of the Board or Committee or any person to whom it has delegated
duties as aforesaid shall be liable for any action taken or determination made
in good faith with respect to the Plan or any Award granted hereunder.
4. ELIGIBILITY
Subject to the conditions set forth below, Awards may be granted to selected
employees and independent contractors of the Company and its present or future
Subsidiaries and Affiliates, in the discretion of the Committee. In determining
the persons to whom Awards shall be granted and the type of any Award (including
the number of shares to be covered by such Award), the Committee shall take into
account such factors as the Committee shall deem relevant in connection with
accomplishing the purposes of the Plan.
5. STOCK SUBJECT TO THE PLAN
The maximum number of shares of Stock reserved for the grant of Awards under the
Plan shall be 7,145,500 shares of Stock, subject to adjustment as provided
herein. No more than 1,000,000 of the total shares available for grant may be
awarded to a single individual in a single year, and no more than 500,000 of the
total shares available for grant may be awarded in total as Restricted Stock.
Such shares may, in whole or in part, be authorized but unissued shares or
shares that shall have been or may be reacquired by the Company in the open
market, in private transactions or otherwise. If any shares subject to an Award
are forfeited, canceled, exchanged or surrendered or if an Award otherwise
terminates or expires without a distribution of shares to the Grantee, the
shares of Stock with respect to such Award shall, to the extent of any such
forfeiture,
7
<PAGE>
cancellation, exchange, surrender, termination or expiration, again
be available for Awards under the Plan. Upon the exercise of any Award granted
in tandem with any other Awards, such related Awards shall be canceled to the
extent of the number of shares of Stock as to which the Award is exercised and,
notwithstanding the foregoing, such number of shares shall no longer be
available for Awards under the Plan.
In the event that the Committee shall determine that any dividend or other
distribution (whether in the form of cash, Stock, or other property),
recapitalization, Stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Grantees under the Plan, then the Committee shall make such equitable
changes or adjustments as it deems necessary or appropriate to any or all of (i)
the number and kind of shares of Stock which may thereafter be issued in
connection with Awards, (ii) the number and kind of shares of Stock issued or
issuable in respect of outstanding Awards, and (iii) the exercise price, grant
price, or purchase price relating to any Award; provided that, with respect to
ISOs, such adjustment shall be made in accordance with Section 424(h) of the
Code.
6. SPECIFIC TERMS OF AWARDS
(a) GENERAL. The term of each Award shall be for such period as may be
determined by the Committee. Subject to the terms of the Plan and
any applicable Award Agreement, payments to be made by the Company
or a Subsidiary or Affiliate upon the grant, maturation, or
exercise of an Award may be made in such forms as the Committee
shall determine at the date of grant or thereafter, including,
without limitation, cash, Stock, or other property. In addition to
the foregoing, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter, such
8
<PAGE>
additional terms and conditions, not inconsistent with the provisions
of the Plan, as the Committee shall determine.
(b) OPTIONS. The Committee is authorized to grant Options to Grantees on
the following terms and conditions:
(i) TYPE OF AWARD. The Award Agreement evidencing the grant of
an Option under the Plan shall designate the Option as an
ISO or an NQSO.
(ii) EXERCISE PRICE. The exercise price per share of Stock
purchasable under an Option shall be determined by the
Committee; provided that such exercise price shall be not
less than the Fair Market Value of a share on the date of
grant of such Option. The exercise price for Stock subject
to an Option may be paid in cash or by an exchange of Stock
previously owned by the Grantee, or a combination of both,
in an amount having a combined value equal to such exercise
price. The Grantee may also simultaneously exercise Options
and sell the shares of Stock thereby acquired, pursuant to a
brokerage or similar arrangement approved in advance by the
Committee, and use the proceeds from such sale as payment of
the Exercise Price and any applicable withholding taxes.
(iii) TERM AND EXERCISABILITY OF OPTIONS. Options shall be
exercisable over the option term (which shall not exceed ten
years from the date of grant), at such times and upon such
conditions as the Committee may determine, as reflected in
the Award Agreement; provided that, the Committee shall have
the authority to accelerate the exercisability of any
outstanding Option at such time and under such circumstances
as it, in its
<PAGE>
sole discretion, deems appropriate. An Option may be
exercised to the extent of any or all full shares of Stock
as to which the Option has become exercisable, by giving
written notice of such exercise to the Committee or its
designated agent.
(iv) TERMINATION OF EMPLOYMENT, ETC. An Option may not be
exercised unless the Grantee is then in the employ of, or
then maintains an independent contractor relationship with,
the Company or a Subsidiary or an Affiliate (or a company or
a parent or subsidiary company of such company issuing or
assuming the Option in a transaction to which Section 424(a)
of the Code applies), and unless the Grantee has remained
continuously so employed, or continuously maintained such
relationship, since the date of grant of the Option;
provided that, the Award Agreement may contain provisions
extending the exercisability of Options, in the event of
specified terminations, to a date not later than the
expiration date of such Option.
(v) OTHER PROVISIONS. Options may be subject to such other
conditions including, but not limited to, restrictions on
transferability of the shares acquired upon exercise of such
Options, as the Committee may prescribe in its discretion or
as may be required by applicable law.
(c) RESTRICTED STOCK. The Committee is authorized to grant Restricted
Stock to Grantees on the following terms and conditions:
(i) ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject
to such restrictions on transferability and other
restrictions, if any, as the Committee may impose at the date
of grant, which restrictions may lapse separately or in
combination at such times,
10
<PAGE>
under such circumstances, in such installments, or
otherwise, as the Committee may determine. Such restrictions
may include factors relating to the increase in the value of
the Stock or to individual or Company performance such as
the attainment of certain specified individual, divisional
or Company-wide performance goals, sales volume increases or
increases in earnings per share. Except to the extent
restricted under the Award Agreement relating to the
Restricted Stock, a Grantee granted Restricted Stock shall
have all of the rights of a stockholder including, without
limitation, the right to vote Restricted Stock and the right
to receive dividends thereon.
(ii) FORFEITURE. Upon termination of employment with or service
to the Company, or upon termination of the independent
contractor relationship, as the case may be, during the
applicable restriction period, Restricted Stock and any
accrued but unpaid dividends that are at that time subject
to restrictions shall be forfeited; provided that, the
Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Restricted
Stock will be waived in whole or in part in the event of
terminations resulting from specified causes, and the
Committee may in other cases waive in whole or in part the
forfeiture of Restricted Stock.
(iii) CERTIFICATES FOR STOCK. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Stock are
registered in the name of the Grantee, such certificates
shall bear an appropriate legend referring to the terms,
conditions, and
11
<PAGE>
restrictions applicable to such Restricted Stock, and the
Company shall retain physical possession of the certificate.
(iv) DIVIDENDS. Dividends paid on Restricted Stock shall be
either paid at the dividend payment date, or deferred for
payment to such date as determined by the Committee, in cash
or in shares of unrestricted Stock having a Fair Market
Value equal to the amount of such dividends. Stock
distributed in connection with a stock split or stock
dividend, and other property distributed as a dividend,
shall be subject to restrictions and a risk of forfeiture to
the same extent as the Restricted Stock with respect to
which such Stock or other property has been distributed.
(d) RESTRICTED STOCK UNITS. The Committee is authorized to grant
Restricted Stock Units to Grantees on the following terms and
conditions:
(i) ISSUANCE AND RESTRICTIONS. Restricted Stock Units shall be
subject to such restrictions on transferability and other
restrictions, if any, as the Committee may impose at the
date of grant, which restrictions may lapse separately or in
combination at such times, under such circumstances, in such
installments, or otherwise, as the Committee may determine.
Such restrictions may include factors relating to the
increase in the value of the Stock or to individual or
Company performance such as the attainment of certain
specified individual, divisional or Company-wide performance
goals, sales volume increases or increases in earnings per
share. A Grantee granted Restricted Stock Units shall have
the right to receive dividends thereon equal to the number
and value of dividends that would be paid on an equal number
of Restricted Stock shares. No more than 500,000 Restricted
Stock Units may be awarded under the Plan.
(ii) FORFEITURE. Upon termination of employment with or service
to the Company, or upon termination of the independent
contractor relationship, as the case may be, during the
applicable restriction
12
<PAGE>
period, Restricted Stock Units and any accrued but unpaid
dividends that are at that time subject to restrictions
shall be forfeited; provided that, the Committee may
provide, by rule or regulation or in any Award Agreement,
or may determine in any individual case, that restrictions
or forfeiture conditions relating to Restricted Stock Units
will be waived in whole or in part in the event of
terminations resulting from specified causes, and the
Committee may in other cases waive in whole or in part the
forfeiture of Restricted Stock Units.
(iii) DIVIDENDS. Dividends paid on Restricted Stock Units shall
be either paid at the dividend payment date, or deferred
for payment to such date as determined by the Committee, in
cash.
7. CHANGE IN CONTROL PROVISIONS
The following provisions shall apply in the event of a Change in Control unless
otherwise determined by the Committee or the Board in writing at or after the
grant of an Award, but prior to the occurrence of such Change in Control:
(a) Any Award carrying a right to exercise that was not previously
exercisable and vested shall become fully exercisable and vested;
(b) The restrictions, deferral limitations, payment conditions, and
forfeiture conditions applicable to any other Award granted under the
Plan shall lapse and such Awards shall be deemed fully vested, and any
performance conditions imposed with respect to Awards shall be deemed
to be fully achieved; and
(c) If the Company's shares of stock are not listed on a national
securities exchange or traded in an over-the-counter market at the time
of the Change in Control, the value of all outstanding Awards shall, to
the extent determined by the Committee at or after grant, be cashed out
on the basis
13
<PAGE>
of the Change in Control Price as of the date the Change in Control
occurs or such other date as the Committee may determine prior to the
Change in Control.
8. GENERAL PROVISIONS
(a) APPROVAL OF SHAREHOLDERS; EFFECTIVE DATE. The Plan shall take effect
upon its adoption by the Board, but the Plan (and any grants of Awards
made prior to the shareholder approval mentioned herein) shall be
subject to ratification by the holder(s) of a majority of the issued
and outstanding shares of voting securities of the Company entitled to
vote, which ratification must occur within twelve (12) months of the
date that the Plan is adopted by the Board. In the event that the
shareholders of the Company do not ratify the Plan at a meeting of the
shareholders at which such issue is considered and voted upon, then
upon such event the Plan and all rights hereunder shall immediately
terminate and no Grantee (or any permitted transferee thereof) shall
have any remaining rights under the Plan or any Award Agreement entered
into in connection herewith.
(b) NONTRANSFERABILITY. Except as otherwise determined by the Committee,
awards shall not be transferable by a Grantee except by will or the
laws of descent and distribution and shall be exercisable during the
lifetime of a Grantee only by such Grantee or his guardian or legal
representative.
(c) NO RIGHT TO CONTINUED EMPLOYMENT. Nothing in the Plan or in any Award
granted or any Award Agreement or other agreement entered into pursuant
hereto shall confer upon any Grantee the right to continue in the
employ of or to continue as an independent contractor of the Company,
any Subsidiary or any Affiliate or to be entitled to any remuneration
or
14
<PAGE>
benefits not set forth in the Plan or such Award Agreement or other
agreement or to interfere with or limit in any way the right of the
Company or any such Subsidiary or Affiliate to terminate such Grantee's
employment or independent contractor relationship.
(d) TAXES. The Company or any Subsidiary or Affiliate is authorized to
withhold from any Award granted, any payment relating to an Award under
the Plan, including from a distribution of Stock, or any other payment
to a Grantee, amounts of withholding and other taxes due in connection
with any transaction involving an Award, and to take such other action
as the Committee may deem advisable to enable the Company and Grantees
to satisfy obligations for the payment of withholding taxes and other
tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make
cash payments in respect thereof in satisfaction of a Grantee's tax
obligations.
(e) AMENDMENT AND TERMINATION OF THE PLAN. The Board may at any time and
from time-to-time alter, amend, suspend, or terminate the Plan in whole
or in part; provided that, no amendment which, in the opinion of
counsel for the Company, requires stockholder approval, shall be
effective unless the same shall be approved by the requisite vote of
the stockholders of the Company entitled to vote thereon.
Notwithstanding the foregoing, no amendment shall affect adversely any
of the rights of any Grantee, without such Grantee's consent, under any
Award theretofore granted under the Plan.
(f) NO RIGHTS TO AWARDS; NO STOCKHOLDER RIGHTS. No Grantee shall have any
claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Grantees. Except as provided
15
<PAGE>
specifically herein, a Grantee or a transferee of an Award shall have
no rights as a stockholder with respect to any shares covered by the
Award until the date of the issuance of a stock certificate to the
Grantee or transferee for such shares.
(g) UNFUNDED STATUS OF AWARDS. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect
to any payments not yet made to a Grantee pursuant to an Award, nothing
contained in the Plan or any Award shall give any such Grantee any
rights that are greater than those of a general creditor of the
Company.
(h) NO FRACTIONAL SHARES. No fractional shares of Stock shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, other Awards, or other property shall be issued
or paid in lieu of such fractional shares or whether such fractional
shares or any rights thereto shall be forfeited or otherwise
eliminated.
(i) REGULATIONS AND OTHER APPROVALS.
(i) The obligation of the Company to sell or deliver Common
Stock with respect to any Award granted under the Plan shall
be subject to all applicable laws, rules and regulations,
including all applicable federal and state securities laws,
and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the
Committee.
(ii) Each Award is subject to the requirement that, if at any
time the Committee determines, in its absolute discretion,
that the listing, registration or qualification of Common
Stock issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory body
is necessary or desirable as a
16
<PAGE>
condition of, or in connection with, the grant of an Award
or the issuance of Common Stock, no such Award shall be
granted or payment made or Common Stock issued, in whole or
in part, unless listing, registration, qualification,
consent or approval has been effected or obtained free of
any conditions not acceptable to the Committee.
(iii) In the event that the disposition of Common Stock acquired
pursuant to the Plan is not covered by a then current
registration statement under the Securities Act and is not
otherwise exempt from such registration, such Common Stock
shall be restricted against transfer to the extent required
by the Securities Act or regulations thereunder, and the
Committee may require a Grantee receiving Common Stock
pursuant to the Plan, as a condition precedent to receipt of
such Common Stock, to represent to the Company in writing
that the Common Stock acquired by such Grantee is acquired
for investment only and not with a view to distribution.
(j) GOVERNING LAW. The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Delaware
without giving effect to the conflict of laws principles thereof.
17
<PAGE>
EXHIBIT 10.16
Knight/Trimark Group, Inc.
- ------------------------------------------------------
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
May 20, 1998
Final Draft
____________________________
SIBSON & COMPANY
830 Third Avenue
New York, NY 10022
Chicago . Los Angeles
Princeton . Raleigh
Auckland . Johannesburg
Sydney . Toronto
<PAGE>
KNIGHT/TRIMARK GROUP, INC.
1998 NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN
1. PURPOSE
The purpose of the Knight/Trimark Group, Inc., 1998 Non-Employee Director Stock
Option Plan (the "Plan") is to provide long-term incentive compensation
opportunities to non-employee directors of Knight/Trimark Group, Inc., (the
"Company"), to help retain their services as directors, to increase their
efforts on behalf of the Company, and to promote the success of the Company's
business in the interest of its stockholders.
2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below. Other capitalized terms shall be defined as set forth in the Plan.
(a) "AFFILIATE" means, with respect to any individual, entity or
group, any other individual, entity or group that controls, is
controlled by or is under common control with, such individual,
entity or group. For purposes of this definition, the term
"control" (and its correlative terms) means the possession,
directly or indirectly, of the power to direct or cause the
direction of management and policies, whether through the
ownership of voting securities, by contract or otherwise.
(b) "OPTION AGREEMENT" means any written agreement, contract, or
other instrument or document evidencing an Option.
(c) "BENEFICIARY" means the person, persons, trust or trusts which
have been designated by a Grantee in his or her most recent
written beneficiary
1
<PAGE>
designation filed with the Company to receive the benefits specified
under the Plan upon his or her death, or, if there is no designated
Beneficiary or surviving designated Beneficiary, then the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CHANGE IN CONTROL" means:
(i) the acquisition by any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) of "beneficial
ownership" (within the meaning of Rule 13d-3 of the Exchange
Act), directly or indirectly, of securities of the Company
representing twenty percent (20%) or more of either the then
outstanding Stock or the combined voting power of the
Company's then outstanding voting securities entitled to
vote generally in the election of directors; provided,
however, that for purposes of this subsection (i), the
following transactions shall not constitute a Change in
Control: (A) an acquisition by the Company, (B) an
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company, (C) an acquisition
by an entity owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of Stock or (D) an
acquisition by an entity pursuant to a Business Combination
(as defined in subsection (iii) of this Section 2(f)) that
satisfies clauses (A), (B) and (C) of such subsection;
(ii) the following individuals cease for any reason to constitute
a majority of the Company's directors then serving:
individuals
2
<PAGE>
who as of the date hereof constitute the Board (the "Initial
Directors") and any new director (a "New Director") whose
appointment or election by the Board or nomination for
election by the Company's stockholders was approved or
recommended by a vote of at least two-thirds of the
directors then in office who either are Initial Directors or
New Directors; provided, however, that a director whose
initial assumption of office is in connection with an actual
or threatened election contest (including but not limited to
a consent solicitation) relating to the election of
directors of the Company shall not be considered a New
Director;
(iii) the stockholders of the Company approve a reorganization,
merger or consolidation or a sale or disposition of all or
substantially all of the Company's assets (a "Business
Combination"), other than a Business Combination in which
(A) the voting securities of the Company outstanding
immediately prior thereto and entitled to vote generally in
the election of directors continue to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof)
more than fifty percent (50%) of the combined voting power
of the voting securities of the Company or such surviving
entity or parent outstanding immediately after such Business
Combination and entitled to vote generally in the election
of directors; (B) no "person" (as hereinabove defined),
other than the Company, an employee benefit plan (or related
trust) sponsored or maintained by the Company, or an entity
resulting from such Business Combination, acquires more than
twenty percent (20%) of the combined voting power of the
3
<PAGE>
Company's then outstanding securities entitled to vote
generally in the election of directors and (C) at least a
majority of the members of the board of directors of the
entity resulting from such Business Combination were Initial
Directors or New Directors at the time of the execution of
the initial agreement, or action of the Board, providing for
such Business Combination; or
(iv) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company.
(f) "CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
(g) "COMPANY" means Knight/Trimark Group, Inc., or any successor
corporation.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
(i) "FAIR MARKET VALUE" means, with respect to Stock or other property,
the fair market value of such Stock or other property determined by
such methods or procedures as shall be established from time to time
by the Board. Unless otherwise determined by the Board in good faith,
the per share Fair Market Value of Stock as of a particular date shall
mean (i) the average of the high and low sales prices per share of
Stock on the national securities exchange on which the Stock is
principally traded, for the last preceding date on which there was a
sale of such Stock on such exchange, or (ii) if the shares of Stock
are then traded in an over-the-counter market, the average of the high
and low prices for the shares of Stock in such over-the-counter market
for the last preceding date on which there was a sale of
4
<PAGE>
such Stock in such market, or (iii) if the shares of Stock are
not then listed on a national securities exchange or traded in an
over-the-counter market, such value as the Board, in its sole
discretion, shall determine.
(j) "GRANTEE" means a person who is a non-employee director of the
Company, and who is not an employee of any Subsidiary or
Affiliate, who has been granted an Option under the Plan.
(k) "NQSO" means any Option that is designated as a nonqualified
stock option.
(l) "OPTION" means a right, granted to a Grantee under Section 6(a)
to purchase shares of Stock.
(m) "PLAN" means this Knight/Trimark Group, Inc., 1998 Non-Employee
Director Stock Option Plan, as amended from time to time.
(n) "STOCK" means shares of the common stock of the Company.
(o) "SUBSIDIARY" means any corporation or other legal entity in an
unbroken chain of corporations or other legal entities beginning
with the Company if, at the time of granting of an Option, each
of the corporations or other legal entities (other than the last
corporation or other legal entities in the unbroken chain) owns
securities possessing 50% or more of the total combined voting
power of all classes of securities in one of the other
corporations or other legal entities in the chain.
3. ADMINISTRATION
The Plan is intended to be a self-governing formula plan. The extent that
questions of administration arise, they shall be resolved by the Board. The
Board shall have the authority in its discretion, subject to and not
inconsistent with the express provisions of the Plan, to
5
<PAGE>
administer the Plan and to exercise all the powers and authorities either
specifically granted to it under the Plan or necessary or advisable in the
administration of the Plan.
The Board may delegate to one or more of its member or to one or more agents
such administrative duties as it deems advisable. No member of the Board or any
person to whom it has delegated duties as aforesaid shall be liable for any
action taken or determination made in good faith with respect to the Plan or any
Option granted hereunder.
4. ELIGIBILITY
Only non-employee directors of the Company shall participate in the plan.
5. STOCK SUBJECT TO THE PLAN
The maximum number of shares of Stock reserved for the grant of Options under
the Plan shall be 264,000 shares of Stock, subject to adjustment as provided
herein. Such shares may, in whole or in part, be authorized but unissued shares
or shares that shall have been or may be reacquired by the Company in the open
market, in private transactions or otherwise. If any shares subject to an
Option are forfeited, canceled, exchanged or surrendered or if an Option
otherwise terminates or expires without a distribution of shares to the Grantee,
the shares of stock with respect to such Option shall, to the extent of any such
forfeiture, cancellation, exchange, surrender, termination or expiration, again
be available for grant under the Plan.
In the event that the Board shall determine that any dividend or other
distribution (whether in the form of cash, Stock, or other property),
recapitalization, Stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Grantees under the Plan, then the Board shall make such equitable
changes or adjustments as it deems necessary or appropriate to any or all of (i)
the number and kind of shares of Stock which may thereafter be issued in
connection with
6
<PAGE>
Options, (ii) the number and kind of shares of Stock issued or issuable in
respect of outstanding Options, and (iii) the exercise price, grant price, or
purchase price relating to any Options.
6. NON-EMPLOYEE DIRECTOR OPTIONS
(a) ANNUAL OPTION GRANTS TO COMPANY DIRECTORS. Non-employee directors of
the Company will be granted the Options described in clauses (i), (ii)
and (iii) of this Section (a):
(i) On the first business day following the effective date of the
Plan, or such other date as determined by the Board, (the
"Initial Grant Date"), each director who is a non-employee
director of the Company on such date (a "Current Director") shall
be granted automatically, without action by the Board, an Option
to purchase [NUMBER] shares of Stock.
(ii) Each non-employee director of the Company who is not a non-
employee director at the time of the Initial Grant Date (a "New
Director") will, at the time such New Director is elected to the
Board for the first time by the stockholders, be granted
automatically, without action by the Board, an Option to purchase
[NUMBER] shares of Stock.
7
<PAGE>
(iii) In addition, on the first business day following each
annual meeting of the stockholders thereafter, each non-
employee director of the Company who is continuing service
as a member of the Board, will be granted automatically,
without action by the Board, an Option to purchase [NUMBER]
shares of Stock.
(b) TERMS AND CONDITIONS OF OPTIONS. Options shall be subject to the
following specific terms and conditions set forth below (and shall
otherwise be subject to all other provisions of the Plan not in
conflict with this Section). Each Option shall be evidenced by an
Option Agreement containing such terms and conditions not inconsistent
with the Plan as the Board shall determine:
(i) Each Option shall be a NQSO.
(ii) The exercise price of Options shall be equal to the Fair
Market Value of the shares of Stock subject to such Options
on the date of grant.
(iii) Options shall be exercisable as to twenty-five percent
(25%) of the Stock subject thereto on the first anniversary
of the date of grant, and shall become exercisable as to an
additional twenty-five percent (25%) of such shares on each
of the second, third and fourth anniversaries of such date
of grant. Options shall be exercisable for a period of ten
(10) years from the date of grant of such Options.
(iv) EXERCISE PRICE. The exercise price per share of Stock
purchasable under an Option shall not be less than the Fair
Market Value of a share on the date of grant of such
Option. The exercise price for Stock subject to an Option
may be paid in cash or by an exchange of Stock previously
owned by the
8
<PAGE>
Grantee, or a combination of both, in an amount having a
combined value equal to such exercise price. The Grantee
may also simultaneously exercise Options and sell the
shares of Stock thereby acquired, pursuant to a brokerage
or similar arrangement approved in advance by the
Committee, and use the proceeds from such sale as payment
of the Exercise Price and any applicable withholding taxes.
(c) CHANGE IN CONTROL PROVISIONS. In the event of a Change in Control,
unless otherwise determined by the Board in writing at or after the
grant of an Option, but prior to the occurrence of such Change in
Control, any option carrying a right to exercise that was not
previously exercisable and vested shall become fully exercisable and
vested.
7. GENERAL PROVISIONS
(a) APPROVAL OF SHAREHOLDERS. The Plan shall take effect upon its adoption
by the Board, but the Plan (and any grants of Options made prior to
the shareholder approval mentioned herein) shall be subject to
ratification by the holder(s) of a majority of the issued and
outstanding shares of voting securities of the Company entitled to
vote, which ratification must occur within twelve (12) months of the
date that the Plan is adopted by the Board. In the event that the
shareholders of the Company do not ratify the Plan at a meeting of the
shareholders at which such issue is considered and voted upon, then
upon such event the Plan and all rights hereunder shall immediately
terminate and no Grantee (or any permitted transferee thereof) shall
have any remaining rights under the Plan or any Option Agreement
entered into in connection herewith.
9
<PAGE>
(b) NONTRANSFERABILITY. Except as otherwise determined by the Board,
Options shall not be transferable by a Grantee except by will or the
laws of descent and distribution and shall be exercisable during the
lifetime of a Grantee only by such Grantee or his guardian or legal
representative.
(c) NO RIGHT TO CONTINUED SERVICE AS A DIRECTOR. Nothing in the Plan or in
any Option granted or any Option Agreement or other agreement entered
into pursuant hereto shall confer upon any Grantee the right to
continue as a non-employee director of the Company, or to be entitled
to any remuneration or benefits not set forth in the Plan or such
Option Agreement or other agreement or to interfere with or limit in
any way the right of the Company to terminate such Grantee's status.
(d) TAXES. The Company is authorized to withhold from any Option granted,
any payment relating to an Option under the Plan amounts of
withholding and other taxes due in connection therewith, and to take
such other action as the Board may deem advisable to enable the
Company and Grantees to satisfy obligations for the payment of
withholding taxes and other tax obligations relating to any Option.
This authority shall include authority to withhold or receive Stock or
other property and to make cash payments in respect thereof in
satisfaction of a Grantee's tax obligations.
(e) AMENDMENT AND TERMINATION OF THE PLAN. The Board may at any time and
from time-to-time alter, amend, suspend, or terminate the Plan in
whole or in part; provided that, no amendment which, in the opinion of
counsel to the Company, requires stockholder approval, shall be
effective unless the same shall be approved by the requisite vote of
the stockholders of the Company entitled to vote thereon.
Notwithstanding the foregoing, no amendment shall affect adversely any
of the rights of any Grantee,
10
<PAGE>
without such Grantee's consent, under any Option theretofore granted
under the Plan.
(f) NO STOCKHOLDER RIGHTS. A Grantee or a transferee of an Option shall
have no rights as a stockholder with respect to any shares covered by
an Option until the date of the issuance of a stock certificate to the
Grantee or transferee for such shares.
(g) UNFUNDED STATUS OF OPTIONS. The Plan is intended to constitute an
"unfunded" plan. Nothing contained in the Plan or any Option shall
give any such Grantee any rights that are greater than those of a
general creditor of the Company.
(h) NO FRACTIONAL SHARES. No fractional shares of Stock shall be issued or
delivered pursuant to the Plan or any Option. The Board shall
determine whether cash or other property shall be issued or paid in
lieu of such fractional shares or whether such fractional shares or
any rights thereto shall be forfeited or otherwise eliminated.
(i) REGULATIONS AND OTHER APPROVALS.
(i) The obligation of the Company to sell or deliver Common
Stock with respect to any Option granted under the Plan
shall be subject to all applicable laws, rules and
regulations, including all applicable federal and state
securities laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or
appropriate by the Board.
(ii) Each Option is subject to the requirement that, if at any
time the Board determines, in its absolute discretion, that
the listing, registration or qualification of Common Stock
issuable pursuant to the Plan is required by any securities
exchange or under any
11
<PAGE>
state or federal law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Option
or the issuance of Common Stock, no such Option shall be
granted or payment made or Common Stock issued, in whole or
in part, unless listing, registration, qualification,
consent or approval has been effected or obtained free of
any conditions not acceptable to the Board.
(iii) In the event that the disposition of Common Stock acquired
pursuant to the Plan is not covered by a then current
registration statement under the Securities Act and is not
otherwise exempt from such registration, such Common Stock
shall be restricted against transfer to the extent required
by the Securities Act or regulations thereunder, and the
Board may require a Grantee receiving Common Stock pursuant
to the Plan, as a condition precedent to receipt of such
Common Stock, to represent to the Company in writing that
the Common Stock acquired by such Grantee is acquired for
investment only and not with a view to distribution.
(j) GOVERNING LAW. The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Delaware
without giving effect to the conflict of laws principles thereof.
(k) EFFECTIVE DATE; PLAN TERMINATION. The Plan shall take effect upon its
adoption by the Board (the "Effective Date"), but the Plan (and any
grants of Options made prior to the stockholder approval mentioned
herein), shall be subject to the approval of the holder(s) of a
majority of the issued and outstanding shares of voting securities of
the Company entitled to vote,
12
<PAGE>
which approval must occur within twelve months of the date the Plan is
adopted by the Board. In the absence of such approval, such Options
shall be null and void.
13
<PAGE>
EXHIBIT 10.17
KNIGHT/TRIMARK GROUP, INC.
1998 MANAGEMENT INCENTIVE PERFORMANCE PLAN
1. Purpose.
-------
The purpose of the KNIGHT/TRIMARK GROUP, INC.
1998 INCENTIVE PERFORMANCE PLAN is to reinforce corporate, organizational and
business-development goals; to promote the achievement of financial and other
business objectives; and to reward the performance of individual officers and
other employees in fulfilling their personal responsibilities.
2. Definitions.
-----------
The following terms, as used herein, shall have the following
meanings:
(a) "Award" shall mean an incentive compensation award, granted pursuant
to the Plan.
(b) "Award Agreement" shall mean any written agreement, contract, or other
instrument or document between the Company and a Participant
evidencing an Award.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Company" shall mean, collectively, Knight/Trimark Group Inc., a
Delaware corporation, and its subsidiaries.
(e) "Executive Board" shall mean those members of the Board who are
Executive Officers.
(f) "Executive Officer" shall mean an officer of the Company who is an
"executive officer" within the meaning of Rule 3b-7 promulgated under
the Securities Exchange Act of 1934, as amended.
(g) "Net Income," as applied to an entity for which a Profit Sub-Pool is
established hereunder, shall mean the net income of such entity for
the Performance Period determined in accordance with generally
accepted ac counting principles and reported in the Company's audited
financial statements for such Performance Period, but before any
provision for local, state or federal income taxes (including
penalties and interest) or
<PAGE>
amounts paid or accrued with respect to Awards in respect of such
Performance Period.
(h) "Participant" shall mean an officer or other employee of the Company
who is, pursuant to Section 4 of the Plan, selected to participate
herein.
(i) "Profit Pool" shall mean, collectively, the profit sub-pools "Profit
Sub-Pools established pursuant to Section 5(a) of the Plan.
(j) "Performance Period" shall mean the Company's fiscal quarter, unless
otherwise determined by the Executive Board.
(k) "Plan" shall mean the KNIGHT/TRIMARK GROUP, INC.
1998 INCENTIVE PERFORMANCE PLAN.
3. Administration.
--------------
The Plan shall be administered by the Executive Board. The Executive
Board shall have the authority in its sole discretion, subject to and not
inconsistent with the express provisions of the Plan, to administer the Plan and
to exercise all the powers and authorities either specifically granted to it
under the Plan or necessary or advisable in the administration of the Plan,
including, without limitation, the authority to grant Awards; to determine the
persons to whom and the time or times at which Awards shall be granted; to
determine the terms, conditions, restrictions and any performance criteria
relating to any Award; to determine whether, to what extent, and under what
circumstances an Award may be settled, cancelled, forfeited, or surrendered;
to make adjustments in the Profit Pool or one or more Profit Sub-Pools in
recognition of unusual or non-recurring events affecting the Company or a
subsidiary thereof or the financial statements of the Company or a subsidiary
thereof, or in response to changes in applicable laws, regulations, or
accounting principles; to construe and interpret the Plan and any Award; to
prescribe, amend and rescind rules and regulations relating to the Plan; to
determine the terms and provisions of any Award Agreements; and to make all
other determinations deemed necessary or advisable for the administration of the
Plan.
No member of the Board or the Executive Board shall be liable for any
action taken or determination made in good faith with respect to the Plan or any
Award granted hereunder.
2
<PAGE>
4. Eligibility.
-----------
Subject to the provisions of Section 5(b) of the Plan, Awards may be
granted to officers and other employees of the Company in the sole discretion of
the Executive Board. In determining the persons to whom Awards shall be granted
and any individual performance criteria relating to each Award, the Executive
Board shall take into account such factors as such Board shall deem relevant in
connection with accomplishing the purposes of the Plan.
5. Awards.
------
(a) Profit Pool. The Profit Pool shall consist of the following
-----------
Profit Sub-Pools: (i) the Knight Profit Sub-Pool, which shall consist of 15% of
the quarterly Net Income of Knight Securities, Inc ("Knight"); (ii) the Trimark
Profit Sub-Pool, which shall consist of 15% of the quarterly Net Income of
Trimark Securities, Inc. ("Trimark"); (iii) the Company Profit Sub-Pool, which
shall consist of 15% of the quarterly Net income of the Company not taking into
account the income of any of its subsidiaries; and (iv) Profit Sub-Pools to be
created automatically upon the establishment or acquisition of any subsidiary by
the Company after the date hereof, each to consist of 15% of the Net Income of
such subsidiary.
(b) Allocation of the Profit Pool. The Knight Sub-Pool shall be
-----------------------------
allocated on a quarterly basis by the Chief Executive Officer and Chief
Operating Officer of Knight; the Trimark Sub-Pool shall be allocated on a
quarterly basis by the Chief Executive Officer and Chief Operating Officer of
Trimark, and the Company Sub-Pool shall be allocated on a quarterly basis by the
Chief Executive Officer of the Company. The Executive Board shall determine
which Executive Officer or Officers shall be responsible for the allocation of
each Profit Sub-Pool created subsequent to the date hereof. Such officers may
not themselves receive an allocation from the Profit Pool in any Performance
Period unless the entire Company, on a consolidated basis, earns Net Income in
that Performance Period.
(i) Award Agreement. An Award may, but need not, be evidenced by an
---------------
Award Agreement in such form as the Executive Board shall from time to time
approve and the terms and conditions of such Awards shall be set forth therein.
(c) Time and Form of Payment. Unless otherwise determined by the
------------------------
Executive Board, all payments in respect of Awards granted under this Plan shall
be made, in cash, within a reasonable period after the end of the Performance
Period.
3
<PAGE>
(d) Termination of Employment. A Participant who ceases to be an
-------------------------
employee of the Company prior to the end of a Performance Period shall not be
entitled to an Award with respect to such Performance Period unless otherwise
determined by the Executive Board.
6. General Provisions.
------------------
(a) Compliance with Legal Requirements. The Plan and the granting and
----------------------------------
payment of Awards, and the other obligations of the Company under the Plan and
any Award Agreement or other agreement shall be subject to all applicable
federal and state laws, rules and regulations, and to such approvals by any
regulatory or governmental agency as may be required.
(b) Nontransferability. Awards shall not be transferable by a
------------------
Participant except by will or the laws of descent and distribution.
(c) No Right To Continued Employment. Nothing in the Plan or in any
--------------------------------
Award granted or any Award Agreement or other agreement entered into pursuant
hereto shall confer upon any Participant the right to continue in the employ of
the Company or to be entitled to any remuneration or benefits not set forth in
the Plan or such Award Agreement or other agreement or to interfere with or
limit in any way the right of the Company to terminate such Participant's
employment.
(d) Withholding Taxes. Where a Participant or other person is
-----------------
entitled to receive a cash payment pursuant to an Award hereunder, the Company
shall have the right to require the Participant or such other person to pay to
the Company the amount of any taxes that the Company may be required to withhold
before delivery to such Participant or other person of such payment.
(e) Amendment, Termination and Duration of the Plan. The Executive
-----------------------------------------------
Board or the Board may at any time and from time to time alter, amend, suspend,
or terminate the Plan in whole or in part. Notwithstanding the foregoing, no
amendment shall affect adversely any of the rights of any Participant, without
such Participant's consent, under any Award theretofore granted under the
Plan.
(f) Participant Rights. No Participant shall have any claim to be
------------------
granted any Award under the Plan, and there is no obligation for uniformity of
treatment for Participants.
4
<PAGE>
(g) Unfunded Status of Awards. The Plan is intended to constitute an
-------------------------
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company.
(h) Governing Law. The Plan and all determinations made and actions
-------------
taken pursuant hereto shall be governed by the laws of the State of Delaware
without giving effect to the conflict of laws principles thereof.
(i) Effective Date. The Plan shall take effect upon its adoption by
--------------
the Board.
(j) Beneficiary. A Participant may file with the Board a written
-----------
designation of a beneficiary on such form as may be prescribed by the Board and
may, from time to time, amend or revoke such designation. If no designated
beneficiary survives the Participant, the executor or administrator of the
Participant's estate shall be deemed to be the grantee's beneficiary.
5
<PAGE>
EXHIBIT 10.18
SPECIMEN AGREEMENT
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AGREEMENT
THIS AGREEMENT, made and entered into this ____ day of ______, 19__, by and
among Knight/Trimark Group (hereinafter referred to as the "Corporation"), a
Corporation organized and existing under the laws of New York, and
________________ (hereinafter referred to as the "Employee").
WHEREAS, the Employee has performed his duties in an efficient and capable
manner; and
WHEREAS, the Corporation is desirous of retaining the services of the
Employee; and
WHEREAS, the Board of Directors has approved the adoption of a Supple
mental Executive Retirement Plan as described in this Agreement (the "Plan");
and
WHEREAS, the Employee has been selected to participate in the Plan,
WHEREAS, the Corporation may, in its sole discretion, elect to purchase a
life insurance policy (the "Policy") on the life of the employee and does
request the full cooperation of the employee in attaining the policy;
NOW, THEREFORE, for value received and in consideration of the mutual
covenants contained herein, the parties agree as follows:
<PAGE>
1. NORMAL RETIREMENT SUPPLEMENTAL PENSION.
--------------------------------------
a. The corporation hereby agrees to contribute $80,000 annually for the
lesser of five years or the executive's term of employment. [This $80,000
includes $40,000 of compensation deferred by the executive.]
b. The corporation hereby agrees with the Employee that the Employee may
retire upon attaining age sixty-five (65), such age hereinafter being called the
"Normal Retirement Age."
c. Upon the Employee's retirement on or after Normal Retirement Age, the
Corporation shall pay the Employee a supplemental annual pension equal to the
"Normal Retirement Benefit" payable in annual installments and continuing for a
period of fifteen (15) years. The Normal Retirement Benefit is the amount that
can be withdrawn from the policy as determined by the plan administrator
multiplied by the applicable fraction. The applicable fraction is equal to 1/(1-
Corporate Tax Bracket) where the Corporate Tax Bracket is the combined federal,
state and local tax rate for the Corporation. The plan administrator shall
determine the amount that can be withdrawn annually for fifteen years such that
the net death proceeds provide the Corporation with death cost recovery of all
premium outlays through age 85 and such that no additional premium outlays are
projected after age 65 at the time the calculation is completed. The Normal
Retirement Benefit commences on the first day of the month following the normal
retirement.
2
<PAGE>
2. EARLY RETIREMENT OR TERMINATION.
-------------------------------
a. If the Employee retires or his employment with the Corporation is
otherwise terminated prior to attaining Normal Retirement Age but after
attaining age fifty-five (55), then the Corporation will pay the Employee a
supplemental pension equal to the "Early Retirement Benefit" payable in annual
installments and continuing for a period of fifteen (15) years. The Early
Retirement Benefit is the amount that can be withdrawn from the policy as
determined by be plan administrator multiplied by the applicable fraction. The
applicable fraction is equal to 1/(1 Corporate Tax Bracket) where the Corporate
Tax Bracket is the combined federal, state and local tax rate for the
Corporation. The plan administrator shall determine the amount that can be
withdrawn annually for fifteen years such that the net death proceeds provide
the Corporation with death cost recovery through age 85 of all premium outlays,
and such that no additional premium outlays are projected after retirement at
the time the calculation is completed. The Early Retirement Benefit commences on
the first day of the month following the early retirement.
3. DEATH OR DISABILITY.
-------------------
a. Upon the death of the Employee while still actively employed, the
Employee's designated beneficiary shall receive [split dollar benefit to be
---------------------------
determined].
- ------------
3
<PAGE>
b. Upon the death of the Employee while receiving any supplemental
pension benefits as provided in this Agreement, the Employee's designated
beneficiary shall receive the remaining payments which would have been due the
Employee.
c. If the Employee ceases employment because of temporary disability, the
Employee will be treated as actively employed, for purposes of this Agreement,
while such disability continues. In such event, payments hereunder will commence
upon the Employee's attainment of Normal Retirement Age.
d. If the Employee ceases employment because of permanent disability, the
Employee will be as actively employed, for purposes of this Agreement, while
such disability continues. In such event, payments hereunder will commence upon
the Employee's attainment of Normal Retirement Age.
e. If the Employee shall have failed to make an effective designation of
beneficiary, or if the individual or individuals so designated shall die prior
to receiving all payments required to made to them hereunder and there is no
designated alternate beneficiary, then in such event the remaining payments
shall be made first to the Employee's surviving spouse, second the Employee's
surviving children, equally per stirpes if there is no surviving spouse, and
finally to the estate of the Employee if there are neither a surviving spouse
nor surviving children.
4
<PAGE>
4. ASSIGNMENT.
----------
Except as otherwise provided herein, it is understood that neither the Employee,
nor any person designated by him pursuant to this Agreement, shall have any
right to commute, sell, assign, transfer or otherwise convey the right to
receive payments to be made hereunder, which payments and the right thereto are
expressly declared to be non-assignable and non-transferable. If such
assignment or transfer is attempted, the Corporation may disregard it and
continue to discharge its obligations hereunder as though such assignment or
transfer were not attempted.
5. INDEPENDENT ARRANGEMENT.
-----------------------
The benefits payable under this Agreement shall be independent of, and in
addition to, any other agreement which may exist from time to time between the
parties hereto, or any other compensation payable by the Employee's employer.
This Agreement shall not be deemed to constitute a contract of employment
between the parties hereto, nor shall any provisions hereof restrict the right
of the Employee's employer to discharge the Employee or restrict the right of
the Employee to terminate his or her employment.
6. NON-TRUST OR FIDUCIARY OBLIGATION.
---------------------------------
a. The rights of the Employee under this Agreement and of any
beneficiary of the Employee or of any other person who may acquire such rights
shall be
5
<PAGE>
solely those of an unsecured creditor of the Corporation. Any insurance policy
on the life of the Employee or any other asset acquired by the Corporation in
connection with the obligations assumed by it hereunder shall not be deemed to
be held under any trust for the benefit of the Employee or his or her
beneficiaries or to be security for the performance of the obligations of the
Corporation, but shall be, and remain, a general, unpledged, unrestricted asset
of the Corporation. The employee or his or her beneficiaries have no rights in
any asset which may be purchased by the Corporation in connection with the
obligations of this agreement.
b. Nothing contained in the Agreement and no action taken pursuant to the
provisions of the Agreement shall create or be construed to create a trust of
any kind, or a fiduciary relationship between the Corporation and the Employee
or his or her beneficiaries.
7. CHANGE CONTROL.
--------------
a. If the Employee's employment with the Corporation is involuntarily
terminated within two years after a "Change in Control" (as defined below) of
the Employee's employer, successor management will continue the annual
contributions for the remainder of the five year period described in Article 1.
b. As used herein, the term "Change of Control" shall mean that any
"person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Act") has become the
"beneficial
6
<PAGE>
owner" as defined in Rule 13d-3 under the Act, of 20% or more of the then
outstanding voting securities of the Corporation, exclusive of any Initial
Public Offering of shares on any stock exchange.
8. ARBITRATION.
-----------
a. Any controversy or claim arising out of or relating to this Agreement
shall be settled by arbitration in accordance with Rules of the American
Arbitration Association, and judgment upon the award rendered by an arbitrator
may be entered in any court having jurisdiction thereof.
b. The parties hereby submit themselves and consent to the jurisdiction
of the Courts of the State of New York further consent that any process or
notice of motion, or other application of the Court, or any Judge thereof, may
be served outside the State of New York by certified mail or by personal service
provided that a reasonable time for appearance is allowed. The arbitrators in
any such controversy shall have no authority or power to modify or alter any
express condition or provision of this Agreement or to render an award which has
the effect of altering or modifying any express condition or provision hereof.
7
<PAGE>
9. MISCELLANEOUS PROVISIONS.
------------------------
a. This Agreement shall be binding upon and inure to the benefit of any
successor of the Corporation and any such successor shall be deemed substituted
for the Corporation under the terms of this Agreement.
b. This instrument contains the entire Agreement of the parties. It may
be amended only by a writing signed by both of the parties hereto.
c. This Agreement shall be governed and construed in accordance with the
law of the State of New York.
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals, the Corporation by it duly authorized officer, on the day and year first
above written.
_______________________________ (L.S.)
Employee
(Corporation by)
_______________________________ (L.S.)
Corporate Officer
8
<PAGE>
BENEFICIARY STATEMENT
I, ___________________, do hereby name as a beneficiary under the Supplemental
Executive Retirement Plan Agreement dated ____________ as follows:
Primary: /
-----------------------------------
Name Relationship
Secondary: /
-----------------------------------
Name Relationship
Signed:_______________________
Dated:________________________
9
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Registrant
------------------------------
Knight Securities, Inc.
Trimark Securities, Inc.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 1 to the Prospectus
constituting part of this Registration Statement on Form S-1 of our report
dated February 10, 1998, except as to Note 15, which is as of April 15, 1998,
relating to the consolidated financial statements of Roundtable Partners
L.L.C., which appears in such Prospectus. We also consent to the references to
us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
New York, New York
May 22, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED WITHIN THE REGISTRATION STATEMENT
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 MAR-31-1998
<PERIOD-START> JAN-01-1997 JAN-19-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 13,797,198 5,429,440
<RECEIVABLES> 30,151,720 78,119,153
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 61,726,045 63,490,053
<PP&E> 7,353,429 8,273,607
<TOTAL-ASSETS> 127,872,422 171,073,027
<SHORT-TERM> 0 0
<PAYABLES> 24,854,494 28,518,291
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 21,060,857 54,581,144
<LONG-TERM> 500,000 500,000
27,483,610 27,483,610
0 0
<COMMON> 7,344,970 7,344,970
<OTHER-SE> 46,628,491 52,645,012
<TOTAL-LIABILITY-AND-EQUITY> 127,872,422 171,073,027
<TRADING-REVENUE> 224,627,402 63,006,565
<INTEREST-DIVIDENDS> 2,039,244 525,651
<COMMISSIONS> 0 0
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 1,940,972 416,486
<COMPENSATION> 57,716,994 16,168,160
<INCOME-PRETAX> 50,077,233 14,783,706
<INCOME-PRE-EXTRAORDINARY> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 50,077,233 14,783,706
<EPS-PRIMARY> 67.93 20.13
<EPS-DILUTED> 41.54 20.13
</TABLE>
