AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 26, 1999
REGISTRATION NO. 333-61495
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
KBW, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<CAPTION>
<S> <C> <C>
DELAWARE 6211 (PENDING)
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
TWO WORLD TRADE CENTER, 85TH FLOOR
NEW YORK, NY 10048
(212) 323-8300
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
________________
MITCHELL B. KLEINMAN
GENERAL COUNSEL
KBW, INC.
TWO WORLD TRADE CENTER, 85TH FLOOR
NEW YORK, NY 10048
(212) 323-8300
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
________________
COPIES TO:
EDWARD D. HERLIHY JOSEPH MCLAUGHLIN
ANDREW J. NUSSBAUM MICHAEL T. KOHLER
WACHTELL, LIPTON, ROSEN & KATZ BROWN & WOOD LLP
51 WEST 52ND STREET ONE WORLD TRADE CENTER, 58TH FLOOR
NEW YORK, NY 10019 NEW YORK, NY 10048
(212) 403-1000 (212) 839-5300
________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this registration statement becomes effective.
________________
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, 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, 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, check the following box. [_]
____________________
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<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------ ------------------- ---------------- ------------------ -----------------
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PER UNIT (2) PRICE (2) FEE
- ------------------------------------------------------ ------------------- ---------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share............. shares $ $115,000,000 $33,925 (3)
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(1) Includes an aggregate of shares which the Underwriters have the option
to purchase from the Selling Stockholders solely to cover over-allotments,
if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(3) This amount has been previously paid.
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 26, 1999
PROSPECTUS
, 1999
[KBW LOGO]
Shares
KBW, INC.
Common Stock
Of the shares of Common Stock, par value $0.01 per share ("Common
Stock"), of KBW, Inc., a Delaware corporation ("KBW" or the "Company"), being
offered hereby (the "Offering"), shares are being sold by the Company and
shares are being sold by certain stockholders (the "Selling Stockholders")
of the Company. The Company will not receive any of the proceeds from the sale
of shares by the Selling Stockholders. The Selling Stockholders are two
directors of the Company. See "Principal and Selling Stockholders--Selling
Stockholders."
Prior to the Offering, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering price of the
Common Stock will be between $ and $ per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
offering price. Application will be made for listing of the Common Stock on the
New York Stock Exchange (the "NYSE") under the symbol "KBW."
--------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF RISK FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE SELLING
PUBLIC(1) COMMISSIONS(2) COMPANY(3) STOCKHOLDERS
Per Share........... $ $ $ $
Total(4)............ $ $ $ $
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(1) In connection with the Offering, the Underwriters (as defined herein) have
reserved for sale approximately shares of Common Stock for directors
and current employees of the Company who have an interest in purchasing
such shares of Common Stock in the Offering. The Underwriters have advised
the Company that the price per share for such shares will be the Price to
the Public less Underwriting Discounts and Commissions, or $ per share.
(2) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(3) Before deducting expenses estimated at $ , including $5,000 payable to
Donaldson, Lufkin & Jenrette Securities Corporation for services as a
qualified independent underwriter, all of which are payable by the Company.
(4) The Selling Stockholders have granted to the Underwriters a 30-day option
to purchase up to additional shares at the Price to the Public less
Underwriting Discounts and Commissions, 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
Selling Stockholders will be $ , $ , $ and $ , respectively.
See "Underwriting."
The shares offered hereby are being offered by the several Underwriters
(including Keefe, Bruyette & Woods, Inc., which is a direct, wholly-owned
subsidiary of the Company), subject to prior sale, when, as and if delivered to
and accepted by them and subject to various prior conditions, including their
right to reject orders in whole or in part. It is expected that delivery of the
shares will be made against payment in New York, New York on or about , 1999.
DONALDSON, LUFKIN & JENRETTE
GOLDMAN, SACHS & CO.
KEEFE, BRUYETTE & WOODS, INC.
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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 qualifcation under the securities laws of any such State.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH
THE OFFERING AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN
MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
UPON COMPLETION OF THE OFFERING, THE COMPANY WILL BE SUBJECT TO THE
INFORMATIONAL REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AND, IN ACCORDANCE THEREWITH, WILL FILE REPORTS, PROXY STATEMENTS AND
INFORMATION STATEMENTS WITH THE SECURITIES AND EXCHANGE COMMISSION. THE COMPANY
INTENDS TO FURNISH TO ITS STOCKHOLDERS ANNUAL REPORTS CONTAINING FINANCIAL
STATEMENTS OF THE COMPANY AUDITED BY ITS INDEPENDENT AUDITORS AND QUARTERLY
REPORTS CONTAINING UNAUDITED CONDENSED FINANCIAL STATEMENTS FOR EACH OF THE
FIRST THREE QUARTERS OF EACH FISCAL YEAR.
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and the Company's Consolidated Financial Statements,
including the Notes thereto, appearing elsewhere in this Prospectus. Each
prospective investor is urged to read this Prospectus in its entirety.
KBW is a recently formed holding company that, prior to consummation of
the Offering, will be the holding company for Keefe, Bruyette & Woods, Inc. and
KBW Asset Management, Inc. ("KBW Asset Management"). In this Prospectus the
terms "Company" and "KBW" refer to KBW, Inc. and its consolidated subsidiaries
from and after the date of consummation of the Offering and refer to Keefe,
Bruyette & Woods, Inc. and its subsidiary, KBW Asset Management, prior to such
date. Information in this Prospectus assumes no exercise of the Underwriters'
option to purchase up to additional shares from the Selling Stockholders to
cover over-allotments, if any, and that employees of the Company purchase
shares reserved for sale to them in the Offering.
Certain statements contained herein regarding the Company's competitive
position are based on publicly available information from independent,
third-party sources. The Company has not independently verified such information
but believes it to be accurate.
THE COMPANY
KBW is an institutionally oriented investment banking firm that is a
nationally recognized authority on the commercial banking and thrift industries
(collectively referred to herein as the "banking industry"), which has been the
Company's primary focus since its inception in 1962. In 1996, KBW expanded its
focus to include specialty finance companies, in which KBW has established a
significant presence. More recently, KBW has expanded its coverage to include
insurance companies and securities firms. KBW's activities include research,
mergers and acquisitions ("M&A") advisory services, corporate finance,
securities sales and trading, principal investments, fixed income portfolio
management and asset management. In 1998, KBW earned net income of $30.8
million, or 19.8% of total revenues of $155.4 million and a 19.8% return on
average equity. Although results have varied from year to year, for the five
years ended December 31, 1998, the Company's average ratio of net income to
total revenues and average return on equity were 21.7% and 22.3%, respectively.
Research is the core of KBW's business. The Company believes its
success in building its corporate finance, financial advisory, sales and trading
and principal investing activities is directly related to its position as a
leading provider of research on the banking industry. The Company's
comprehensive research coverage has allowed KBW to develop strong relationships
with a large number of small and mid- size banks (generally banks with less than
$20 billion in assets). As these banks have grown in size and complexity, KBW
has been able to provide them a broad range of investment banking services.
These relationships have also enabled KBW to identify profitable investment
opportunities for its institutional clients and for the Company's own principal
investing activities.
KBW is a leading financial adviser in banking M&A. As reported by the
American Banker, in 1997 and 1998, KBW ranked first and second, respectively, in
the number of announced M&A financial advisory assignments for the banking
industry. In 1998, KBW served as financial adviser in 36 announced M&A
assignments for banks and specialty finance companies, with an aggregate
transaction value in excess of $9.1 billion.
KBW is also active in underwritings and other placements of securities
for financial services companies. In 1998, the Company managed 43 equity and
debt offerings, aggregating approximately $3.1 billion in gross offering
proceeds. KBW makes a market in over 250 securities of banks, thrifts and
financial services companies which are traded in the over-the-counter ("OTC")
market and serves as one of the top three market makers in approximately 65 of
these securities. The Company believes it has developed strong relationships
with substantially all of the largest and most active institutional investors
who invest in the financial services industry. KBW also maintains proprietary
trading positions and makes principal investments in financial services
companies for its own account. The Company's broker-dealer subsidiary, Keefe,
Bruyette & Woods, Inc., is a member of the NYSE.
KBW believes that the experience, knowledge and tenure of its
executives and professional staff have enabled it to maintain long-term
relationships with its clients and customers. In addition, KBW's broad employee
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<PAGE>
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stock ownership (more than 60% of current employees own KBW stock) and
compensation structure, which is based on a combination of individual,
departmental and overall Company performance, has encouraged employees to work
together to increase the value of KBW's business.
KBW's business strategy is to continue capitalizing on its competitive
strengths, to expand client and customer relationships and principal investments
in the banking and specialty finance industries and to leverage its experience
and reputation by expanding its business focus to include other sectors of the
financial services industry, including insurance and securities. As many
securities companies have been acquired by commercial banks, KBW believes its
independent status will enhance its ability to develop new client relationships
and to hire experienced personnel who wish to remain affiliated with an
independent investment banking firm. KBW will also seek to expand its asset
management business and to develop additional sources of income.
KBW's principal executive offices are located at Two World Trade
Center, 85th Floor, New York, New York 10048; its telephone number is (212)
323-8300.
RISK FACTORS
No assurances can be given that the Company's objectives or strategies
will be achieved. An investment in the Common Stock involves a number of risks,
some of which, including market volatility, dependence on the financial services
industry, dependence on non-recurring transactions, lack of a prior public
market for the Common Stock, dependence on key personnel, and legal and
regulatory risks, could be substantial and are inherent in the business of the
Company. Prospective investors should carefully consider the factors discussed
in detail elsewhere in this Prospectus under "Risk Factors."
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<PAGE>
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THE OFFERING
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<S> <C>
Common Stock offered by the Company.................... shares
Common Stock offered by the Selling Stockholders....... shares (1)
Common Stock to be outstanding after the Offering...... shares (2)
Dividend policy........................................ Following the initial public offering,
the Company intends to pay quarterly
dividends of $ per share of Common
Stock beginning with the dividend payable
in the quarter of 1999. See
"Dividend Policy."
Use of Proceeds........................................ The Company will use the proceeds from
the Offering for general corporate
purposes. The Offering will create a
public market for the Common Stock, which
will facilitate the Company's future
access to the public equity markets and
enhance the ability of the Company to use
the Common Stock as consideration for
acquisitions. See "Use of Proceeds."
Proposed NYSE symbol................................... "KBW"
_______________________________
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(1) The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. The Selling Stockholders are two
directors of the Company. See "Principal and Selling
Stockholders--Selling Stockholders."
(2) Excludes an additional shares of Common Stock reserved for issuance
under the Company's stock option plans. The Company has previously
granted options to purchase shares of stock at a price equal to the
fair value of stock at the date of grant and expects to grant options
to purchase shares at an exercise price equal to the initial public
offering price at a time substantially contemporaneous with the closing
of the Offering. See "Management--The Non-Employee Director Stock and
Option Compensation Plan" and "Management--The 1999 Stock and Annual
Incentive Plan."
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<PAGE>
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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The information set forth below should be read in conjunction with
"Selected Historical Consolidated Financial and Other Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1994 1995 1996 1997 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF
INCOME DATA:
<S> <C> <C> <C> <C> <C>
Total revenues............................ $ 46,472 $ 64,357 $ 86,604 $ 143,019 $ 155,445
Total expenses............................ 32,112 40,499 55,112 82,758 100,198
Income before income tax expense.......... 14,360 23,858 31,492 60,261 55,247
Net income................................ 8,331 15,326 17,945 37,312 30,780
Basic earnings per share................. $ 9.73 $ 17.95 $ 21.64 $ 43.68 $ 34.44
Diluted earnings per share............... $ 9.73 $ 17.95 $ 21.64 $ 43.68 $ 34.44
OTHER FINANCIAL AND OPERATING
DATA (UNAUDITED):
Return on average equity.................. 13.7% 22.6% 21.1% 34.3% 19.8%
Compensation and benefits
expense as a percentage
of revenues............................ 47.9% 44.8% 47.1% 43.7% 49.2%
Non-compensation and benefits
expense as a percentage
of revenues............................ 21.2% 18.1% 16.5% 14.2% 15.2%
Income before income tax expense
as a percentage of revenues............ 30.9% 37.1% 36.3% 42.1% 35.5%
Net income as a
percentageof revenues.................. 17.9% 23.8% 20.7% 26.1% 19.8%
Number of employees at end of
period................................. 89 91 116 130 161
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<CAPTION>
AS OF DECEMBER 31, AS OF DECEMBER 31, 1998
------------------------------------------------------ ------------------------
1994 1995 1996 1997 1998 AS ADJUSTED(1)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF
FINANCIAL CONDITION DATA
(AT END OF PERIOD):
<S> <C> <C> <C> <C> <C> <C>
Total assets.................... $95,044 $141,044 $132,870 $199,627 $ 221,542 $
Stockholders' equity............ 65,457 78,610 95,975 135,116 172,046
Book value per common share
outstanding.................. $ 73.37 $ 92.65 $ 112.52 $ 155.86 $ 191.97 $
</TABLE>
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(1) As adjusted to reflect the sale of Common Stock offered by the Company
hereby and the application of the estimated net proceeds therefrom. See
"Use of Proceeds" and "Capitalization."
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<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements, which may be
deemed to include the Company's plans to identify emerging trends in the
financial services industry, expand the range of services offered to its clients
and institutional customers, increase the number of its customers and clients,
expand its activities in the financial services industry, retain key personnel
and attract new personnel to accommodate its growth, or otherwise implement its
strategy. Such statements include statements regarding the belief or current
expectation of the Company's management and are necessarily based on
management's current understanding of the markets and industries in which the
Company operates. That understanding could change or could prove to be
inconsistent with actual developments. Actual results could differ materially
from those anticipated in or implied by any forward-looking statements for the
reasons detailed in this "Risk Factors" portion of the Prospectus or elsewhere
in the Prospectus. Prospective purchasers of the Common Stock are cautioned that
any forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, many of which are beyond the Company's control.
In addition to the other information contained in this Prospectus, the following
risk factors should be considered in evaluating the Company and its business
before purchasing the shares of Common Stock offered hereby.
SECURITIES BUSINESS RISKS
The securities business is, by its nature, subject to numerous and
substantial risks, particularly in volatile or illiquid markets and in markets
influenced by sustained periods of low or negative economic growth, including
the risk of losses resulting from the underwriting or ownership of securities,
trading, principal activities, counterparty failure to meet commitments,
customer fraud, employee errors, misconduct and fraud (including unauthorized
transactions by traders), failures in connection with the processing of
securities transactions, litigation, the risks of reduced revenues in periods of
reduced demand for public offerings, reduced activity in the secondary markets
or reduced M&A activity and the risk of reduced spreads on the trading of
securities.
Potential Changes in Economic, Political or Market Conditions
Reductions in public offering, M&A and securities trading activities
due to any one or more changes in economic, political or market conditions could
cause the Company's revenues from corporate finance, investment banking,
principal investing and sales and trading activities to decline materially. The
amount and profitability of these activities are affected by many national and
international factors, including economic, political and market conditions; the
level and volatility of interest rates; legislative and regulatory changes;
currency values; inflation; flows of funds into and out of mutual and pension
funds; and availability of short-term and long-term funding and capital.
Market Volatility
The stock market has recently experienced significant volatility,
including some of the largest single-day point declines in history. Measured by
the percentage of trading days in which the Dow Jones Industrial Average changed
by 1% or more from the previous day's close, 1998 was the second most volatile
year in the past 20 years. The third quarter of 1998 was marked by a
particularly sharp decrease in prices for stocks in the banking industry. From
July 17, 1998 through October 9, 1998, the Keefe Bank Stock Index (an index of
publicly traded bank stocks developed by the Company) fell by 42.8%. This was
the third sharpest decrease since the establishment of this Index over 30 years
ago and occurred in 84 days, whereas the average time period for the four other
largest declines was 369 days. The Company's principal business activities,
including its broker-dealer operations, market making activity, institutional
sales and trading, principal investing, and its corporate finance and investment
banking advisory services, are subject to the significantly increased risks
present during volatile trading markets and fluctuations in the volume of market
activity. During the 84-day period described above, KBW experienced significant
unrealized losses in its investment accounts and substantial decreases in
year-to-date trading profits. By year end, the Keefe Bank Stock Index had
recovered and annual trading profits exceeded the pre-decline year-to-date
level. Any losses attributable to future periods of significant volatility or
sustained market declines could, however, have a material adverse effect on the
Company's business, financial condition and operating results.
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<PAGE>
Potential Slowdown or Reversal of Cash Inflow to Mutual Funds
In addition, because mutual funds purchase a significant portion of the
securities offered in public offerings and traded in the secondary markets, a
slowdown or reversal of cash inflows to mutual funds and other pooled investment
vehicles could lead to lower underwriting and brokerage revenues for the
Company.
DEPENDENCE ON THE FINANCIAL SERVICES INDUSTRY
The Company's revenues have historically been derived from principal
investments, proprietary trading, commissions for customer trades, M&A advisory
fees and capital markets underwritings and private placements. The Company's
revenues are likely to be lower during periods of declining prices or inactivity
in the market for securities of companies in the financial services industry and
periods of reduced M&A activity.
The Company's business is particularly dependent on the new-issue and
secondary markets for equity securities of companies in the financial services
industry (which broadly includes banks, bank holding companies, specialty
finance companies, savings and loan associations, savings banks, insurance
companies and securities companies). The Company has significant principal
investments in companies in the financial services industry and depends on
transactions in the financial services industry for its investment banking
revenues. Revenues from trading and investments for the Company's own account
(excluding market making transactions) represented 13.8%, 39.7%, 31.4%, 36.2%
and 11.9% of revenues in 1994, 1995, 1996 , 1997 and 1998, respectively. The
markets for securities of companies in the financial services industry have
historically experienced significant volatility not only in the number and size
of equity offerings, but also in the after-market trading volume and prices of
such securities. For example, during the period from July 17, 1998 through
October 9, 1998, the Keefe Bank Stock Index of 24 bank stocks decreased 42.8%.
During the past five years, the Keefe Bank Stock Index has declined by as much
as 21% and increased by as much as 15% in a single month. A decline in price
levels of equity securities of companies in the financial services industry
could adversely effect the Company's revenues.
A substantial portion of the Company's revenues is also attributable to
underwriting and M&A activities. Underwriting and M&A activities in the
Company's targeted industry can decline for a number of reasons. For example,
market conditions for securities of companies in the financial services industry
can be negatively affected by changes in interest rates and by economic events
in other parts of the world. Underwriting and M&A activity may also decrease
during periods of market uncertainty occasioned by concerns over inflation,
rising interest rates and related issues. Underwriting and sales and trading
activity can also be materially adversely affected for a company or industry
segment by disappointments in quarterly performance relative to analysts'
expectations or by changes in the long-term prospects of such company or
industry segment.
RISK OF SIGNIFICANT FLUCTUATIONS IN QUARTERLY AND ANNUAL OPERATING RESULTS AS A
RESULT OF DEPENDENCE ON NON-RECURRING TRANSACTIONS AND OTHER FACTORS
The Company's revenues and operating results are expected to fluctuate
significantly from quarter to quarter and from year to year because of a
combination of factors, the timing or occurrence of which cannot be predicted.
These factors include the significant amount of the Company's revenues generated
from non-recurring transactions, the number of capital markets and M&A
transactions completed by the Company's clients, access to public markets for,
and trading prices for securities of, companies in which the Company has
invested as a principal, the level of institutional brokerage transactions,
variations in expenditures for personnel, and expenses of establishing new
business units. The timing of the Company's recognition of revenues from a
significant M&A or underwriting transaction, which typically occurs upon
completion of the deal, can also materially affect the Company's quarterly or
annual operating results.
It is and will continue to be difficult to project the Company's
operating results for any quarterly or annual period. The Company believes it
has benefited in recent years from significant mergers and acquisitions activity
in, and strong markets for stocks of, financial service companies and from
increased trading activity of institutional investors in the Company's customer
base. For internal planning purposes, the Company has attempted to take a
conservative approach in formulating its current budget for 1999 and has not
assumed that the level of these activities will remain at 1998 levels or that
its operating results will equal or exceed prior periods. It is possible that
the Company's actual results in any future quarter or annual period will be
lower than in prior periods. The market
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<PAGE>
price of the Company's Common Stock may be adversely affected if its operating
results for any quarterly or annual period are below those of prevailing market
expectations.
The Company's cost structure currently is oriented to meet the level of
demand for investment banking and corporate finance transactions experienced
during 1997 and 1998, which has been at an historic high. As a result, despite
the variability of professional incentive compensation, the Company could
experience reduced profitability if demand for the Company's services declines
more quickly than the Company's ability to change its cost structure. Due to the
foregoing and other factors, there can be no assurance that the Company will be
able to sustain profitability on a quarterly or annual basis. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's business is dependent on the highly skilled, and often
highly specialized, individuals it employs. Retention of research, investment
banking, sales and trading, and management and administrative professionals is
particularly important to the Company's prospects. The Company's strategy is to
establish relationships with the Company's prospective corporate clients in
advance of any transaction and to maintain such relationships over the long term
by providing advisory services to corporate clients in equity, debt and M&A
transactions as well as financial strategies services. Such relationships in
many cases depend to a large extent on the individual employees who represent
the Company in its dealings with such clients.
Competition for Key Personnel
The level of competition for key personnel in the investment banking
industry is intense and has increased recently, particularly due to the efforts
of certain non-brokerage financial services companies, commercial banks and
other investment banks to target or increase their efforts in some of the same
industry sectors that the Company serves. Competition for employees with the
qualifications desired by the Company is likely to continue, especially with
respect to research and investment banking professionals with expertise in
industries in which underwriting or advisory activity is robust. While the
Company has historically experienced little turnover among its professional
employees, there can be no assurance that loss of key personnel due to such
competition or retirement or otherwise will not occur in the future. The loss of
a significant number of investment banking, research or sales and trading
professionals, particularly senior professionals with a broad range of contacts
in the financial services industry, could materially and adversely affect the
Company's business and operating results.
In connection with the Offering, the Company will enter into three-year
employment agreements with each of its Chief Executive Officer, President and
the co-heads of its corporate finance group. Among other provisions, these
agreements contain certain confidentiality and non-competition provisions. See
"Management--Employment Agreements." The Company does not have employment
agreements with any other members of senior management. The Company historically
sought to retain its employees with incentives, such as bonus plans and the
ability to buy common stock of the Company. In addition, the Company has
recently increased the compensation payable to employees as a percentage of
revenues to a level more in line with industry averages. After the Offering, the
Company will use stock option grants and other equity-based incentives tied to
market performance to promote employee retention and loyalty. These incentives,
however, may be insufficient in light of the increasing competition for
experienced professionals in the securities industry, particularly if the value
of the Common Stock declines or fails to appreciate sufficiently to be a
competitive source of a portion of professional compensation. See
"Business--Employees" and "Management."
Potential Increase in Attrition
In the past, the Company sold common stock to many of its employees,
subject to an agreement among the Company's stockholders, as amended (the
"Former Stockholders' Agreement"), that required stockholders leaving the
Company's employ to sell their stock to the Company at book value. Effective
upon consummation of the Offering, employee stockholders will no longer be
subject to these restrictions in the Former Stockholders' Agreement when leaving
the Company and will be able to sell their Common Stock in the public market,
subject, in the case of employees at or above the position of Senior Vice
President, to certain restrictions to be included in a new stockholders
agreement (the "Stockholders' Agreement") that will become effective upon
consummation of the Offering. Under the Stockholders' Agreement, employees with
a position at or above Senior Vice President (holding in the aggregate
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approximately % of the Common Stock upon consummation of the Offering) will be
subject to certain restrictions on the disposition of their Common Stock during
the three-year period following the Offering. In addition, certain employees of
the Company who are stockholders of the Company at the time of the Offering will
be subject to certain lock-up agreements entered into at the request of the
Underwriters. Subject to the limitations of the Stockholders' Agreement and the
lock-up agreements, employees may be able to realize substantial value following
the Offering. This change could result in a higher level of attrition, including
due to retirement, of senior employees than the Company has historically
experienced. See "Certain Transactions Occurring Prior to the Offering--New and
Former Stockholders' Agreements."
Potential Increased Need for New Employees
The Company expects further growth in the number of its personnel,
particularly if current markets remain favorable to investment banking
transactions. Competition for recruiting and retaining employees may increase
the Company's compensation costs. There can be no assurance that the Company
will be able to recruit a sufficient number of new employees with the desired
qualifications in a timely manner. The failure to recruit and retain employees
could materially and adversely affect the Company's future operating results.
EXPANSION OF INDUSTRY FOCUS THROUGH HIRING INDIVIDUALS OR ACQUIRING INDUSTRY
TEAMS
The Company is expanding its focus in the financial services industry
beyond its historic focus on the commercial banking and thrift sectors of that
industry to include related sectors such as insurance and securities. The
Company plans to continue such expansion through the hiring of individuals with
expertise in such industries or the acquisition of an industry team in
combination with internal development at KBW. There can be no assurance that the
Company will be able to identify appropriate individuals or appropriate
acquisition candidates, negotiate acceptable terms of employment or acquisition,
obtain financing which may be needed to effect such acquisitions or integrate
such individuals or acquisitions successfully into the Company's operations.
Additionally, there can be no assurance that any such acquisitions will
contribute to the profitability of the Company or that expansion of the
Company's industry focus will be successful or profitable.
INDUSTRY COMPETITION
Competitors
The Company is engaged in the highly competitive securities brokerage
and financial services businesses. It competes directly with large Wall Street
securities firms, regional securities firms and securities subsidiaries of major
commercial bank holding companies as well as companies, such as Instinet(R),
that provide electronic communications networks ("ECNs") that permit subscribers
to bypass brokers and trade directly among themselves. The Company's industry
focus also subjects it to direct competition from a number of specialty
securities firms and smaller investment banking boutiques that specialize in
providing services to the financial services industry. Competition from
commercial banks has increased because of recent acquisitions of securities
firms by commercial banks, as well as because of internal expansion by
commercial banks into the securities business. In addition, the Company expects
competition from domestic and international banks to increase as a result of
recent and anticipated legislative and regulatory initiatives in the United
States to reduce or eliminate certain restrictions on commercial banks.
Certain Advantages of Competitors
Many of the Company's competitors have greater capital, personnel and
financial resources than the Company. Larger competitors, for example, are able
to offer their customers access to international markets and other products and
services not offered by the Company, which may provide such firms with
competitive advantages over the Company. Industry developments, such as the
emergence of ECNs, may materially reduce the Company's revenues from sales and
trading.
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Trend of Reduced Spreads
In recent years, competitive pressures have reduced market making
spreads and underwriting and agency spreads for corporate finance transactions.
This trend is expected to continue. Such reductions could adversely affect the
Company's operating results. See "Business--Competition."
MARKET, CREDIT AND LIQUIDITY RISKS ASSOCIATED WITH CERTAIN COMPANY ACTIVITIES
Risk Resulting from the Purchase, Sale or Short Sale of Securities as
Principal
The Company's market making, principal trading, principal investing and
underwriting activities often involve the purchase, sale or short sale of
securities as principal. Such activities subject the Company's capital to
significant risks from markets that may be characterized by relative illiquidity
or may be particularly susceptible to rapid fluctuations in liquidity. Such
market conditions could limit the ability of the Company to resell securities
purchased or to purchase securities sold short. These activities subject the
Company's capital to significant risks, including market, credit, counterparty
and liquidity risks. Market risk relates to the risk of fluctuating values based
on market prices without any action on the part of the Company. The Company's
primary credit risk (aside from the credit risk associated with holding
corporate debt securities) is settlement or counterparty risk, which relates to
whether a counterparty on a derivative or other transaction will fulfill its
contractual obligations, such as delivery of securities or payment of funds. The
Company has not extended margin loans to customers other than employees,
although it has a limited number of customer accounts authorized for such
activity. Liquidity risk relates to the Company's inability to liquidate assets
or redirect the deployment of assets contained in illiquid investments. In
addition, the Company's market and liquidity risks and risks associated with
asset revaluation are increased because these risks for the Company are
concentrated on a single industry and thus subject the Company to increased
risks if market conditions in the financial services industry deteriorate.
Increased Risk Due to Concentrations in Investments
The Company's market making, principal trading, principal investing and
underwriting activities from time to time result in the Company holding large
positions in securities of a single issuer or issuers engaged in a specific
sector of the financial services industry. Such concentrations increase the
Company's exposure to specific credit and market risks than would be the case if
the Company's business involved a broader range of industries or larger number
of companies. In addition, participation in underwritings involves both legal
and economic risks. The trend, due to competitive and other reasons, toward
larger commitments on the part of lead underwriters means that, from time to
time, an underwriter (including a co-manager) may retain significant position
concentrations in individual securities. An underwriter may incur losses if it
is unable to resell securities it is committed to purchase or if it is forced to
sell such securities at less than their purchase price. See "Business--Risk
Management and Compliance."
POTENTIAL CONFLICTS OF INTEREST
Investments by the Company's Directors, Officers, Employees and its
Employee Profit Sharing Retirement Plan
The Company's executive officers, directors and employees and its
employee profit sharing retirement plan may from time to time invest in or
receive a profit interest in private or public companies in which the Company,
or one of its affiliates, is an investor or for which the Company provides
investment banking services, publishes research or acts as a market maker. In
addition, the Company , through KBW Asset Management, has organized hedge funds
or similar investment vehicles in which employees of the Company are or may
become investors and the Company expects to continue to do so in the future.
There is a risk that, as a result of such investment or profit interest, a
director, officer or employee may take actions that conflict with the best
interests of the Company.
Limitations on Investment Opportunities for the Company as Principal
The Company has a tax-qualified employee profit sharing retirement plan
which has been managed by certain employees and which has invested in securities
in which the Company and its customers and employees may also invest.
Substantially all Company employees who have been employed by the Company for at
least three months are participants in the plan. Historically, the plan has
invested in publicly traded equity and fixed income securities of financial
services
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companies, and the Company expects that this policy will continue. After the
Offering, the plan will continue to be managed by Company employees. Some or all
of these employees are expected to be participants in the plan, and may also be
holders of shares of Common Stock. It is the Company's intention, after
satisfaction of customer interest in investments, to continue to provide
suitable investment opportunities to the plan consistent with the management
policies of the plan trustees. Accordingly, from time to time, there may be
cases in which an investment opportunity is made available to the employee
profit sharing retirement plan which is not also available to the Company (or in
which availability is limited) as principal.
The Company has in place compliance procedures and practices designed
to ensure that inside information is not used for making investment decisions on
behalf of the Company. These procedures and practices may limit the freedom of
such officials to make potentially profitable investments for the Company. In
addition, certain rules, such as best execution rules, and fiduciary obligations
to customers and managed accounts, may cause the Company to forgo certain
investment opportunities in favor of customer accounts.
Conflict of Interest Arising from Participation of the Company's
Subsidiary in the Underwriting
The Company's broker-dealer subsidiary is one of the Underwriters for
the Offering. Accordingly, underwriting discounts and commissions received by
this subsidiary will benefit the Company. Pursuant to Rule 2720 ("Rule 2720") of
the Conduct Rules of the National Association of Securities Dealers, Inc. (the
"NASD"), the initial public offering price can be no higher than that
recommended by a "qualified independent underwriter" meeting certain standards.
In accordance with this requirement, Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") has assumed the responsibility of acting as qualified
independent underwriter and will recommend a price in compliance with the
requirements of Rule 2720. See "Underwriting."
DEPENDENCE ON SYSTEMS AND THIRD PARTIES
The Company's business is highly dependent on communications and
information systems, including certain systems provided by its clearing brokers.
Any failure or interruption of the Company's systems, systems of the Company's
clearing brokers or third-party trading systems could cause delays or other
problems in the Company's securities trading activities, which could have a
material adverse effect on the Company's operating results. There can be no
assurance that the Company or its clearing brokers will not suffer any systems
failure or interruption, including those caused by an earthquake, fire, other
natural disaster, power or telecommunications failure, act of God, act of war or
otherwise, or that the Company's or its clearing brokers' back-up procedures and
capabilities in the event of any such failure or interruption will be adequate.
The rapidly evolving technological developments in the securities industry may
also require further capital investment by the Company in new systems and
technology.
POSSIBLE YEAR 2000 COSTS RELATING TO SYSTEMS AND THIRD PARTIES
Failures and interruptions of the Company's systems, systems of the
Company's clearing brokers or third-party trading systems may result from the
inability of certain computing systems (including those of the Company's
clearing brokers and other third-party vendors) to recognize the year 2000 (the
"Year 2000" issue). The Company believes it will not incur substantial expenses
in connection with its own systems in addressing Year 2000 issues. The Company
has made inquiries of its significant third-party service providers relating to
their Year 2000 preparedness and based upon responses to such inquiries, the
Company is not currently aware of any significant costs which would be incurred
as a result of charges by third-party service providers relating to Year 2000
costs. However, any costs which the Company may bear related to Year 2000 issues
of third-party service providers are not sufficiently certain to estimate at
this time and there can be no assurance that such costs will not be substantial.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000."
LITIGATION AND POTENTIAL SECURITIES LAWS LIABILITY
Many aspects of the Company's business involve substantial risks of
liability. An underwriter is exposed to substantial liability under federal and
state securities laws, other federal and state laws and court decisions,
including decisions with respect to underwriters' liability and limitations on
indemnification of underwriters by issuers. For
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example, a firm that acts as an underwriter may be held liable for material
misstatements or omissions of fact in a prospectus used in connection with the
securities being offered. In recent years there has been an increasing incidence
of litigation involving the securities industry, including class actions that
seek substantial damages. The Company is also subject to the risk of litigation
from its other business activities, including litigation that may be without
merit. Significant legal expenses could be incurred in connection with the
defense of such litigation, which could divert management's efforts and
attention away from the Company's business operations. An adverse resolution of
any future lawsuits against the Company could materially adversely affect the
Company's business, operating results and financial condition. In addition, both
the regulatory and litigation environments in which the Company operates are
uncertain and subject to extensive change, and the Company cannot predict the
impact such changes could have on its business, operating results and financial
condition. As of the date of this Prospectus, the Company is not a named
defendant in any class action or other litigation that the Company believes is
reasonably likely to have a material adverse effect on the Company's results of
operations or financial condition, and it has not previously experienced any
material losses arising out of litigation or other dispute resolution
proceedings. See "Business--Legal Proceedings" and "Business--Regulation."
DEPENDENCE UPON AVAILABILITY OF CAPITAL AND FUNDING
The Company's business is dependent upon the availability of adequate
funding and regulatory capital. Historically, the Company has satisfied these
needs from internally generated funds and, occasionally, loans from third
parties. While the net proceeds to the Company from the Offering will be
available for general corporate purposes, there can be no assurance that any, or
sufficient, funding or regulatory capital will continue to be available to the
Company in the future on terms that are acceptable to it. See
"Business--Regulation" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
RISKS RELATING TO REGULATION
The securities business is subject to extensive regulation under
federal and state laws. The Company's broker-dealer subsidiary is subject to
regulations covering all aspects of the securities business, including sales
methods, trade practices among broker-dealers, use and safekeeping of customers'
funds and securities, capital structure, recordkeeping, and conduct of
directors, officers and employees. KBW Asset Management is a registered
investment adviser under the Investment Advisers Act of 1940, as amended (the
"Investment Advisers Act"), and is subject to regulation as an investment
adviser, including with respect to compensation arrangements.
Net Capital Requirements
The Securities and Exchange Commission (the "SEC"), the NYSE and
various other securities exchanges and other regulatory bodies have rules with
respect to net capital (as defined herein) requirements relating to the
Company's broker-dealer subsidiary ("net capital rules"). The net capital rules
are designed to ensure that broker-dealers maintain adequate regulatory capital
in relation to their liabilities and the size of their customer business.
Failure to maintain the required net capital may subject a firm to suspension or
revocation of its registration by the SEC and suspension or expulsion by the
NYSE, the NASD and other regulatory bodies, and ultimately may require the
firm's liquidation. Compliance with the net capital rules may limit certain
operations of the Company, even in circumstances where its broker-dealer
subsidiary has more than the minimum amount of required capital, which, in turn,
could limit the ability of the Company to pay dividends, implement its
strategies, pay interest on and repay principal of any outstanding debt and
redeem or repurchase shares of outstanding capital stock. A change in the net
capital rules, the imposition of new rules affecting net capital requirements,
or a significant operating loss or charge against net capital could have similar
adverse effects. Underwriting commitments require a charge against net capital
and, accordingly, Keefe, Bruyette & Woods, Inc.'s ability to make underwriting
commitments may be limited by the requirement that it must at all times be in
compliance with the applicable net capital rules. See "Business--Net Capital
Requirements."
Compliance
Compliance with many of the regulations applicable to the Company
involves a number of risks, particularly in areas where applicable regulations
may be subject to interpretation. In the event of non-compliance with an
applicable regulation, governmental regulators, the NYSE and the NASD may
institute administrative or judicial proceedings that
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may result in censure, fine, civil penalties (including treble damages in the
case of insider trading violations), issuance of cease-and-desist orders,
deregistration or suspension of the non-compliant broker-dealer or investment
adviser, suspension or disqualification of the broker-dealer's officers or
employees or other adverse consequences. The imposition of any such penalties or
orders on the Company could have a material adverse effect on the Company's
business, operating results and financial condition. In light of the Company's
expanded business activities and the continued changes and expansion in the
scope of regulatory requirements, KBW has undertaken an extensive review of its
compliance policies and procedures. Currently, KBW's Chief Financial Officer
also acts as its senior compliance officer. As a result of its recent compliance
review, KBW expects to separate these roles and is seeking to hire a senior
full-time compliance officer who would initially report directly to the Chief
Executive Officer and the Board of Directors of KBW (the "KBW Board").
Potential Changes in the Regulatory Environment
The regulatory environment in which the Company operates is subject to
change. The Company may be adversely affected as a result of new or revised
requirements imposed by the SEC, other United States or foreign governmental
regulatory authorities, the NYSE or the NASD. The Company also may be adversely
affected by changes in the interpretation or enforcement of existing laws and
rules by these governmental authorities, the NYSE and the NASD. The Company
cannot predict the impact, if any, that such new requirements or enforcement
practices could have on the Company's business, operating results and financial
condition.
The Company is also subject to the effects of legislative and
regulatory developments in the banking industry and other sectors of the
financial services industry, which are also highly regulated by various federal
and state regulatory agencies. Adverse developments in these regulatory
environments could negatively impact the Company's business because of, for
example, decreased underwriting activity or decreased demand for the Company's
sales and trading, corporate finance and M&A advisory services.
Additional regulation, changes in existing laws and rules, or changes
in interpretations or enforcement of existing laws and rules often affect
directly the method of operation and profitability of securities firms. The
Company cannot predict what effect any such changes might have. Furthermore, the
Company's businesses may be materially affected not only by regulations
applicable to it as a financial market intermediary, but also by regulations of
general application. For example, the volume of the Company's underwriting, M&A
advisory and principal investment businesses during a particular time 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 business and financing activity in each of the industries on which the
Company focuses can be affected not only by such legislation or regulations of
general applicability, but also by industry-specific legislation or regulations.
See "Business--Regulation."
CORPORATE GOVERNANCE CONTROLLED BY INSIDERS
After the Offering, employee members of the KBW Board will own
approximately % of the outstanding voting stock of KBW and KBW employees will
own at least % of such voting stock. Although the Stockholders' Agreement does
not contain any provisions regarding the voting of Common Stock owned by any KBW
employee, such concentration of stock ownership will effectively allow members
of the KBW Board to control all matters submitted for the vote or consent of
Company stockholders, including election of directors, as well as to control
day-to-day management of the Company. This concentration of ownership and voting
power may also have the effect of accelerating, delaying or preventing a change
in control of the Company. See "Management."
NEED FOR INCREASED INVESTMENT AND ADDITIONAL COMPLIANCE AS A RESULT OF GROWTH
Over the past several years, the Company has experienced significant
growth in its business activities. 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. As the Company has grown and continues to grow, the need for additional
compliance, documentation and risk management procedures and internal controls
has increased throughout
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the Company. To help address these needs, KBW recently conducted a comprehensive
review of its compliance policies and procedures. KBW's Chief Financial Officer
also serves as its current senior compliance officer. As a result of its review
of compliance policies and procedures, KBW expects to separate these roles and
is seeking to hire a full time senior compliance officer who would initially
report directly to the Chief Executive Officer and the KBW Board as well as to
implement further changes in its compliance and risk management policies and
procedures. However, there can be no assurance that the Company's risk
management procedures and internal controls will prevent losses or regulatory
violations from occurring. Implementation of these changes will require the
incurrence of additional expenses, including the hiring of additional personnel
and the adoption of new compliance procedures and controls. There can be no
assurance that the implementation of such additional policies and procedures
will prevent the Company from experiencing a material loss or other liability,
including regulatory sanction. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Risk Management
and Compliance."
NO PRIOR OPERATING HISTORY AS A PUBLIC COMPANY
For its entire history, KBW has operated as a closely-held,
employee-owned company. The Company has no history as a company with public
reporting obligations, and operating the Company with such obligations will
place substantial demands on management and the Company's operating systems.
These increased demands may require further expenditures to hire management
personnel and to expand the Company's operating systems.
ABSENCE OF PRIOR MARKET FOR COMMON STOCK
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market will develop
or, if developed, will be sustained following the Offering. The initial public
offering price of the Common Stock will be determined through negotiations among
the Company, the Selling Stockholders and the Underwriters, based upon several
factors. See "--Potential Conflicts of Interest." For a discussion of the
factors to be taken into account in determining the initial public offering
price, see "Underwriting."
FLUCTUATIONS OF MARKET PRICE
Certain factors, such as sales of the Common Stock into the market by
existing stockholders, fluctuations in operating results of the Company or its
competitors, market conditions for similar stocks, and market conditions
generally for other companies in the investment banking industry or in the
financial services industry could cause the market price of the Common Stock to
fluctuate substantially. In addition, the stock market has experienced
significant price and volume fluctuations that have particularly affected the
market prices of equity securities and that have often been unrelated to the
operating performance of the issuers of such securities. Accordingly, the market
price of the Common Stock may decline even if the Company's operating results or
prospects have not changed.
POTENTIAL DECREASES IN THE MARKET PRICE OF COMMON STOCK RESULTING FROM SHARES
ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market, whether by purchasers in the Offering or other stockholders of the
Company, could adversely affect the prevailing market price of the Common Stock.
There will be shares of Common Stock outstanding immediately after
completion of the Offering, of which will be freely tradeable in the
public markets, subject, in certain cases, to the volume and other limitations
set forth in Rule 144 promulgated under the Securities Act. shares of
Common Stock outstanding immediately following the Offering will be subject to
lock-up agreements being entered into at the request of the Underwriters, unless
released by DLJ. The lock-up agreements generally prohibit the disposition of
any such shares until 180 days after the date of this Prospectus. Any shares
subject to the lock-up agreements may be released by DLJ at any time with or
without notice to the public. In addition, the shares held by certain
officers and employees of the Company are subject to sale restrictions set forth
in the Stockholders' Agreement, which limit the amount of Common Stock that the
officer or employee may sell during each of the first three years after the date
of this Prospectus. See "Certain Transactions Occurring Prior to the Offering
- -- New and Former Stockholders' Agreements," "Shares Eligible for Future Sale"
and "Underwriting."
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IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in the Offering will experience immediate
dilution in net tangible book value of $ per share, based on an assumed initial
public offering price of $ per share (the mid-point of the range indicated on
the cover page of this Prospectus). See "Dilution."
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS
The Certificate of Incorporation of KBW (the "KBW Certificate") and the
Bylaws of KBW (the "KBW Bylaws"), as well as Delaware corporate law, contain
certain provisions that could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. These provisions could limit the price that
certain investors might be willing to pay in the future for shares of Common
Stock. Upon completion of the Offering, the KBW Board will have the authority to
issue up to 10,000,000 shares of preferred stock, par value $0.01 per share, of
KBW ("Preferred Stock"), and to determine the price, preferences and privileges
of those shares without any further vote or action by the stockholders of the
Company. The rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of the holders of any class or series of
Preferred Stock that may be issued in the future. The issuance of shares of
Preferred Stock, while potentially providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. After giving effect to the Offering,
voting control of the Company will continue to be closely held by KBW employees.
See "--Corporate Governance Controlled by Insiders."
Other provisions of the Company's organizational documents and Delaware
corporate law impose various procedural and other requirements that could make
it more difficult for stockholders to effect certain corporate actions. In
addition, the Company is subject to the provisions of Section 203 of the
Delaware General Corporation Law (the "DGCL"), which prohibits the Company from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. These provisions could make more difficult or discourage a
takeover of KBW or the acquisition of control of KBW by a significant
stockholder and, thus, the removal of incumbent management. See "Description of
Capital Stock" and "Certain Anti-takeover Provisions."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered by the Company hereby are estimated to be $ , assuming
an initial public offering price of $ per share (the mid-point of the range
indicated on the cover page of this Prospectus) and after deducting underwriting
discounts and commissions and estimated offering expenses. The Company will use
the net proceeds from the Offering for general corporate purposes. The Offering
will create a public market for the Common Stock, which will facilitate the
Company's future access to the public equity markets and enhance the ability of
the Company to use its Common Stock as consideration for acquisitions. The
Company is not currently in negotiations regarding any acquisitions. The Company
will not receive any proceeds from the sale of shares of Common Stock by the
Selling Stockholders.
DIVIDEND POLICY
Following consummation of the Offering, the KBW Board intends to pay a
quarterly dividend of $ per share of Common Stock beginning in the
quarter of 1999. The timing and amount of future dividends will be determined by
the KBW Board and will depend, among other factors, upon the Company's earnings,
financial condition and cash requirements at the time such payment is
considered. Furthermore, the net capital rules impose limitations on the payment
of dividends by Keefe, Bruyette & Woods, Inc. that may limit the amount
available to be paid as dividends by the Company. See Note 4 to the Consolidated
Financial Statements included elsewhere in this Prospectus.
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CAPITALIZATION
The following table sets forth the Company's capitalization as of
December 31, 1998, on an actual basis and as adjusted to give effect to the
Merger (see "Certain Transactions Occurring Prior to the Offering") and the sale
of the shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $ per share (the mid-point of the range
indicated on the cover page of this Prospectus), after deducting underwriting
discounts and commissions and estimated offering expenses. 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,
including the Notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
--------------------------------
(IN THOUSANDS)
ACTUAL AS ADJUSTED
<S> <C> <C>
Subordinated notes...................................................... $1,679 $1,679
Stockholders' equity(1):
Preferred Stock, $12.50 par value; 5,000 shares of voting preferred
stock and 5,000 shares of non-voting preferred stock authorized;
$0.01 par value, 10,000,000 shares authorized, as adjusted; no
shares issued and outstanding..................................... -- --
Common Stock, $0.01 par value; 5,000,000 shares authorized;
3,754,335 actual shares issued; 896,205 actual shares issued and
outstanding; $0.01 par value, 140,000,000 shares authorized, as
adjusted; shares issued and outstanding, as adjusted.... 38
Additional paid-in capital......................................... 13,167
Retained earnings................................................... 189,444
Common stock in treasury; 2,858,130 actual shares held in treasury; -------
0 shares held in treasury, as adjusted............................ (26,411)
Notes receivable from stockholders................................ (4,192) (4,192)
Total stockholders' equity..................................... 172,046
--------- -------
Total capitalization.................................. $173,725 $
========= =======
</TABLE>
(1) Reflects the number of shares authorized, issued and outstanding of Keefe,
Bruyette & Woods, Inc. before giving effect to the Merger. Upon consummation of
the Merger, all shares of treasury stock will be retired, with the excess of the
price paid for the treasury stock over par to be charged to retained earnings.
-18-
<PAGE>
DILUTION
The net tangible book value of the Common Stock of the Company at
December 31, 1998 was $170.7 million or $190.49 per share. After giving effect
to the sale of the shares of Common Stock by the Company pursuant to the
Offering at an assumed initial public offering price of $ per share and after
deducting underwriting discounts and commissions and estimated expenses of the
Offering, the Company's adjusted pro forma net tangible book value at December
31, 1998 would have been $ million or $ per share.
Net tangible book value per share at December 31, 1998 has been
determined by dividing the net tangible book value of the Company (total
tangible assets less total liabilities) by the number of shares of Common Stock
outstanding at December 31, 1998. The Offering will result in an increase in pro
forma net tangible book value per share of $ to existing stockholders and a
dilution of $ per share to new investors who purchase shares of Common Stock
in the Offering. Dilution is determined by subtracting pro forma net tangible
book value per share of Common Stock from the assumed initial public offering
price of $ per share. The following table illustrates the dilution per share
of Common Stock.
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share.................. $
Net tangible book value per share at December 31, 1998........... $ 190.49
Increase attributable to sale of shares of Common Stock in the
Offering.......................................................
Pro forma net tangible book value per share of Common Stock
after the Offering............................................. -----
Dilution to persons who purchase shares of Common Stock in the
Offering....................................................... $
=====
</TABLE>
The following table summarizes: (i) the number of shares of Common
Stock to be sold by the Company pursuant to the Offering; (ii) the number of
shares of Common Stock held by existing stockholders before the Offering; and
(iii) the cash consideration paid therefor:
<TABLE>
<CAPTION>
TOTAL CASH CONSIDERATION
----------------------------
SHARES AVERAGE
------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
<S> <C> <C> <C> <C>
Common Stock to be sold by the % $ % $
Company in the Offering.........
Common Stock owned by existing
stockholders (1)................ ------ ------- -------- ------ ------
Total............................. 100.0% $ 100.0%
======= ======= ======== ======
</TABLE>
(1) Does not reflect the issuance prior to the Offering of nonvested employee
options to acquire shares of Common Stock at prices below the Offering price.
-19-
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial information should be
read in conjunction with the Company's Consolidated Financial Statements and the
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained elsewhere in this Prospectus. The selected
consolidated statement of income data for 1996 , 1997 and 1998 and the selected
consolidated statement of financial condition data as of December 31, 1997 and
1998 are derived from the Company's Consolidated Financial Statements audited by
KPMG LLP which are included elsewhere herein. The historical results are not
necessarily indicative of the results of operations to be expected in the
future. The selected consolidated statement of financial condition data as of
December 31, 1994 , 1995 and 1996 and the selected consolidated statement of
income data for 1994 and 1995 are derived from the Company's Consolidated
Financial Statements audited by KPMG LLP, which are not included herein.
-20-
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1994 1995 1996 1997 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>\
CONSOLIDATED STATEMENT OF
INCOME DATA:
REVENUES(2)
Principal transactions, net...... $15,251 $ 37,820 $ 36,272 $ 47,076 $ 30,198
Commissions...................... 7,484 9,381 11,339 15,097 21,505
Investment banking............... 20,770 12,772 28,706 55,176 91,851
Net gain (loss) on investments... (145) 1,196 5,987 18,419 2,694
Interest and dividend income..... 2,347 2,446 2,933 5,911 7,574
Other............................ 765 742 1,367 1,340 1,623
------- -------- -------- -------- --------
Total revenues............... 46,472 64,357 86,604 143,019 155,445
EXPENSES
Compensation and benefits........ 22,263 28,862 40,813 62,508 76,512
Occupancy and equipment.......... 2,368 2,629 2,608 2,952 4,499
Communications................... 1,452 1,653 2,058 2,310 2,438
Brokerage and clearance.......... 2,179 3,141 3,876 4,683 5,292
Other............................ 3,850 4,214 5,757 10,305 11,457
------- -------- -------- -------- --------
Total expenses............... 32,112 40,499 55,112 82,758 100,198
------- -------- -------- -------- --------
Income before income tax expense.... 14,360 23,858 31,492 60,261 55,247
Income tax expense.................. 6,029 8,532 13,547 22,949 24,467
------- -------- -------- -------- --------
Net income.......................... $8,331 $ 15,326 $ 17,945 $ 37,312 $ 30,780
======= ======== ======== ======== ========
Basic earnings per share............ $9.73 $17.95 $21.64 $43.68 $34.44
Diluted earnings per share.......... $9.73 $17.95 $21.64 $43.68 $34.44
OTHER FINANCIAL AND
OPERATING DATA (UNAUDITED):
Return on average equity.......... 13.7% 22.6% 21.1% 34.3% 19.8%
Compensation and benefits
expense as a percentage
of revenues...................... 47.9% 44.8% 47.1% 43.7% 49.2%
Non-compensation and benefits
expense as a percentage
of revenues...................... 21.2% 18.1% 16.5% 14.2% 15.2%
Income before income tax expense
as a percentage of revenues...... 30.9% 37.1% 36.3 % 42.1% 35.5%
Net income as a percentage of
revenues........................ 17.9% 23.8% 20.7% 26.1% 19.8%
Number of employees at end of
period........................... 89 91 116 130 161
CONSOLIDATED STATEMENT OF
FINANCIAL CONDITION DATA:
(AT END OF PERIOD):
Total assets........................ $95,044 $141,044 $132,870 $199,627 $ 221,542
Stockholders' equity................ 65,457 78,610 95,975 135,116 172,046
Book value per common share
outstanding (unaudited).......... $73.37 $92.65 $112.52 $155.86 $191.97
</TABLE>
- -------------------
(1) See Note 1 to the Consolidated Financial Statements for an explanation of
the basis of presentation.
(2) For a description of the items comprising each line item under Revenues, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
-21-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Historical Consolidated Financial Data" and the Company's Consolidated Financial
Statements and Notes thereto contained elsewhere in this Prospectus. In addition
to historical financial information, the following discussion contains
forward-looking statements that involve risks and uncertainties. The Company's
actual future results could differ significantly from those anticipated in or
implied by these forward looking statements for the reasons detailed in "Risk
Factors" and elsewhere in this Prospectus.
BUSINESS ENVIRONMENT
The Company's historical results of operations have been dependent on a
number of market factors, including general securities market conditions and
specific conditions affecting the market for equity and debt securities of
financial services companies. General securities market conditions are affected
by economic trends, changes in prevailing interest rates, trends in commercial
and consumer credit, the flow of investor funds into and out of the markets and
numerous other conditions. Declining interest rates and an improving economic
environment contributed to a significant increase in activity in the capital
markets beginning in 1995, which continued throughout 1996, 1997 and the first
half of 1998. During this period, the financial services industry generally
benefited from these conditions, which, together with improved operating
performance and changes in the regulatory environment, have contributed to
increases in the trading volume and valuation of the securities of financial
services companies, increased financing activity by such companies, and
significant M&A activity. The third quarter of 1998 was marked by a particularly
sharp decrease in prices for stocks in the banking industry. From July 17, 1998
through October 9, 1998, the Keefe Bank Stock Index fell by 42.8%. This was the
third sharpest decrease since the establishment of this Index over 30 years ago
and occurred in 84 days, whereas the average time period for the four other
largest declines was 369 days. During this 84-day period, KBW experienced
significant unrealized losses in its investment accounts and substantial
decreases in year-to-date trading profits. These were offset to some degree by
improved commissions attributable to increases in the volume of trading for
customers. By year end, the Keefe Bank Stock Index and the market in general had
rebounded to record high levels and KBW's annual trading profits exceeded the
pre-decline year-to-date level. The Company's annual and quarterly financial
results have been and may continue to be subject to fluctuations due to changes
in these conditions and other factors beyond the Company's control. As a result,
past operating results are not necessarily indicative of results for future
periods.
COMPONENTS OF REVENUES AND EXPENSES
Revenues
Net revenues from principal transactions include realized and
unrealized gains and losses from market making activities in OTC equity
securities, proprietary trading (including arbitrage) in listed and OTC equity
securities, and trading in fixed income securities. Net revenues from principal
transactions also include revenues from the Company's Financial Strategies Team
that provides financial strategic planning services (including riskless
principal transactions with customers in fixed-income securities and arranging
repurchase agreements for customers). Commissions consist primarily of
commissions paid to KBW by customers for brokerage transactions in listed
securities. Investment banking revenues consist of: (i) fees earned as adviser
in mergers and acquisitions and for rendering related fairness opinions and for
other corporate strategic advice; (ii) management fees, underwriting fees,
selling concessions and agency placement fees earned through the Company's
participation in public offerings and private placements of debt and equity
securities; (iii) fees earned by the Webb Division (see "Business--Investment
Banking") as adviser to thrifts converting from a mutual to a stock form of
ownership; and (iv) fees earned from other advisory services, such as valuations
and arrangements for bulk sales or purchases of assets. Net gains or losses on
investments arise from the Company's investments in privately placed and
publicly traded securities of financial services companies. Such investments are
generally held for longer than six months and in some instances have been held
for several years. Changes in the market or fair values of investments are
recognized as unrealized gains or losses. Realized gains or losses are
recognized upon the sale of investments as the difference between sale proceeds
and the cost basis of the investments sold. Realized gains or losses are offset
by the reversal of any previously recognized unrealized gains or losses
associated with the investments sold. Interest and dividend income primarily
consists of interest and dividends on trading and investment securities and net
interest on balances maintained in proprietary accounts at clearing firms. Other
revenues include asset management fees, increases
-22-
<PAGE>
in the cash value of life insurance policies held on certain current and former
officers of the Company and miscellaneous other income.
The Company's sources of income have been subject to fluctuation based
on market changes and changes in the industry sectors on which KBW focuses,
particularly the banking industry. In 1996, the Company expanded its coverage to
include specialty finance companies. In 1998, the Company expanded its coverage
to include insurance companies and securities firms. With the objective of
increasing sources of recurring income, KBW added asset management services to
its activities in 1996, and established its Financial Strategies Team in 1997 to
provide financial strategic planning services for small and mid- size banks and
recently converted thrifts. See "Business--Business Strategy."
Expenses
Compensation and benefits expense has historically been the largest
component of KBW's expenses. Compensation and benefits expense includes
salaries, bonuses, profit sharing contributions and other employee costs. Over
the past five years, compensation and benefits expense has averaged 73.3% of
total expenses and 46.5% of revenues. 62.6% of compensation and benefits expense
over such period has been performance related. Occupancy and equipment expense
consists primarily of lease payments and depreciation charges for leasehold
improvements , furniture, and data processing and general office equipment and ,
in 1998, architects' and consultants' fees associated with the design of a new
headquarters facility. Communications expense consists of charges for voice and
data communications, and charges by third-party providers for market data and
electronic execution of transactions. Brokerage and clearance expense consists
primarily of fees paid to clearing brokers for providing clearing, record
keeping and other services; fees paid to exchanges; and fees paid to brokers and
specialists on the floors of various exchanges for execution services. Interest
expense includes interest paid on subordinated notes issued to certain former
employees in exchange for their KBW stock. Other expenses consist in large part
of travel and entertainment expenses; advertising and publication costs;
expenses for legal, consulting, and accounting services; amortization of
intangibles arising from the acquisition of the Webb Division; and miscellaneous
other operating expenses.
As a result of the Company's growth, expanding range of activities,
ongoing review of compliance and risk management policies and procedures and
changes expected to result from public ownership of the Common Stock following
the Offering, management increased compensation and certain non-compensation
expenses, representing a higher percentage of total revenues in 1998 than prior
years. Management may choose to further increase such expenses in 1999. In
connection with the pending relocation of its New York headquarters, the Company
began to incur additional rental expenses in 1998 for office space under
construction but not yet occupied, as well as significant charges for
construction and temporary furniture in its existing premises to alleviate
short-term capacity needs. In 1999, rental expense for the Company's
headquarters is expected to increase by approximately 170%, in part due to
payments under the lease for the Company's new headquarters as well as
continuing lease payments for the Company's existing offices (which will
continue until the Company vacates its existing offices which management expects
to occur prior to the end of 1999). In addition, in 1999, the Company will begin
to amortize leasehold improvements and additional furniture, fixtures and
equipment with respect to its new offices. See "--Liquidity and Capital
Resources" and Note 5 to the Company's Consolidated Financial Statements.
The Company historically allowed employees to purchase shares of Keefe,
Bruyette & Woods, Inc.'s common stock at book value, calculated in accordance
with, and subject to the terms of, the Former Stockholders' Agreement that
provided for resale to the Company at the then-current book value upon
termination of employment. As a result of the Merger (see "Certain Transactions
Occurring Prior to the Offering--Creation of Holding Company Structure"), KBW
will be the sole stockholder of Keefe, Bruyette & Woods, Inc. and shares of
Keefe, Bruyette & Woods, Inc. will no longer be offered to employees. Shares of
Common Stock will be offered to employees pursuant to the Purchase Plan (see
"Management--The Employee Stock Purchase Plan"). Upon consummation of the
Offering , the Former Stockholders' Agreement will be terminated. See "Certain
Transactions Occurring Prior to the Offering--New and Former Stockholders'
Agreement."
-23-
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage
of total revenues:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
REVENUES
Principal transactions, net.................... 32.8% 58.8% 41.9% 32.9% 19.4%
Commissions.................................... 16.1 14.6 13.1 10.6 13.8
Investment banking............................. 44.7 19.8 33.1 38.6 59.2
Net gain (loss) on investments................. (0.3) 1.9 6.9 12.9 1.7
Interest and dividend income................... 5.1 3.8 3.4 4.1 4.9
Other........................................ 1.6 1.1 1.6 0.9 1.0
----- ----- ----- ----- -----
Total revenues............................... 100.0 100.0 100.0 100.0 100.0
EXPENSES
Compensation and benefits...................... 47.9 44.8 47.1 43.7 49.2
Occupancy and equipment........................ 5.1 4.1 3.0 2.1 2.9
Communications................................. 3.1 2.6 2.4 1.6 1.6
Brokerage and clearance........................ 4.7 4.9 4.5 3.3 3.4
Other.......................................... 8.3 6.5 6.7 7.2 7.4
---- ---- ---- ---- ----
Total expenses............................... 69.1 62.9 63.7 57.9 64.5
---- ---- ---- ---- ----
Income before income tax expense ................. 30.9 37.1 36.3 42.1 35.5
Income tax expense................................ 13.0 13.3 15.6 16.0 15.7
---- ---- ---- ---- ----
Net income ....................................... 17.9% 23.8% 20.7% 26.1% 19.8%
==== ==== ==== ==== ====
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
The Company's operating results for 1998 reflected strong growth in
investment banking and commissions offset by significant decreases in gains on
investments and revenue from principal transactions activity. Total revenues
increased by $12.4 million, or 8.7%, to $155.4 million for 1998 from $143.0
million for 1997. Total expenses as a percentage of total revenues increased to
64.5% for 1998 from 57.9% for 1997. Net income declined by $6.5 million, or
17.4%, to $30.8 million for 1998 from $37.3 million for 1997. The Company's
pre-tax margin decreased to 35.5% for 1998 from 42.1% for 1997, and return on
average stockholders' equity decreased to 19.8% for 1998 from 34.3% for 1997.
Net revenues from principal transactions decreased by $16.9 million, or
35.9%, to $30.2 million for 1998 from $47.1 million for 1997. Net revenues from
market making activities in OTC equity securities increased slightly by $0.6
million, or 4.4%, to $14.3 million from $13.7 million as a result of a moderate
increase in the number of shares traded in the OTC market. Net revenues from
proprietary trading in equity securities decreased by $22.4 million, or 74.2%,
to $7.8 million from $30.2 million, reflecting highly volatile market conditions
for the equity securities of financial services companies in the third and
fourth quarters of 1998. Net revenues from trading in fixed income securities
increased by $4.9 million to $8.1 million for 1998 from $3.2 million for 1997.
The Company's Financial Strategies Team, established during 1997, contributed
$4.7 million in 1998 to fixed income revenues reflecting its first full year of
operations, compared to $1.9 million in 1997.
Commissions increased by $6.4 million, or 42.4%, to $21.5 million for
1998 from $15.1 million for 1997. The change reflected increased volume in
agency customer transactions, with average per share commissions remaining
relatively constant.
Investment banking revenues increased by $36.7 million, or 66.5%, to
$91.9 million for 1998 from $55.2 million for 1997. Advisory fees increased by
$40.4 million, or 118.5%, to $74.5 million from $34.1 million, primarily
reflecting increased M&A activity and increased revenues from the Webb Division.
Revenues from
-24-
<PAGE>
public and private offerings of securities decreased by $3.7 million, or 17.5%,
to $17.4 million from $21.1 million in 1997, reflecting decreased public and
private offerings of common stock and trust preferred securities for investment
banking clients largely as a result of turbulent market conditions in the second
half of 1998.
Net gains on investments decreased by $15.7 million, or 85.3%, to $2.7
million for 1998 from $18.4 million for 1997. During 1998, the Company realized
gains of $7.0 million on the sale of four investments. These gains were offset
by a reversal of $7.5 million of unrealized gains associated with those
investments. During 1997, the Company realized gains of $11.3 million on the
sale of two investments, which were partially offset by the reversal of $9.7
million of previously recognized unrealized gains associated with these
investments. The net increase in unrealized gains on retained investments was
$3.2 million in 1998 (primarily due to an increase in market value of one
investment), and $16.8 million in 1997.
Interest and dividend income increased by $1.7 million, or 28.8%, to
$7.6 million for 1998 from $5.9 million for 1997. The change primarily reflected
increased interest on credit balances with the Company's clearing brokers, as
well as slightly higher dividend and interest income on market making
inventories of equity securities and fixed income securities.
Compensation and benefits expense increased by $14.0 million, or 22.4%,
to $76.5 million for 1998 from $62.5 million for 1997. The increase was
primarily due to higher accruals for performance-based bonuses reflecting the
Company's increased revenues and an increase in the number of employees to 161
at December 31, 1998 from 130 at December 31, 1997. Compensation and benefits
expense as a percentage of total revenues increased to 49.2% in 1998 from 43.7%
in 1997, owing primarily to a decision by the Company to increase compensation
as a percentage of revenue in order to make compensation paid by the Company
more consistent with the industry average for compensation.
Non-compensation expenses increased by $3.4 million, or 16.7%, to $23.7
million for 1998 from $20.3 million for 1997. Occupancy and equipment expense
increased by $1.5 million, primarily as a result of rental and design expenses
incurred in establishing the Company's new headquarters as well as the
accelerated depreciation of leaseholds and furniture that are expected to be
abandoned when the new headquarters are occupied. Communications expense
increased by $128,000, primarily due to increased voice and data communications
charges. Brokerage and clearance expenses increased by $609,000, primarily due
to increased sales and trading activity. Other expenses increased by $1.2
million, primarily reflecting higher travel and entertainment expenses
associated with increased investment banking activity.
The Company's accrual for tax liabilities for 1998 was 44.3% of income
before taxes as compared to 38.1% of income before taxes for 1997. See Note 3 to
the Consolidated Financial Statements.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The Company's operating results for 1997 reflected strong growth in all
of the Company's core businesses and the recognition of significant gains on
investments. Total revenues increased by $56.4 million, or 65.1%, to $143.0
million for 1997 from $86.6 million for 1996. Total expenses as a percentage of
total revenues declined to 57.9% for 1997 from 63.7% for 1996. Net income rose
by $19.4 million, or 108.4%, to $37.3 million for 1997 from $17.9 million for
1996. The Company's pre-tax margin improved to 42.1% for 1997 from 36.3% for
1996, and return on average stockholders' equity increased to 34.3% for 1997
from 21.1% for 1996.
Net revenues from principal transactions increased by $10.8 million, or
29.8%, to $47.1 million for 1997 from $36.3 million for 1996. Net revenues from
market making activities in OTC equity securities decreased by $1.4 million, or
9.3%, to $13.7 million from $15.1 million despite an increase in the number of
shares traded, reflecting the full-year effect in 1997 of the movement to
pricing OTC equity securities in sixteenths, the introduction of the NASD's new
order handling rules, and increased competition from electronic communications
networks that permit subscribers to bypass brokers and trade directly among
themselves. Net revenues from proprietary trading in equity securities increased
by $8.2 million, or 37.3%, to $30.2 million from $22.0 million, reflecting
favorable market conditions for the equity securities of financial services
companies and, to a lesser extent, increased trading activity. Net revenues from
trading in fixed income securities increased by $4.0 million to a net gain of
$3.2 million for 1997 from a net loss of $796,000 for 1996. The Company's
Financial Strategies Team, established during 1997, contributed $1.9 million of
the $4.0 million increase.
-25-
<PAGE>
Commissions increased by $3.8 million, or 33.6%, to $15.1 million for
1997 from $11.3 million for 1996. The increase primarily resulted from a
significant increase in customer orders in listed securities partially offset by
a slight decline in the Company's average per-share commission revenue.
Investment banking revenues increased by $26.5 million, or 92.3%, to
$55.2 million for 1997 from $28.7 million for 1996. Advisory fees increased by
$15.1 million, or 79.5%, to $34.1 million from $19.0 million, primarily
reflecting increased M&A activity and increased revenues from the Webb Division.
Revenues from public and private offerings of securities increased by $11.4
million, or 117.5%, to $21.1 million from $9.7 million, reflecting increased
public and private offerings of common stock and trust preferred securities for
investment banking clients.
Net gains on investments increased by $12.4 million, or 206.7%, to
$18.4 million for 1997 from $6.0 million for 1996. During 1997, the Company
realized gains of $11.3 million on the sale of two investments, which gains were
partially offset by the reversal of $9.7 million of previously recognized
unrealized gains associated with the two investments. During 1996, the Company
realized gains of $232,000 on the sale of two investments, with no associated
reversal of previously recognized unrealized gains. The net change in unrealized
gains on retained investments was $16.8 million for 1997 and $5.8 million for
1996.
Interest and dividend income increased by $3.0 million, or 103.4%, to
$5.9 million for 1997 from $2.9 million for 1996. The change primarily reflected
increased interest on credit balances with the Company's clearing brokers,
partially offset by slightly lower dividend and interest income on market making
inventories of equity securities and fixed income securities.
Compensation and benefits expense increased by $21.7 million, or 53.2%,
to $62.5 million for 1997 from $40.8 million for 1996. The increase was
primarily due to higher accruals for performance-based bonuses reflecting the
Company's increased revenues and an increase in the number of employees to 130
at December 31, 1997 from 116 at December 31, 1996. Compensation and benefits
expense as a percentage of total revenues decreased to 43.7% from 47.1%, owing
primarily to higher gains on investments recognized during 1997 as compared to
1996. The Company typically accrues bonuses at a lower rate on net investment
gains than on other sources of revenues.
Non-compensation expenses increased by $6.0 million, or 42.0%, to $20.3
million for 1997 from $14.3 million for 1996. Occupancy and equipment expense
increased by $344,000, primarily reflecting minor increases in the cost of
office space and the full-year effect of the Company's acquisition of the Webb
Division in July 1996. Communications expense increased by $252,000, primarily
due to increased voice and data communications charges. Brokerage and clearance
expenses increased by $807,000, primarily due to increased sales and trading
activity. Other expenses increased by $4.5 million, primarily reflecting higher
legal and consulting fees associated with increased investment banking activity,
increased travel and entertainment expenses, technology upgrade costs, and the
full-year effect of the acquisition of the Webb Division.
The Company's accrual for tax liabilities for 1997 was 38.1% of income
before taxes as compared to 43.0% of income before taxes for 1996. See Note 3 to
the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company is the parent of Keefe, Bruyette & Woods, Inc. and KBW
Asset Management. Dividends and other transfers from its subsidiaries are the
Company's primary source of funds to pay expenses and dividends. Applicable laws
and regulations, primarily the net capital rules discussed below, restrict
dividends and transfers from Keefe, Bruyette & Woods, Inc. to the Company. The
Company's rights to participate in the assets of any subsidiary are also subject
to prior claims of the subsidiary's creditors, including customers and trade
creditors of Keefe, Bruyette & Woods, Inc.
The majority of the Company's assets consist of marketable securities
and accounts receivable from clearing brokers, both of which are highly liquid.
A relatively small percentage of total assets are fixed or held for a period
longer than one year. The Company's liabilities primarily consist of securities
sold but not yet purchased, trade accounts payable, taxes payable and accrued
expenses. KBW has no bank debt and has historically been unleveraged. The
Company's total assets and short-term liabilities and the individual components
thereof vary significantly from period to
-26-
<PAGE>
period because of changes relating to customer needs, economic and market
conditions, and trading and investing activities.
The Company's operating activities generate cash resulting from net
income earned during the period and fluctuations in the Company's current assets
and liabilities. The most significant fluctuations in current assets and
liabilities have resulted from changes in the level of customer activity and
changes in realized and unrealized gains on proprietary and investment positions
in response to changing trading strategies and market conditions.
The Company's capital expenditures have historically been modest and
funded with cash generated from operating activities. The Company expects to
incur significantly greater expenditures for furniture, fixtures and leasehold
improvements in 1999 in connection with the relocation of its headquarters, and
expects to finance these expenditures with internally generated funds.
The Company has from time to time in the past loaned funds to employees
on a full recourse basis to purchase common stock of the Company. Outstanding
balances under such notes receivable from employees are recorded as a reduction
in stockholders' equity. Additionally, the Company has from time to time issued
subordinated notes, payable in installments, to departing employees in
connection with the Company's repurchase of their Common Stock.
Keefe, Bruyette & Woods, Inc., as a registered broker-dealer in
securities, is subject to the net capital requirements of the NYSE and the SEC's
uniform net capital rule. See "Business--Net Capital Requirements." The NYSE and
the SEC also provide that equity capital may not be withdrawn or cash dividends
paid if certain minimum net capital requirements are not met. At December 31,
1998, Keefe, Bruyette & Woods, Inc.'s net capital and excess net capital were
$125.6 million and $124.9 million, respectively. Regulatory net capital
requirements change based on certain investment and underwriting activities.
The Company believes that its current level of equity capital, combined
with the net proceeds it receives from the Offering and funds anticipated to be
generated from operations, will be adequate to meet its liquidity and regulatory
capital requirements for the foreseeable future.
YEAR 2000
Many of the world's computer systems (including those in
non-information technology equipment and systems) currently record years in a
two-digit format. If not addressed, such computer systems will be unable to
properly interpret dates beyond the year 1999, which could lead to business
disruptions in the United States and internationally. The potential costs and
uncertainties associated with the Year 2000 issue will depend on a number of
factors, including a company's software, a company's hardware and the nature of
the industry in which a company operates. Additionally, companies must
coordinate with other entities with which they electronically interact.
The Company's business activities are highly dependent on
communications and information technology ("IT") systems, including third-party
trading systems (e.g., the NYSE, The Nasdaq Stock Market[SM] ("Nasdaq"), and
the Brass Equity Trading System), various third-party research and market
information reference systems , certain systems provided by its clearing brokers
and internal IT systems. Any failure or interruption of third-party or internal
systems, including due to the ability of such systems to recognize the Year
2000, could cause delays and other problems, which could have a material adverse
effect on the Company.
The Company does not believe that it has significant internal IT system
problems associated with Year 2000. Much of the Company's owned software has
been recently developed or represents recent releases from third-party vendors
which management of the Company believes is not subject to Year 2000 problems.
Most of the hardware in the Company's personal computer-based network is less
than two years old and has been designed to address Year 2000 issues. In
addition, as part of its anticipated move to new headquarters, the Company has
scheduled replacement of any older computer equipment with new equipment that is
Year 2000 ready. The Company has not yet incurred any significant additional
costs for remediation. The Company estimates that it will incur total costs of
less than $500,000 to ensure that its IT systems are Year 2000 compliant. The
Company has completed the inventory of hardware and software phase of its Year
2000 review and has made inquiries of third-party market data, trading and other
significant IT providers as to their Year 2000 readiness. The Company is nearing
completion of the assessment phase to determine which of its
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hardware and software will require remediation or replacement. New hardware and
software has been and will continue to be tested to ensure that it is Year 2000
compliant. The Company does not currently foresee any difficulty in completing
the final implementation phase of its Year 2000 review on a timely basis, which
will consist of replacement or remediation of any non-compliant hardware or
software systems.
The Company has also assessed its internal Year 2000 issues with
respect to non-IT systems and has determined that consequences of its Year 2000
issues with respect to internal non-IT systems would not have a material effect
on the Company's business, results of operations, or financial condition.
The Company depends to a significant degree upon the proper functioning
of third-party IT and non-IT systems. The Company has sent inquiry letters to
significant third-party system providers and has been informed that such third
parties are either currently conducting reviews of their Year 2000 issues or
already implementing remediation strategies. The Company also depends to a
material degree on third parties such as banks and other payment processors,
delivery services, depositories such as The Depository Trust Company and other
service providers. The Company is unable to determine whether all of its service
providers will be able to adequately address their Year 2000 issues.
If such third parties have Year 2000 problems that are not remedied,
the following problems could result: (i) in the case of vendors, in disruption
of important services upon which the Company depends, such as telecommunications
and electrical power; (ii) in the case of third-party data providers, in the
receipt of inaccurate or out-of-date information that could impair the Company's
ability to perform critical data functions, such as pricing securities or other
assets; (iii) in the case of financial intermediaries such as exchanges and
clearing agents, in failed trade settlements, and inability to trade in certain
markets and disruption of capital flows potentially resulting in liquidity
stress; and (iv) in the case of counterparties and customers, in financial and
accounting difficulties for those parties that expose the Company to increased
credit risk and lost business. In addition, uncertainty about the success of
remediation efforts in the financial services industry may cause many market
participants to reduce the level of their market activities in the financial
services industry temporarily as they assess the effectiveness of these efforts
during a "phase-in" period beginning in late 1999. This, in turn, could result
in a general reduction in trading and other market activities (and lost
revenues) in the financial services industry. The Company cannot predict the
adverse impact that such reduction would have on its business.
To the extent that a third-party vendor or service provider is unable
to adequately address Year 2000 issues, the Company will seek to change to
another provider. However, in the case of certain providers, such as the NYSE
and Nasdaq, the Company may not be able to obtain comparable essential services
from other sources. There can be no assurance that the Company will be able to
change to another provider or that such provider's services will be comparable
in quality, service or cost to that now used by the Company.
The costs to remedy Year 2000 programs and the date on which the
Company plans to complete the Year 2000 modifications are based on current
estimates, which reflect numerous assumptions about future events, including the
continued availability of certain resources, the timing and effectiveness of
third-party remediation plans and other factors. The Company can give no
assurance that these estimates will be achieved, and actual results could differ
materially from the Company's plans. Specific factors that might cause such
material differences include, but are not limited to, the availability to locate
and correct relevant computer source codes and embedded technology, the results
of internal and external testing and the timeliness and effectiveness of
remediation efforts of third parties.
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BUSINESS
FINANCIAL SERVICES INDUSTRY BACKGROUND
KBW specializes in the financial services industry. The financial
services industry, which consists primarily of banks, thrifts, specialty finance
companies, insurance companies, securities firms and investment management
companies, has undergone major changes since the early 1980s. Legislative and
regulatory developments have eliminated virtually all restrictions on interstate
banking and now permit banks to engage in businesses that were previously
prohibited to them, such as securities underwriting and other securities-related
activities. Through the combination of deregulation and consolidation, the
financial services industry has been marked by increased competition among
banks, investment banks, insurance companies and other industry participants.
Deregulation has contributed to substantial M&A activity in the banking
industry, as participants seek to increase scale, broaden product offerings and
improve operating efficiency to remain competitive. In 1988, the aggregate
completed transaction value of mergers and acquisitions of U.S. banks and
thrifts (with over $250 million in assets) was approximately $4.0 billion. In
1998, the aggregate value of bank and thrift M&A transactions expanded
dramatically to approximately $249 billion. The number of completed transactions
in the banking industry has also increased significantly over the same period,
from 37 in 1988 to 150 in 1998.
Despite continuous M&A activity, consolidation in the banking industry
remains far from complete, with more than 10,000 banking institutions operating
in the United States at September 30, 1998. In a recently published research
report, KBW noted that the banking industry is more fragmented than other
consumer-oriented financial services industries, such as mutual funds, credit
cards and personal insurance. Assuming the completion of announced mergers as of
the date of the report, the 20 largest banking organizations held 38.6% of
domestic deposits, as compared to 64.8% of assets held by the top 20 mutual fund
companies, 84.9% of receivables held by the top 20 credit card companies and
68.4% of net premiums written by the top 20 personal insurers.
The evolution of the U.S. banking industry has been accompanied in
recent years by substantial increases in the market value of publicly traded
bank securities. The Keefe Bank Stock Index of 24 publicly traded bank stocks,
developed by the Company over 30 years ago, is a widely recognized measure of
bank stock price performance. From December 1992 through December 1998, this
index increased by 209%, while the S&P 500 index increased by 182%. This
performance has been accompanied by substantial investor interest in publicly
traded bank stocks. From 1993 to 1998, total U.S. equity underwritings
(including common and preferred stock) for financial institutions (other than
federal agencies and insurance companies) grew at a compound annual rate of 23%,
from approximately $19 billion to $53 billion. Over the same period, total U.S.
debt underwritings for such financial institutions grew at a compound annual
rate of 22%, from approximately $270 billion to $726 billion.
Other sectors of the financial services industry have also experienced
significant change in recent years. The evolution of the market for securitized
financial assets, such as mortgage loans, credit card receivables, automobile
loans and equipment leases, has contributed to the growth in the number of
finance companies specializing in such financing activities. As of December 31,
1998, there were 90 publicly traded specialty finance companies in the United
States , compared to fewer than 15 such companies in 1990. Non-public and public
finance companies controlled in the aggregate over $870 billion in managed
receivables as of November 1998, representing a 68% increase in managed
receivables since November 1990. M&A and corporate finance activity among the
nation's many insurance companies, brokerage companies and asset management
companies has also increased in recent years.
THE COMPANY
KBW is an institutionally oriented investment banking firm that is a
nationally recognized authority on the banking industry, which has been the
Company's primary focus since its inception in 1962. In 1996, KBW expanded its
focus to include specialty finance companies, in which KBW has established a
significant presence. More recently, KBW has expanded its coverage to include
insurance companies and securities firms. KBW's activities include research, M&A
advice, corporate finance, securities sales and trading, principal investments,
fixed income portfolio management and asset management.
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Research is the core of KBW's business. Institutional Investor ranked
KBW as "Best of the Boutiques" for both money center and regional bank research
in 1998, 1997 and 1996. In an independent survey of institutional investors in
the banking industry, KBW has consistently led all other securities firms as the
first choice for regional bank research. The Company believes its success in
building its corporate finance, financial advisory, sales and trading and
principal investing activities is directly related to its position as a leading
provider of research on the banking industry. The Company's comprehensive
research coverage has allowed KBW to develop strong relationships with a large
number of small and mid- size banks (generally banks with less than $20 billion
in assets) that management of the Company believes are underserved by other
larger securities firms. As these banks have grown in size and complexity, KBW
has been able to provide them a broad range of investment banking services over
time. These relationships have also enabled KBW to identify profitable
investment opportunities for its institutional clients and for the Company's own
principal investing activities.
KBW is a leading financial adviser in banking M&A. As reported by the
American Banker, in 1997 and 1998, KBW ranked first and second, respectively, in
the number of announced M&A financial advisory assignments for the banking
industry. In addition, since expanding its coverage to include specialty finance
companies, KBW has acted as financial adviser in 19 M&A transactions involving
such companies. In 1998, KBW served as financial adviser on 36 announced M&A
assignments for banks and specialty finance companies, with an aggregate
transaction value in excess of $9.1 billion.
KBW is also active in underwriting and other placements of securities
for financial services companies. In 1998, the Company managed 43 equity and
debt offerings, aggregating approximately $3.1 billion in gross offering
proceeds. KBW makes a market in over 250 securities of banks, thrifts and
financial services companies which are traded in the OTC market and serves as
one of the top three market makers in approximately 65 of these securities. The
Company has developed strong relationships with substantially all of the largest
and most active institutional investors who invest in the financial services
industry. KBW also maintains proprietary trading positions and makes principal
investments in financial services companies for its own account. The Company's
broker-dealer subsidiary, Keefe, Bruyette & Woods, Inc., is a member of the
NYSE.
KBW believes that the experience, knowledge and tenure of its
executives and professional staff have enabled it to maintain long-term
relationships with its clients and customers. In addition, KBW's broad employee
stock ownership (more than 60% of current employees own KBW stock) and
compensation structure, which is based on a combination of individual,
departmental and overall Company performance, has encouraged employees to work
together to increase the value of KBW's business.
BUSINESS STRATEGY
KBW's business strategy is to continue capitalizing on its competitive
strengths to expand client and customer relationships and principal investments
in the banking and specialty finance sectors of the financial services industry
and to leverage its experience and reputation by expanding its business focus to
include other sectors of the financial services industry, including insurance
and securities. As many securities companies have been acquired by commercial
banks, KBW believes its independent status will enable it to develop new client
relationships and hire experienced personnel who wish to remain affiliated with
an independent investment banking firm. KBW will also seek to expand its asset
management business and develop additional sources of income.
The Company's business strategy is comprised of the following key
elements:
o Lead in Identifying and Capitalizing on Key Industry Trends. KBW will seek
to use its superior research capability to identify developments in the
banking and non-bank financial services industry. KBW's industry knowledge
permits its research, sales and trading and investment banking
professionals to interact with companies and investors to take early
advantage of industry developments.
o Establish Early and Long-term Relationships with Clients. KBW will continue
to focus on providing research coverage and market making support to
smaller and mid-size financial services companies before KBW's competitors.
Many client relationships initiated with relatively small community or
regional banking institutions
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have expanded into assisting these institutions through all phases of
their development, including financings, strategic acquisitions,
investment strategy and, in an increasing number of cases, acquisition
by a larger institution.
o Maintain Flexibility in Providing the Services and Products Needed by
Clients and Customers. KBW believes that it is important to tailor products
and services to meet the needs of its clients and customers, rather than
simply providing the same products as other investment banking firms.
Because of its ability to bring together institutional investors and
clients with the same industry focus, KBW can structure securities and
transactions which satisfy multiple needs. For example, as the banking
industry stabilized in 1993 and 1994 following a period of severe financial
distress, KBW identified investors who were willing to act in a stand-by
capacity for capital raising efforts for undercapitalized banks. Once these
banks became well capitalized and were relieved of regulatory orders, they
were able to participate in industry-wide growth. KBW believes its success
in these transactions led to further opportunities, such as assisting the
Federal Deposit Insurance Corporation in obtaining value for institutions
upon which it had foreclosed through a combination of bulk sales of
troubled assets and offering the securities of such institutions to many of
the same institutional investors who had participated in rights offerings.
Beginning in late 1996, KBW determined that its institutional customers
would buy trust preferred securities issued by small and mid- size bank and
thrift holding companies. KBW was able to offer this financing vehicle to
these companies and participated in 16 trust preferred offerings before the
end of 1997. Also, since the end of the first quarter of 1997, KBW has
offered the services of its Financial Strategies Team to thrift
institutions that had recently been converted from mutual to stock
ownership and which became clients of KBW through its recently-acquired
Webb Division.
o Leverage the KBW Model in Related Industries. KBW is expanding its focus,
which has historically been on the banking industry, to other sectors of
the financial services industry such as insurance and securities.
Management is developing strong research coverage of these industry sectors
in an attempt to identify investment opportunities and new clients for KBW.
The Company is actively seeking further expansion into such other sectors
through the hiring of individuals or the acquisition of an industry team in
combination with internal development at KBW. In particular, KBW believes
its broad experience in the conversion of mutual savings banks could be
applied to conversions of mutual insurance companies.
o Diversify Sources of Income. Management is committed to diversifying KBW's
sources of income by expanding KBW's role in asset management and by
expanding the activities of its Financial Strategies Team. KBW's asset
management activity has initially included the management of funds raised
by KBW and others and acting as adviser for managed accounts. Future growth
in asset management may result from a combination of managing funds raised
by others, acquiring existing asset management companies and actively
marketing directly to investors KBW's own management services and
investment vehicles . The Financial Services Team, which commenced
operations at the end of the first quarter of 1997, provides strategic
advice to KBW clients restructuring their investments.
o Capitalize on Opportunities Arising from Consolidation in the Securities
Industry. KBW will continue to attempt to capitalize on opportunities
created by consolidation in the securities industry. As an independent
investment banking firm focused on financial services companies, KBW has
entered into relationships with a number of banking clients that no longer
wish to do business with their former investment bankers who are now
affiliated with their bank competitors. This recent consolidation trend
also provides opportunities to hire proven investment banking professionals
who prefer the culture and opportunities of a smaller, entrepreneurial firm
with KBW's industry focus. During 1998, the Company hired an experienced
investment banker in the insurance segment of the financial services
industry and a group of four experienced investment bankers with numerous
relationships with banks in the Midwest to open the KBW office in Chicago.
o Identify Proprietary Investment Opportunities. KBW will continue to make
proprietary investments in opportunities it identifies in the marketplace.
KBW anticipates that its expansion of industry coverage , including the
insurance and securities sectors of the financial services industry, will
enable it to identify additional investment opportunities in these sectors.
o Retain a Corporate Culture that Promotes Employee Loyalty. KBW prides
itself on offering an excellent workplace to its employees. Employees are
encouraged to share their thoughts, ideas and opinions and are given credit
and support for their ideas regardless of seniority. In 1998, KBW created
an Operating Committee, consisting of department heads, to help coordinate
the exchange of ideas throughout the Company and to assist the KBW Board in
developing and monitoring budgets and business strategies and determining
appropriate employee compensation and
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benefits. In addition, more than 60% of KBW's employees own Common Stock,
and after giving effect to the Offering (including the sale of shares of
Common Stock to KBW directors and employees pursuant to the Offering),
KBW's employees will own approximately % of the outstanding Common Stock.
KBW's historical employee ownership has fostered an atmosphere of teamwork
which KBW believes promotes business growth and helps retain employees,
clients and customers. KBW believes its employee turnover rate is low
compared to many of its competitors. KBW's employees have an average tenure
of approximately six years and 26% of all employees have at least 10 years'
experience at KBW. KBW's six directors have an average 24-year tenure at
KBW. Although KBW intends to pursue growth opportunities through additional
hirings, it will seek to retain its cooperative culture and long-term
commitment to its employees.
RESEARCH
KBW's research covers both bank and non-bank financial institutions
such as specialty finance, insurance and securities firms. KBW believes that
industry specialization, developed through careful analysis and original
investigation, is crucial to meeting the demands of its clients for
sophisticated and informed investment and strategic advice. The Company's
approach is to serve its clients through an in-depth understanding of the
financial services industry and its various segments.
KBW's research department is the catalyst for much of KBW's growth and
expansion into new industries. For example, the research department recently
initiated coverage of insurance companies. The research department published its
first reports on 11 of these companies in January 1999 and anticipates covering
50 companies during the third quarter of 1999. In conjunction with the expansion
of the research department's coverage to include insurance companies, KBW's
investment banking division has obtained several financing assignments in this
area. KBW also has begun making a market in the equity securities of the
insurance companies covered by such research which are traded over the counter
and has invested in the equity securities of a number of such listed companies.
KBW is widely recognized as the leading provider of research on the
banking industry. Institutional Investor ranked KBW as the "Best of the
Boutiques" for regional and money center bank research in 1998, 1997 and 1996.
In an independent survey of institutional investors in the banking industry, KBW
has consistently led all other securities firms as the first choice for regional
bank research. KBW has developed and maintained the Keefe Bank Stock Index of 24
bank stocks since the Company's inception. The Keefe Bank Stock Index, which
facilitates the analysis of long-term trends, is frequently cited in the media.
Another index, the "KBW50," is frequently cited by sector companies in their
annual proxy statements as a measure of industry stock price performance. KBW's
analysts also often comment on industry and company developments for major
television, radio, print and proprietary news systems.
The Company's research team of 20 analysts operates out of its New York
and other offices, maintaining close contact with approximately 250 publicly
traded banks, thrifts, specialty finance, insurance and other non-bank
financial services companies. Because the Company's research team continually
considers adding institutions to its research list, the number of covered
companies has remained relatively constant despite the consolidation of the
banking industry. Research coverage may also be initiated in connection with
KBW's underwriting, market making and other corporate finance and advisory
services. In late 1997, KBW entered into an affiliation agreement with Oliver
Securities, a small Boston-based firm specializing in insurance industry
research, which has since become an operating division of the Company. Since
that time, KBW has hired three additional analysts dedicated to the insurance
area. These analysts currently cover life, property, casualty and financial
guarantee insurers.
KBW's research effort is an intensive, "bottom-up" approach that
requires a detailed familiarity with the covered institution's senior
management, operations and strategy rather than primary reliance on statistical
data obtained from third parties. The research department also participates in
frequent face-to-face meetings with senior management of KBW's clients and
others in the banking industry and in management presentations at numerous
KBW-sponsored conferences and other events. The research team, through its
familiarity with current developments at companies, identifies opportunities for
the Company's corporate finance group and introduces covered companies to other
parts of KBW's business.
The team's research products include several staple publications that
are widely consulted in the financial services industry, as well as individual
company reports and daily and bimonthly communications for KBW's customers.
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The Company's numerous publications include: the BankScan, the BriefBook, the
Thrift Review, the BankBook, Bank Bulletins, the NorthEastern BankScan, the
NorthEastern Quarterly Bank Review, WebbScan and BrokerScan. During 1998, the
research department generated approximately 1,900 individual company notes in
its daily Bulletins. In conjunction with the opening of the Chicago office, KBW
introduced its Midwest BankScan and Midwest Bank Review and KBW has also
introduced an InsuranceScan as part of the expansion of coverage into the
insurance area.
INVESTMENT BANKING
KBW's corporate finance group provides a broad range of investment
banking services to the financial services industry. The group's 28
professionals are knowledgeable about the regulatory, competitive and market
environments surrounding financial institutions, permitting the Company to offer
clients a significant depth of experience in advising on corporate finance and
M&A opportunities.
The Company's capital raising activities for small and mid- size
financial institutions, as well as its mutual thrift conversion services, foster
relationships with financial institutions at an early stage and often result in
long-term relationships covering a wide range of corporate finance services,
including additional capital raising assignments as well as M&A and strategic
advice. KBW believes that the continuity of its corporate finance staff
contributes to lasting relationships with many of its investment banking
clients. KBW's corporate finance team has generally grown internally,
supplemented by occasional lateral recruiting. Management also believes that its
practice of establishing teams of investment bankers responsible for maintaining
regular client contact and executing both financing and M&A assignments for
their clients contributes to closer and more enduring client relationships than
would be the case if the Company's investment bankers were organized in product
specialty groups. The Company intends to continue to expand its corporate
finance and M&A business in the banking industry as well as other sectors of the
financial services industry.
The Company's in-depth knowledge of the banking and specialty finance
industries has permitted it to capitalize for the benefit of its clients on
emerging developments, such as the recapitalization of many banks and thrifts
through the use of rights offerings in 1993 and 1994, and the use of trust
preferred securities in 1997 and 1998 for small and mid- size banks.
KBW's investment banking expertise, coupled with its salesforce's
relationships with institutional investors who focus on the banking industry and
its willingness to make investments for its own account, often leads to
opportunities to provide multiple services to clients. For example, in a recent
transaction, KBW not only acted as financial adviser to the seller of a bank,
but also formed a group of equity and debt investors willing to purchase control
of the institution, and committed the Company's own capital to assure completion
of the acquisition. As a result, KBW earned fees for the debt and equity
placements as well as for its advisory services.
M&A and Other Strategic Advisory Services
KBW's advisory services include strategic advice, M&A advice, takeover
defense, valuations and fairness opinions, divestitures and corporate
restructurings, and investor relations strategies. KBW has maintained its role
as a leading adviser in bank M&A transactions as the banking industry has
continued to consolidate at a rapid pace.
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From January 1994 through December 1998, the Company acted as financial
adviser in 116 announced mergers and acquisitions of banks and thrifts,
representing $31.1 billion in aggregate transaction value, and 19 mergers and
acquisitions of non-bank financial institutions, with an aggregate transaction
value of $2.8 billion. The American Banker ranked the Company first among the
leading financial advisers based on number of transactions in each of 1996 and
1997 and second in 1998, and seventh among financial advisers in terms of
aggregate value of mergers and acquisitions of banks and thrifts announced in
each of 1996 and 1997 and eighth in 1998.
1996 1997 1998
------ ------ ------
Number of Transactions (1)........... 19 33 33
Ranking by Number(2)................. 1 1 2
Transaction Value (in millions) (1).. $2,441 $11,410 $8,666
Ranking by Value(2).................. 7 7 8
.
-----------------
(1) Source: Company data.
(2) Source: American Banker rankings.
In 1998, KBW acted as financial adviser on approximately 36 announced
M&A assignments with transaction values ranging from $5.5 million to $2.7
billion, involving both banks and non-bank finance companies.
KBW has also provided financial advisory and valuation services in
connection with bank branch sales and acquisitions. Since the beginning of 1994,
KBW has provided such services in 14 announced branch sales and acquisitions.
Capital Raising and Other Corporate Finance Services
The corporate finance group also oversees KBW's participation in both
underwritten public offerings and private placements of common stock, preferred
stock and fixed income securities. The Company believes that its strong
reputation for research and market making is an important factor in obtaining
capital raising assignments.
The following table sets forth, for the past five years, the number and
dollar amount of capital markets transactions in which KBW acted as lead or
co-manager or as placement agent:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
--------------- ---------------- ---------------- ---------------- ----------------
NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT
(DOLLARS IN MILLIONS) (1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock....... 4 $ 82 3 $ 78 14 $ 275 22 $ 1,912 29 $1,700
Preferred Stock and
Debt Securities. 8 893 7 825 11 1,139 26 2,105 14 1,365
----- ------ --- ------ ----- ------ ---- ------ -- ------
Total......... 12 $ 975 10 $ 903 25 $1,414 48 $ 4,017 43 $3,065
(1) Gross offering proceeds (excluding over-allotments) raised by entire
syndicate.
</TABLE>
The Company participates in public offerings of securities either by
acting as manager or co-manager of an underwriting syndicate, or by acting as a
member of an underwriting syndicate managed by other investment banks. In both
cases, the Company risks its capital through its participation in a commitment
to purchase securities from an issuer and to resell them to the public. The
Company's syndicate activities include overseeing the marketing and
book-building process of underwritten transactions the Company is managing,
participating in discussions leading to the determination of the offering price
of securities and conducting market stabilization activities.
The investment banking department has recently grown through the hiring
of experienced investment bankers. In 1998, the investment banking department
hired a Managing Director with substantial experience in the property/casualty
insurance area. Also in 1998, the department hired four investment bankers to
open a new Chicago office. These bankers have specialized in regional and
community banks concentrated in 10 Midwestern states.
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KBW acquired Charles Webb & Company of Columbus, Ohio in July 1996 to
expand the Company's investment banking business with mutual thrift
institutions. Now operating as a division of Keefe, Bruyette & Woods, Inc. (the
"Webb Division") and consisting of 16 professionals, the Webb Division has
completed 104 conversions of thrifts from a mutual to a stock form of ownership
since its establishment in 1990, including 38 since becoming a division of KBW.
In such transactions, the converting thrift typically sells stock to its
depositors in a subscription offering. KBW assists in the development of an
orderly secondary market for such stock by acting as a market maker and
soliciting institutional purchase orders and retail depositor sell orders in the
new security. In addition to advising thrifts during their conversion, KBW,
through its Financial Strategies Team, can provide recently converted thrifts
with financial advice and transaction execution to assist in the management of
their newly raised capital.
SALES AND TRADING
KBW provides a broad range of sales and trading services to issuers and
institutional investors and makes a market in over 250 stocks traded in the OTC
market. The Company engages in sales and trading activity for both equity and
fixed income securities. The Company's customer base consists of institutional
investors, including substantially all major institutional investors who
regularly invest in the U.S. banking industry. Since the beginning of 1998, KBW
has engaged in trading and brokerage transactions for approximately 675
different institutional customers.
Because of the Company's industry focus, KBW's sales force is highly
knowledgeable about the banking industry and can therefore provide customers
with in-depth information about specific companies and about trends affecting
the industry as a whole. Management believes that the knowledge and experience
of its sales force, together with the Company's long-established presence in the
market, are distinct competitive advantages in establishing and maintaining
relationships with institutional investors. The Company's senior sales
professionals have an average of 16 years of experience in institutional sales.
Equity Sales and Trading
The equity sales and trading group consists of 14 sales people, eight
traders and ten sales/traders. The Company seeks to become a leading market
maker in the OTC stocks of companies identified by KBW's research department as
likely to become important competitors in their sector of the financial services
industry. In executing this strategy, the Company often takes large positions in
such stocks to satisfy the needs of institutional investors for a liquid market.
KBW's decision to make a market in a company's security is based on the volume
of trading in the security, whether the company is covered by KBW's research
group, and the strength of KBW's investment banking relationship with the
company. The Company makes a market in over 250 securities which are either
listed with Nasdaq or are other OTC securities of banks, thrifts and specialty
finance companies, and it ranked among the top three market makers in
approximately 65 of such securities.
The Company's sales professionals work closely with KBW's research
analysts to provide up-to-date information to the Company's institutional
customers. The Company's other activities as a broker-dealer in equity
securities include execution of trades for institutional customers in OTC quoted
securities as well as exchange-listed stocks. When KBW is engaged as a manager
of an underwriting or private placement, the sales force works with the
corporate finance group in the marketing and book-building process and provides
information regarding the pricing and timing of the offering.
In recent years, the volume of stock transactions executed by KBW has
increased dramatically. In 1998, the equity trading volume through KBW's New
York sales desk exceeded 721 million shares, representing an average of 2.9
million shares per business day, as compared to approximately 560 million shares
or 2.2 million shares per business day in 1997.
The Company's sales group, together with its research and corporate
finance groups, sponsors a series of periodic investor conferences throughout
the United States and the United Kingdom, presenting summaries of industry
trends and providing related commentary and discussions. These conferences
provide an opportunity for senior management of selected companies to make
presentations directly to institutional investors and the media. KBW also hosts
frequent "investor roundtable dinners" throughout the United States at which
institutional investors meet with KBW's sales, research and investment banking
professionals to discuss industry and investment trends.
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Each of the Company's four most senior equity traders has been with KBW
for at least 14 years. The Company's sales people and traders are compensated
through salaries and performance-based bonuses rather than through commissions.
Management believes that the long tenure of many of KBW's senior sales and
trading professionals and the method by which they are compensated contributes
to lasting and trusting relationships with the Company's institutional
investors.
Fixed Income Sales and Trading
The Company's fixed income group includes 10 sales professionals, six
traders and trade support persons, one capital markets coordinator and three
fixed income analysts. The Company's fixed income group makes a market in both
fixed income and deposit-based products and also trades U.S. government and
agency securities. The Company's fixed income group also oversees KBW's
participation in the medium-term note facilities of many banking institutions
and manages the Company's capital markets coverage and underwriting of fixed
income securities. The Company's fixed income group has a particular expertise
in arranging agency private placements of non-rated or non-investment grade
unsecured debt and preferred stock of financial institutions. Excluding members
of KBW's new Financial Strategies Team, KBW's fixed income sales professionals
have been employed by KBW for an average of 12 years and generally have
maintained relationships with the same accounts for most of their careers. The
four most senior salesmen have been with KBW an average of 17 years.
The fixed income group's research professionals provide fixed income
research coverage on banks, thrifts and specialty finance companies, including
through the publication of the Bank Debt Review, a widely read source of credit
information relating to the debt securities of U.S. financial institutions.
In January 1997, the Company established its Financial Strategies Team
to provide advice to KBW clients regarding balance sheet management, including
investment portfolio management, interest rate risk management, capital leverage
and stock repurchases. KBW earns revenue from certain resulting transactions by
acting as a riskless principal in transactions with customers implementing
investment strategies. The Financial Strategies Team also arranges, as
introducing agent, repurchase agreement financings between its clients and other
investment banks. 1998 was the Financial Strategies Team's first full year of
operation.
KBW maintains a position in fixed income securities issued by companies
in the financial services industry, principally as an accommodation to
customers. In 1998, KBW's fixed income portfolio had long positions with
aggregate month-end market values ranging from $20.8 million to $53.0 million
and short positions (primarily holdings of U.S. government and agency
securities) with aggregate month-end market values ranging from $18.8 million to
$36.3 million. The long and short positions are not perfectly matched and
therefore KBW retains some interest rate exposure on such positions. In
addition, the Company bears credit risk with respect to long positions.
PRINCIPAL INVESTING
In addition to principal transactions arising from the Company's market
making activities, KBW has, since its inception, traded and invested in
securities for its own account. Such transactions almost exclusively involve
securities of financial services companies. KBW does not generally invest as
principal in derivative securities, other than options used in connection with
market making and arbitrage positions. Revenues from trading and investments for
the Company's own account (excluding market making transactions) represented
13.8%, 39.7%, 31.4%, 36.2% and 11.9% of total revenues in 1994, 1995, 1996 ,
1997 and 1998, respectively.
The level of the Company's trading positions carried in the Company's
trading and investment accounts can vary significantly from day to day depending
upon economic and market conditions, the allocation of capital among types of
inventories, underwriting commitments, customer demand and trading volume. The
aggregate value of inventories that the Company may carry is limited by certain
requirements of the net capital rules. See "--Net Capital Requirements."
The Company also engages in arbitrage transactions for its own account.
Such transactions relate to announced mergers and acquisitions, primarily in the
banking industry. The number of arbitrage positions is dependent on announced
M&A activity in the financial services industry. The Company does not (other
than in connection with unsolicited customer orders) take arbitrage positions in
securities of companies involved in an M&A transaction in
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which the Company has an advisory role and does not engage in speculative
arbitrage with respect to rumored mergers. The Company also engages in arbitrage
based on discrepancies between the market value of convertible securities and
the underlying securities.
The following table presents the Company's highest, lowest and average
month-end combined balances of equity market making inventories and short-term
proprietary trading positions (including arbitrage transactions) for 1998.
HIGHEST LOWEST AVERAGE
MONTH MONTH MONTH
END END END
----------------------------------------------------
(in thousands)
Gross long positions $67,975 $21,417 $51,217
Gross short positions 38,304 7,252 19,028
Net long positions 50,007 14,165 32,189
The Company also invests in privately placed and publicly traded
securities of financial services companies. Such investments are generally held
for longer than six months and, in some instances, have been held for several
years. Opportunities for such investments arise from the Company's investment
banking activities as well as from its presence in the markets for securities of
financial services companies. Additionally, the Company occasionally accepts
payment for services in the form of equity securities or rights or warrants to
purchase equity securities. As of December 31, 1998, the net carrying value of
the Company's investments was $32.5 million, including $11.6 million of
securities not readily marketable.
Regulatory requirements and the Company's internal policies and
procedures require that customer orders be satisfied prior to any of the
Company's principal trading and investing activities. Marketable securities are
generally valued at the last sale price or at the bid price for long positions
and ask price for short positions. Securities without established market values
are carried at fair value as determined by the KBW Board. Investment decisions
regarding the Company's proprietary positions are generally made by the
Company's senior traders in consultation with KBW's President and Chief
Operating Officer.
ASSET MANAGEMENT
KBW's subsidiary, KBW Asset Management, is a registered investment
adviser focused on investments in the securities of banks and other financial
services companies. KBW is seeking to expand the activities of KBW Asset
Management in order to increase the Company's fee income. KBW Asset Management
is the adviser for several large managed accounts. As of December 31, 1998, KBW
Asset Management had approximately $176 million in assets under management. KBW
is a 40% owner of the general partner in America First Financial Institutions
Investment Fund L.P. ("America First"), a private institutional investment fund
established in 1997 focusing on the banking industry. As of December 31, 1998,
America First had approximately $23.2 million under management. KBW provides
advice and trading execution services to America First.
KBW Asset Management is managed by its Chairman, Charles Lott, the
former Chairman and Chief Executive Officer of KBW who currently serves as a
Vice Chairman of KBW, and by KBW Asset Management's President, who was
previously an institutional salesman with KBW for 13 years. The Vice Chairman of
KBW Asset Management joined KBW Asset Management in October 1998 with 38 years
of experience in the investment management area. KBW Asset Management also
currently has a trader/analyst and an administrative secretary and anticipates
hiring additional personnel as its business growth requires. KBW Asset
Management expects to establish several investment vehicles, including private
hedge funds to be marketed to institutions and high net worth individuals, and
in which KBW and certain of its employees may also invest.
In late 1998, KBW Asset Management began acting as adviser to Wynstone
Partners, L.P., a registered investment company. As of December 31, 1998,
Wynstone Partners, L.P. had approximately $11 million in assets under
management. Investments in this partnership are being continuously marketed by
an unaffiliated investment banking firm , which has a fee sharing arrangement
with KBW Asset Management. It is anticipated that KBW Asset Management
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will seek to market additional investment vehicles through this firm, including
an offshore partnership. In January 1999, KBW Asset Management had its first
closing on a private hedge fund created and marketed by KBW Asset Management.
Keefe, Bruyette & Woods, Inc. has invested approximately $10 million in this
hedge fund with approximately $10 million being obtained from outside investors.
KBW Asset Management will continue to actively market this private fund and will
seek to develop and market other private investment vehicles, including an
offshore private hedge fund. In the future, KBW expects to grow its asset
management business through internal growth of managed accounts and the
establishment of additional investment vehicles, through management of funds
established by others and, possibly, through the acquisition of existing asset
management businesses.
RISK MANAGEMENT AND COMPLIANCE
The Company has established various policies and procedures for the
management of its exposure to operating, principal and credit risks. Operating
risk arises out of the daily conduct of the Company's business and relates to
the possibility that one or more of the Company's personnel could involve the
Company in imprudent or unlawful business activities. Principal risk relates to
the fact that KBW owns a variety of investments which are subject to changes in
value that could result in material losses. The Company's primary credit risk is
settlement or counterparty risk, which relates to whether a counterparty on a
derivative or other transaction will fulfill its contractual obligations, which
may include delivery of securities or payment of funds. With the exception of
margin loans to employees, the Company has not extended credit to customers,
although it has a limited number of customer accounts authorized for such
activity.
Operating risk is monitored by the managers and senior professionals of
KBW's various business groups. These managers and professionals review the
overall business activities of the Company and make recommendations for
addressing issues which, in their judgment, could result in a material loss to
the Company. In addition, KBW has in place policies and procedures designed to
limit operating risk, including with respect to avoiding potential liability for
violation of laws or regulations. Various department heads and other supervisory
personnel are responsible for the implementation and monitoring of such policies
and the maintenance of transaction records in accordance with applicable
regulatory provisions. Employees are required to review regularly such policies.
Employee trading activities are closely monitored and subject to certain rules,
such as minimum holding periods and prior clearance procedures to avoid trading
in securities on the Company's watch or restricted lists. In light of the
Company's expanded business activities and the continued changes and expansion
in the scope of regulatory requirements, KBW recently conducted a comprehensive
review of its compliance policies and procedures. Currently, KBW's Chief
Financial Officer also acts as its senior compliance officer. As a result of its
compliance review, KBW expects to separate these roles and to hire a senior
full-time compliance officer. Although the Company believes its policies and
procedures are adequate, there can be no assurance that situations will not
arise from inadvertent regulatory violations or other operational errors that
may have a material impact on the Company. See "Risk Factors--Risks Relating to
Regulation; Net Capital Requirements; Compliance" and "Risk Factors--No Prior
Operating History as Public Company."
Principal risk is managed primarily through the daily monitoring of
securities owned by the Company and by limiting the Company's exposure to any
one investment or type of investment. The two most common categories of
securities owned by the Company are those related to the daily trading
activities of KBW's brokerage and underwriting operations and those related to
the Company's principal trading and investing activities. The Company generally
seeks to limit principal risk with respect to its fixed-income business to a
greater extent than its equity trading activities, both through hedging
transactions and through more limited underwriting activities. Security
inventory positions are balanced daily, with pricing information provided by the
Company's clearing brokers and by the Company's operations employees independent
of the sales and trading area. The Company's President and Chief Operating
Officer is aware of all material principal positions taken by the Company.
Because of the relatively small number of sales and trading personnel, the
active involvement of senior management in daily principal trading and investing
decisions, and the specialized knowledge and experience of these professionals,
the Company does not employ specific principal risk limit policies typically
used in larger investment banks. The Company recently conducted a comprehensive
review of its risk management and compliance policies and procedures and is
implementing changes in, and additions to, procedures and controls based on the
results of this review.
Quantitative Disclosures About Market Risk
In addition to the information above, the Company's exposure to market
risk at December 31, 1998 is described in the following tables. Market risk
relating to the Company's positions in equity securities relates primarily to
the
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Company's trading activity in the equity securities of financial institutions.
The Company's market risk exposure in the case of debt instruments includes the
impact of short-term changes in interest rates, which may result in losses in
long and short positions of debt securities held for trading purposes. See "Risk
Factors--Market, Credit and Liquidity Risks Associated with Certain Company
Activities."
EQUITY SECURITIES
AT DECEMBER 31, 1998
(dollars in thousands)
Fair
Value
Assets
Equity securities sold......................... $108,483
Other investments.............................. 3,238
Liabilities
Equity securities sold......................... 17,038
Options sold................................... 582
<TABLE>
<CAPTION>
DEBT SECURITIES
AT DECEMBER 31, 1998
(dollars in thousands)
MATURITY DATE
---------------------------------------------------------------------------------------
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
---------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities owned.... $ -- $ -- $ -- $ -- $ -- $ 3,000 $ 3,000 $ 3,198
Corporate debt securities owned... 1,540 4,123 250 1,580 1,871 1,767 11,131 11,333
Certificates of deposit, floating
rate notes and other securities
owned........................... -- -- -- -- -- 4,610 4,610 4,498
Weighted Average Interest Rate.... 8.8% 6.3% 8.4% 7.4% 7.6% 3.7%
Liabilities
U.S. Treasury securities sold not
yet purchased................... $ 200 $ -- $ -- $1,000 $ -- $ 3,000 $ 4,200 $ 4,265
Corporate debt securities sold not
yet purchased................... -- 500 -- 4 5,000 805 6,309 6,450
Certificates of deposit, floating
rate notes and other securities
sold not yet purchased.......... -- -- -- -- -- 2,250 2,250 2,116
Weighted Average Interest Rate.... 5.9% 6.6% 5.5% 6.1% 5.5%
Debt securities held other than
for trading:
KBWI subordinated notes issued to
former stockholders............. $ 1,679 $ -- $ -- $ -- $ -- $ -- $ 1,679
Weighted Average Interest Rate.... 2.0%
</TABLE>
CUSTOMERS AND CLIENTS
The Company's investment banking clients include U.S. bank holding
companies, commercial banks, thrift institutions and non-bank financial services
companies. The Company is expanding its investment banking client base
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to include insurance companies and securities firms. KBW's sales and trading
customers include banks, insurance companies, registered investment advisers,
mutual funds, pension funds, unregistered investment companies and similar
entities that invest in the securities of financial services companies. KBW
occasionally executes transactions in securities for high net worth individuals
who are otherwise known to the Company. As an accommodation to a corporate
client, the Company may also assist in executing transactions in restricted or
"control" stock in accordance with Rules 144 and 145 under the Securities Act.
In addition, in connection with its mutual thrift conversion business, KBW opens
accounts for individuals for the limited purpose of handling order flow in
connection with the conversion of these institutions. The Company generally
limits its activity in these accounts to effecting transactions in related
shares. No investment banking client or sales and trading customer accounts for
more than 10% of the Company's revenues.
CLEARING ACTIVITIES
Pershing, a division of DLJ, clears securities transactions for KBW,
maintains KBW customers' accounts on a fully-disclosed basis and prepares
various records and reports relating to the Company's sales and trading activity
on behalf of clients and for KBW's own accounts.
Pershing furnishes KBW with certain information needed to operate KBW's
business, including commission runs, transaction summaries, data feeds for
various reports including compliance, risk management and execution reports,
trade confirmations and monthly account statements. Pershing also performs
cashiering functions and processes margin accounts. The agreement between the
Company and Pershing, which has been in effect since February 1993, may be
canceled on 90 days' notice by either party. See "Risk Factors--Dependence on
Systems and Third Parties; Possible Year 2000 Costs Relating to Systems and
Third Parties."
The Company currently has an uncommitted financing arrangement with
Pershing pursuant to which the Company finances its customer accounts,
broker-dealer balances and trading positions through Pershing. The Company has
agreed to indemnify Pershing for losses it may sustain in connection with
accounts of the Company's customers.
Morgan Stanley & Co. Incorporated also clears a small portion of KBW's
trades (those involving collateralized mortgage obligations, government
securities and similar securities in connection with the activities of the
Financial Strategies Team).
COMPETITION
The Company is engaged in the highly competitive securities brokerage
and investment banking businesses. It competes directly with large Wall Street
securities firms, regional securities firms and securities subsidiaries of major
commercial bank holding companies as well as companies, such as Instinet(R),
that provide ECNs that permit subscribers to bypass brokers and trade directly
among themselves. The Company's industry focus also subjects it to direct
competition from a number of specialty securities firms and smaller investment
banking boutiques that specialize in providing services to the financial
services industry. The Company expects competition from domestic and
international banks to increase as a result of recent and anticipated
legislative and regulatory initiatives in the United States to reduce or
eliminate certain restrictions on the activities of commercial banks.
In addition to competing for both investment banking clients and sales
and trading customers, companies in the securities industry compete to attract
and retain experienced and productive professionals. The Company has generally
been successful in retaining its key executives and other professionals, but
there can be no assurance that it will be able to continue to do so. See "Risk
Factors--Dependence on Key Personnel."
The principal competitive factors influencing the Company's business
include its professional staff, industry expertise, client relationships,
business reputation and its mix of market and product capabilities. The Company
believes that its strategy of offering focused research, investment advice and
investment banking services in particular areas of expertise relating to the
banking and financial services industries differentiates it from its
competitors. See "Risk Factors--Industry Competition."
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EMPLOYEES
As of December 31, 1998, the Company had a total of 161 employees, of
whom 22 were engaged in research, 52 in sales and trading, 32 in corporate
finance, 19 in the Webb Division, five in asset management services, and 31 in
accounting, administration and operations. None of the Company's employees is a
member of a union or subject to a collective bargaining agreement. The Company
believes that its relations with its employees are excellent. More than 60% of
all employees are stockholders of the Company.
PROPERTIES
The Company's principal executive offices are located at Two World
Trade Center, New York City, New York and occupy approximately 45,000 square
feet under a lease that terminates on July 30, 1999. The Company signed a
15-year lease in 1998 which provides for moving its principal executive offices
in the same building to two contiguous floors encompassing approximately 98,000
square feet. The lease has a five-year renewal option. The Company also occupies
the following office space: approximately 3,000 square feet in Hartford,
Connecticut under a lease that expires on December 31, 2001; approximately 4,815
square feet in Columbus, Ohio for its Webb Division under a lease that expires
on December 31, 2001; approximately 600 square feet in Boston, Massachusetts for
Oliver Securities under a lease that expires on December 31, 1999; and
approximately 4,360 square feet in Burr Ridge, Illinois under a lease that
expires on the fifth anniversary of the date of initial occupancy which is
currently expected to be in the latter part of the first quarter of 1999. The
Company believes that its present or anticipated facilities, together with its
current options to extend lease terms and occupy additional space, are adequate
for its current and projected needs.
LEGAL PROCEEDINGS
Many aspects of the Company's business involve substantial risks of
legal liability. An underwriter, placement agent or financial adviser is exposed
to substantial liability under federal and state laws and court decisions. For
example, an underwriter or placement agent may be held liable for material
misstatements or omissions of fact in a prospectus or other offering document. A
financial adviser in an M&A transaction may incur liability for its advice.
In recent years, there has been an increasing incidence of litigation
involving the securities industry, including class actions that seek substantial
damages. The Company's clients include many small and mid-size banks and
non-bank financial services companies, whose securities often involve a higher
degree of risk than the securities of more established companies. In comparison
with more established companies, such small and mid-size companies are generally
more likely to be the subject of securities class actions, to carry directors
and officers liability insurance policies with lower limits than more
established companies, and to become insolvent. Each of these factors increases
the likelihood that an underwriter, placement agent or financial adviser for a
small or mid-size company will be required to contribute to any judgment or
settlement of a securities lawsuit.
As of the date of this Prospectus, the Company has not experienced any
material losses relating to litigation or other proceedings, although there can
be no assurance that the Company will not become involved in securities-related
litigation or other proceedings at some time in the future. In addition to the
financial costs and risks of such litigation, the defense of litigation may
divert the efforts and attention of the Company's management and staff, which
could materially adversely impact its business. In the normal course of
business, the Company has on occasion been a defendant in a civil action or
arbitration arising out of its activities as a broker-dealer in securities, as
an employer and as a result of other related business activities. KBW has not
been required to make any material payments, or to in any way restrict its
business activities, in connection with such matters.
REGULATION
KBW's business and the securities industry in general are subject to
extensive regulation at both the federal and state level, as well as by self
regulatory organizations ("SROs"). A number of federal regulatory agencies are
charged with safeguarding the integrity of the securities and other financial
markets and with protecting the interests of customers participating in those
markets. The SEC is the federal agency that is primarily responsible for the
regulation of broker-dealers and investment advisers, and the Federal Reserve
Board promulgates regulations applicable to securities credit transactions
involving broker-dealers and certain other U.S. institutions. Broker-dealers and
investment advisers are
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subject to registration and regulation by state securities regulators in those
states in which they conduct business. Regulation by SROs is generally subject
to oversight by the SEC. The NYSE has been designated the primary regulator of
Keefe, Bruyette & Woods, Inc. SROs also conduct periodic examinations of the
Company's operations.
Keefe, Bruyette & Woods, Inc. is registered as a broker-dealer with the
SEC and in all 50 states, Puerto Rico and the District of Columbia, and is a
member of, and subject to regulation by, a number of SROs, including the NASD,
the NYSE, other securities exchanges and the Municipal Securities Rulemaking
Board.
As a result of federal and state registration and SRO memberships,
Keefe, Bruyette & Woods, Inc. is subject to overlapping schemes of regulation
which cover all aspects of its securities business. Such regulations cover
capital requirements, the use and safekeeping of customers' funds and
securities, record keeping and reporting requirements, supervisory and
organizational procedures intended to assure compliance with securities laws and
to prevent improper trading on material non-public information, employee-related
matters, including qualification and licensing of supervisory and sales
personnel, limitations on extensions of credit in securities transactions,
clearance and settlement procedures, requirements for the registration,
underwriting, sale and distribution of securities and rules of SROs designed to
promote high standards of commercial honor and just and equitable principles of
trade. A particular focus of the applicable regulations concerns the
relationship between broker-dealers and their customers. As a result, all
aspects of the broker-dealer customer relationship are subject to regulation,
including in some instances "suitability" determinations as to certain customer
transactions, limitations on the amounts that may be charged to customers,
timing of proprietary trades in relation to customers' trades and disclosures to
customers.
Much of the Company's underwriting and market-making business involves
securities traded on Nasdaq. Nasdaq's operations, including allegations of
collusion among Nasdaq market makers, have been the subject of extensive
scrutiny in the media and by government regulators, including by the Antitrust
Division of the United States Department of Justice. Nasdaq has made a number of
changes in its operations, and the NASD continually reviews its required
practices and procedures for broker-dealers, including the proposed introduction
of additional regulatory requirements for registered broker-dealers. The Company
has not been named in any actions relating to these investigations. Certain
requirements proposed by the NASD, such as the proposed Order Audit Trail System
(OATS) rules, if effected, could adversely affect the Company's operating
results.
KBW Asset Management is registered as an investment adviser with the
SEC. As an investment adviser registered with the SEC, it is subject to the
requirements of the Investment Advisers Act and the SEC's regulations
thereunder, as well as state securities laws and regulations. Such requirements
relate to, among other things, limitations on the ability of investment advisers
to charge performance-based fees to clients, record keeping and reporting
requirements, disclosure requirements, limitations on principal transactions
between an adviser or its affiliates and advisory clients, and general
anti-fraud prohibitions. The state securities law requirements applicable to
registered investment advisers are in certain cases more comprehensive than
those imposed under the federal securities laws.
Violations of federal or state laws or regulations or SRO rules could
subject the Company, its subsidiaries and/or its employees to disciplinary,
administrative or judicial proceedings that could result in civil or criminal
liability, including revocation of licenses, censures, fines (including treble
damages in the case of insider trading violations), the issuance of
cease-and-desist orders, the de-registration or suspension of the non-compliant
broker-dealer or investment adviser, the temporary suspension or permanent
disqualification of the broker-dealer's officers or employees or other adverse
consequences. Any such proceeding could have a material adverse effect on the
Company's business. The Company has not, as of the date of this Prospectus,
incurred any significant liability, fine or sanction from a federal or state
securities regulatory organization or an SRO and, to its knowledge, is not the
subject of any such material investigation, inquiry or proceeding.
Additional legislation and regulations, including those relating to the
activities of broker-dealers and investment advisers, changes in rules
promulgated by the SEC or other governmental regulatory authorities and SROs or
changes in the interpretation or enforcement of existing laws and rules may
adversely affect the manner of operation and profitability of the Company. KBW's
businesses may be materially affected not only by regulations applicable to it
as a financial market intermediary, but also by regulations of general
application. For example, the volume of KBW's underwriting, M&A advisory, sales,
trading and principal investing activities could be affected by, among other
things, existing and proposed tax legislation, antitrust policy and other
governmental regulations and policies (including the interest rate
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policies of the Federal Reserve Board) and changes in interpretation or
enforcement of existing laws and rules that affect the business and financial
communities.
NET CAPITAL REQUIREMENTS
As a broker-dealer registered with the SEC and a member firm of the
NYSE, Keefe, Bruyette & Woods, Inc. is subject to the net capital requirements
of the SEC and the NYSE. These net capital rules specify minimum levels of
capital, computed in accordance with regulatory requirements, that each firm is
required to maintain and also limit the amount of leverage that each firm is
able to obtain in its respective business.
The Company believes that Keefe, Bruyette & Woods, Inc. has at all
times been in compliance in all material respects with the applicable minimum
net capital rules. At December 31, 1998, Keefe, Bruyette & Woods, Inc. was
required to maintain minimum net capital, in accordance with SEC rules, of
approximately $687,500 and had total net capital of approximately $125.6
million, or approximately $124.9 million in excess of the amount required.
Keefe, Bruyette & Woods, Inc. computes its net capital requirements
under the alternative method permitted by the SEC's rules. Under this method,
Keefe, Bruyette & Woods, Inc. is required by the SEC to maintain regulatory net
capital, computed in accordance with the SEC's regulations as supplemented by
NYSE Rule 325, equal to the highest minimum net capital requirement established
under the alternative standard or as required pursuant to any of KBW's
activities.
"Net capital" is defined as net worth (assets minus liabilities, as
determined under generally accepted accounting principles), plus qualifying
subordinated borrowings, less the value of all of a broker-dealer's assets that
are not readily convertible into cash (such as goodwill, furniture, prepaid
expenses, exchange seats and unsecured receivables), and further reduced by
certain percentages (commonly called "haircuts") of the market value of a
broker-dealer's positions in securities and other financial instruments.
The failure of a broker-dealer to maintain its minimum required net
capital would require it to cease executing customer transactions until its
compliance is restored, and could cause it to lose its membership on an exchange
or in an SRO, its registration with the SEC, or require its liquidation.
Further, the decline in a broker-dealer's net capital below certain "early
warning levels," even though above minimum capital requirements, could cause
material adverse consequences to the broker-dealer. For example, the SEC's
regulations prohibit payment of dividends, redemption of stock and the repayment
of subordinated indebtedness if a broker-dealer's net capital thereafter would
be less than 5% of aggregate debit items. Under NYSE Rule 326, a member firm is
required to reduce its business if its net capital (after giving effect to
scheduled maturities of subordinated indebtedness or other planned withdrawals
of regulatory capital during the following six months) is less than $312,500 or
4% of aggregate debit items for 15 consecutive days. NYSE Rule 326 also
prohibits the expansion of a member's business if its net capital (after giving
effect to scheduled maturities of subordinated indebtedness or other planned
withdrawals of regulatory capital during the following six months) is less than
$375,000 or 5% of aggregate debit items for 15 consecutive days.
The SEC's net capital rules also (i) require that broker-dealers notify
it and the NYSE in writing two business days prior to making withdrawals or
other distributions of equity capital or making unsecured loans to certain
related persons, if those withdrawals, distributions or loans would exceed, in
any 30-day period, 30% of the broker-dealer's excess net capital and that they
provide such notice within two business days after any such withdrawal,
distribution or loan that would exceed, in any 30-day period, 20% of the
broker-dealer's excess net capital; (ii) prohibit a broker-dealer from
withdrawing or otherwise distributing equity capital or making unsecured related
party loans if, after such withdrawal, distribution or loan, the broker-dealer
has net capital of less than 120% of its required minimum net capital or its net
capital would be less than 5% of aggregate debit items (as computed under a
related rule) and in certain other circumstances; and (iii) provide that the SEC
may, by order, prohibit withdrawals of capital or unsecured related party loans
for a period of up to 20 business days if the withdrawals or loans would exceed,
in any 30-day period, 30% of the broker-dealer's excess net capital and the SEC
believes such withdrawals or loans would be detrimental to the financial
integrity of the firm or would unduly jeopardize the broker-dealer's ability to
pay its customer claims or other liabilities.
Compliance with net capital rules could limit those operations of the
Company that require the intensive use of capital, such as underwriting and
trading activities, and also could restrict the Company's ability to withdraw
capital from
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its broker-dealer subsidiary, which, in turn, could limit its ability to pay
dividends, repay debt and redeem or repurchase shares of its outstanding capital
stock.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their
respective ages and positions are as follows:
NAME AGE POSITION(S)
James J. McDermott, Jr.... 47 Chairman of the Board of Directors, Chief
Executive Officer and Class I Director(1)
Joseph J. Berry........... 53 President, Chief Operating Officer and
Class III Director(1)
Charles H. Lott........... 68 Vice Chairman of the Board of Directors
and Class II Director(1)
Stanley T. Wells.......... 57 Vice Chairman of the Board of Directors
and Class I Director(1)
John G. Duffy............. 49 Executive Vice President, Co-Head of
Corporate Finance and Class II Director(1)
Andrew M. Senchak......... 52 Executive Vice President, Co-Head of Corp-
orate Finance and Class III Director(1)
Guy G. Woelk.............. 55 Executive Vice President, Chief Financial
Officer and Treasurer
Mitchell B. Kleinman...... 45 General Counsel
- -------------
(1) The terms of Class I Directors will expire at the annual meeting held
in 1999. The terms of Class II Directors will expire at the annual
meeting held in 2000. The terms of Class III Directors will expire at
the annual meeting held in 2001.
Prior to consummation of the Offering, the Company intends to appoint
as directors two additional persons who are not officers or employees of the
Company. The Company will be required to have at least two independent directors
(as defined by the NYSE) to maintain the listing of the Common Stock on the
NYSE. In addition, following the Offering, the KBW Board may from time to time
determine that it is in the best interests of the Company to increase the number
of directors in order to appoint one or more additional independent directors
who could provide additional outside experience to the KBW Board in its
management of the Company. Messrs. Lott and Wells have announced that they will
retire from the KBW Board effective as of the first annual meeting in 1999. At
that time, the KBW Board may elect to fill one or more such vacancies or may
elect to correspondingly reduce the size of the KBW Board.
James J. McDermott, Jr. Mr. McDermott has served as Chairman and Chief
Executive Officer since KBW's inception and as Chairman and Chief Executive
Officer of Keefe, Bruyette & Woods, Inc. since January 1, 1998. He joined the
Company in 1977 as a research analyst and has also served as Director of
Research, Executive Vice President and President of Keefe, Bruyette & Woods,
Inc. Mr. McDermott was elected to the Board of Directors of Keefe, Bruyette &
Woods, Inc. in 1988.
Joseph J. Berry. Mr. Berry has served as President and Chief Operating
Officer since KBW's inception and as President and Chief Operating Officer of
Keefe, Bruyette & Woods, Inc. since January 1, 1998. He joined the Company in
1972 as an institutional salesperson and has also served as Vice President,
Senior Vice President, Executive Vice President and Vice Chairman of Keefe,
Bruyette & Woods, Inc. Mr. Berry was elected to the Board of Directors of Keefe,
Bruyette & Woods, Inc. in 1987.
Charles H. Lott. Mr. Lott has served as Vice Chairman since KBW's
inception, as Vice Chairman of Keefe, Bruyette & Woods, Inc. since January 1,
1998 and as Chairman of KBW Asset Management since December 1998. He joined the
Company at its inception in 1962 as Vice President and Director of Research and
has also served as its President from 1982 through 1989, its Chief Executive
Officer from 1989 through 1997 and its Chairman from 1990 through 1997. Mr. Lott
was elected to the Board of Directors of Keefe, Bruyette & Woods, Inc. in 1967.
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Stanley T. Wells. Mr. Wells has served as Vice Chairman since KBW's
inception and as Vice Chairman of Keefe, Bruyette & Woods, Inc. since January 1,
1998. He joined the Company in 1970 and has also served as Vice President,
Senior Vice President, and Executive Vice President of Keefe, Bruyette & Woods,
Inc. Mr. Wells was elected to the Board of Directors of Keefe, Bruyette & Woods,
Inc. in 1990. Mr. Wells has served nearly all of his time at KBW based in the
Hartford office. His primary areas of responsibility have included institutional
sales, research and managing an investment account for the Company focused on
financial services companies in the northeastern United States.
John G. Duffy. Mr. Duffy has served as Executive Vice President since
KBW's inception and as Executive Vice President of Keefe, Bruyette & Woods, Inc.
since 1990 and Co-Head of Corporate Finance since 1997. He joined the Company in
1978 and has also served as a Senior Vice President, Co-Head of M&A and Director
of Corporate Finance of Keefe, Bruyette & Woods, Inc. Mr. Duffy was elected to
the Board of Directors of Keefe, Bruyette & Woods, Inc. in 1990.
Andrew M. Senchak. Mr. Senchak has served as Executive Vice President
since KBW's inception and as Executive Vice President of Keefe, Bruyette &
Woods, Inc. since 1995 and Co-Head of Corporate Finance since 1997. He joined
the Company in 1985 and has also served as Assistant Vice President, Vice
President, and Senior Vice President of Keefe, Bruyette & Woods, Inc. Mr.
Senchak was elected to the Board of Directors of Keefe, Bruyette & Woods, Inc.
in 1997.
Guy G. Woelk. Mr. Woelk has served as Executive Vice President, Chief
Financial Officer and Treasurer since KBW's inception and as Executive Vice
President, Chief Financial Officer, Chief Compliance Officer and Treasurer of
Keefe, Bruyette & Woods, Inc. since 1995. He joined the Company in 1983 and has
also served as Vice President and Senior Vice President of Keefe, Bruyette &
Woods, Inc.
Mitchell B. Kleinman. Mr. Kleinman has served as General Counsel since
KBW's inception and as General Counsel of Keefe, Bruyette & Woods, Inc. since
March 1998. Prior to that time, Mr. Kleinman was a partner in the law firm of
Brown & Wood LLP where he specialized in corporate and securities law and
frequently represented the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
A Compensation Committee of the KBW Board will be formed on or prior to
completion of the Offering. It is anticipated that the two independent directors
to be appointed to the KBW Board will be members of the Compensation Committee.
The Compensation Committee will determine compensation for the executive
officers of the Company.
ADDITIONAL COMMITTEES OF THE BOARD OF DIRECTORS
Upon completion of the Offering, the KBW Board will also establish an
Audit Committee and an Executive Committee.
Audit Committee
The Audit Committee will meet with management to consider the adequacy
of the internal controls and the objectivity of financial reporting. The Audit
Committee also will meet with the independent auditors of the Company and with
appropriate financial personnel of the Company regarding these matters. The
Audit Committee will recommend to the KBW Board the appointment of independent
auditors, subject to ratification by the stockholders of the Company at the
annual meeting. The independent auditors will periodically meet alone with the
Audit Committee and have unrestricted access to the Audit Committee. The Audit
Committee is anticipated to consist solely of the independent directors of the
Company.
Executive Committee
The Executive Committee will be comprised of Messrs. McDermott, Berry,
Duffy and Senchak. The Executive Committee will exercise the authority of the
KBW Board between meetings of the full KBW Board (other than such authority as
is reserved to the Audit Committee, the Compensation Committee or the full KBW
Board).
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OPERATING COMMITTEE
The KBW Board established an Operating Committee in 1998 comprised of
the department heads of the following departments: Research, Equity Sales,
Equity Trading, Fixed Income Sales and Trading, Investment Banking and
Compliance/Administration as well as the President of KBW Asset Management. From
time to time in the future, the KBW Board may designate additional departments
or subsidiaries of the Company to be represented on the Operating Committee. The
purposes of the Operating Committee include assisting the KBW Board and the
Chief Executive Officer in strategic planning and identifying issues of
importance to multiple departments or areas of the Company. The Operating
Committee also is active in supervising the Company's compliance procedures.
EXECUTIVE COMPENSATION
The information set forth below describes the components of the total
compensation of the Chief Executive Officer and the four other most highly
compensated executive officers of the Company, based on 1998 salary and annual
bonuses (the "Named Executive Officers"). The principal components of such
individuals' current cash compensation are the annual base salary and annual
bonus included in the Summary Compensation Table. The following table sets forth
the compensation earned by the Named Executive Officers for the year ended
December 31, 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
1998 ALL OTHER
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- --------------
OTHER ANNUAL
NAME AND SALARY BONUS COMPENSATION
PRINCIPAL POSITION ($) ($) ($) ($)
<S> <C> <C> <C> <C>
James J. McDermott, Jr.................. 340,000 3,514,586 (1) 28,089(2)
Chairman and
Chief Executive Officer
Joseph J. Berry......................... 320,000 2,505,030 (1) 29,295(3)
President, Chief Operating Officer
and Director
Charles H. Lott......................... 360,000 1,441,120 (1) 40,117(4)
Vice Chairman
John G. Duffy........................... 300,000 2,379,452 (1) 27,401(5)
Executive Vice President,
Co- Head of Corporate Finance
and Director
Andrew M. Senchak....................... 274,231 1,148,815 (1) 24,000(6)
Executive Vice President,
Co- Head of Corporate Finance
and Director
</TABLE>
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(1) Amount does not exceed $50,000.
(2) Amount represents: (i) a contribution of $24,000 by the Company on
behalf of Mr. McDermott into the Company's profit sharing retirement
plan; and (ii) a net annual premium of $4,089 paid by the Company with
respect to split-dollar life insurance arrangements relating to Mr.
McDermott which does not include a reduction for amounts which will be
refunded to the Company in the future.
(3) Amount represents: (i) a contribution of $24,000 by the Company on
behalf of Mr. Berry into the Company's profit sharing retirement plan;
and (ii) a net annual premium of $5,295 paid by the Company with
respect to split-dollar life insurance arrangements relating to Mr.
Berry which does not include a reduction for amounts which will be
refunded to the Company in the future.
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<PAGE>
(4) Amount represents: (i) a contribution of $24,000 by the Company on
behalf of Mr. Lott into the Company's profit sharing retirement plan;
and (ii) a net annual premium of $16,117 paid by the Company with
respect to split-dollar life insurance arrangements relating to Mr.
Lott which does not include a reduction for amounts which will be
refunded to the Company in the future.
(5) Amount represents: (i) a contribution of $24,000 by the Company on
behalf of Mr. Duffy into the Company's profit sharing retirement plan;
and (ii) a net annual premium of $3,401 paid by the Company with
respect to split-dollar life insurance arrangements relating to Mr.
Duffy which does not include a reduction for amounts which will be
refunded to the Company in the future.
(6) Amount represents a contribution of $24,000 by the Company on behalf
of Mr. Senchak into the Company's profit sharing retirement plan.
COMPENSATION OF DIRECTORS
Each non-employee director will receive a single annual retainer of
$20,000 for service on the KBW Board. Each non-employee director will also
receive a fee of $1,000 for each in-person meeting of the KBW Board that they
attend and a fee of $500 for each telephonic meeting of the KBW Board in which
they participate and each meeting of any committee of the KBW Board that they
attend. The chair of each committee will receive an additional annual retainer
of $5,000. Directors who are employees of the Company or any subsidiary of the
Company will not receive additional compensation for service as directors. With
respect to the annual retainer fee and meeting fees paid to non-employee
directors, 25% of all such director fees will be paid on a mandatory basis in
shares of Common Stock pursuant to the Director Stock and Option Plan (described
below).
THE NON-EMPLOYEE DIRECTOR STOCK AND OPTION COMPENSATION PLAN
KBW will adopt the KBW, Inc. Non-Employee Director Stock and Option
Compensation Plan (the "Director Stock and Option Plan") effective at the
consummation of the Offering. The purposes of the Director Stock and Option Plan
are to: (i) promote a greater identity of interests between KBW's non-employee
directors and its stockholders; and (ii) attract and retain individuals to serve
as directors.
General
The Director Stock and Option Plan will be administered by the KBW
Board or a committee of the KBW Board designated for such purpose.
Pursuant to the terms of the Director Stock and Option Plan,
non-employee directors of KBW will be eligible to participate in the Director
Stock and Option Plan following the Offering (each, an "Eligible Director"). A
total of shares of Common Stock will be reserved for issuance and available for
grants under the Director Stock and Option Plan.
In the event of any change in corporate capitalization (such as a stock
split) or a corporate transaction (such as a merger, consolidation, separation,
including a spin-off, or other distribution of stock or property of KBW, any
reorganization or any partial or complete liquidation of KBW), the KBW Board or
the designated committee thereof may make such substitutions or adjustments in
the aggregate number and class of shares reserved for issuance under the
Director Stock and Option Plan, in the number, kind and option price of shares
subject to outstanding options, in the number and kind of shares subject to
other outstanding awards granted under the Director Stock and Option Plan,
and/or such other equitable substitutions or adjustments as it may determine to
be appropriate in its sole discretion; provided, however, that the number of
shares subject to any award must always be a whole number.
Common Stock
With respect to the annual retainer and fees paid to a director (the
"Director Fees"), each Eligible Director will receive 25% of such Director Fees
in shares of Common Stock on a mandatory basis and may make an annual
irrevocable election to receive shares of Common Stock in lieu of all or a
portion (in 25% increments) of the remaining Director Fees to which such
director is entitled; provided that the election of cash and Common Stock under
the Director
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Stock and Option Plan when taken together with the mandatory receipt of Common
Stock in lieu of Director Fees, may not exceed 100% of such Director Fees. The
number of shares of Common Stock granted to an Eligible Director will be equal
to the appropriate percentage of the Director Fees payable to such director in
each calendar quarter, divided by the "fair market value" (as defined in the
Director Stock and Option Plan) of a share of Common Stock on the last business
day of such calendar quarter rounded to the nearest whole share of Common Stock.
Fractional shares of Common Stock will not be granted and any remainder in the
Director Fees which otherwise would have purchased fractional shares will be
paid in cash. Each Eligible Director may defer the receipt of his or her elected
or mandatory shares of Common Stock by electing to receive share units, payable
upon such Eligible Director's termination from the KBW Board.
Options
On the day the Offering becomes effective, each Eligible Director will
be granted options ("Director Options") for shares of Common Stock. After each
annual meeting of stockholders during such director's term, each Eligible
Director will be granted Director Options for shares of Common Stock. Each
new Eligible Director will be granted Director Options for share of Common
Stock upon being elected or appointed to the KBW Board. The exercise price for
the Director Options will be 100% of the fair market value of a share of Common
Stock on the date of the grant of such Director Option; provided that Director
Options granted prior to or upon consummation of the Offering will be granted at
the initial public offering price. Each Director Option will become vested and
exercisable on the first anniversary of the date of grant of such Director
Option. Each vested Director Option shall terminate one year after the Eligible
Director's service on the KBW Board ceases for any reason (other than for
cause), but no later than the tenth anniversary of the date of grant. Any
unvested Director Options will terminate and be canceled as of the date the
Eligible Director's service on the KBW Board ceases for any reason. All Director
Options become fully vested and exercisable upon a Change of Control (as defined
in the 1999 Plan described below).
Transferability
Grants and awards under the Director Stock and Option Plan are
nontransferable other than by will or the laws of descent and distribution, or
at the discretion of the KBW Board or the designated committee thereof pursuant
to a written beneficiary designation or, in the discretion of the KBW Board or
the designated committee thereof, pursuant to a gift to the Eligible Director's
immediate family, whether directly or indirectly, or by means of a trust or
partnership or limited liability company and, during the Eligible Director's
lifetime, a Director's Option may be exercised only by the Eligible Director or
his or her guardian, legal representative or beneficiary.
Amendments
The KBW Board may at any time terminate, amend or modify the Director
Stock and Option Plan; provided that no termination, amendment, or modification
will be made which will impair the rights of Eligible Directors with outstanding
Director Options or awards and, to the extent required by law, agreement or
stock exchange rule, no such amendment will be made without the approval of
KBW's stockholders.
EMPLOYEE INCENTIVE COMPENSATION PLANS
The Company's philosophy is to compensate employees based on their
individual, departmental and overall Company performance. Two main principles
guiding this philosophy are to pay competitive compensation and to provide
long-term employee stock ownership. KBW considers equity ownership by employees
to be critical to its long-term success. Following completion of the Offering,
when calculating total compensation, KBW will consider both cash compensation
and awards of restricted stock or options that vest over time or based on the
achievement of specified performance goals.
It is anticipated that, following the consummation of the Offering, the
Compensation Committee of the KBW Board will review all plans, policies and
arrangements affecting employees of KBW and will consider what changes are
appropriate, if any, for recommendation to the full KBW Board.
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THE 1999 STOCK AND ANNUAL INCENTIVE PLAN
KBW has adopted the KBW, Inc. 1999 Stock and Annual Incentive Plan (the
"1999 Plan"). The 1999 Plan is designed to promote the success and enhance the
value of KBW by linking the interests of certain of the Company's employees
("Participants") to those of KBW's stockholders and by providing Participants
with an incentive for outstanding performance. The 1999 Plan is further intended
to provide flexibility to KBW in its ability to motivate, attract and retain
Participants upon whose judgment, interest and special efforts KBW's business is
largely dependent. As determined by the Compensation Committee, or any other
designated committee of the KBW Board (the "Committee"), employees and
consultants of KBW, including employees who are members of the KBW Board, are
eligible to participate in the 1999 Plan. Non-employee directors are not
eligible to participate in the 1999 Plan. The 1999 Plan is intended to remain in
effect until 2009. The description below summarizes the material terms of the
1999 Plan.
General
The 1999 Plan will be administered by the Committee or the KBW Board
and provides for the grant of stock options (both non-qualified and incentive
stock options) ("Options") and other types of equity-based awards (together with
Options, "Awards").
The 1999 Plan provides that the total number of shares of Common Stock
available for grant under the 1999 Plan may not exceed shares.
The 1999 Plan is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and is not
qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
The term of Options granted under the 1999 Plan may not exceed 10
years. Unless otherwise determined by the Committee or the KBW Board, Options
will generally vest ratably on each of the first three anniversaries after the
grant date. Unless otherwise determined by the Committee or the KBW Board,
Options will have an exercise price equal to the fair market value of the Common
Stock on the date of grant.
A Participant exercising an Option may pay the exercise price in full
in cash or, if approved by the Committee or the KBW Board, with previously
acquired shares of Common Stock or in a combination thereof. The Committee, in
its discretion, may allow cashless exercise of Options. At the discretion of the
Committee, an Option may include a right to receive a replacement or "reload"
option when a Participant delivers shares of Common Stock to pay for the
exercise price of an Option. A reload option will be for the number of shares of
Common Stock equal to the number of shares that were delivered to satisfy the
exercise price of the Option that was exercised, will have an exercise price
equal to the fair market value of a share of Common Stock on the date of grant
of the reload option, will vest and become exercisable six months after such
date of grant and will expire on the same day as the Option that was exercised
was otherwise due to expire.
Options are nontransferable other than by will or the laws of descent
and distribution or, at the discretion of the Committee, pursuant to a written
beneficiary designation (and, in the case of a nonqualified Option, in the
discretion of the Committee, pursuant to a gift to members of the holder's
immediate family, whether directly or indirectly, or by means of a trust or
partnership or limited liability company) and, during the Participant's
lifetime, may be exercised only by the Participant, any such transferee or a
guardian, legal representative or beneficiary thereof.
During the 60-day period following a Change of Control, unless the
Committee determines otherwise, Participant will have the right to surrender all
or part of any Option held by such Participant in lieu of payment of the
exercise price, and to receive cash (or stock, if necessary to preserve
pooling-of-interests accounting for the Change of Control) in an amount equal to
the excess of (a) (i) the higher of the price received for Common Stock in
connection with the Change of Control and the highest reported sales price of a
share of Common Stock on a national exchange or on Nasdaq during the 60-day
period prior to and including the date of the Change of Control (the "Change of
Control Price"), over (ii) the exercise price multiplied by (b) the number of
shares of Common Stock granted under the Option as to which the right is being
exercised; provided that, if the Option is an incentive stock option, the Change
of Control Price will equal the fair market value of a share of Common Stock on
the date, if any, that such Option is exercised.
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Other Awards
A stock appreciation right ("SAR") permits the Participant to receive
cash or shares of Common Stock (or a combination thereof), as determined by the
KBW Board or the Committee, in an amount (or with a value) equal to the excess
of the fair market value of a share of Common Stock on the date of exercise over
the SAR exercise price, times the number of shares with respect to which the SAR
is exercised. Restricted stock may be granted subject to performance or
service-based goals upon which restrictions will lapse. Performance units may be
granted subject to performance goals and restrictions, and will be payable in
cash or shares of Common Stock (or a combination) as determined by the KBW Board
or the Committee. The KBW Board or the Committee may grant dividend and interest
equivalents with respect to Awards.
Annual Incentive Awards
An annual cash bonus payment may be made to Named Executive Officers,
Managing Directors, Executive Vice Presidents, Senior Vice Presidents, Vice
Presidents and certain other employees, as provided in the 1999 Plan. The annual
cash bonus component of the 1999 Plan is intended to reward these employees for
the overall performance of the Company, the performance of their respective
business areas and individual performance. During each calendar year commencing
with 1999, the Committee will establish an aggregate bonus pool to be awarded to
participants under the annual cash bonus component of the 1999 Plan, provided
that the pool may be reduced to the extent that aggregate compensation and
benefits expense for the calendar year (including annual cash bonus payments
under the 1999 Plan) would otherwise exceed a specified percentage of revenues
or a measure of corporate profitability, as determined by the Committee with
respect to each calendar year. The KBW Board or the Committee, with the input of
various department heads and other members of the Operating Committee, will
determine the allocation of such bonus pool. Upon a Change of Control, a pro
rata bonus award will be paid to each eligible employee, unless the KBW Board
determines to continue the annual bonus cycle for the full year. The KBW Board
or the Committee may make advance payments to participants during a calendar
year.
Change of Control
In the event of a Change of Control, any Option or SAR that is not then
exercisable and vested will become fully exercisable and vested, restrictions on
restricted stock will lapse and performance units will be deemed earned. The
1999 Plan defines "Change of Control" as generally: (i) the acquisition of 50%
or more of the Common Stock or voting securities of KBW by a person or group;
(ii) a change in a majority of the KBW Board, unless approved by the incumbent
directors; (iii) the consummation of certain mergers involving KBW; or (iv)
approval by KBW's stockholders of a liquidation, dissolution or sale of
substantially all of the assets of KBW.
Amendments
The KBW Board may at any time amend or terminate the 1999 Plan and may
amend the terms of any outstanding Option or other Award; provided that no such
amendment to the 1999 Plan shall be made without the approval of the Company's
stockholders to the extent such approval is required by law or stock exchange
rule.
Federal Income Tax Considerations of Options
The following brief summary of the U.S. federal income tax rules
currently applicable to nonqualified stock options and incentive stock options
is not intended to be specific tax advice to Participants under the 1999 Plan.
Two types of stock options may be granted under the 1999 Plan:
nonqualified stock options ("NQOs") and incentive stock options ("ISOs"). The
grant of an Option generally has no immediate tax consequences to the
Participant or the Company. Generally, Participants will recognize ordinary
income upon the exercise of NQOs. In the case of NQOs, the amount of income
recognized is measured by the difference between the exercise price and the fair
market value of Common Stock on the date of exercise. The exercise of an ISO for
cash generally has no immediate tax consequences to a Participant or to the
Company. Participants may, in certain circumstances, recognize ordinary income
upon the disposition of shares acquired by exercise of an ISO, depending upon
how long such shares were held prior to disposition. Special rules apply to
shares acquired by exercise of ISOs for previously held shares. In addition,
special tax
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rules may result in the imposition of a 20% excise tax on any "excess parachute
payments" (as defined in the Code) that result from the acceleration of the
vesting or exercisability of Awards upon a Change of Control.
The Company is generally required to withhold applicable income and
payroll taxes ("employment taxes") from ordinary income which a Participant
recognizes on the exercise or receipt of an Award. The Company thus may either
require Participants to pay to the Company an amount equal to the employment
taxes the Company is required to withhold or retain or sell without notice a
sufficient number of the shares to cover the amount required to be withheld.
The Company generally will be entitled to a deduction for the amount
includible in a Participant's gross income for federal income tax purposes upon
the exercise of an NQO or upon a disqualifying disposition of shares acquired
upon exercise of an ISO.
Stock Options Granted in Connection with Recruitment of Employees
In the first quarter of 1999, the Company granted Options under the
1999 Plan pursuant to prior commitments made in connection with recruiting
certain employees. The Company is using these Options to replace equity
investment opportunities which the new employees forfeited upon termination of
their previous employment and for other compensation purposes. The Company
granted Options to purchase an aggregate of shares of Common Stock at an
exercise price equal to the fair market value on the date of grant as determined
pursuant to an independent valuation. Options that were granted have a 10-year
term and generally vest ratably on each of the first three anniversaries of the
date of grant. The Company may grant Options for similar purposes from time to
time in the future.
THE EMPLOYEE STOCK PURCHASE PLAN
The KBW Board has adopted and approved the KBW, Inc. 1999 Employee
Stock Purchase Plan (the "Purchase Plan"). Prior to consummation of the
Offering, KBW's stockholders will have adopted and approved the Purchase Plan.
Subject to meeting federal and state securities law requirements, the Purchase
Plan will become effective at the consummation of the Offering, or as soon as
practicable thereafter.
The purpose of the Purchase Plan is to further the long-term stability
and financial success of KBW by providing a method for employees to increase
their ownership of Common Stock. Under the Purchase Plan, shares of Common Stock
will be available for issuance and sale under the Purchase Plan. Unless sooner
terminated at the discretion of the KBW Board, the Purchase Plan will terminate
on December 31, 2009.
Eligibility
All employees of KBW and its designated subsidiaries are generally
eligible to participate in the Purchase Plan, other than employees whose
customary employment is 20 hours or less per week, or is for not more than five
months in a calendar year or are ineligible to participate due to Code
restrictions.
General Description
A Participant in the Purchase Plan may authorize monthly salary
deductions of a maximum of 15% and a minimum of 1% of base compensation. The
fair market value of shares which may be purchased by any employee during any
calendar year may not exceed $25,000. The amounts so deducted and contributed
will be applied to the purchase of full shares of Common Stock at 85% of the
lesser of the fair market value of such shares on the date of purchase or on the
offering date for such offering period. The offering dates will be January 1 and
July 1 of each Purchase Plan year, and each offering period shall consist of one
six-month purchase period. Shares will be purchased for participating employees
on the last business days of June and December for each Purchase Plan year.
Shares purchased under the Purchase Plan will be held in separate accounts for
each Participant.
Participants may decrease their payroll deductions at any time but not
more than once during any offering period. Participants may increase or decrease
their payroll deductions for any subsequent offering period by notifying the
Purchase Plan administrator no later than 15 days prior to such offering period.
Participants may also withdraw from participation in the Purchase Plan at any
time. If a Participant withdraws from the Purchase Plan, any contributions which
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have not been used to purchase shares will be refunded. A Participant who has
withdrawn may not participate in the Purchase Plan again until the next offering
period.
In the event of retirement or other termination of employment, any
contributions which have not yet been used to purchase shares will be refunded
and a certificate issued for the full shares in the Participant's account.
Alternatively, a Participant may elect to have his or her shares sold and the
proceeds, less selling expenses, remitted to him or her. In the event of a
Participant's death, any contributions which have not yet been used to purchase
shares and all shares in such Participant's account will be delivered to the
Participant's beneficiary designated in writing and filed with KBW, or, if no
beneficiary has been designated or survives the Participant, to the
Participant's estate.
Amendments or Termination of the Purchase Plan
The KBW Board may at any time, or from time to time, amend the Purchase
Plan in any respect; provided that the stockholders of KBW must approve any
amendment that would increase the number of securities that may be issued under
the Purchase Plan or would require stockholder approval under Section 423 of the
Code. The Board may suspend or terminate the Purchase Plan at any time, provided
that upon a termination while an offering period is in progress, such offering
period shall be shortened by setting a new date of purchase.
EMPLOYMENT AGREEMENTS
Prior to the Offering becoming effective, KBW will enter into
employment agreements (the "Employment Agreements") with each of James J.
McDermott, Jr., Joseph J. Berry, John G. Duffy and Andrew M. Senchak (the
"Executives"). Each Employment Agreement is for a term of three years,
commencing upon the consummation of the Offering and ending on the third
anniversary thereof (the "Employment Period"). During the Employment Period, Mr.
McDermott will serve as the Chief Executive Officer of the Company, Mr. Berry
will serve as the President of the Company and Messrs. Duffy and Senchak will
each serve as a Co-Head of Corporate Finance of the Company. During the
Employment Period, each of Messrs. McDermott, Berry, Duffy and Senchak will
receive an annual base salary of $340,000, $320,000, $300,000 and $300,000,
respectively. The Employment Agreements provide that each Executive will be
eligible to receive an annual bonus, pursuant to the 1999 Plan, and other
benefits on a basis no less favorable than peer executives of the Company. If
during the Employment Period the Executive's employment terminates other than
for "cause" (as defined in the Employment Agreements), death or "disability" (as
defined in the Employment Agreements), or the Executive terminates employment
for "good reason" (as defined in the Employment Agreements), the Executive will
be entitled to a lump-sum cash payment equal to the sum of: (i) any unpaid base
salary; (ii) a pro rata annual bonus, based on the average annual bonus earned
in the three years prior to the date of termination (the "Annual Bonus"); and
(iii) the product of (a) the greater of (1) the number of months from the date
of termination until the expiration of the Employment Period and (2) 12 (the
"Continuation Period"), divided by 12 and (b) the sum of (1) the Executive's
base salary, (2) the Annual Bonus and (3) the Company's contribution to the
profit sharing retirement plan with respect to the Executive for the year prior
to the date of termination. Upon any such termination, the Executive and his
family will be entitled to receive welfare benefit coverage for the Continuation
Period and the Executive will be provided with reasonable outplacement services
at the Company's expense. Each Employment Agreement contains restrictive
covenants, which prohibit the Executive from disclosing confidential information
obtained while employed by the Company, from competing with the Company and from
soliciting the employees and customers of the Company, during the Employment
Period and for specified periods thereafter.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Indebtedness of Management.
From time to time the Company has made loans to its directors and
executive officers to enable them to purchase common stock of the Company.
Individuals whose indebtedness to the Company exceeded $60,000 since January 1,
1996 as a result of such loans are John G. Duffy, Executive Vice President and
Co-Head of Corporate Finance, Andrew M. Senchak, Executive Vice President and
Co-Head of Corporate Finance, and Guy Woelk, Executive Vice President and Chief
Financial Officer. There was no outstanding balance on Mr. Duffy's loan at
December 31, 1998. The largest outstanding balance of Mr. Duffy's loan since
January 1, 1996 was $75,095. The annual interest rate of Mr. Duffy's loan was
7.0%. The outstanding balance of Mr. Senchak's loan at December 31, 1998 was
$263,381. The largest outstanding balance of Mr. Senchak's loan since January 1,
1996 was $460,918. The annual interest rate on Mr. Senchak's loan is
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6.5%. There was no outstanding balance on Mr. Woelk's loan at December 31, 1998.
The largest outstanding balance of Mr. Woelk's loan since January 1, 1996 was
$69,668. The annual interest rate on Mr. Woelk's loan was 6.5%.
Securities Trading and Investments by Employees.
From time to time, directors, officers and other employees of the
Company may buy or sell securities to or from Keefe, Bruyette & Woods, Inc. as
principal or through Keefe, Bruyette & Woods, Inc. as agent in its capacity as a
registered securities broker-dealer. Such transactions are generally executed on
terms (i.e., commissions, mark-ups, and mark-downs) more favorable to the
employee-customer than those available to similarly situated non-employee
customers. In addition, the Company provides margin credit for employees, while
it has not provided such credit to customers.
From time to time, and subject to satisfaction of customer orders,
certain employees are permitted to make investments for their own account in
securities which the Company is also placing with customers or in which the
Company is also making an investment as principal. With the exception of
allowing employees to make such investments net of any sales commissions or
similar fees due the Company, such investments are made on terms no more
favorable to the employee than those relating to the investments of customers of
the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the DGCL, the Company has included in the KBW
Certificate a provision to eliminate the personal liability of its directors for
monetary damages for breach or alleged breach of their fiduciary duties as
directors, subject to certain exceptions. In addition, the KBW Bylaws provide
that the Company is required to indemnify its officers and directors under
certain circumstances, including those circumstances in which indemnification
would otherwise be discretionary, and the Company is required to advance
expenses to its officers and directors as incurred in connection with
proceedings against them for which they may be indemnified. The Company has also
agreed to indemnify its directors and certain officers to the maximum extent
permitted by the DGCL pursuant to agreements with such directors and officers.
At present, the Company is not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent of the Company in
which indemnification would be required or permitted. The Company believes that
its charter provisions and indemnification agreements are necessary to attract
and retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling KBW pursuant
to the foregoing provisions, KBW has been informed that, in the opinion of the
SEC, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of Common Stock as of February 25, 1999, and as adjusted to
reflect completion of the Offering, by: (i) each Named Executive Officer; (ii)
each director; (iii) each holder of more than 5% the of Common Stock; and (iv)
all current directors and executive officers as a group. Except as indicated in
the footnotes, the individuals named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES OF COMMON NUMBER SHARES OF COMMON
STOCK BENEFICIALLY OF STOCK TO BE
OWNED PRIOR TO SHARES BENEFICIALLY OWNED
OFFERING(1) OFFERED AFTER OFFERING(2)
--------------------- ---------------- ---------------------
NAME OF BENEFICIAL OWNER NUMBER(4) PERCENT NUMBER(4) PERCENT
<S> <C> <C> <C>
James J. McDermott, Jr. 62,864 7.01% - 62,864
Charles H. Lott 100,146 11.17
Stanley T. Wells 96,933 10.81
Joseph J. Berry (3) 79,528 8.87 - 79,528
John G. Duffy 42,300 4.72 - 42,300
Andrew Senchak 26,769 2.99 - 26,769
All Directors and Executive Officers
as a Group (eight persons) 430,365 47.99%
</TABLE>
- -------------
(1) Beneficial ownership is determined in accordance with rules of the SEC and
includes general voting power or investment power with respect to
securities. Unless otherwise indicated, the address of each of the
beneficial owners identified above is Two World Trade Center, 85th Floor,
New York, NY 10048.
(2) Without giving effect to the exercise of the over-allotment option granted
to the Underwriters with respect to the Offering.
(3) Includes 1,700 shares held by a charitable gifting trust of which Mr.
Berry is a trustee.
(4) Reflects the number of shares of common stock of Keefe, Bruyette & Woods,
Inc. before giving effect to the Merger (see "Certain Transactions
Occurring Prior to the Offering").
SELLING STOCKHOLDERS
Of the shares of Common Stock being offered hereby, shares are
being sold by the Company and shares are being sold by the Selling Stockholders.
The Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders. The Selling Stockholders are Charles H. Lott and Stanley
T. Wells, each of whom is a Vice Chairman of the KBW Board. Messrs. Lott and
Wells have announced that they will retire from the KBW Board effective as of
the first annual meeting in 1999. See "Management--Directors and Executive
Officers." As described in the table above, Mr. Lott will sell shares of Common
Stock in the Offering and receive proceeds of $ and Mr. Wells will sell shares
of Common Stock in the Offering and receive proceeds of $ , assuming an initial
public offering price of $ per share. In addition, the Underwriters have the
option to purchase up to additional shares of Common Stock from Mr. Lott
and up to additional shares of Common Stock from Mr. Wells to cover over-
allotments, if any. See "Underwriting." If this option is exercised by the
Underwriters for the full amount, Mr. Lott will receive total proceeds of $
and Mr. Wells will receive total proceeds of $ . See "Underwriting."
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CERTAIN TRANSACTIONS OCCURRING PRIOR TO THE OFFERING
CREATION OF HOLDING COMPANY STRUCTURE
On , 1999, the stockholders of Keefe, Bruyette & Woods, Inc., a
New York corporation, voted to effect certain corporate transactions affecting
Keefe, Bruyette & Woods, Inc., its stockholders and its subsidiary, KBW Asset
Management. The purpose of the transactions is to place ownership of Keefe,
Bruyette & Woods, Inc. and KBW Asset Management under a holding company
structure by means of a merger of a transitory subsidiary of KBW with and into
Keefe, Bruyette & Woods, Inc. (the "Merger") and a contribution by Keefe,
Bruyette & Woods, Inc. to KBW of all of the outstanding capital stock of KBW
Asset Management (the "Contribution"). In the Merger, each share of common stock
of Keefe, Bruyette and Woods, Inc. will be converted into the right to receive
shares of Common Stock. The Merger and Contribution will become effective
immediately prior to consummation of the Offering. KBW Asset Management was
formerly named Keefe Management Services, Inc.
Unless the context otherwise requires, all information set forth in
this Prospectus reflects the formation of the holding company structure and
consummation of the Merger and Contribution described above.
NEW AND FORMER STOCKHOLDERS' AGREEMENTS
Prior to consummation of the Offering, all stockholders of the Company
have been party to the Former Stockholders' Agreement, relating to the ownership
and disposition of any shares of common stock of Keefe, Bruyette & Woods, Inc.
owned by them. Upon completion of the Merger, KBW will be the sole stockholder
of Keefe, Bruyette & Woods, Inc. and the Former Stockholders' Agreement will be
terminated.
At the time of the Merger, each outstanding share of common stock of
Keefe Bruyette & Woods, Inc. will be converted into the right to receive
shares of Common Stock. All of the newly issued shares of Common Stock which
will have been issued in exchange for shares beneficially owned by employees of
the Company who are Covered Stockholders will be governed by the terms of the
new Stockholders' Agreement, except for the shares of Common Stock sold by the
Selling Stockholders as contemplated by the Underwriting Agreement. See
"Underwriting." The new Stockholders' Agreement contains provisions limiting the
disposition after consummation of the Offering (the "Effective Date") of shares
of Common Stock held by Covered Stockholders at the time of the Offering (such
shares of Common Stock, the "Common Shares"). Covered Stockholders are defined
to be employees of the Company, including any of its subsidiaries, who held a
title at or above the level of Senior Vice President on the Effective Date. The
Stockholders' Agreement provides that sales of Common Shares thereunder are also
subject to the 180-day lock-up agreement more fully described under "Shares
Eligible for Future Sale."
Pursuant to the Stockholders' Agreement, Common Shares held by Covered
Stockholders will be subject to limitations on disposition during the first
three years following the Effective Date. Under the terms of the Stockholders'
Agreement, prior to the first anniversary of the Effective Date, each Covered
Stockholder may dispose of up to 10% of such Covered Stockholder's Common Shares
(measured as of the Effective Date), subject to the lock-up agreement with the
Underwriters. See "Shares Eligible for Future Sale." On or after the first
anniversary of the Effective Date, the Stockholders' Agreement permits each
Covered Stockholder to dispose of up to an additional 10% of such Covered
Stockholder's Common Shares (measured as of the Effective Date). On or after the
second anniversary of the Effective Date, the Stockholders' Agreement permits
each Covered Stockholder to dispose of up to an additional 10% of such Covered
Stockholder's Common Shares (measured as of the Effective Date). On or after the
third anniversary of the Effective Date, the Covered Stockholders may make
dispositions of their Common Shares without restriction under the terms of the
Stockholders' Agreement. As of the Effective Date and after giving effect to the
Offering, approximately % of the outstanding Common Stock was held by Covered
Stockholders.
Under the Stockholders' Agreement, in the event that, prior to the
third anniversary of the Effective Date, a Covered Stockholder elects to
terminate employment with the Company and, within six months or, if earlier, the
third anniversary of the Effective Date, enters into a "competitive activity"
with the Company (as defined in the Stockholders' Agreement), the KBW Board will
have the option to acquire all of the Common Shares of such Covered Stockholder
at a price equal to the book value of such Common Shares as calculated pursuant
to the Stockholders' Agreement. If, in such a case, such Covered Stockholder has
sold or otherwise transferred any of such Common Shares after electing to
terminate
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employment, the Covered Stockholder will refund to the Company any profits in
excess of the applicable book value of such Common Shares. In the case of Common
Shares that the Company would have the right to acquire but which have been
pledged by the employee as permitted by the Stockholders' Agreement, such
Covered Stockholder would either be required to cause the release of such pledge
(in which case the Company would have the purchase right described above) or be
liable to the Company for liquidated damages in an amount equal to the number of
Common Shares subject to the pledge multiplied by the excess, if any, of the
market value of a Common Share on the date of exercise by the Company of its
repurchase right over the most recent book value price as described above.
In addition, pursuant to the terms of the Stockholders' Agreement, a
Covered Stockholder may dispose of Common Shares to: (i) a family member or a
trust or other entity for the benefit of or controlled by such Covered
Stockholder or such Covered Stockholder's family member; provided that such
family member or such trust or other entity agrees in writing to be bound by the
Stockholders' Agreement as though such individual or entity were a Covered
Stockholder; or (ii) a charitable organization.
Pursuant to the terms of the Stockholders' Agreement, a Covered
Stockholder may pledge such Covered Stockholder's Common Shares which are
otherwise not permitted to be disposed of under the Stockholders' Agreement to a
bank to secure a bona fide full recourse loan for value. Subject to the
provisions of the Stockholders' Agreement regarding the Company's right to
repurchase Common Shares described above, any Common Shares so pledged would be
free from the restrictions on disposition described above so long as such Common
Shares are so pledged, but would thereafter be once again subject to the
restrictions on disposition described above, unless the bank has sold such
Common Shares pursuant to a bona fide foreclosure proceeding.
Covered Stockholders may, with the consent of the KBW Board, dispose of
additional Common Shares at any time, in any amount, regardless of the foregoing
restrictions, subject to the 180-day lock-up agreement with the Underwriters.
See "Shares Eligible for Sale" and "Underwriting."
The Stockholders' Agreement does not restrict the disposition of Common
Shares held by a Covered Stockholder who ceases to be an employee of KBW or any
of its subsidiaries as a result of death or disability.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 140,000,000
shares of Common Stock and 10,000,000 shares of Preferred Stock. As of ,
1999, the Company had no shares of Preferred Stock outstanding and shares of
Common Stock were held by 105 stockholders. Upon the consummation of the
Offering, there will be shares of Common Stock outstanding. The following
summary description of the capital stock of the Company is qualified in its
entirety by reference to the KBW Certificate and the KBW Bylaws to be in effect
upon consummation of the Offering, copies of which have been filed as exhibits
to the Registration Statement of which this Prospectus is a part.
COMMON STOCK
Subject to the rights of the holders of any Preferred Stock which may
be outstanding, each holder of Common Stock on the applicable record date is
entitled to receive such dividends as may be declared by the KBW Board out of
funds legally available therefor, and, in the event of liquidation, to share pro
rata in any distribution of the Company's assets after payment or providing for
the payment of liabilities and the liquidation preference of any outstanding
Preferred Stock. Each holder of Common Stock is entitled to one vote for each
share held of record on the applicable record date on all matters presented to a
vote of stockholders, including the election of directors. Holders of Common
Stock have no cumulative voting rights or preemptive rights to purchase or
subscribe for any stock or other securities and there are no conversion rights
or redemption or sinking fund provisions with respect to such stock. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be when issued, fully paid and nonassessable.
Application will be made for listing of the Common Stock on the NYSE
under the symbol "KBW."
The transfer agent for the Common Stock is .
PREFERRED STOCK
The KBW Certificate authorizes 10,000,000 shares of Preferred Stock.
The KBW Board has the authority to issue shares of such Preferred Stock in one
or more series and to fix, by resolution, full or limited or no voting powers,
and such designations, preferences and relative, participating, optional or
other rights, if any, and the qualifications, limitations or restrictions
thereof, if any, including the number of shares in such series (which the KBW
Board may increase or decrease as permitted by the DGCL), liquidation
preferences, dividend rates, conversion rights and redemption provisions of the
shares constituting any series, without any further vote or action by KBW's
stockholders. Any shares of Preferred Stock so issued would have priority over
the Common Stock with respect to dividend or liquidation rights or both.
CERTAIN ANTI-TAKEOVER PROVISIONS
The KBW Certificate and the KBW Bylaws to be in effect upon
consummation of the Offering contain certain provisions that could delay or make
more difficult the acquisition of KBW by means of a tender offer, a proxy
contest or otherwise. Such provisions have been implemented to enable KBW to
develop its business in a manner which will foster its long-term growth without
disruption caused by the threat of a takeover not deemed by the KBW Board to be
in the best interests of KBW and its stockholders. The description of certain
aspects of the KBW Certificate and the KBW Bylaws set forth below does not
purport to be complete and is qualified in its entirety by reference to the KBW
Certificate and the KBW Bylaws, copies of which have been filed as exhibits to
the Registration Statement of which this Prospectus is a part.
CLASSIFIED BOARD OF DIRECTORS
The KBW Certificate and the KBW Bylaws provide that the KBW Board will
be divided into three classes of directors, with the classes to be as equal in
number as possible. The KBW Board is expected to consist of the individuals
referred to under "Management--Directors and Executive Officers." The KBW
Certificate and the KBW Bylaws provide that, of the initial directors of KBW,
approximately one-third will continue to serve until the 1999 Annual Meeting of
Stockholders, approximately one-third will continue to serve until the 2000
Annual Meeting of Stockholders and approximately one-third will continue to
serve until the 2001 Annual Meeting of Stockholders. Of the initial directors,
Messrs. McDermott and Wells are scheduled to serve until the 1999 Annual Meeting
of Stockholders, Messrs. Lott and Duffy are scheduled to serve until the 2000
Annual Meeting of Stockholders and Messrs. Berry and Senchak are
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scheduled to serve until the 2001 Annual Meeting of Stockholders. Starting with
the 1999 Annual Meeting of Stockholders, one class of directors will be elected
each year for a three-year term. Messrs. Lott and Wells have announced that they
will retire from the KBW Board effective as of the first annual meeting in 1999.
The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the KBW Board. At least
two annual meetings of stockholders, instead of one, will generally be required
to effect a change in a majority of the KBW Board. Such a delay may help ensure
that KBW's directors, if confronted by a holder attempting to force a proxy
contest, a tender or exchange offer, or an extraordinary corporate transaction,
would have sufficient time to review the proposal as well as any available
alternatives to the proposal and to act in what they believe to be the best
interest of the stockholders. However, the classification provisions will apply
to every election of directors and will increase the likelihood that incumbent
directors will retain their positions, regardless of whether a change in the
composition of the KBW Board would be beneficial to KBW and its stockholders and
whether or not a majority of KBW's stockholders believe that such a change would
be desirable.
The classification provisions could also have the effect of
discouraging a third party from initiating a proxy contest, making a tender
offer or otherwise attempting to obtain control of KBW, even though such an
attempt might be beneficial to KBW and its stockholders. In addition, because
the classification provisions may discourage accumulations of large blocks of
Common Stock by purchasers whose objective is to take control of KBW and remove
a majority of the KBW Board, the classification of the KBW Board could tend to
reduce the likelihood of fluctuations in the market price of the Common Stock
that might result from accumulations of large blocks. Accordingly, stockholders
could be deprived of certain opportunities to sell their shares of Common Stock
at a higher market price than might otherwise be the case.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The KBW Bylaws provide that, subject to any rights of holders of
Preferred Stock to elect directors under specified circumstances, the number of
directors will be fixed from time to time exclusively pursuant to a resolution
adopted by directors constituting a majority of the total number of directors
that KBW would have if there were no vacancies on the KBW Board (the "Whole
Board"). In addition, the KBW Bylaws provide that, subject to applicable law and
any rights of holders of Preferred Stock, and unless the KBW Board otherwise
determines, any vacancies will be filled only by the affirmative vote of a
majority of the remaining directors, though less than a quorum. Accordingly,
absent an amendment to the KBW Bylaws, the KBW Board could prevent any
stockholder from enlarging the KBW Board and filling the new directorships with
such stockholder's own nominees.
Under the DGCL, unless otherwise provided in a corporation's
certificate of incorporation, directors serving on a classified board may only
be removed by the stockholders for cause. The KBW Certificate does not otherwise
provide.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The KBW Certificate and the KBW Bylaws provide that, subject to the
rights of any holders of Preferred Stock to elect additional directors under
specified circumstances, stockholder action can be taken only at an annual or
special meeting of stockholders and may not be taken by written consent in lieu
of a meeting. The KBW Bylaws provide that, subject to the rights of holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, special meetings of stockholders can be called only by the
Chairman of the KBW Board or by the KBW Board pursuant to a resolution adopted
by a majority of the Whole Board. Stockholders are not permitted to call, or to
require that the Chairman or the KBW Board call, a special meeting of
stockholders. Moreover, the business permitted to be conducted at any special
meeting of stockholders is limited to the business brought before the meeting
pursuant to the notice of meeting given by KBW.
The provisions of the KBW Certificate and the KBW Bylaws prohibiting
stockholder action by written consent may have the effect of delaying
consideration of a stockholder proposal until the next annual meeting. These
provisions would also prevent the holders of a majority of the voting power of
the voting stock from unilaterally using the written consent procedure to take
stockholder action. Moreover, a stockholder could not force stockholder
consideration of a proposal over the opposition of the Chairman of the KBW Board
and the KBW Board by calling a special meeting of stockholders prior to the time
the Chairman of the KBW Board or a majority of the Whole Board believes such
consideration to be appropriate.
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ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS
The KBW Bylaws establish an advance notice procedure for stockholders
to nominate candidates for election as directors or to bring other business
before meetings of stockholders of KBW (the "Stockholder Notice Procedure").
A stockholder nominee will be eligible for election as a director of
KBW only if nominated in accordance with the Stockholder Notice Procedure. Under
the Stockholder Notice Procedure, notice of stockholder nominations to be made
at an annual meeting (or of any other business to be brought before such
meeting) must be received by KBW not less than 60 days nor more than 90 days
prior to the first anniversary of the previous year's annual meeting (or, if the
date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, not earlier than the 90th day prior to such meeting
and not later than the later of: (i) the 60th day prior to such meeting; or (ii)
the tenth day after public announcement of the date of such meeting is first
made). Notwithstanding the foregoing, in the event that the number of directors
to be elected is increased and there is no public announcement naming all of the
nominees for director or specifying the size of the increased KBW Board made by
KBW at least 70 days prior to the first anniversary of the preceding year's
annual meeting, a stockholder's notice will be deemed timely, but only with
respect to nominees for any new positions created by such increase, if it is
received by KBW not later than the tenth day after such public announcement is
first made by KBW.
The KBW Bylaws provide that only such business may be conducted at a
special meeting as is specified in the notice of meeting given by KBW.
Nominations for election to the KBW Board may be made at a special meeting at
which directors are to be elected only by or at the KBW Board's direction or by
a stockholder who has given timely notice of nomination. Under the Stockholder
Notice Procedure, such notice must be received by KBW not earlier than the 90th
day before such meeting and not later than the later of: (i) the 60th day prior
to such meeting; or (ii) the tenth day after public announcement of the date of
such meeting is first made. Stockholders will not be able to bring other
business before special meetings of stockholders.
The Stockholder Notice Procedure provides that, at an annual meeting,
only such business may be conducted as has been brought before the meeting by,
or at the direction of, the KBW Board or by a stockholder who has given timely
written notice (as set forth above) to the Secretary of KBW of such
stockholder's intention to bring such business before such meeting.
Under the Stockholder Notice Procedure, a stockholder's notice to KBW
proposing to nominate an individual for election as a director must contain
certain information, including, without limitation, the identity and address of
the nominating stockholder, the class and number of shares of stock of KBW owned
by such stockholder, and all information regarding the proposed nominee that
would be required to be included in a proxy statement soliciting proxies for the
proposed nominee. Under the Stockholder Notice Procedure, a stockholder's notice
relating to the conduct of business other than the nomination of directors must
contain certain information about such business and about the proposing
stockholder, including, without limitation, a brief description of the business
the stockholder proposes to bring before the meeting, the reasons for conducting
such business at such meeting, the name and address of such stockholder, the
class and number of shares of stock of KBW beneficially owned by such
stockholder, and any material interest of such stockholder in the business so
proposed. If the Chairman of the KBW Board or other officer of KBW presiding at
a meeting determines that an individual was not nominated, or other business was
not brought before the meeting, in accordance with the Stockholder Notice
Procedure, such individual will not be eligible for election as a director, or
such business will not be conducted at such meeting, as the case may be.
By requiring advance notice of nominations by stockholders, the
Stockholder Notice Procedure will afford the KBW Board an opportunity to
consider the qualifications of the proposed nominees and, to the extent deemed
necessary or desirable by the KBW Board, to inform stockholders about such
qualifications. By requiring advance notice of other proposed business, the
Stockholder Notice Procedure will provide a more orderly procedure for
conducting annual meetings of stockholders and, to the extent deemed necessary
or desirable by the KBW Board, will provide the KBW Board with an opportunity to
inform stockholders, prior to such meetings, of any business proposed to be
conducted at such meetings, together with the KBW Board's position regarding
action to be taken with respect to such business, so that stockholders can
better decide whether to attend such a meeting or to grant a proxy regarding the
disposition of any such business.
Although the KBW Bylaws do not give the KBW Board any power to approve
or disapprove stockholder nominations for the election of directors or proposals
for action, they may have the effect of precluding a contest for the
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election of directors or the consideration of stockholder proposals if the
proper procedures are not followed, and of discouraging or deterring a third
party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
KBW and its stockholders.
KBW PREFERRED STOCK
The KBW Certificate authorizes the KBW Board to establish one or more
series of Preferred Stock, and to determine, with respect to any series of
Preferred Stock, the terms and rights of such series, including: (i) the
designation of the series; (ii) the number of shares of the series, which number
the KBW Board may thereafter (except where otherwise provided in the Preferred
Stock designation) increase or decrease (but not below the number of shares
thereof then outstanding); (iii) whether dividends, if any, will be cumulative
or noncumulative and the dividend rate of the series; (iv) the dates on which
dividends, if any, will be payable; (v) the redemption rights and price or
prices, if any, for shares of the series; (vi) the terms and amounts of any
sinking fund provided for the purchase or redemption of shares of the series;
(vii) the amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of KBW;
(viii) whether the shares of the series will be convertible into shares of any
other class or series, or any other security, of KBW or any other corporation,
and, if so, the specification of such other class or series or such other
security, the conversion price or prices or rate or rates, any adjustments
thereof, the date or dates as of which such shares shall be convertible and all
other terms and conditions upon which such conversion may be made; (ix)
restrictions on the issuance of shares of the same series or of any other class
or series; and (x) the voting rights, if any, of the holders of such series.
The authorized shares of Preferred Stock, as well as shares of Common
Stock, will be available for issuance without further action by KBW's
stockholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which KBW's securities may
be listed or traded. If the approval of KBW's stockholders is not so required,
the KBW Board does not intend to seek stockholder approval.
Although the KBW Board has no intention at the present time of doing
so, it could issue a series of Preferred Stock that could, depending on the
terms of such series, impede the completion of a merger, tender offer or other
takeover attempt. The KBW Board will make any determination to issue such shares
based on its judgment as to the best interests of KBW and its stockholders. The
KBW Board, in so acting, could issue Preferred Stock having terms that could
discourage an acquisition attempt or other transaction that some, or a majority,
of KBW's stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then-current
market price of such stock.
AMENDMENT OF CERTAIN PROVISIONS OF THE KBW CERTIFICATE OF INCORPORATION AND THE
KBW BYLAWS
Under the DGCL, stockholders have the right to adopt, amend or repeal
the certificate of incorporation and bylaws of a corporation. In addition, if
the certificate of incorporation so provides, the bylaws may be amended by the
board of directors. The KBW Certificate provides that the affirmative vote of
the holders of at least 80% of the voting power of the outstanding shares of
capital stock of KBW eligible to vote generally in the election of directors
("Voting Stock"), voting together as a single class, is required to amend
provisions of the KBW Certificate relating to the prohibition of stockholder
action without a meeting; the number, election and term of KBW's directors; the
removal of directors; and the amendment of the KBW Bylaws. The KBW Certificate
further provides that the KBW Bylaws may be amended by the KBW Board or by the
affirmative vote of the holders of at least 80% of the outstanding shares of
Voting Stock, voting together as a single class. These voting requirements will
have the effect of making it more difficult for stockholders to amend the
provisions of the KBW Certificate stated above or the KBW Bylaws, even if a
majority of KBW stockholders believes that such amendment would be in its best
interests.
ANTI-TAKEOVER STATUTE
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business combination
with any interested stockholder for a three-year period following the date on
which such stockholder becomes an interested stockholder unless: (i) prior to
such date, the board of directors of the corporation approves either the
business combination or the transaction that resulted in the stockholder
becoming an interested stockholder; (ii) upon consummation of the transaction
which results in the stockholder becoming an interested
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stockholder, the interested stockholder owns at least 85% of the voting stock
(as defined in Section 203 of the DGCL) of the corporation outstanding at the
time the transaction commenced (excluding certain shares); or (iii) on or
subsequent to such date, the business combination is approved by the board of
directors of the corporation and by the affirmative vote of at least 66 2/3% of
the outstanding voting stock not owned by the interested stockholder. Except as
specified in Section 203 of the DGCL, an "interested stockholder" is defined to
include: (i) any person (other than the corporation and its subsidiaries) that
is the owner of 15% or more of the outstanding voting stock of the corporation,
or is an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation, at any time within
three years immediately prior to the relevant date; and (ii) the affiliates and
associates of any such person.
Under certain circumstances, Section 203 of the DGCL makes it more
difficult for an interested stockholder to effect various business combinations
with a corporation for a three-year period, although the stockholders may elect
to exclude a corporation from the restrictions imposed thereunder; the KBW
Certificate does not exclude KBW from such restrictions. It is anticipated that
the provisions of Section 203 of the DGCL may encourage companies interested in
acquiring KBW to negotiate in advance with the KBW Board, since the stockholder
approval requirement would be avoided if a majority of the directors then in
office approve either the business combination or the transaction that results
in the stockholder becoming an interested stockholder. Section 203 of the DGCL
should encourage persons interested in acquiring KBW to negotiate in advance
with the KBW Board, since the higher stockholder voting requirements would not
be invoked if such person, prior to acquiring 15% of KBW's Voting Stock, obtains
the approval of the KBW Board for such acquisition or for the proposed business
combination transaction (unless such person acquires 85% or more of KBW's voting
stock in such transaction, excluding certain shares as described above). In the
event of a proposed acquisition of KBW, it is believed that the interests of KBW
stockholders will best be served by a transaction that results from negotiations
based upon careful consideration of the proposed terms, such as the price to be
paid to minority stockholders, the form of consideration paid and the tax
effects of the transaction.
Section 203 of the DGCL will not prevent a hostile takeover of KBW. It
may, however, make more difficult or discourage a takeover of KBW or the
acquisition of control of KBW by a significant stockholder and thus the removal
of incumbent management. Some stockholders may find this disadvantageous in that
they may not be afforded the opportunity to participate in takeovers that are
not approved as required by Section 203 of the DGCL but in which stockholders
might receive, for at least some of their shares, a substantial premium above
the market price at the time of a tender offer or other acquisition transaction.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect prevailing market prices and impair the Company's
ability to raise capital through the sale of equity securities.
Upon the closing of the Offering, the Company will have shares of
Common Stock outstanding ( shares if the over-allotment option granted to the
Underwriters is exercised in full). shares offered hereby ( shares if the
over-allotment option is exercised in full) will be freely tradeable, unless
purchased by affiliates of the Company as that term is defined in Rule 144
promulgated under the Securities Act described below. All other shares will be
"restricted shares" for purposes of the Securities Act and subject to the volume
and other limitations set forth in Rule 144 promulgated under the Securities
Act.
In general, under Rule 144, as currently in effect, a person (or
persons whose shares are aggregated) who has beneficially owned shares for at
least one year (including the holding period of any prior owner except an
affiliate from whom such shares were purchased) is entitled to sell in "brokers'
transactions" or to market makers, within any three-month period commencing 90
days after the date of this Prospectus, a number of shares that does not exceed
the greater of: (i) 1% of the then-outstanding shares of the Company's Common
Stock ( shares immediately after the Offering); or (ii) the average weekly
trading volume of the Company's Common Stock during the four calendar weeks
preceding the required filing of a Form 144 with respect to such sale. Sales
under Rule 144 are generally subject to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed to
have been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
two years (including the holding period of any prior owner other than an
affiliate from whom such shares were purchased), is entitled to sell such shares
without having to comply with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Pursuant to the lock-up agreements, all of the Company's officers and
directors and all of the Company's employees as of the Offering who are
stockholders (who will own upon completion of the Offering, in the aggregate,
approximately shares of Common Stock) have agreed that they will not (subject
to certain exceptions) for a period of 180 days subsequent to the date of this
Prospectus, directly or indirectly, offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise transfer or dispose
of any shares of Common Stock or any securities convertible into, or exercisable
or exchangeable for any shares of Common Stock or enter into any swap or other
arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Common Stock without the prior written
consent of DLJ. The Company has agreed that it will not, for a period of 180
days from the date of this Prospectus, directly or indirectly, offer, sell,
contract to sell, sell an option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any shares of Common Stock or any securities convertible
into, or exercisable or exchangeable for, any shares of Common Stock, or enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock without
the prior written consent of DLJ, except that such agreement does not prevent
the Company from granting additional options under the Company's existing stock
option plans or from issuing shares of Common Stock upon exercise of a stock
option or from issuing shares of Common Stock or options exercisable for Common
Stock in connection with the hiring of new employees. DLJ may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements.
Pursuant to the Stockholders' Agreement, certain stockholders have
agreed to additional limitations on dispositions of Common Stock. See "Certain
Transactions Occurring Prior to the Offering--New and Former Stockholders'
Agreements."
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UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
, 1999 (the "Underwriting Agreement"), the Underwriters named below, who are
represented by Donaldson, Lufkin & Jenrette Securities Corporation, Goldman,
Sachs & Co. and Keefe, Bruyette & Woods, Inc. (the "Representatives"), have
severally agreed to purchase from the Company and the Selling Stockholders the
respective number of shares of Common Stock set forth opposite their names
below:
NUMBER OF
UNDERWRITERS SHARES
Donaldson, Lufkin & Jenrette Securities Corporation........
Goldman, Sachs & Co........................................
Keefe, Bruyette & Woods, Inc............................... -------
Total................................................. ========
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock
in part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $ per share. After the initial offering
of the Common Stock, the public offering price and other selling terms may be
changed by the Representatives at any time without notice. The Underwriters will
not confirm sales to any accounts over which they exercise discretionary
authority.
The Selling Stockholders have granted to the Underwriters an option,
exercisable within 30 days after the date of this Prospectus, to purchase, from
time to time, in whole or in part, up to an aggregate of additional
shares of Common Stock at the initial public offering price less underwriting
discounts and commissions. The Underwriters may exercise such option solely to
cover over-allotments, if any, made in connection with the Offering. To the
extent that the Underwriters exercise such option, each Underwriter will become
obligated, subject to certain conditions, to purchase its pro rata portion of
such additional shares based on such Underwriter's percentage underwriting
commitment as indicated in the preceding table.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Each of the Company, its executive officers, directors and employees
who are stockholders as of the date of the Offering (including the Selling
Stockholders) have agreed, subject to certain exceptions, not to: (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock; or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of Common
Stock, or such other securities, in cash or otherwise) for a period of 180 days
after the date of this Prospectus without the prior written consent of DLJ.
In addition, during such period, the Company has also agreed not to
file any registration statement (other than a registration statement on Form S-8
relating to the Company's benefit plans) with respect to, and each of its
executive
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officers, directors and certain stockholders of the Company (including the
Selling Stockholders) has agreed not to make any demand for, or exercise any
right with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
without DLJ's prior written consent.
Prior to the Offering, there has been no established trading market for
the Common Stock. The initial public offering price for the shares of Common
Stock offered hereby will be determined by negotiation among the Company,
representatives of the Selling Stockholders and the Representatives. The factors
to be considered in determining the initial public offering price include the
history of and the prospects for the industry in which the Company competes, the
past and present operations of the Company, the historical results of operations
of the Company, the prospects for future earnings of the Company, the recent
market prices of securities of generally comparable companies and the general
condition of the securities markets at the time of the Offering.
Application will be made to list the Common Stock on the NYSE. In order
to meet the requirements for listing the Common Stock on the NYSE, the
Underwriters have undertaken to sell lots of 100 or more shares to a minimum of
2,000 beneficial owners. In addition, NYSE Rule 312(g) prohibits a member
corporation, after the distribution of securities of its parent to the public,
from effecting any transactions (except on an unsolicited basis) for the account
of any customer in, or making any recommendation with respect to the purchase or
sale of, any such security. Thus, following the Offering, Keefe, Bruyette &
Woods, Inc. will not be permitted to make recommendations regarding the purchase
or sale of the Common Stock.
Other than in the United States, no action has been taken by the
Company, the Selling Stockholders or the Underwriters that would permit a public
offering of the shares of Common Stock offered hereby in any jurisdiction where
action for that purpose is required. The shares of Common Stock offered hereby
may not be offered or sold, directly or indirectly, nor may this Prospectus or
any other offering material or advertisements in connection with the offer and
sale of any such shares of Common Stock be distributed or published in any
jurisdiction, except under circumstances that will result in compliance with the
applicable rules and regulations of such jurisdiction. Persons into whose
possession this Prospectus comes are advised to inform themselves about and to
observe any restrictions relating to the Offering of the Common Stock and the
distribution of this Prospectus. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any shares of Common Stock offered
hereby in any jurisdiction in which such an offer or a solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members if the
syndicate repurchases previously distributed Common Stock in syndicate covering
transactions, in stabilizing transactions or otherwise. These activities may
stabilize or maintain the market price of the Common Stock above independent
market levels. The Underwriters are not required to engage in these activities,
and may end any of these activities at any time.
Keefe, Bruyette & Woods, Inc. is a direct wholly-owned subsidiary of
the Company. Keefe, Bruyette & Woods, Inc. has committed to purchase from the
Company an aggregate of % of the shares of Common Stock being underwritten by
the Underwriters in the Offering on the same basis as the other Underwriters.
Although the amount of proceeds derived from the Offering by the Company will
not be affected by Keefe, Bruyette & Woods, Inc.'s participation as an
Underwriter, to the extent that part or all of the shares of Common Stock
underwritten by Keefe, Bruyette & Woods, Inc. are not resold, the consolidated
equity of the Company will be reduced. Until resold, any such shares will be
eliminated in consolidation as if they were not outstanding for purposes of any
future computation of earnings per common share and book value per common share.
Keefe, Bruyette & Woods, Inc. intends to resell any shares which it is unable to
resell in the Offering from time to time, at prevailing market prices.
Under Rule 2720, the Company is considered an affiliate of Keefe,
Bruyette & Woods, Inc. This Offering is being conducted in accordance with Rule
2720, which provides that, among other things, when an NASD member participates
in the underwriting of its parent's equity securities, the initial public
offering price can be no higher than that recommended by a "qualified
independent underwriter" meeting certain standards. In accordance with this
requirement, DLJ has assumed the responsibilities of acting as qualified
independent underwriter and will recommend a price in compliance with the
requirements of Rule 2720. In connection with the Offering, DLJ is performing
due diligence
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investigations and reviewing and participating in the preparation of this
Prospectus and the Registration Statement of which this Prospectus forms a part.
As compensation for the services of DLJ as qualified independent underwriter,
the Company has agreed to pay DLJ $5,000.
Pershing, a division of DLJ, is the Company's principal clearing
broker. The Company pays Pershing customary charges for its services as clearing
broker. In addition, the Company has the ability to borrow from DLJ to enable
the Company to meet the net capital requirements resulting from specific
underwriting transactions.
The Underwriters have reserved for sale approximately shares of
Common Stock for directors and current employees of the Company who have an
interest in purchasing such shares of Common Stock in the Offering. The price
per share for such shares will be the initial public offering price less
underwriting discounts and commissions or $ per share. The number of shares
available for sale to the general public in the Offering will be reduced to the
extent such persons purchase such reserved shares. Any reserved shares not so
purchased will be offered by the Underwriters to the general public on the same
basis as the other shares offered hereby. Any such directors and current
employees of the Company who purchase any of the shares offered in the Offering
will be prohibited from selling, pledging, assigning, hypothecating or
transferring such shares for a period of five months following the effective
date of the Offering.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
The material federal income tax consequences to Non-U.S. Holders
expected to result from the purchase, ownership and sale or other taxable
disposition of the Common Stock, under currently applicable law, are summarized
below. A "Non-U.S. Holder" is a person or entity purchasing Common Stock in the
Offering that, for U.S. federal income tax purposes, is a non-resident alien
individual, a foreign corporation, a foreign estate or trust or a foreign
partnership as such terms are defined in the Code.
This summary is based upon the current provisions of the Code,
applicable Treasury regulations and judicial and administrative decisions and
rulings. There can be no assurance that the Internal Revenue Service (the "IRS")
will not take a contrary view, and no ruling from the IRS has been or will be
sought. Future legislative, judicial or administrative changes or
interpretations could alter or modify the statements set forth herein, and any
such changes or interpretations could be retroactive and could affect the tax
consequences to Non-U.S. Holders of Common Stock.
The following summary is for general information only and does not
purport to deal with all aspects of federal income taxation that may affect
particular Non-U.S. Holders in light of their individual circumstances and is
not intended for: (i) stockholders other than Non-U.S. Holders; (ii) Non-U.S.
Holders who would not hold the Common Stock as a capital asset; or (iii)
Non-U.S. Holders who are otherwise subject to special treatment under the Code
(including insurance companies, tax-exempt entities, financial institutions,
broker-dealers and persons who would hold the Common Stock as part of a
straddle, hedge or conversion transaction). In addition, the summary does not
consider the effect of any applicable state, local or foreign tax laws on
Non-U.S. Holders. EACH PROSPECTIVE NON-U.S. HOLDER OF COMMON STOCK SHOULD
CONSULT SUCH HOLDER'S OWN TAX ADVISER WITH RESPECT TO THE TAX CONSEQUENCES OF
THE ACQUISITION, OWNERSHIP AND DISPOSITION OF COMMON STOCK, INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS, AND OF CHANGES IN
APPLICABLE TAX LAWS.
DIVIDENDS ON COMMON STOCK
Dividends paid to a Non-U.S. Holder of Common Stock that are not
effectively connected with the conduct by the Non-U.S. Holder of a trade or
business within the United States will generally be subject to withholding of
U.S. federal income tax at the rate of 30% of the gross amount of the dividends
unless the rate is reduced by an applicable income tax treaty. A Non-U.S. Holder
may claim exemption from withholding under the effectively connected income
exception by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of Business in the United States) or a
successor form with the Company or its paying agent. Except to the extent that
an applicable tax treaty otherwise provides, a Non-U.S. Holder will be taxed in
the same manner as U.S. citizens, resident aliens and domestic corporations on
dividends paid (or deemed paid) that are effectively connected with the conduct
of a trade or business in the United States by the Non-U.S. Holder. If such
Non-U.S. Holder is a foreign corporation, it may
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also be subject to an additional U.S. "branch profits" tax on such effectively
connected income, subject to certain adjustments, at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty.
Under the currently applicable Treasury regulations, dividends paid to
an address in a country other than the United States are presumed to be paid to
a resident of such country for purposes of the withholding discussed above
(unless the payor has knowledge to the contrary) and, under the current
interpretation of Treasury regulations, for purposes of determining the
applicability of a reduced rate of withholding under an income tax treaty.
However, under certain recently finalized Treasury regulations (the "New
Withholding Regulations"), a Non-U.S. Holder of Common Stock who wishes to claim
the benefit of an applicable treaty rate would be required to satisfy certain
certification and other requirements. In addition, under the New Withholding
Regulations, in the case of Common Stock held by a foreign partnership, the
certification requirement would generally be applied to the partners of the
partnership and the partnership may be required to provide certain information,
including a U.S. taxpayer identification number. The New Withholding Regulations
also provide look-through rules for tiered partnerships. The New Withholding
Regulations are generally effective for payments made after December 31, 1999,
subject to certain transition rules. Non-U.S. Holders are encouraged to consult
with their own tax advisers with respect to the application of the New
Withholding Regulations.
Generally, the Company must report to the IRS the amount of dividends
paid, the name and address of the recipient and the amount, if any, of the tax
withheld. A similar report is sent to the holder. Pursuant to income tax
treaties or certain other agreements, the IRS may make its reports available to
tax authorities in the recipient's country of residence.
If paid to an address outside the United States, dividends on Common
Stock held by a Non-U.S. Holder will generally not be subject to backup
withholding, provided that the payor does not have actual knowledge that the
holder is a U.S. person. However, under the New Withholding Regulations (which
are effective for dividends paid after December 31, 1999), dividend payments may
be subject to backup withholding imposed at a rate of 31% unless applicable
certification requirements are satisfied. See the discussion above with respect
to rules applicable to foreign partnerships under the New Withholding
Regulations.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income
tax or withholding on gain recognized upon the sale or other disposition of
Common Stock unless: (i) the gain is effectively connected with the conduct of a
trade or business within the United States by the Non-U.S. Holder; or (ii) in
the case of a Non-U.S. Holder who is a non-resident alien individual and holds
the Common Stock as a capital asset, such holder is present in the United States
for 183 or more days in the taxable year and certain other conditions are met;
or (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions of
U.S. federal income tax law applicable to certain U.S. expatriates. If a
Non-U.S. Holder falls under clause (i) above, the holder will be taxed on the
net gain derived from the sale at regular graduated U.S. federal income tax
rates (the branch profits tax also may apply if the Non-U.S. Holder is a
corporation). If an individual Non-U.S. Holder falls under clause (ii) above,
the holder generally will be subject to a 30% tax on the gain derived from the
sale, which gain may be offset by U.S. capital losses recognized within the same
taxable year of such sale. The foregoing discussion in this paragraph is based
on the Company's conclusion that it is not presently, and has not been for the
past five years, a U.S. real property holding corporation ("USRPHC") subject to
the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Different
consequences would apply to certain Non-U.S. Holders if the Company were to
become a USRPHC subject to FIRPTA. Prospective Non-U.S. Holders of Common Stock
should consult their own tax advisers with respect to the consequences of the
application of the USRPHC and FIRPTA provisions.
FEDERAL ESTATE TAXES
An individual Non-U.S. Holder who owns, or is treated as owning, Common
Stock at the time of his or her death or has made certain lifetime transfers of
an interest in Common Stock will be required to include the value of such Common
Stock in his gross estate for U.S. federal estate tax purposes unless an
applicable estate tax treaty provides otherwise.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
Information reporting requirements and backup withholding tax will not
apply to any payment of the proceeds of the sale of Common Stock effected
outside the United States by a foreign office of a "broker" (as defined in
applicable Treasury regulations), unless such broker is: (i) a U.S. person; (ii)
a foreign person that derives 50% or more of its gross foreign income for
certain periods from activities that are effectively connected with the conduct
of a trade or business in the United States; (iii) a controlled foreign
corporation for U.S. federal income tax purposes; or (iv) effective December 31,
1999, certain brokers that are foreign partnerships with partners who are U.S.
persons or that are engaged in a U.S. trade or business. Payment of the proceeds
of any such sale effected outside the United States by a foreign office of any
broker that is described in clause (i), (ii), (iii) or (iv) of the preceding
sentence will not be subject to backup withholding tax but will be subject to
information reporting requirements unless such broker has documentary evidence
in its records that the beneficial owner is a Non-U.S. Holder and certain other
conditions are met, or the beneficial owner otherwise establishes an exemption.
Payment of the proceeds of any such sale to or through the United States office
of a broker is subject to information reporting and backup withholding
requirements, unless the beneficial owner of the Common Stock either: (i)
provides a Form W-8 (or a suitable substitute form) signed under penalties of
perjury that includes its name and address and certifies as to its Non-U.S.
Holder status in compliance with applicable law and regulations; or (ii)
otherwise establishes an exemption. Effective for payments after December 31,
1999 (and subject to certain transition rules), the New Withholding Regulations
unify certain certification procedures and forms and the reliance standards
relating to information reporting and backup withholding.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS
FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH
PROSPECTIVE NON-U.S. HOLDER OF COMMON STOCK SHOULD CONSULT SUCH HOLDER'S OWN TAX
ADVISER WITH RESPECT TO THE TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF COMMON STOCK.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon by Wachtell, Lipton, Rosen & Katz, New York, New York. Certain
legal matters will be passed upon for the Underwriters by Brown & Wood LLP, New
York, New York. Each of these firms has in the past represented and continues to
represent the Company and certain of the Underwriters on a regular basis and in
a variety of matters other than the Offering.
EXPERTS
The consolidated statements of financial condition of the Company as of
December 31, 1997 and 1998 and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the years ended
December 31, 1996, 1997 and 1998 have been included herein and in the
Registration Statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-1
under the Securities Act with respect to the Common Stock offered hereby (the
"Registration Statement"). This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock, reference is hereby made to such Registration Statement and the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily complete and,
in each instance, reference is made to the copy of such contract or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. The Registration Statement,
including exhibits thereto, may be inspected and copied at the public reference
facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W, Room
1024, Washington, D.C. 20549 and at the SEC's Regional Offices located at Suite
1400, 500 West Madison Street, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such materials may be
obtained from the Public Reference Section of
-68-
<PAGE>
the SEC at 450 Fifth Street, N.W. Washington, D.C. 20549 at prescribed rates.
The SEC also maintains a worldwide web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants such as the Company which file electronically with the SEC. The
Registration Statement, including all exhibits thereto and amendments thereof,
are available on such world wide web site.
Upon completion of the Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file reports, proxy statements and
information statements with the SEC. Such reports, proxy statements and
information statements and other information can be inspected and copied at the
addresses set forth above.
The Company intends to furnish to its stockholders annual reports
containing financial statements of the Company audited by its independent
auditors and quarterly reports containing unaudited condensed financial
statements for each of the first three quarters of each fiscal year.
-69-
<PAGE>
KBW, INC. & SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report......................................... F-2
Consolidated Statements of Financial Condition at
December 31, 1997 and 1998...................................... F-3
Consolidated Statements of Income for the years
ended December 31, 1996, 1997 and 1998.......................... F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1997 and 1998............ F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1997 and 1998.......................... F-6
Notes to Consolidated Financial Statements........................... F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
KBW, Inc.:
We have audited the accompanying consolidated statements of financial condition
of KBW, Inc. (previously Keefe, Bruyette & Woods, Inc. and subsidiary) (the
Company) as of December 31, 1997 and 1998, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of KBW, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
February 12, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
KBW, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
DECEMBER 31,
------------------------------
1997 1998
ASSETS
<S> <C> <C>
Cash and cash equivalents.............................................. $ 6,410 $ 4,754
Securities owned, at market value:
Bank and financial institution stocks.............................. 94,176 79,240
Corporate bonds.................................................... 8,290 11,333
U.S. government and agency securities.............................. -- 3,198
Certificates of deposit, floating rate notes and other........... 302 4,498
--------- ---------
102,768 98,269
--------- ---------
Investments............................................................ 32,488 32,483
Receivable from clearing brokers....................................... 46,204 69,686
Accounts receivable.................................................... 3,369 6,404
Furniture, fixtures and leasehold improvements, at cost, less accumulated
depreciation and amortization of $4,487 in 1997 and $5,306 in 1998 888 1,001
Other assets.......................................................... 7,500 8,945
---------- --------
Total assets.................................................. $ 199,627 $ 221,542
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold but not yet purchased, at market value:
Bank and financial institution stocks.............................. $ 21,687 $ 17,038
Corporate bonds.................................................... 8,029 6,450
U.S. government and agency securities.............................. 8,290 4,265
Certificates of deposit, floating rate notes and other........... -- 2,698
-------- -------
38,006 30,451
Accounts payable and accrued expenses.............................. 8,019 13,680
Income taxes payable............................................... 7,756 1,122
Deferred income taxes, net......................................... 7,961 2,564
-------- -------
23,736 17,366
-------- -------
Commitments and contingencies
Subordinated liabilities........................................... 2,769 1,679
-------- ------
Total liabilities 64,511 49,496
-------- ------
Stockholders' equity:
Common stock: par value $.01, shares authorized
5,000,000, issued 3,754,335, outstanding 866,895 in 1997 ,
896,205 in 1998................................................... 38 38
Paid-in capital..................................................... 9,134 13,167
Retained earnings................................................... 158,664 189,444
Common stock in treasury, at cost, shares:
2,887,440 in 1997 and 2,858,130 in 1998....................... (27,167) (26,411)
Notes receivable from stockholders.................................. (5,553) (4,192)
-------- --------
Total stockholders' equity....................................... 135,116 172,046
-------- --------
Total liabilities and stockholders' equity.................... $ 199,627 $ 221,542
========== ========
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
KBW, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1996 1997 1998
------ ---- ----
<S> <C> <C> <C>
Revenues
Principal transactions, net........................ $ 36,272 $ 47,076 $ 30,198
Commissions........................................ 11,339 15,097 21,505
Investment banking................................. 28,706 55,176 91,851
Net gain on investments............................ 5,987 18,419 2,694
Interest and dividend income....................... 2,933 5,911 7,574
Other.............................................. 1,367 1,340 1,623
-------- --------- --------
Total revenues................................ 86,604 143,019 155,445
-------- --------- --------
Expenses
Compensation and benefits.......................... 40,813 62,508 76,512
Occupancy and equipment............................ 2,608 2,952 4,499
Communications..................................... 2,058 2,310 2,438
Brokerage and clearance............................ 3,876 4,683 5,292
Other.............................................. 5,757 10,305 11,457
-------- --------- --------
Total expenses.............................. 55,112 82,758 100,198
-------- --------- --------
Income before income tax expense....................... 31,492 60,261 55,247
Income tax expense..................................... 13,547 22,949 24,467
-------- --------- --------
Net income............................................. $ 17,945 $ 37,312 $ 30,780
======== ========= ========
Basic earnings per share............................... $ 21.64 $ 43.68 $ 34.44
======== ========= ========
Diluted earnings per share............................. $ 21.64 $ 43.68 $ 34.44
======== ========= ========
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
KBW, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
COMMON NOTES
STOCK RECEIVABLE
COMMON PAID-IN RETAINED IN FROM
STOCK CAPITAL EARNINGS TREASURY STOCKHOLDERS TOTAL
---------- ---------- ----------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 $ 38 $ 1,112 $ 103,407 $(22,215) $ (3,732) $ 78,610
Net income............................... -- -- 17,945 -- -- 17,945
Purchase 60,275 shares of common
stock for treasury..................... -- -- -- (6,304) -- (6,304)
Sale of 64,797 shares of common
stock from treasury.................... -- 5,425 -- 1,859 -- 7,284
Issuance of notes receivable
from stockholders...................... -- -- -- -- (3,027) (3,027)
Proceeds from principal repayment on
notes receivable from stockholders..... -- -- -- -- 1,467 1,467
----- ------ -------- -------- ------- --------
Balances at December 31, 1996 $ 38 $ 6,537 $ 121,352 $(26,660) $ (5,292) $ 95,975
===== ====== ======== ======== ======= ========
Net income............................... -- -- 37,312 -- -- 37,312
Purchase of 9,398 shares of common
stock for treasury..................... -- -- -- (1,176) -- (1,176)
Sale of 23,329 shares of common
stock from treasury.................... -- 2,597 -- 669 -- 3,266
Issuance of notes receivable from
stockholders........................... -- -- -- -- (1,254) (1,254)
Proceeds from principal repayment on
notes receivable from stockholders..... -- -- -- -- 993 993
----- ------ -------- -------- ------- --------
Balances at December 31, 1997 $ 38 $ 9,134 $ 158,664 $(27,167) $ (5,553) $ 135,116
===== ====== ======== ======== ======= ========
Net income............................... -- -- 30,780 -- -- 30,780
Purchase of 543 shares of common
stock for treasury..................... -- -- -- (100) -- (100)
Sale of 29,853 shares of common
stock from treasury.................... -- 4,033 -- 856 -- 4,889
Proceeds from principal repayment
on notes receivable from -- -- -- -- 1,361 1,361
stockholders...........................
----- ------ -------- -------- ------- --------
Balances at December 31, 1998 $ 38 $ 13,167 $ 189,444 $(26,411) $ (4,192) $ 172,046
===== ====== ======== ======== ======= ========
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
KBW, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................. $ 17,945 $ 37,312 $ 30,780
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Deferred income taxes (benefit)..................... 2,563 4,131 (5,397)
Unrealized gain from principal transactions
and investments.................................... (8,495) (11,440) (13,294)
Realized gain from investments.................... (232) (11,292) (3,313)
Depreciation and amortization....................... 297 1,128 1,332
(Increase) decrease in operating assets:
Securities owned.................................. 28,389 (7,040) 2,990
Receivable from clearing brokers.................. (2,535) (40,468) (23,482)
Accounts receivable............................... 8 (1,955) (3,035)
Other assets...................................... (411) 1,481 (1,958)
Increase (decrease) in operating liabilities:
Securities sold but not yet purchased............. (32,615) 15,886 7,555
Accounts payable and accrued expenses............. 1,322 2,484 5,661
Income taxes payable.............................. 1,453 5,658 (6,634)
------ ------ -------
Total adjustments............................... (10,256) (41,427) (39,575)
------ ------ -------
Net cash provided by (used in) operating activities.... $ 7,689 $ (4,115) $ (8,795)
------ ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and leasehold improvements (229) (290) (932)
Purchases of investments............................... (3,718) (7,029) (10,200)
Proceeds from sale of investments...................... 269 14,383 13,211
------ ------ -------
Net cash provided by (used in) investing activities. $(3,678) $ 7,064 $ 2,079
------ ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock from treasury..................... $ 1,165 $ 2,012 $ 4,889
Purchase of common stock for treasury.................. (6,304) (1,176) (100)
Repayment of notes receivable from stockholders........ 1,467 993 1,361
Issuance of subordinated borrowings.................... 3,029 -- --
Installment payments on subordinated borrowings........ (1,290) (2,132) (1,090)
------ ------ -------
Net cash provided by (used in) financing activities (1,933) (303) 5,060
------ ------ -------
Net increase (decrease) in cash and cash equivalents 2,078 2,646 (1,656)
Cash and cash equivalents at beginning of period....... 1,686 3,764 6,410
------ ------ -------
Cash and cash equivalents at end of period............. $ 3,764 $ 6,410 $ 4,754
------ ------ -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes...................................... $ 9,620 $ 13,129 $ 36,497
====== ========= =======
Interest.......................................... $ 2,306 $ 980 $ 53
====== ========= =======
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:
Issuance of common stock from treasury for purchase of
Charles Webb & Company............................ $ 3,092 $ -- $ --
Issuance of treasury stock for notes receivable from ====== ========= =======
stockholders...................................... $ 3,027 $ 1,254 $ --
====== ========= =======
See accompanying notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
KBW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER
Organization and Basis of Presentation
KBW, Inc. (the "Company") is a newly formed holding company which, as
of the date of completion of its initial public offering will own all of the
outstanding capital stock of Keefe, Bruyette & Woods, Inc. ("KBWI") and KBW
Asset Management, Inc. ("KBWAM"), previously Keefe Management Services, Inc.,
pursuant to the Reorganization (See Subsequent Events note 15).
Prior to the Reorganization, KBWI and its consolidated subsidiary,
KBWAM, reported as Keefe Bruyette & Woods, Inc. and subsidiary. As KBW, Inc.,
KBWI and KBWAM are entities under common control, the accompanying financial
statements give effect to the Reorganization as if it were a
pooling-of-interests. Accordingly, the financial statements reflect the
Reorganization as if it had occurred as of the beginning of the earliest period
presented, and the assets, liabilities and stockholders' equity are recorded
based upon their historical carrying amounts. No intangible assets are to be
created and recorded as a result of the Reorganization.
Business Activities
KBW is an institutionally oriented investment banking firm that
specializes in commercial banks, thrifts and other financial institutions. KBW's
activities include investment banking, underwriting and sales and trading of
stocks and bonds of banks and other financial institutions.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries, KBWI and KBWAM. All intercompany accounts and
transactions have been eliminated in consolidation. These consolidated financial
statements reflect, in the opinion of management, all adjustments necessary for
a fair presentation of the consolidated financial position and results of
operations of the Company.
Clearing Arrangements
The Company has agreements with Pershing, a division of Donaldson,
Lufkin & Jenrette Securities Corporation, and Morgan Stanley & Co. Incorporated
("Morgan Stanley"), whereby Pershing and Morgan Stanley clear securities
transactions for the Company, carry customers' accounts on a fully disclosed
basis and prepare various records and reports.
Cash Equivalents
For purposes of the consolidated financial statements, the Company
considers all money market and time deposits with maturities of three months or
less to be cash equivalents. At December 31, 1996 , 1997 and 1998, cash
equivalents totaled $3,440, $4,046 and $4,319, respectively.
Securities and Options
Securities and options transactions, including amounts receivable from
clearing brokers, are recorded on a trade date basis. Securities owned,
including options, are valued at quoted market prices. The resulting difference
between cost and market is included in the consolidated statements of income in
principal transactions, net.
F-7
<PAGE>
KBW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER (CONTINUED)
Investments
Investments represent not readily marketable securities, and certain
publicly traded securities held for long-term proprietary investment purposes,
of financial services companies. Securities not readily marketable include
investment securities (a) for which there is no market on a securities exchange
or no independent publicly quoted market price, (b) that cannot be publicly
offered or sold unless registration has been effected under the Securities Act
of 1933 or (c) that cannot be offered or sold because of other arrangements,
restrictions or conditions applicable to the securities or to the Company.
Publicly traded investments are valued at market. Securities not readily
marketable are valued at fair value as determined by management. The resulting
difference between cost and market or estimated fair value is included in the
consolidated statements of income in net gain on investments. The fair value of
not readily marketable securities at December 31, 1997 and 1998 was $4,629, and
$11,578, respectively.
Investment Banking
Investment banking revenues are recorded as follows: management fees as
of the offering date, sales concessions on the trade date, merger and
acquisition fees when amounts are due under terms of the engagement and
underwriting fees at the time the underwriting is completed and the income is
reasonably determinable.
Fixed Assets
Furniture and fixtures are carried at cost and depreciated on a
straight-line basis using estimated useful lives of the related assets,
generally two to five years. Leasehold improvements are amortized on a straight
line basis over the lesser of the economic useful life of the improvement or the
term of the respective leases.
Business Acquisition
On July 31, 1996, Charles Webb & Company was acquired by KBWI. The
acquisition was accounted for as a purchase. KBWI issued 27,914 treasury shares
with an aggregate carrying value of $3,092 in exchange for all of the
outstanding common stock of Charles Webb & Company. Goodwill in the amount of
$2,562 was recorded and is being amortized over a five-year period on a straight
line basis.
Fair Value of Financial Instruments
Substantially all of the Company's financial assets and liabilities are
carried at fair market value or contracted amounts which approximate fair value.
Other Comprehensive Income
The Company had no items of other comprehensive income during the years
ended December 31, 1996, 1997 and 1998.
Income Taxes
Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates. The effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.
F-8
<PAGE>
KBW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER (CONTINUED)
Use of Estimates
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.
Other
Certain reclassifications have been made to prior years' financial
statements to conform to the current presentation.
2. SUBORDINATED LIABILITIES
The Company had various subordinated notes outstanding, payable to
former employees in installments, with interest rates and final maturities as
follows:
DECEMBER 31,
NOTES DUE 1997 1998
---- ----
March 1999 $ 38 $ --
April 2000 1,205 723
June 2000 171 93
September 2000 1,355 863
---------- --------
$ 2,769 $ 1,679
========== ========
All notes outstanding bore interest at 1% above a reference bank rate
not to exceed 7-1/2% . Interest rates at December 31, 1997 and 1998 were 2.5%
per annum and 2.0% per annum, respectively.
3. INCOME TAXES
Income taxes included in the consolidated statements of income
represent the following:
CURRENT DEFERRED TOTAL
------- -------- ------
Year ended December 31, 1996:
U.S. Federal $9,298 $2,084 $11,382
State and local 1,686 479 2,165
------ ----- ------
$10,984 $2,563 $13,547
====== ===== ======
Year ended December 31, 1997:
U.S. Federal $15,070 $3,402 $18,472
State and local 3,748 729 4,477
------ ----- -------
$18,818 $4,131 $22,949
====== ===== ======
Year ended December 31, 1998:
U.S. Federal $21,282 $(4,644) $16,638
State and local 8,582 (753) 7,829
------- -------- -------
$29,863 $(5,397) $24,467
======= ======== =======
F-9
<PAGE>
KBW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. INCOME TAXES (CONTINUED)
The difference between the "expected" Federal tax rate and expense
computed by applying the statutory tax rate to income before provision for
income taxes and the effective tax rate and expense is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------------------- ------------------------- ------------------------
PERCENT OF PERCENT OF PERCENT OF
PRE-TAX PRE-TAX PRE-TAX
AMOUNT EARNINGS AMOUNT EARNINGS AMOUNT EARNINGS
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax
provision $ 11,022 35.0% $ 21,091 35.0% $ 19,336 35.0%
State and local taxes,
net of related
federal income tax 1,407 4.5 2,910 4.8 5,089 9.2
benefit
Dividend exclusion and
other 1,118 3.5 (1,052) (1.7) 42 0.1
------- ----- ------- ---- ------- ----
$ 13,547 43.0% $ 22,949 38.1% $ 24,467 44.3%
======= ===== ======= ==== ======= ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1998 are as follows:
1997 1998
------ ------
Deferred tax assets:
Other liabilities and accrued expenses $ 1,168 $ 1,712
Fixed assets 657 831
Deferred tax liabilities:
Investments (9,786) (5,107)
-------- --------
Net deferred tax liabilities $ (7,961) $ (2,564)
======== ========
There are no valuation allowances recorded against deferred tax assets
at December 31, 1997 and 1998, since management has determined that it is more
likely than not that the benefits will be realized.
4. NET CAPITAL REQUIREMENTS
KBWI, as a registered broker-dealer in securities, is subject to the
net capital requirements of the New York Stock Exchange (the "NYSE") and the
Securities and Exchange Commission's (the "SEC") Uniform Net Capital Rule (Rule
15c3-1). The NYSE and the SEC also provide that equity capital may not be
withdrawn or cash dividends paid if certain minimum capital requirements are not
met.
At December 31, 1998, the Company's regulatory net capital and excess
net capital were $125,648 and $124,961, respectively.
F-10
<PAGE>
KBW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
5. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its headquarters and other office locations under
noncancellable lease agreements which expire in 2014 and 2001, respectively.
Such agreements contain escalation clauses and provide that certain operating
costs be paid by the Company in addition to the minimum rentals.
Future minimum lease payments as of December 31, 1998 are as follows:
YEAR
----
1999 4,194
2000 3,216
2001 3,218
2002 3,073
2003 3,076
Thereafter 30,515
--------
$ 47,292
========
Rent expense for the years ended December 31, 1996 , 1997 and 1998,
aggregated $1,668, $1,679, and $2,459, respectively.
Litigation
In the ordinary course of business the Company may be a defendant or
co-defendant in legal actions. It is the opinion of management, after
consultation with counsel, that the resolution of all known actions will not
have a material adverse effect on the consolidated financial position and
results of operations of the Company.
6. NOTES RECEIVABLE FROM STOCKHOLDERS
Notes receivable from stockholders represent full recourse notes issued
to employees for their purchases of stock acquired pursuant to the KBWI book
value stock purchase plan. Loans are payable in quarterly installments and bear
interest at 6.5% per annum. (See Subsequent Events note 15.)
F-11
<PAGE>
KBW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. PRINCIPAL TRANSACTIONS, NET
The Company's principal transaction revenues (losses) by type of
financial instrument are as follows:
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
---- ---- ----
Fixed income $ (797) $ 3,192 $ 8,092
Equity (including options) 37,069 43,884 22,106
--------- --------- --------
$36,272 $47,076 $30,198
========= ========= ========
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Proprietary Trading Exposure
In the normal course of its proprietary trading activities, the Company
enters into transactions in financial instruments with off-balance-sheet risk.
These financial instruments, primarily listed options, contain off-balance-sheet
risk inasmuch as ultimate settlement of these transactions may have market
and/or credit risk in excess of amounts recorded in the financial statements.
Transactions in listed options are conducted through regulated exchanges, which
clear and guarantee performance of counterparties.
Also, in connection with its proprietary trading activities, the
Company has sold securities that it does not currently own and it will,
therefore, be obligated to purchase such securities at a future date. The
Company has recorded these obligations in the financial statements at market
values of the related securities and will incur a loss if the market value of
the securities increases subsequent to the financial statement date.
Broker-Dealer Exposure
The Company clears securities transactions on behalf of customers
through its clearing brokers. In connection with these activities, customers'
unsettled trades may expose the Company to off-balance-sheet credit risk in the
event customers are unable to fulfill their contracted obligations. The Company
seeks to control the risk associated with its customer activities by monitoring
the creditworthiness of its customers.
Derivative Financial Instruments
The Company's derivative activities consist of writing and purchasing
options for trading purposes. As a writer of options, the Company receives a
cash premium at the beginning of the contract period and bears the risk of
unfavorable changes in the value of the financial instruments underlying the
options. Options written do not expose the Company to credit risk since they
obligate the Company (not its counterparty) to perform.
F-12
<PAGE>
KBW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
In order to measure derivative activity, notional or contract amounts
are frequently utilized. Notional/contract amounts, which are not included on
the balance sheet, are used as a basis to calculate contractual cash flows to be
exchanged and generally are not actually paid or received. A summary of the
Company's listed options contracts is as follows:
CONTRACT
NOTIONAL AVERAGE FAIR END OF PERIOD
AMOUNT VALUE FAIR VALUE
-------- ------------ -------------
December 31, 1997:
Purchased options $ 2,370 $ 248 $ 54
Written options 28,778 815 696
December 31, 1998:
Purchased options $ -- $ 27 $ --
Written options 14,308 639 582
Open commitments at December 31, 1998, which were subsequently settled,
had no material effect on the consolidated financial position of the Company.
9. CONCENTRATIONS OF CREDIT RISK
As a securities broker and dealer, the Company is engaged in various
securities trading and brokerage activities servicing primarily domestic and
foreign institutional investors and, to a lesser extent, individual investors.
Nearly all of the Company's transactions are executed with and on behalf of
institutional investors, including other brokers and dealers, commercial banks,
mutual funds and other financial institutions. The Company's exposure to credit
risk associated with the nonperformance of these customers in fulfilling their
contractual obligations pursuant to securities transactions can be directly
impacted by volatile securities markets.
A substantial portion of the Company's marketable securities are common
stock and debt of banks and similar financial institutions. The credit and/or
market risk associated with these holdings can be directly impacted by volatile
equity and credit markets and actions of regulatory authorities.
10. BOOK VALUE STOCK PURCHASE PLAN
The Company maintains a book value stock purchase plan whereby
employees may purchase shares of the Company's stock at book value as calculated
in accordance with a stockholders' agreement (the "Agreement"). The Agreement
requires stockholders leaving the Company's employ to sell their stock back to
the Company at the then book value as calculated under the Agreement. (See
Subsequent Events, note 15.)
11. EMPLOYEE PROFIT SHARING RETIREMENT PLAN
The Company has a defined contribution employee profit sharing
retirement plan in which all employees are entitled to participate based upon
certain eligibility requirements. Investment decisions for the plan are managed
by certain officers of the Company. The Company's contributions to the plan,
which are voluntary, were $1,245 , $1,742 and $2,250 in 1996, 1997 and 1998,
respectively.
F-13
<PAGE>
KBW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
12. EARNINGS PER SHARE
The Company computes its earnings per share in accordance with SFAS No.
128, "Earnings Per Share".
Pursuant to SFAS No. 128, basic earnings per share is computed by
dividing net income applicable to common shares by the weighted average number
of common shares outstanding for the period. Diluted earnings per share is
computed by dividing net income applicable to common shares plus earnings
addbacks attributable to potentially dilutive securities by the weighted average
number of fully-diluted shares outstanding for the period. The following table
sets forth the computation for Basic and Diluted earnings per share:
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
------ ---- ----
Numerator:
Net income $17,945 $37,312 $30,780
Denominator:
Weighted average shares outstanding 829 854 894
Dilutive effect of stock options
and other exercisable shares -- -- --
Adjusted weighted average shares ------ ----- -----
outstanding 829 854 894
------ ----- -----
Basic earnings per share $ 21.64 $ 43.68 $ 34.44
====== ===== =====
Diluted earnings per share $ 21.64 $ 43.68 $ 34.44
====== ===== =====
13. INDUSTRY SEGMENT DATA
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information," in disclosing its business segments. Pursuant to that
statement, an entity is required to determine its business segments based on the
way management organizes the segments within the enterprise for making operating
decisions and assessing performance. Based upon this criteria, the Company has
determined that its entire business should be considered a single segment. In
addition, all of the Company's business activities are carried out domestically,
and there were no individual customers who contributed more than ten percent of
the Company's total revenues.
14. RECENT ACCOUNTING DEVELOPMENTS
In June 1998 the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", which is
effective for financial statements for fiscal years beginning after June 15,
1999. This statement establishes comprehensive accounting and reporting
standards for derivative and hedging activities. As the Company values all of
its securities positions at market or fair value, it believes that this
statement will have no impact on current accounting methods. The effects of this
statement on financial statement disclosures, if any, are presently being
considered.
F-14
<PAGE>
KBW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
15. SUBSEQUENT EVENTS (UNAUDITED)
On August 14, 1998, the Company filed a registration statement with the
Securities and Exchange Commission to register the primary and secondary initial
public offering of shares of the Company's common stock.
Reorganization
Prior to the initial public offering, the stockholders of KBWI will
vote to place ownership of KBWI and KBWAM under a holding company structure
which will be effected by merger (the "Reorganization"). As part of the
Reorganization, KBWI will contribute the capital stock of KBWAM to the Company.
Effective immediately prior to the initial public offering, all of the
outstanding common stock of KBWI will be converted into shares of common stock
of the Company at the applicable exchange ratio.
Treasury Stock Retirement
In connection with the Reorganization and the initial public offering,
the former treasury stock of KBWI will be retired. The pro forma effect on the
Company's December 31, 1998 equity would be as follows:
PRO FORMA
DECEMBER 31, DECEMBER 31,
1998 1998
---- ----
Common stock $ 38 $ 9
Paid-in capital 13,167 13,167
Retained earnings 189,444 163,062
Common stock in treasury (26,411) --
Notes receivable from stockholders (4,192) (4,192)
---------- ---------
$ 172,046 $172,046
========= =========
Employee Stock Purchase Plan
Upon the conversion of outstanding shares of common stock of KBWI into
shares of common stock of the Company (see note 1), the book value stock
purchase plan of KBWI will become inoperative. The Company's Board of Directors
and stockholders have adopted a new employee stock purchase plan relating to the
common stock of the Company, which becomes effective upon the consummation of
the initial public offering. The new plan allows employees of the Company or any
of its subsidiaries to purchase shares of the Company's common stock at 85% of
the lesser of the fair market value of such shares on the date of purchase or on
the offering date for such offering period. The offering dates are January 1 and
July 1 of each year, and each offering period consists of one six-month purchase
period. The fair market value of shares that may be purchased by any employee
during a calendar year may not exceed $25,000 (amount not in thousands).
F-15
<PAGE>
KBW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
15. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
Employee Stock and Annual Incentive Plan
The Company has adopted an employee stock and annual incentive plan
(the "1999 Plan") which provides for the grant of stock options to purchase the
Company's common stock (both non-qualified and incentive stock options), stock
appreciation rights, performance awards and restricted stock (collectively, the
"Awards") to employees as determined by the compensation committee or other
designated committee of the Board of Directors. Options granted under the 1999
Plan will generally vest ratably over three years from the date of grant and
will have terms which may not exceed 10 years. Unless otherwise determined by a
designated committee of the Company's Board of Directors (the "Committee"),
options will have an exercise price equal to the fair market value of the common
stock on the date of grant. A participant exercising an option may pay the
exercise price, in cash or, if approved by the Committee, with previously
acquired shares of common stock or a combination thereof. At the discretion of
the Committee, a participant may receive a replacement or "reload" option when
exercising an option with previously owned shares of common stock. In the event
of a change of control as defined in the 1999 Plan, any option or stock
appreciation right that is not then exercisable and vested will become fully
exercisable and vested, restrictions on restricted stock will lapse and
performance units will be deemed earned. In the first quarter of 1999, the
Company granted options to acquire shares of common stock at an exercise
price of $ per share to certain employees. The 1999 Plan also permits annual
cash bonus payments to be awarded to certain eligible employees of the Company,
as determined by the Board of Directors or the committee.
Director Stock and Option Plan
The Company intends to adopt a non-employee director compensation plan
(the "Director Stock and Option Plan") whereby non-employee directors of the
Company will be required to receive 25% of their director fees in shares of
common stock (determined based upon the then fair market value of the common
stock). Such directors may elect to receive additional portions of their fees in
shares of common stock. On the day the offering becomes effective, each
non-employee director will be granted options for shares of common stock.
After each annual meeting of stockholders during such director's term, each
non-employee director will be granted options for shares of common stock.
Each new non-employee director will begranted options for shares of common
stock. The exercise price for the options will be equal to the fair market value
of common stock on the date of the grant. Options granted under the Director
Stock and Option Plan will vest upon the first anniversary of the date of grant
and are exercisable up to 10 years from the date of grant. All director options
become fully vested and exercisable upon a change of control as defined in the
1999 Plan.
Employment Agreements
The Company will enter into employment agreements with four key
executives. Each agreement is for a term of three years, commencing upon the
consummation of the offering. Under the agreements, the executives will have
annual base salaries which total $1,260, and will participate in the Company's
annual bonus plan, the 1999 Plan, and other benefit plans and programs on a
basis no less favorable than peer executives of the Company. If the employment
of an executive is terminated, other than for cause, death or disability or an
executive terminates employment for good reason, during the three-year term, the
executive will be entitled to a lump-sum cash payment equal to any earned and
unpaid compensation through the date of termination, base salary, annual bonus
and Company-contributions to the Profit Sharing Retirement Plan, for the greater
of twelve months and the remaining portion of the three-year term. The
agreements also contain certain restrictive covenants and non-compete
arrangements with respect to each executive.
F-16
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
No dealer, salesperson or other person has been authorized SHARES
to give any information or to make any representations other
than those contained in this Prospectus in connection with
the offer made by 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
Stockholders or any of the Underwriters. This Prospectus
does not constitute an offer to sell or the solicitation of [KBW LOGO]
any offer to buy any security 1999 other than the shares of
Common Stock offered by this Prospectus, nor does it KBW, Inc.
constitute an offer to sell or a solicitation of any offer
to buy the shares of Common Stock by anyone in any
jurisdiction in which such offer or solicitation is not
authorized, or in which the person making such offer or COMMON STOCK
solicitation is not qualified to do so, or to any person to
whom it is unlawful to make such offer or solicitation.
Neither the delivery of this Prospectus nor any sale made -------------
hereunder shall, under any circumstances, create any PROPSPECTUS
implication that the information contained herein is correct -------------
as of any time subsequent to the date hereof.
_______________________
TABLE OF CONTENTS
PAGE
Prospectus Summary............................ 3
Risk Factors.................................. 7
Use of Proceeds............................... 17
Dividend Policy............................... 17
Capitalization................................ 18 DONALDSON, LUFKIN & JENRETTE
Dilution...................................... 19
Selected Historical Consolidated
Financial Data.......................... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................... 22 GOLDMAN, SACHS, & CO.
Business...................................... 29
Management.................................... 45
Principal and Selling Stockholders............ 55
Certain Transactions Occurring Prior to
the Offering............................ 56
Description of Capital Stock.................. 58 KEEFE, BRUYETTE & WOODS, INC.
Certain Anti-takeover Provisions.............. 58
Shares Eligible for Future Sale............... 63
Underwriting.................................. 64
Tax Consequences to Non-U.S. Holders.......... 66
Legal Matters................................. 68
Experts....................................... 68 , 1999
Additional Information........................ 68
Index to Consolidated Financial
Statements.............................. F-1
_______________________
Until , 1999 (25 days after the date of this Prospectus),
all dealers effecting transactions in the Common Stock,
whether or not participating in this distribution, may be
required to deliver a Prospectus. This requirement 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>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other
than underwriting discounts and commissions, payable in connection with the sale
of Common Stock offered hereby (including the Common Stock which may be sold
pursuant to the Underwriters' over-allotment option) all of which will be paid
by the Company:
<TABLE>
<CAPTION>
AMOUNT*
=============
<S> <C>
SEC registration fee......................................... $ 33,925
NASD filing fee.............................................. 12,000
New York Stock Exchange listing fee..........................
Printing and engraving expenses..............................
Legal fees and expenses......................................
Accounting fees and expenses.................................
Blue sky fees and expenses (including legal fees and expenses) 2,500
Transfer agent and registrar fees and expenses...............
Miscellaneous................................................ -------------
Total........................................................ $
=============
</TABLE>
* All amounts are estimated except SEC registration fee, NASD filing fee, and
New York Stock Exchange listing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
("DGCL") provides as follows:
A corporation may 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, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that the person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interest of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by the person in connection with the
defense or settlement of such action or suit if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect to any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
<PAGE>
As permitted by the DGCL, the Company has included in the KBW
Certificate a provision to eliminate the personal liability of its directors for
monetary damages for breach or alleged breach of their fiduciary duties as
directors, subject to certain exceptions. In addition, the KBW Bylaws provide
that the Company is required to indemnify its directors and officers under
certain circumstances, including those circumstances in which indemnification
would otherwise be discretionary, and the Company is required to advance
expenses to its directors and officers as incurred in connection with
proceedings against them for which they may be indemnified.
The Underwriting Agreement provides that the Underwriters are
obligated, under certain circumstances, to indemnify directors, officers and
controlling persons of the Company against certain liabilities, including
liabilities under the Securities Act. Reference is made to the form of
Underwriting Agreement filed as Exhibit 1.01 hereto.
The Company maintains directors and officers liability insurance for
the benefit of its directors and certain of its officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Immediately prior to the offering contemplated hereby, the Registrant
issued an aggregate of shares of common stock, par value $0.01 per
share, of KBW, Inc. to the stockholders of Keefe, Bruyette & Woods, Inc. in
exchange for all of their shares of common stock of Keefe, Bruyette & Woods,
Inc., a New York corporation, pursuant to a merger in which a transitory
subsidiary of the Registrant was merged with and into Keefe, Bruyette & Woods,
Inc. There were no underwriters, brokers or finders employed in connection with
these transactions. The sales of the above securities were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, as transactions by an issuer not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
1.01 --Form of Underwriting Agreement.*
2.01 --Agreement and Plan of Merger.*
3.01 --Registrant's Certificate of Incorporation.**
3.02 --Registrant's Bylaws.
4.01 --Form of Specimen Certificate for Registrant's Common Stock.*
5.01 --Form of Opinion of Wachtell, Lipton, Rosen & Katz.
10.01 --Form of Stockholders' Agreement.
10.02 --Form of 1999 Stock and Annual Incentive Plan.*
10.03 --Form of 1999 Employee Stock Purchase Plan.
10.04 --Form of Non-Employee Director Stock and Option Compensation Plan.*
10.05 --Form of Employment Agreement for certain executives.*
10.06 --Fully Disclosed Clearing Agreement, dated as of October
22, 1992, between the Pershing Division of Donaldson, Lufkin
& Jenrette Securities Corporation and Keefe, Bruyette &
Woods, Inc., as amended.
II-2
<PAGE>
10.07 --Lease Agreement, dated as of June 19, 1998, between The
Port Authority of New York and New Jersey and Keefe,
Bruyette & Woods, Inc.
21.01 --List of Subsidiaries of the Registrant.
23.01 --Consent of Independent Public Accountants.
23.02 --Consent of Counsel (included in Exhibit 5.01).
24.01 --Power of Attorney (see page II-4 of Registration Statement filed
on August 14, 1998).
27.01 --Financial Data Schedule.
- ---------------
* To be filed by amendment.
** Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) That for purposes of determining any liability under the
Securities Act of 1933, 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 of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) That for the purpose of determining any liability under
the Securities Act of 1933, 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.
(3) 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.
(4) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 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 of 1933 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 of 1933
and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment No. 1 to the Registration
Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto
duly authorized, in The City of New York, State of New York, on the 26th day of
February, 1999.
KBW, INC.
By: /S/ JAMES J. MCDERMOTT, JR.
--------------------------------------
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities on the 26th day of February, 1999.
SIGNATURE TITLE
--------- -----
/S/ JAMES J. MCDERMOTT, JR. Chairman of the Board of Directors
(JAMES J. MCDERMOTT, JR.) and Chief Executive Officer
(Principal Executive Officer)
/S/ CHARLES H. LOTT Vice Chairman of the Board of
(CHARLES H. LOTT) Directors
/S/ STANLEY T. WELLS Vice Chairman of the Board of
(STANLEY T. WELLS) Directors
/S/ JOSEPH J. BERRY President, Chief Operating Officer
(JOSEPH J. BERRY) and Director
/S/ JOHN G. DUFFY Executive Vice President, Co-Head of
(JOHN G. DUFFY) Corporate Finance and Director
/S/ ANDREW M. SENCHAK Executive Vice President, Co-Head of
(ANDREW M. SENCHAK) Corporate Finance and Director
/S/ GUY G. WOELK Executive Vice President, Chief
(GUY G. WOELK) Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
II-4
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- -------------
1.01 --Form of Underwriting Agreement.*
2.01 --Agreement and Plan of Merger.*
3.01 --Registrant's Certificate of Incorporation.**
3.02 --Registrant's Bylaws.
4.01 --Form of Specimen Certificate for Registrant's Common Stock.*
5.01 --Form of Opinion of Wachtell, Lipton, Rosen & Katz.
10.01 --Form of Stockholders' Agreement.
10.02 --Form of 1999 Stock and Annual Incentive Plan.*
10.03 --Form of 1999 Employee Stock Purchase Plan.
10.04 --Form of Non-Employee Director Stock and Option Compensation
Plan.*
10.05 --Form of Employment Agreement for certain executives.*
10.06 --Fully Disclosed Clearing Agreement, dated as of October 22,
1992, between the Pershing Division of Donaldson, Lufkin &
Jenrette Securities Corporation and Keefe, Bruyette & Woods,
Inc., as amended.
10.07 --Lease Agreement, dated as of June 19, 1998, between The
Port Authority of New York and New Jersey and Keefe, Bruyette
& Woods, Inc.
21.01 --List of Subsidiaries of the Registrant.
23.01 --Consent of Independent Public Accountants.
23.02 --Consent of Counsel (included in Exhibit 5.01).
24.01 --Power of Attorney (see page II-4 of Registration Statement
filed on August 14, 1998).
27.01 --Financial Data Schedule.
- ---------------
* To be filed by amendment.
** Previously filed.
II-5
EXHIBIT 3.02
AMENDED AND RESTATED BY-LAWS
OF
KBW, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
================================================================================
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1. Delaware Office. The principal office of the Corporation
in the State of Delaware shall be located in the City of Wilmington, County of
New Castle, and the name and address of its registered agent is The Corporation
Trust Company, 1209 Orange Street, Wilmington, Delaware.
SECTION 1.2. Other Offices. The Corporation may have such other
offices, either within or without the State of Delaware, as the Board of
Directors may designate or as the business of the Corporation may from time to
time require.
SECTION 1.3. Books and Records. The books and records of the
Corporation may be kept outside the State of Delaware at such place or places as
may from time to time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held on such date and at such place and time as may be
fixed by resolution of the Board of Directors.
SECTION 2.2. Special Meeting. Subject to the rights of the holders of
any series of stock having a preference over the Common Stock of the Corporation
as to dividends or upon liquidation ("Preferred Stock") with respect to such
series of Preferred Stock, special meetings of the stockholders may be called
only by the Chairman of the Board or by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors which the
Corporation would have if there were no vacancies (the "Whole Board").
SECTION 2.3. Place of Meeting. The Board of Directors or the Chairman
of the Board, as the case may be, may designate the place of meeting for any
annual meeting or for any special meeting of the stockholders called by the
Board of Directors or the Chairman of the
<PAGE>
Board. If no designation is so made, the place of meeting shall be the principal
office of the Corporation.
SECTION 2.4. Notice of Meeting. Written or printed notice, stating the
place, day and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be delivered by the Corporation not less than 10 days
nor more than 60 days before the date of the meeting, either personally or by
mail, to each stockholder of record entitled to vote at such meeting. If mailed,
such notice shall be deemed to be delivered when deposited in the United States
mail with postage thereon prepaid, addressed to the stockholder at his address
as it appears on the stock transfer books of the Corporation. Such further
notice shall be given as may be required by law. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Meetings may be
held without notice if all stockholders entitled to vote are present, or if
notice is waived by those not present in accordance with Section 6.4 of these
By-Laws. Any previously scheduled meeting of the stockholders may be postponed,
and (unless the Certificate of Incorporation otherwise provides) any special
meeting of the stockholders may be canceled, by resolution of the Board of
Directors upon public notice given prior to the date previously scheduled for
such meeting of stockholders.
SECTION 2.5. Quorum and Adjournment. Except as otherwise provided by
law or by the Certificate of Incorporation, the holders of a majority of the
outstanding shares of the Corporation entitled to vote generally in the election
of directors (the "Voting Stock"), represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders, except that when specified
business is to be voted on by a class or series of stock voting as a class, the
holders of a majority of the shares of such class or series shall constitute a
quorum of such class or series for the transaction of such business. The
Chairman of the meeting or a majority of the shares so represented may adjourn
the meeting from time to time, whether or not there is such a quorum. No notice
of the time and place of adjourned meetings need be given except as required by
law. The stockholders present at a duly called meeting at which a quorum is
present may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
SECTION 2.6. Proxies. At all meetings of stockholders, a stockholder
may vote by proxy executed in writing (or in such manner prescribed by the
General Corporation Law of the State of Delaware) by the stockholder, or by his
duly authorized attorney in fact.
SECTION 2.7. Notice of Stockholder Business and Nominations.
(A) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to the Corporation's notice of meeting, (b) by or
at the direction of the Board of Directors or (c) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of notice
provided for in this By-Law, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this By-Law.
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(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this By-Law, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is more than 30 days
before or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the Corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this By-Law to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the Corporation naming all of
the nominees for director or specifying the size of the increased Board of
Directors at least 70 days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this By-Law shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursu-
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ant to the Corporation's notice of meeting (a) by or at the direction of the
Board of Directors or (b) provided that the Board of Directors has determined
that directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this By-Law, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this By-Law. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (A)(2) of this By-Law shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the 90th day prior to such special
meeting and not later than the close of business on the later of the 60th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In no
event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
above.
(C) General. (1) Only such persons who are nominated in accordance with
the procedures set forth in this By-Law shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this By-Law. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the Chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this By-Law and, if any proposed
nomination or business is not in compliance with this By-Law, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this By-Law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-Law. Nothing in this By-Law shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
SECTION 2.8. Procedure for Election of Directors; Required Vote.
Election of directors at all meetings of the stockholders at which directors are
to be elected shall be by ballot, and, subject to the rights of the holders of
any series of Preferred Stock to elect directors under specified circumstances,
a plurality of the votes cast thereat shall elect directors. Except as otherwise
provided by law, the Certificate of Incorporation, or these By-Laws, in all
matters other than the election of directors, the affirmative vote of a majority
of the shares present in person or
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represented by proxy at the meeting and entitled to vote on the matter shall be
the act of the stockholders.
SECTION 2.9. Inspectors of Elections; Opening and Closing the Polls.
The Board of Directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed to act or is able to act at a meeting of stockholders, the Chairman of
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall have the
duties prescribed by law.
The Chairman of the meeting shall fix and announce at the meeting the
date and time of the opening and the closing of the polls for each matter upon
which the stockholders will vote at a meeting.
SECTION 2.10. No Stockholder Action by Written Consent. Subject to the
rights of the holders of any series of Preferred Stock with respect to such
series of Preferred Stock, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. General Powers. The business and affairs of the
Corporation shall be managed under the direction of the Board of Directors. In
addition to the powers and authorities by these By-Laws expressly conferred upon
them, the Board of Directors may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by statute or by the Certificate
of Incorporation or by these By-Laws required to be exercised or done by the
stockholders.
SECTION 3.2. Number, Tenure and Qualifications. Subject to the rights
of the holders of any series of Preferred Stock to elect directors under
specified circumstances, the number of directors shall be fixed from time to
time exclusively pursuant to a resolution adopted by a majority of the Whole
Board and shall be divided into three classes, as nearly equal in number as
possible. One class of directors shall be initially elected for a term expiring
at the annual meeting of stockholders to be held in 1999, another class shall be
initially elected for a term expiring at the annual meeting of stockholders to
be held in 2000 and another class shall be initially elected for a term expiring
at the annual meeting of stockholders to be held in 2001. Members of each class
shall hold office until their successors shall have been duly elected and
qualified. At
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each annual meeting of stockholders, commencing with the 1999 annual meeting,
(i) directors elected to succeed those directors whose terms then expire shall
be elected by a plurality vote of all votes cast at such meeting for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each director to hold office until his or her successor
shall have been duly elected and qualified, and (ii) if authorized by a
resolution of the Board of Directors, directors may be elected to fill any
vacancy on the Board of Directors, regardless of how such vacancy shall have
been created.
SECTION 3.3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this By-Law immediately after,
and at the same place as, the Annual Meeting of Stockholders. The Board of
Directors may, by resolution, provide the time and place for the holding of
additional regular meetings without other notice than such resolution.
SECTION 3.4. Special Meetings. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board or a
majority of the Board of Directors then in office. The person or persons
authorized to call special meetings of the Board of Directors may fix the place
and time of the meetings.
SECTION 3.5. Notice. Notice of any special meeting of directors shall
be given to each director at his business or residence in writing by hand
delivery, first-class or overnight mail or courier service, telegram or
facsimile transmission, or orally by telephone. If mailed by first-class mail,
such notice shall be deemed adequately delivered when deposited in the United
States mails so addressed, with postage thereon prepaid, at least five days
before such meeting. If by telegram, overnight mail or courier service, such
notice shall be deemed adequately delivered when the telegram is delivered to
the telegraph company or the notice is delivered to the overnight mail or
courier service company at least 24 hours before such meeting. If by facsimile
transmission, such notice shall be deemed adequately delivered when the notice
is transmitted at least 12 hours before such meeting. If by telephone or by hand
delivery, the notice shall be given at least 12 hours prior to the time set for
the meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice of such meeting, except for amendments to these By-Laws, as provided
under Section 8.1. A meeting may be held at any time without notice if all the
directors are present or if those not present waive notice of the meeting in
accordance with Section 6.4 of these By-Laws.
SECTION 3.6. Action by Consent of Board of Directors. Any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
SECTION 3.7. Conference Telephone Meetings. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of
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which all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at such meeting.
SECTION 3.8. Quorum. Subject to Section 3.9, a whole number of
directors equal to at least a majority of the Whole Board shall constitute a
quorum for the transaction of business, but if at any meeting of the Board of
Directors there shall be less than a quorum present, a majority of the directors
present may adjourn the meeting from time to time without further notice. The
act of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors. The directors present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a quorum.
SECTION 3.9. Vacancies. Subject to applicable law and the rights of the
holders of any series of Preferred Stock with respect to such series of
Preferred Stock, and unless the Board of Directors otherwise determines,
vacancies resulting from death, resignation, retirement, disqualification,
removal from office or other cause, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled only by
the affirmative vote of a majority of the remaining directors, though less than
a quorum of the Board of Directors, and directors so chosen shall hold office
for a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of authorized directors constituting the Whole Board shall shorten
the term of any incumbent director.
SECTION 3.10. Executive and Other Committees. The Board of Directors
may, by resolution adopted by a majority of the Whole Board, designate an
Executive Committee to exercise, subject to applicable provisions of law, all
the powers of the Board in the management of the business and affairs of the
Corporation when the Board is not in session, including without limitation the
power to declare dividends, to authorize the issuance of the Corporation's
capital stock and to adopt a certificate of ownership and merger pursuant to
Section 253 of the General Corporation Law of the State of Delaware, and may, by
resolution similarly adopted, designate one or more other committees. The
Executive Committee and each such other committee shall consist of two or more
directors of the Corporation. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Any such committee, other than the
Executive Committee (the powers of which are expressly provided for herein), may
to the extent permitted by law exercise such powers and shall have such
responsibilities as shall be specified in the designating resolution. In the
absence or disqualification of any member of such committee or committees, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any such absent or
disqualified member. Each committee shall keep written minutes of its
proceedings and shall report such proceedings to the Board when required.
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A majority of any committee may determine its action and fix the time
and place of its meetings, unless the Board shall otherwise provide. Notice of
such meetings shall be given to each member of the committee in the manner
provided for in Section 3.5 of these By-Laws. The Board shall have power at any
time to fill vacancies in, to change the membership of, or to dissolve any such
committee. Nothing herein shall be deemed to prevent the Board from appointing
one or more committees consisting in whole or in part of persons who are not
directors of the Corporation; provided, however, that no such committee shall
have or may exercise any authority of the Board.
SECTION 3.11. Removal. Subject to the rights of the holders of any
series of Preferred Stock with respect to such series of Preferred Stock, any
director, or the entire Board of Directors, may be removed from office at any
time, but only for cause and only by the affirmative vote of the holders of at
least 80 percent of the voting power of all of the then-outstanding shares of
Voting Stock, voting together as a single class.
SECTION 3.12. Records. The Board of Directors shall cause to be kept a
record containing the minutes of the proceedings of the meetings of the Board
and of the stockholders, appropriate stock books and registers and such books of
records and accounts as may be necessary for the proper conduct of the business
of the Corporation.
ARTICLE IV
OFFICERS
SECTION 4.1. Elected Officers. The elected officers of the Corporation
shall be a Chairman of the Board of Directors (who shall also be the Chief
Executive Officer, unless the Board otherwise determines), one or more Vice
Chairmen of the Board of Directors, a President, one or more Executive Vice
Presidents, a Secretary, a Treasurer, and such other officers (including,
without limitation, a Chief Financial Officer, Senior Vice Presidents and Vice
Presidents) as the Board of Directors from time to time may deem proper. The
Chairman of the Board and the President shall be chosen from among the
directors. All other officers need not be directors. All officers elected by the
Board of Directors shall each have such powers and duties as generally pertain
to their respective offices, subject to the specific provisions of this ARTICLE
IV. Such officers shall also have such powers and duties as from time to time
may be conferred by the Board of Directors or by any committee thereof. The
Board or any committee thereof may from time to time elect, or the Chairman of
the Board or President may appoint, such other officers, assistant officers, and
agents as may be necessary or desirable for the conduct of the business of the
Corporation. Such other officers, assistant officers, and agents shall have such
duties and shall hold their offices for such terms as shall be provided in these
By-Laws or as may be prescribed by the Board or such committee or by the
Chairman of the Board or President, as the case may be. Any two offices, except
those of Chairman of the Board and President, may be held by the same
individual.
SECTION 4.2. Election and Term of Office. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of
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Directors held after the annual meeting of the stockholders. If the election of
officers shall not be held at such meeting, such election shall be held as soon
thereafter as convenient. Each officer shall hold office until his successor
shall have been duly elected and shall have qualified or until his death or
until he shall resign, but any officer may be removed from office with or
without cause at any time by the affirmative vote of a majority of the Whole
Board or, except in the case of an officer or agent elected by the Board, by the
Chairman of the Board or President. Such removal shall be without prejudice to
the contractual rights, if any, of the person so removed.
SECTION 4.3. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors and
shall be the Chief Executive Officer of the Company. The Chairman of the Board
shall be responsible for the general management of the affairs of the
Corporation and shall perform all duties incidental to his office which may be
required by law and all such other duties as are properly required of him by the
Board of Directors. He shall make reports to the Board of Directors and the
stockholders, and shall see that all orders and resolutions of the Board of
Directors and of any committee thereof are carried into effect.
SECTION 4.4. Vice Chairman of the Board. Each Vice Chairman shall have
such powers and shall perform such duties as shall be assigned to such officer
by the Board of Directors or the Chairman of the Board.
SECTION 4.5. President. The President shall act in a general executive
capacity and shall assist the Chairman of the Board in the administration and
operation of the Corporation's business and general supervision of its policies
and affairs. The President shall, in the absence of or because of the inability
to act of the Chairman of the Board, perform all duties of the Chairman of the
Board and preside at all meetings of stockholders and of the Board of Directors.
SECTION 4.6. Vice Presidents. Each Executive Vice President and any
Senior Vice Presidents or Vice Presidents shall have such powers and shall
perform such duties as shall be assigned to such officer by the Board of
Directors.
SECTION 4.7. Chief Financial Officer. The Chief Financial Officer, if
any, shall act in an executive financial capacity. He shall assist the Chairman
of the Board and the President in the general supervision of the Corporation's
financial policies and affairs.
SECTION 4.8. Treasurer. The Treasurer shall exercise general
supervision over the receipt, custody and disbursement of corporate funds. The
Treasurer shall cause the funds of the Corporation to be deposited in such banks
as may be authorized by the Board of Directors, or in such banks as may be
designated as depositaries in the manner provided by resolution of the Board of
Directors. He shall have such further powers and duties and shall be subject to
such directions as may be granted or imposed upon him from time to time by the
Board of Directors, the Chairman of the Board or the President.
SECTION 4.9. Secretary. The Secretary shall keep or cause to be kept in
one or more books provided for that purpose, the minutes of all meetings of the
Board, the committees of the Board and the stockholders; he shall see that all
notices are duly given in accordance with
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the provisions of these By-Laws and as required by law; he shall be custodian of
the records and the seal of the Corporation and affix and attest the seal to all
stock certificates of the Corporation (unless the seal of the Corporation on
such certificates shall be a facsimile, as hereinafter provided) and affix and
attest the seal to all other documents to be executed on behalf of the
Corporation under its seal; and he shall see that the books, reports,
statements, certificates and other documents and records required by law to be
kept and filed are properly kept and filed; and in general, he shall perform all
the duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him by the Board, the Chairman of the Board or
the President.
SECTION 4.10. Removal. Any officer elected, or agent appointed, by the
Board of Directors may be removed by the affirmative vote of a majority of the
Whole Board whenever, in their judgment, the best interests of the Corporation
would be served thereby. Any officer or agent appointed by the Chairman of the
Board or the President may be removed by him whenever, in his judgment, the best
interests of the Corporation would be served thereby. No elected officer shall
have any contractual rights against the Corporation for compensation by virtue
of such election beyond the date of the election of his successor, his death,
his resignation or his removal, whichever event shall first occur, except as
otherwise provided in an employment contract or under an employee deferred
compensation plan.
SECTION 4.11. Vacancies. A newly created elected office and a vacancy
in any elected office because of death, resignation, or removal may be filled by
the Board of Directors for the unexpired portion of the term at any meeting of
the Board of Directors. Any vacancy in an office appointed by the Chairman of
the Board or the President because of death, resignation, or removal may be
filled by the Chairman of the Board or the President.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
SECTION 5.1. Stock Certificates and Transfers. The interest of each
stockholder of the Corporation shall be evidenced by certificates for shares of
stock in such form as the appropriate officers of the Corporation may from time
to time prescribe. The shares of the stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof in person or
by his attorney, upon surrender for cancellation of certificates for at least
the same number of shares, with an assignment and power of transfer endorsed
thereon or attached thereto, duly executed, with such proof of the authenticity
of the signature as the Corporation or its agents may reasonably require.
The certificates of stock shall be signed, countersigned and registered
in such manner as the Board of Directors may by resolution prescribe, which
resolution may permit all or any of the signatures on such certificates to be in
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be
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issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
SECTION 5.2. Lost, Stolen or Destroyed Certificates. No certificate for
shares of stock in the Corporation shall be issued in place of any certificate
alleged to have been lost, destroyed or stolen, except on production of such
evidence of such loss, destruction or theft and on delivery to the Corporation
of a bond of indemnity in such amount, upon such terms and secured by such
surety, as the Board of Directors or any financial officer may in its or his
discretion require.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1. Fiscal Year. The fiscal year of the Corporation shall
begin on the first day of January and end on the thirty-first day of December of
each year.
SECTION 6.2. Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and the Certificate of
Incorporation.
SECTION 6.3. Seal. The corporate seal shall have enscribed thereon the
words "Corporate Seal," the year of incorporation and around the margin thereof
the words "KBW, Inc."
SECTION 6.4. Waiver of Notice. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions of
the General Corporation Law of the State of Delaware or these By-Laws, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Neither the business to be transacted at, nor the
purpose of, any annual or special meeting of the stockholders or the Board of
Directors or committee thereof need be specified in any waiver of notice of such
meeting.
SECTION6.5. Audits. The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the Board of Directors, and it shall be
the duty of the Board of Directors to cause such audit to be done annually.
SECTION 6.6. Resignations. Any director or any officer, whether elected
or appointed, may resign at any time by giving written notice of such
resignation to the Chairman of the Board, the President, or the Secretary, and
such resignation shall be deemed to be effective as of the close of business on
the date said notice is received by the Chairman of the Board, the President, or
the Secretary, or at such later time as is specified therein. No formal action
shall be required of the Board of Directors or the stockholders to make any such
resignation effective.
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SECTION 6.7. Indemnification and Insurance. (A) Each person who was or
is made a party or is threatened to be made a party to or is involved in any
action, suit, or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or a
person of whom he is the legal representative is or was a director or officer of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans maintained or sponsored by the Corporation, whether the
basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the General Corporation Law
of the State of Delaware as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his heirs,
executors and administrators; provided, however, that except as provided in
paragraph (C) of this By-Law, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors. The right to indemnification conferred in
this By-Law shall be a contract right and shall include the right to be paid by
the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition, such advances to be paid by the Corporation
within 20 days after the receipt by the Corporation of a statement or statements
from the claimant requesting such advance or advances from time to time;
provided, however, that if the General Corporation Law of the State of Delaware
requires, the payment of such expenses incurred by a director or officer in his
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding shall be made only upon delivery to the
Corporation of an undertaking by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this By-Law or
otherwise.
(B) To obtain indemnification under this By-Law, a claimant shall
submit to the Corporation a written request, including therein or therewith such
documentation and information as is reasonably available to the claimant and is
reasonably necessary to determine whether and to what extent the claimant is
entitled to indemnification. Upon written request by a claimant for
indemnification pursuant to the first sentence of this paragraph (B), a
determination, if required by applicable law, with respect to the claimant's
entitlement thereto shall be made as follows: (1) if requested by the claimant,
by Independent Counsel (as hereinafter defined), or (2) if no request is made by
the claimant for a determination by Independent Counsel, (i) by the Board of
Directors by a majority vote of a quorum consisting of Disinterested Directors
(as hereinafter defined), or (ii) if a quorum of the Board of Directors
consisting of Disinterested Di-
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<PAGE>
rectors is not obtainable or, even if obtainable, such quorum of Disinterested
Directors so directs, by Independent Counsel in a written opinion to the Board
of Directors, a copy of which shall be delivered to the claimant, or (iii) if a
quorum of Disinterested Directors so directs, by the stockholders of the
Corporation. In the event the determination of entitlement to indemnification is
to be made by Independent Counsel at the request of the claimant, the
Independent Counsel shall be selected by the Board of Directors unless there
shall have occurred within two years prior to the date of the commencement of
the action, suit or proceeding for which indemnification is claimed a "Change of
Control", in which case the Independent Counsel shall be selected by the
claimant unless the claimant shall request that such selection be made by the
Board of Directors. If it is so determined that the claimant is entitled to
indemnification, payment to the claimant shall be made within 10 days after such
determination
(C) If a claim under paragraph (A) of this By-Law is not paid in full
by the Corporation within 30 days after a written claim pursuant to paragraph
(B) of this By-Law has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the General Corporation Law of the
State of Delaware for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
Independent Counsel or stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the General Corporation Law of the State of Delaware, nor an actual
determination by the Corporation (including its Board of Directors, Independent
Counsel or stockholders) that the claimant has not met such applicable standard
of conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
(D) If a determination shall have been made pursuant to paragraph (B)
of this By-Law that the claimant is entitled to indemnification, the Corporation
shall be bound by such determination in any judicial proceeding commenced
pursuant to paragraph (C) of this By-Law.
(E) The Corporation shall be precluded from asserting in any judicial
proceeding commenced pursuant to paragraph (C) of this By-Law that the
procedures and presumptions of this By-Law are not valid, binding and
enforceable and shall stipulate in such proceeding that the Corporation is bound
by all the provisions of this By-Law.
(F) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in this
By-Law shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Laws, agreement, vote of stockholders or Disinterested
Directors or otherwise. No repeal or modification of this By-Law shall in any
way
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<PAGE>
diminish or adversely affect the rights of any director, officer, employee or
agent of the Corporation hereunder in respect of any occurrence or matter
arising prior to any such repeal or modification.
(G) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware. To the extent that
the Corporation maintains any policy or policies providing such insurance, each
such director or officer, and each such agent or employee to which rights to
indemnification have been granted as provided in paragraph (H) of this By-Law,
shall be covered by such policy or policies in accordance with its or their
terms to the maximum extent of the coverage thereunder for any such director,
officer, employee or agent.
(H) The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, and rights to be paid
by the Corporation the expenses incurred in defending any proceeding in advance
of its final disposition, to any employee or agent of the Corporation to the
fullest extent of the provisions of this By-Law with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
(I) If any provision or provisions of this By-Law shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (1) the validity,
legality and enforceability of the remaining provisions of this By-Law
(including, without limitation, each portion of any paragraph of this By-Law
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself held to be invalid, illegal or unenforceable) shall not in any way
be affected or impaired thereby; and (2) to the fullest extent possible, the
provisions of this By-Law (including, without limitation, each such portion of
any paragraph of this By-Law containing any such provision held to be invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
(J) For purposes of this By-Law:
(1) "Disinterested Director" means a director of the
Corporation who is not and was not a party to the matter in respect of
which indemnification is sought by the claimant.
(2) "Independent Counsel" means a law firm, a member of a law
firm, or an independent practitioner, that is experienced in matters of
corporation law and shall include any person who, under the applicable
standards of professional conduct then prevailing, would not have a
conflict of interest in representing either the Corporation or the
claimant in an action to determine the claimant's rights under this
By-Law.
(3) "Change in Control" means shall mean the happening of any
of the following events:
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<PAGE>
(i) Acquisition by any individual, entity or group
(with the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of
30% or more of either (A) the then outstanding shares of
common stock of the Corporation (the "Outstanding Common
Stock") or (B) the combined voting power of the then
outstanding Voting Stock; provided, however, that, for
purposes of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (1) any acquisition
directly from the Corporation, including sales of shares of
Common Stock to employees of the Corporation pursuant to any
stock option or similar plan or otherwise, (2) any acquisition
by the Corporation, (3) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the
Corporation or any corporation controlled by the Corporation,
or (4) any acquisition by any corporation pursuant to a
transaction which complies with clauses (A), (B) and (C) of
subsection (iii) of this definition; or
(ii) Individuals who, as of the date of these Amended
and Restated By-laws, constitute the Board (the "Incumbent
Board") cease to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination
for election by the Corporation's shareholders, was approved
by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(iii) Approval by the shareholders of the Corporation
of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Corporation or the acquisition of assets or stock of another
corporation (a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or substantially
all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Common Stock and
Outstanding Voting Securities immediately prior to such
Business Combination will beneficially own, directly or
indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation
which as a result of such transaction owns the Corporation or
all or substantially all of the Corporation's assets either
directly or through one or more subsidiaries) in substantially
the same proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Common Stock and
Outstanding Voting Securities, as the case may be, (B) no
Person (excluding any corporation resulting from such Business
Combina-
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<PAGE>
tion or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business
Combination or a current employee of the Corporation prior to
such Business Combination) will beneficially own, directly or
indirectly, 30% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination and (C) at least a majority of the members of the
board of directors of the corporation resulting from such
Business Combination will have been members of the Incumbent
Board at the time of the execution of the initial agreement,
or of the action of the Board, providing for such Business
Combination; or
(iv) Approval by the shareholders of the Corporation
of a complete liquidation or dissolution of the Corporation.
(K) Any notice, request or other communication required or permitted to
be given to the Corporation under this By-Law shall be in writing and either
delivered in person or sent by telecopy, telex, telegram, overnight mail or
courier service, or certified or registered mail, postage prepaid, return
receipt requested, to the Secretary of the Corporation and shall be effective
only upon receipt by the Secretary.
ARTICLE VII
CONTRACTS, PROXIES, ETC.
SECTION 7.1. Contracts. Except as otherwise required by law, the
Certificate of Incorporation or these By-Laws, any contracts or other
instruments may be executed and delivered in the name and on the behalf of the
Corporation by such officer or officers of the Corporation as the Board of
Directors may from time to time direct. Such authority may be general or
confined to specific instances as the Board may determine. The Chairman of the
Board, the Vice Chairman, the President or any Vice President may execute bonds,
contracts, deeds, leases and other instruments to be made or executed for or on
behalf of the Corporation. Subject to any restrictions imposed by the Board of
Directors or the Chairman of the Board, the Vice Chairman, the President or any
Vice President of the Corporation may delegate contractual powers to others
under his jurisdiction, it being understood, however, that any such delegation
of power shall not relieve such officer of responsibility with respect to the
exercise of such delegated power.
SECTION 7.2. Proxies. Unless otherwise provided by resolution adopted
by the Board of Directors, the Chairman of the Board, the Vice Chairman, the
President or any Vice President may from time to time appoint an attorney or
attorneys or agent or agents of the Corporation, in the name and on behalf of
the Corporation, to cast the votes which the Corporation may be entitled to cast
as the holder of stock or other securities in any other corporation, any of
whose stock or other securities may be held by the Corporation, at meetings of
the holders of the stock or other securities of such other corporation, or to
consent in writing, in the name of the Corporation as such holder, to any action
by such other corporation, and may instruct the person or per-
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<PAGE>
sons so appointed as to the manner of casting such votes or giving such consent,
and may execute or cause to be executed in the name and on behalf of the
Corporation and under its corporate seal or otherwise, all such written proxies
or other instruments as he may deem necessary or proper in the premises.
ARTICLE VIII
AMENDMENTS
SECTION 8.1. Amendments. These By-Laws may be altered, amended, or
repealed at any meeting of the Board of Directors or of the stockholders,
provided notice of the proposed change was given in the notice of the meeting
and, in the case of a meeting of the Board of Directors, in a notice given not
less than two days prior to the meeting; provided, however, that, in the case of
amendments by stockholders, notwithstanding any other provisions of these
By-Laws or any provision of law which might otherwise permit a lesser vote or no
vote, but in addition to any affirmative vote of the holders of any particular
class or series of the capital stock of the Corporation required by law, the
Certificate of Incorporation or these By-Laws, the affirmative vote of the
holders of at least 80 percent of the voting power of all the then outstanding
shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal any provision of these By-Laws.
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EXHIBIT 5.01
[Wachtell, Lipton, Rosen & Katz Letterhead]
___________ __, 1999
KBW, Inc.
Two World Trade Center, 85th Floor
New York, New York 10048
Ladies and Gentlemen:
Reference is made to the Registration Statement on Form S-1
(Registration No. 333-61495), as amended, filed with the Securities and Exchange
Commission (the "Registration Statement") in connection with the registration of
___________ shares of common stock, par value $0.01 per share (the "Shares"),
of KBW, Inc. (the "Company") under the Securities Act of 1933, as amended, for
sale in your initial public offering (the "Offering"). The Shares consist of
_________ shares to be sold by you in the Offering and __________ shares to be
sold be certain selling stockholders of the Company in the Offering. In
connection with the Offering, you have requested our opinion with respect to the
following matters.
In connection with the delivery of this opinion, we have
examined originals or copies of the Certificate of Incorporation and the Amended
and Restated By-Laws of the Company as set forth as exhibits to the Registration
Statement, the Registration Statement, certain resolutions adopted or to be
adopted by the Board of Directors, the form of stock certificate representing
the Shares and such other records, agreements, instruments, certificates and
other documents of public officials, the Company and its officers and
representatives and have made such inquiries of the Company and its officers and
representatives, as we have deemed necessary or appropriate in connection with
the opinions set forth herein. We are familiar with the proceedings heretofore
taken, and with the additional proceedings proposed to be taken,
<PAGE>
KBW, Inc.
__________ __, 1999
Page 2
by the Company in connection with the authorization, registration, issuance and
sale of the Shares. With respect to certain factual matters material to our
opinion, we have relied upon representations from, or certificates of, officers
of the Company. In making such examination and rendering the opinions set forth
below, we have assumed without verification the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the authenticity
of the originals of such documents submitted to us as certified copies, the
conformity to originals of all documents submitted to us as copies, the
authenticity of the originals of such later documents, and that all documents
submitted to us as certified copies are true and correct copies of such
originals.
Based on such examination and review, and subject to the
foregoing, we are of the opinion that the Shares, upon issuance, delivery and
payment therefor in the manner contemplated by the Registration Statement, will
be validly issued, fully paid and non-assessable.
We are members of the Bar of the State of New York, and we
have not considered, and we express no opinion as to, the laws of any
jurisdiction other than the laws of the United States of America, the State of
New York and the General Corporation Law of the State of Delaware.
We consent to the inclusion of this opinion as an Exhibit to
the Registration Statement and to the reference to our firm in the Prospectus
that is a part of the Registration Statement. In giving such consent, we do not
hereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
EXHIBIT 10.01
================================================================================
KBW, Inc.
STOCKHOLDERS' AGREEMENT
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS................................................. 1
ARTICLE II LIMITATIONS ON TRANSFER OF SHARES........................... 2
Section 2.1. General..................................................... 2
Section 2.2. Disposition of Common Shares................................ 2
Section 2.3. Disposition of Common Shares Upon Death or Disability....... 3
Section 2.4. Disposition of Common Shares by Gift or Charitable
Donation.................................................... 3
Section 2.5. Pledge Transactions......................................... 4
Section 2.6. Disposition of Common Shares with the Consent of Board of
Directors................................................... 4
Section 2.7. Compliance with Law and Regulations......................... 4
Section 2.7. Right of the Company to Repurchase Shares in Certain
Instances................................................... 4
Section 2.8. Legend on Certificates; Entry of Stop Transfer Orders....... 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.......... 9
ARTICLE IV MISCELLANEOUS............................................... 10
Section 4.1. Term of the Agreement; Termination of Current Stockholders
Agreement................................................... 10
Section 4.2. Severability................................................ 10
Section 4.3. Governing Law............................................... 10
Section 4.4. Representatives, Successors and Assigns..................... 10
Section 4.5. Further Assurances.......................................... 11
Section 4.6. Execution in Counterparts................................... 11
Section 4.7. Amendments; Waivers......................................... 11
Section 4.8. Submission to Jurisdiction; Waiver of Immunity.............. 11
Section 4.9. Specific Performance........................................ 12
Section 4.10. Notices..................................................... 12
Section 4.11. Gender...................................................... 12
SCHEDULE A STOCKHOLDERS
<PAGE>
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement, dated as of __________ __, 1999,
among KBW Inc., a Delaware corporation (the "Company"), and the persons listed
on Schedule A hereto (individually, a "Stockholder" and collectively, the
"Stockholders"),
WITNESSETH:
WHEREAS, Keefe, Bruyette & Woods, Inc. has been reorganized
pursuant to a merger into a subsidiary of the Company (the "Reorganization"), a
newly formed holding company, and pursuant to the Reorganization, the former
stockholders of the Broker-Dealer Subsidiary have received, or become entitled
to receive, shares of the Common Stock, par value $0.01 per share, of the
Company (the "Common Stock");
WHEREAS, the Company expects to effect, promptly after the
date hereof, the initial public offering of the Common Stock pursuant to a
registration statement filed with the Securities and Exchange Commission (the
"IPO", and the date on which the IPO is consummated, the "Effective Time");
WHEREAS, in order to ensure harmonious relationships among
themselves with respect to the conduct of the business and affairs of the
Company, the Stockholders desire to enter into certain agreements with respect
to the disposition of their Common Stock and various other matters;
NOW THEREFORE, in consideration of the premises and of the
mutual agreements, covenants and provisions herein contained, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
The following words and phrases as used herein shall have the
following meanings:
(a) The term "Board of Directors" shall mean the Board of
Directors of the Company, or any committee of such Board of Directors
to the extent expressly authorized by the Board of Directors to
exercise the powers of the Board of Directors under this Agreement.
(b) The term "Broker-Dealer Subsidiary" shall mean Keefe,
Bruyette & Woods, Inc. or any successor to or transferee of the
businesses of such entity.
(c) The term "Charitable Organization" shall mean a private
foundation or a charitable, civic, educational or other similar
not-for-profit corporation or organization which (in each case)
qualifies under Section 501(c)(3) of the Internal Revenue Code of 1986,
as amended.
(d) The term "Common Shares" shall mean any shares of Common
Stock held by a Stockholder on or prior to the Effective Time and any
shares of stock into which such Common Shares may be converted or
exchanged pursuant to a merger,
<PAGE>
reorganization or consolidation, or any shares of stock paid out as a
dividend in respect of such common shares (such as pursuant to a
spinoff, stock split or otherwise).
(e) The term "Current Stockholders Agreement" shall mean the
Amended and Restated Stockholders' Agreement, dated as of July 25,
1996, among the Broker-Dealer Subsidiary and the stockholders thereof,
as provided in such agreement.
(f) The term "Disability" shall mean disability as that term
is defined under the Company's long-term disability plan in effect at
the date of such determination, or any other plan or definition
designated by the Board of Directors for the purpose of this provision.
(g) The term "Disposition," when used in reference to shares
of stock, shall mean any sale, assignment, transfer, pledge, mortgage,
encumbrance, or other disposition, directly or indirectly, whether or
not for value, and whether or not voluntarily, of any Common Shares,
other than by will or intestacy.
(h) The term "employee" shall mean any person employed by the
Company and/or any Subsidiary who receives regular and stated
compensation other than a pension, retainer or compensation in the
nature of a consulting fee.
(i) The term "own," when used in reference to shares of stock,
shall mean any shares owned of record or beneficially.
(j) The term "Subsidiary" or "Subsidiaries" shall mean a
corporation(s) of which the Company, directly or indirectly, has the
power, whether through the ownership of voting securities, contract or
otherwise, to elect at least a majority of the members of such
corporation's board of directors.
ARTICLE II
LIMITATIONS ON TRANSFER OF SHARES
Section 2.1. General. Each Stockholder agrees that, in
addition to any restrictions imposed by law, no Stockholder shall make a
Disposition of any Common Shares owned by such Stockholder, except as expressly
permitted by and in accordance with the terms of this Agreement and the terms of
the lock-up agreement entered into between such Stockholder and the underwriters
in connection with the IPO.
Section 2.2. Disposition of Common Shares. Prior to the third
anniversary of the Effective Time, each Stockholder may make Dispositions of his
Common Shares in accordance with the following terms and conditions and subject
to Section 2.8:
(a) Prior to the First Anniversary of the Effective Time. On
or after the Effective Time, such Stockholder may make one or more
Dispositions of his Common Shares representing, in the aggregate, up to
10% (measured as of the Effective Time) of such Stockholder's Common
Shares.
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<PAGE>
(b) Prior to the Second Anniversary of the Effective Time. On
or after the first anniversary of the Effective Time, in addition to
any Dispositions permitted by subparagraph (a) of this Section 2.2,
such Stockholder may make one or more Dispositions of his Common Shares
representing, in the aggregate, up to a further 10% (measured as of the
Effective Time) of such Stockholder's Common Shares.
(c) Prior to the Third Anniversary of the Effective Time. On
or after the second anniversary of the Effective Time, in addition to
any Dispositions permitted by subparagraphs (a) and (b) of this Section
2.2, such Stockholder may make one or more Dispositions of his Common
Shares representing, in the aggregate, up to a further 10% (measured as
of the Effective Time) of such Stockholder's Common Shares.
On or after the third anniversary of the Effective Time, such
Stockholder may make Dispositions of his Common Shares free from the provisions
of this Agreement.
Section 2.3. Disposition of Common Shares Upon Death or
Disability. Notwithstanding any other provisions of this Agreement, any
Stockholder who ceases to be an employee by reason of Disability, or, in the
event of the death of a Stockholder, the estate of such deceased Stockholder
shall have the right from and after the date such Stockholder ceases to be an
employee or the date of death, as the case may be, to make Dispositions of
Common Shares free from the provisions of this Agreement.
Section 2.4. Disposition of Common Shares by Gift or
Charitable Donation. Notwithstanding any other provisions of this Agreement, a
Stockholder may make a Disposition of Common Shares of any amount at any time
(i) to a Family Member or a Family Affiliate who agrees in writing to be bound
by all the terms of this Agreement as though such person or entity were a
Stockholder; or (ii) to any Charitable Organization.
For purposes of this Section 2.4, the following words shall
have the following meanings:
(a) The term "Family Member" shall mean, with respect to a
Stockholder, the spouse and each parent, child (including an adopted
child), grandchild, sibling, niece and nephew of such Stockholder.
(b) The term "Family Affiliate" shall mean, with respect to a
Stockholder, each trust, corporation, limited liability company,
partnership or other entity for the benefit of or controlled solely by,
either directly or indirectly, such Stockholder or his spouse and one
or more Family Members, provided that if any trust, corporation,
limited liability company or partnership shall cease to be so
controlled, it shall cease to be a Family Affiliate for all purposes of
this Agreement.
Section 2.5. Pledge Transactions.
(a) Common Shares which are not permitted to be the subject of
a Disposition under any other provision of this Agreement may be
pledged by a Stockholder to secure a bona fide full recourse loan for
value.
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<PAGE>
(b) Any Common Shares pledged by a Stockholder pursuant to
Section 2.5(a) hereof shall be free from the provisions of this Article
II so long as such Common Shares remain so pledged, but shall once
again be subject to this Article II when released from the terms of
such pledge; provided, however, that any such Common Shares so pledged
which the pledgee may dispose of pursuant to a bona fide foreclosure
proceeding shall be free from the provisions of this Agreement from and
after the date of such disposition.
Section 2.6. Disposition of Common Shares with the Consent of
Board of Directors. Notwithstanding any other provisions of this Agreement, a
Stockholder may make a Disposition of Common Shares of any amount at any time
with the prior written consent of the Board of Directors of the Company.
Section 2.7. Compliance with Law and Regulations. Each
Stockholder agrees that any Disposition of Common Shares by such Stockholder
shall be in compliance with any applicable constitution, rule or regulation of,
or any applicable policy of, the National Association of Securities Dealers,
Inc., any of the exchanges or associations or other institutions with which the
Company or the Broker-Dealer Subsidiary has membership privileges or other
privileges, and any applicable law, rule or regulation of the Commission or any
other governmental agency having jurisdiction.
Section 2.8. Right of the Company to Repurchase Shares in
Certain Instances.
(a) If a Stockholder (i) ceases to be an employee for any
reason prior to the third anniversary of the Registration Date and (ii)
within six months of the date such Stockholder so ceases to be an
employee and on or prior to the third anniversary of the Effective Time
engages in employment in competition with the Company (as defined in
paragraph (g) hereof), the Company shall have the right, exercisable
within 90 days after the Company has knowledge of the acceptance of
such competitive employment (the "Option Period"), to repurchase any or
all of the Common Shares owned by such Stockholder on the date such
Stockholder so ceases to be an employee and not then permitted to be
the subject of a Disposition.
(b) The purchase price (the "Purchase Price") of a Common
Share repurchased by the Company from a Stockholder pursuant to this
Section shall be an amount equal to the net book value of such Common
Share so repurchased as of the Exercise Date, as determined by the
Board of Directors in accordance with this Section 2.8(b). The net book
value of a Common Share at any date of determination shall equal the
net book value of such Common Share as derived from the most recent
month-end financial statements of the Company prior to the date of
determination, whether or not audited, and subject to equitable
adjustment in the event of a merger, consolidation, recapitalization,
spin-off, reorganization, stock split or similar event affecting the
Common Shares.
(c) The determination of the purchase price of a Common Share
repurchased pursuant to this Section shall be conclusive and binding
upon any Stockholder whose Common Shares are so repurchased unless such
Stockholder gives notice to the Company, not more then ten days
subsequent to the date on which the Company has
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<PAGE>
given notice of such repurchase to the Stockholder, that the Company's
determination of the purchase price of the Common Shares to be
purchased is disputed on the basis of computational error. In the event
of such notification by a Stockholder, such purchase price shall be
determined (as of the same date as the disputed determination) by a
firm of independent public accountants selected by the Board of
Directors of the Company (which may be the firm which regularly
examines the statement of financial condition of the Company) which
firm shall follow the definitions set forth in this Section; provided,
however, that in computing such net book value the independent public
accountants shall be bound by the determinations of the Board of
Directors as to the value of any assets or the amounts of any
liabilities which, in the opinion of the Board of Directors, are not
readily ascertainable; and the determination of such Purchase Price by
such independent public accountants shall be conclusive and binding
upon the Company and such Stockholder. The expense of any such
determination by such accountants shall be shared equally by such
objecting Stockholder and the Company.
(d) The Company shall exercise any right arising pursuant to
this Section to repurchase any Common Shares as follows:
(i) The Company shall give notice to the holder of
Common Shares subject to such right of repurchase not later
than the close of business on the last business day of the
Option Period, advising of the election to exercise such
right, stating the number of Common Shares to be so
repurchased, the purchase price of such Common Shares and the
date upon which payment of the consideration for such Common
Shares will be made, which date shall be not later than 30
days from the last business day of the Option Period, subject
to receipt of any required regulatory approvals. The holder of
the Common Shares being so repurchased shall deliver the
certificates representing such Common Shares, properly
endorsed for transfer, to the Company at the principal place
of business of the Company on the payment date specified in
such notice, against payment therefor.
(ii) In the event that there shall be a dispute as to
the Purchase Price of Common Shares being purchased pursuant
to this Section and a determination thereof is to be made by a
firm of independent public accountants pursuant to Section
2.8(c), such payment date shall be postponed until such
determination has been made and the Company has given notice
to the holder of such Common Shares of such determination and
of the date upon which the payment of the consideration for
such Common Shares is to be made, which notice shall be given
not more than ten days after such determination has been made
and shall specify a payment date not less than five and not
more than ten days after such notice is given, subject to
receipt of any required regulatory approvals.
(e) The Purchase Price may be paid, at the election of the
Board of Directors, in cash, evidence of indebtedness of the Company or
partly in cash and partly in evidence of indebtedness of the Company.
The terms of the evidence of indebtedness which may be paid for Common
Shares pursuant to this Section shall be established by the Board of
Directors in its sole discretion and (i) may be subordinated to general
creditors of the obligor (and may be junior to, or on a parity with,
any other indebtedness of the obligor
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which is subordinated to general creditors of the obligor), (ii) shall
bear interest at the rate per annum determined by the Board of
Directors to be equal to the yield at January 2 of the year of issue
upon five year notes issued by the United States Treasury plus 1 1/2%,
(iii) shall mature in not less than 5 nor more than 10 equal annual
installments, (iv) may be prepayable in whole or in part at the option
of the obligor, (v) shall become due and payable in full in case of the
death of the holder thereof, and (vi) shall be evidenced by
non-transferable certificates and shall comply with any applicable
provisions then in effect of any agreement entered into by the Company
and of any constitution, rule or regulation of, or any policy of, any
of the exchanges or associations or other institutions with which the
Company or the Broker-Dealer Subsidiary has membership privileges or
other privileges, and any applicable rule or regulation of the
Commission or any other governmental agency having jurisdiction.
(f) For purposes of this Section 2.8, the following words and
phrases shall have the following meanings:
(i) The term "Exercise Date" shall mean the date on
which the Company gives notice of the particular exercise of
the Company's right to repurchase Shares pursuant to this
Section 2.8.
(ii) The term "Return on Equity" for any quarter
shall mean the amount determined by dividing Net Profit After
Taxes of the Company by Total Stockholders' Equity of the
Company for such quarter.
(iii) The term "Net Profit After Taxes" for any
quarter shall mean consolidated net profit after taxes of the
Company after the payment of all dividends on Common Stock as
set forth in the unaudited or, if available, audited
consolidated statement of income of the Company for such
quarter prepared in accordance with generally accepted
accounting principles.
(iv) The term "Total Stockholders' Equity" for any
quarter shall mean total stockholders' equity of the Company
and its consolidated subsidiaries as set forth in the
unaudited or, if available, audited consolidated balance sheet
of the Company as of the end of the quarter immediately
preceding such quarter prepared in accordance with generally
accepted accounting principles.
(g) For purposes of this Section 2.8, a Stockholder shall be
deemed to be engaged in employment in competition with the Company if
such Stockholder directly or indirectly, as a sole proprietor, member
of a partnership, or stockholder, investor, officer or director of a
corporation, or as an employee, agent, associate or consultant of any
person, firm, entity or corporation other than the Company or successor
corporation or one of its Subsidiaries:
(i) solicits any business of the type engaged in by
the Company or its Subsidiaries from any clients, customers,
former clients or customers, or prospects of the Company or
its Subsidiaries who were solicited directly by such
Stockholder when such Stockholder was an employee of the
Company or any of its Subsidiaries or where any such
Stockholder supervised, directly or indirectly, in whole or in
part, the solicitation activities related to any such persons
when
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such Stockholder was an employee of the Company or any of its
Subsidiaries;
(ii) solicits any business of the type engaged in by
the Company or its Subsidiaries from any person whatsoever if
such solicitation involves a product of the Company which the
Board of Directors deems, in its reasonable judgment, to be
proprietary to the Company and otherwise non-public;
(iii) induces or solicits any employee of the Company
or its Subsidiaries to terminate his employment; or
(iv) engages in any business within a 90 mile radius
of the metropolitan area in which such Stockholder conducted
substantial business for the twelve month period preceding the
date such employee ceased to be an employee with the Company
or any of its Subsidiaries which is in substantial competition
with any substantial business conducted in such area, at the
time such engagement is commenced, by the Company or its
Subsidiaries and in respect of which such Stockholder had
substantial responsibilities during the term of his employment
by the Company or its Subsidiaries (a "Prohibited Activity");
provided, however, that this Agreement shall not be construed
as preventing such Stockholder from investing his personal
assets, or acquiring or holding any issue of stock or
securities, in businesses which engage in Prohibited
Activities, provided that such Stockholder does not
participate in the operations of any such business.
(h) Each Stockholder, who ceases to be an employee and, on or
prior to the third anniversary of the Effective Time, engages in
employment elsewhere or undertakes self-employment, agrees to give the
Company 30 days' prior notice of the acceptance or undertaking of such
other employment.
(i) If a Stockholder whose Common Shares are subject to the
repurchase provisions of this Section has, prior to the exercise by the
Company of its right of repurchase, made Dispositions (other than
pledges pursuant to Section 2.5 hereof) of Common Shares owned by such
Stockholder on the date such Stockholder ceases to be an employee,
other than as permitted to be the subject of a Disposition (provided
that the right to pledge Common Shares pursuant to Section 2.5 shall
not be deemed to be a permitted Disposition for purposes of this
Section) under this Agreement on such date of cessation of employment,
such Stockholder shall be liable to the Company, as liquidated damages
and not as a penalty, for an amount equal to the number of Common
Shares which have been subject to such Dispositions multiplied by the
excess, if any, of the fair market value of a share of Common Stock
(which, if the Common Stock is listed or quoted on a securities
exchange or The Nasdaq Stock Market, shall be the most recent closing
price on such exchange or the average of the most recent high and low
bid price, and, if the Common Stock is not so listed or quoted, shall
be the fair market value of a Common Share as determined by the Board
of Directors) on the date of exercise by the Company of its right of
repurchase pursuant to this Section 2.8 over the amount such
Stockholder would receive per Common Share from the Company upon the
repurchase of such Common Shares if such Common Shares were subject to
such repurchase (such
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excess per Common Share, the "Net Amount"). To the extent such
Stockholder has made pledges of Common Shares pursuant to Section 2.5,
which pledges remain in effect as of the Exercise Date, such
Stockholder shall either (i) deliver to the Company at the closing of
the purchase contemplated by this Section such Common Shares, in which
case the Stockholder shall receive the Purchase Price in respect of
such Common Shares, or (ii) notify the Company, at least five business
days prior to the closing, that such Stockholder is unable to cause the
release of such pledge and that such Stockholder shall therefore
deliver to the Company, as liquidated damages and not as a penalty, the
amount equal to the number of Common Shares subject to such pledge
arrangements times the Net Amount.
(j) The parties agree that the release of the restrictions on
the price at which shares of capital stock of the Broker-Dealer
Subsidiary may be sold contained in the Current Stockholders Agreement
is occurring in connection with the IPO and is not intended to be
compensatory. Neither the Company nor the Broker-Dealer Subsidiary
shall treat such release as compensatory and neither shall take a
deduction with respect thereto. On or before February 28, 2000, the
Company and the Broker-Dealer Subsidiary shall furnish each Stockholder
with the statement required by Treasury Regulation Section
1.83-5(b)(2). The parties further agree that the provisions of this
Section 2.8 do not create a "substantial risk of forfeiture" within the
meaning of Section 83(c)(1) of the Internal Revenue Code of 1986, as
amended (the "Code") and Treasury Regulation Section 1.83-3(c).
Accordingly, the Company will not claim any deduction in connection
with the lapse of restrictions contained in this Agreement, except with
respect to a Stockholder (if any) as to whom there has been a
"determination" (as defined in Section 1313(a) of the Code) that the
provisions contained in this Section 2.8 create a substantial risk of
forfeiture.
Section 2.9. Legend on Certificates; Entry of Stop Transfer
Orders.
(a) Each Stockholder agrees that each outstanding certificate
representing any Common Shares which are subject to this Agreement
shall bear an endorsement noted conspicuously on each such certificate
reading substantially as follows:
"The securities represented by this certificate were issued without
registration under the Securities Act of 1933. No transfer of such
securities may be made without an opinion of counsel, satisfactory to
the Company, that such transfer may properly be made without
registration under the Securities Act of 1933 or that such securities
have been so registered under a registration statement which is in
effect at the date of such transfer.
The securities represented by this certificate are subject to the
provisions of an agreement dated as of ________ , 1999 among the
Company and certain persons named in Schedule A to such agreement, a
copy of which is on file at the principal executive office of the
Company, and such securities may be sold, assigned, pledged or
otherwise transferred only in accordance with such agreement."
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(b) Each Stockholder agrees to the entry of stop transfer
orders against the transfer of legended certificates representing
Common Shares except in compliance with this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Section 3.1. Each Stockholder severally represents and
warrants for himself to the Company and to each other Stockholder that:
(a) On the Effective Time, such Stockholder has good and
marketable title to the Common Shares, free and clear of any pledge,
lien, security interest, charge, claim, equity or encumbrance of any
kind, other than pursuant to this Agreement or pursuant to the Current
Stockholders Agreement;
(b) This Agreement has been duly authorized, executed and
delivered by such Stockholder or by his attorney-in-fact on behalf of
such Stockholder and constitutes a valid and binding obligation of such
Stockholder;
(c) The execution and delivery of this Agreement and the
consummation of the transactions contemplated herein do not and will
not conflict with or result in a breach by such Stockholder of, or
constitute a default by such Stockholder under, any agreement or
instrument to which such Stockholder is a party or by which such
Stockholder or his property may be bound, or any existing applicable
law, rule, regulation, judgment, order or decree of any government,
governmental instrumentality or court, domestic or foreign, having
jurisdiction over such Stockholder or his property; and
(d) Such Stockholder has acquired his Common Shares for his
own account and not with a view to the sale or distribution thereof.
ARTICLE IV
MISCELLANEOUS
Section 4.1. Term of the Agreement; Termination of Current
Stockholders Agreement.
(a) Except as provided in Section 4.4 and this Section, the
term of this Agreement shall continue with respect to any Stockholder
party hereto, until such time as such party no longer has any rights or
obligations hereunder, and, with respect to the Company, until such
time as there is no longer any Stockholder who continues to be a party
hereto.
(b) Unless this Agreement is earlier terminated pursuant to
this Section 4.1 hereof, a signatory to this Agreement shall be bound
by its terms until all Common Shares owned by such signatory are free
of the provisions of Article II of this Agreement. This Agreement may
be terminated prior to the time specified in Section 4.1(a) by written
agreement of the Company and the holders of a majority of the Common
Shares then subject to this Agreement.
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<PAGE>
(c) This Agreement shall be effective as of the Effective
Time, and as of such time the Current Stockholders Agreement shall be
terminated and be of no further force and effect. In the event that the
IPO is not consummated prior to May 31, 1999, the Board of Directors of
the Company in its discretion may terminate this Agreement in full.
Section 4.2. Severability. If the final determination of a
court of competent jurisdiction declares, after the expiration of the time
within which judicial review (if permitted) of such determination may be
perfected that any term or provision hereof is invalid or unenforceable, (a) the
remaining terms and provisions hereof shall be unimpaired and (b) the invalid or
unenforceable term or provision shall be deemed replaced by a term or provision
that is valid and enforceable and that comes closest to expressing the intention
of the invalid or unenforceable term or provision.
Section 4.3. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware, without
giving effect to the principles of conflicts of laws thereof.
Section 4.4. Representatives, Successors and Assigns. This
Agreement shall be binding upon and inure to the benefit of the respective
parties hereto and their respective legatees, legal representatives, successors
and assigns; provided, however, that a Stockholder may not assign this Agreement
or any of his rights hereunder without the consent of the Company and any
assignment without such consent by a Stockholder shall be void. Each Stockholder
shall use his best efforts to cause each Family Affiliate and Family Member of
such Stockholder to comply with the terms and provisions of this Agreement,
which obligations shall be in addition to the conditions of any permitted
Disposition to such entities provided in Section 2.4 hereof.
Section 4.5. Further Assurances. Each Stockholder agrees to
execute such additional documents and take such further action as may be
reasonably necessary to effect the provisions of this Agreement.
Section 4.6. Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 4.7. Amendments; Waivers.
(a) This Agreement may not be amended, modified, revoked or
changed unless such modification is approved by the Company and
Stockholders representing a majority of the Common Shares then bound
hereby.
(b) The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner
affect the rights at a later time to enforce the same. No waiver by any
party of the breach of any term contained in this Agreement,
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<PAGE>
whether by conduct or otherwise, in any one or more instances, shall be
deemed to be or construed as a further or continuing waiver of any such
breach or the breach of any other term of this Agreement.
Section 4.8. Submission to Jurisdiction; Waiver of Immunity.
Each Stockholder for itself and its successors and assigns, hereby irrevocably
(a) agrees that any legal or equitable action, suit or proceeding against such
Stockholder arising out of or relating to this Agreement or any transaction
contemplated hereby or the subject matter of any of the foregoing may be
instituted in any state or federal court in the State of Delaware, (b) submits
itself to the exclusive jurisdiction of any state or federal court of competent
jurisdiction in the State of Delaware for purposes of any such action, suit or
proceeding, (c) waives any objection, and agrees not to assert as a defense in
any such action, suit or proceeding, that (i) it is not subject thereto or that
such action, suit or proceeding may not be brought or is not maintainable in
said courts, (ii) the venue thereof may not be appropriate and (ii) the internal
laws of the State of Delaware do not govern the validity, interpretation or
effect of this Agreement, (d) waives any immunity from jurisdiction to which it
might otherwise be entitled in any such action, suit or proceeding which may be
instituted in any state or federal court in the State of Delaware, and (e)
waives any immunity from the maintaining of an action against it to enforce any
judgment for money obtained in any such action, suit or proceeding and, to the
extent permitted by applicable law, any immunity from execution.
Section 4.9. Specific Performance. Each of the parties hereto
acknowledges that it will be impossible to measure in money the damage to the
Company or the Stockholders if any party hereto fails to comply with the
provisions of this Agreement and each party hereto agrees that in the event of
any such failure, neither the Company nor any Stockholder will have an adequate
remedy at law. Therefore, the Company and each Stockholder, in addition to all
of the other remedies which may be available at law or in equity, shall have the
right to equitable relief, including, without limitation, the right to enforce
specifically the provisions of this Agreement and to obtain injunctive relief
against any violation thereof or otherwise.
Section 4.10. Notices. All notices to be given by any party
hereunder shall be in writing and shall be deemed to have been duly given if
mailed, by first class or registered mail or overnight courier, telexed or
telecommunicated, sent by telegram, or delivered to a Stockholder at such
Stockholder's address as reflected in the books and records of the Company or
otherwise to such Stockholder at his principal place of employment with the
Company, or in the case of the Company, to it at the following address:
KBW, Inc.
Two World Trade Center, 85th Floor
New York, New York 10048
Attention: General Counsel
The parties may change their respective addresses for purposes of notices
hereunder by giving notice of such change to all other parties in the manner
provided in this Section.
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Section 4.11. Gender. For the purposes of this Agreement, the
words "he", "his" or "himself" shall be interpreted to include the masculine,
feminine and corporate or trust form.
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IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be duly executed as of the day and year first above written.
KBW, INC.
By_________________________
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SCHEDULE A
STOCKHOLDERS
Name of Stockholder Signature
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EXHIBIT 10.03
KBW, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT OF PLAN.
KBW, Inc., a Delaware corporation (the "Company"), proposes to grant
options ("Options") for purchase of the Company's common stock, $0.01 par value
("Common Stock"), to eligible employees of the Company and its Designated
Subsidiaries (as hereinafter defined) pursuant to this 1999 Employee Stock
Purchase Plan (this "Plan"). For purposes of this Plan, "parent corporation" and
"subsidiary" (collectively, "Subsidiaries") shall have the same meanings as
"parent corporation" and "subsidiary corporation" set forth in Sections 424(e)
and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the
"Code"). The Company intends this Plan to qualify as an "employee stock purchase
plan" under Section 423 of the Code (including any amendments or successor
provisions to such Section), and this Plan shall be so construed. Any term not
expressly defined in this Plan but defined for purposes of Section 423 of the
Code shall have the same definition therein.
2. STOCK SUBJECT TO PLAN.
A total of [ ] shares of the Common Stock will be available for issuance
under this Plan. Such number shall be subject to adjustments effected in
accordance with Section 16 of this Plan. Any shares of Common Stock that have
been made subject to an Option that cease to be subject to the Option (other
than by means of exercise of the Option), including, without limitation, in
connection with the cancellation or termination of an Option, shall again be
available for issuance in connection with future grants of Options under this
Plan.
3. PURPOSE.
The purpose of this Plan is to provide employees of the Company and its
designated subsidiaries, as that term is defined in Section 5 of this Plan
("Designated Subsidiaries"), with a convenient means of acquiring an equity
interest in the Company through payroll deductions, to enhance such employees'
sense of participation in the affairs of the Company and Subsidiaries, and to
provide an incentive for continued employment.
4. ADMINISTRATION.
This Plan shall be administered by a committee (the "Committee") appointed
by the Company's Board of Directors (the "Board") consisting of at least two
members, who need not be members of the Board and who may be eligible to
participate in the Plan. Subject to the provisions of this Plan and the
limitations of Section 423 of the Code or any successor provision in the Code,
the Committee shall have exclusive authority, in its discretion, to determine
all matters relating to Options granted under this Plan, including all terms,
conditions, restrictions, and limitations of Options; provided, however, that
all participants granted Options under an offering pursuant to this Plan shall
have the same rights and privileges within the meaning of
<PAGE>
Code Section 423(b)(5) except as required by applicable law. The Committee shall
also have exclusive authority to interpret this Plan and may from time to time
adopt rules and regulations of general application for this Plan's
administration. The Committee's exercise of discretion and interpretation of
this Plan, its rules and regulations, and all actions taken and determinations
made by the Committee pursuant to this Plan shall be conclusive and binding on
all parties involved or affected. The Committee may delegate administrative
duties to employees of the Company or to independent contractors, as it deems
advisable. All expenses incurred in connection with the administration of this
Plan shall be paid by the Company and the Designated Subsidiaries; provided,
however, that the Committee may require a participant to pay any costs or fees
in connection with the sale by the participant of shares of Common Stock
acquired under this Plan or in connection with the participant's request for the
issuance of a certificate for shares of Common Stock held in the participant's
account under the Plan.
5. ELIGIBILITY.
Any employee of the Company or the Designated Subsidiaries is eligible to
participate in the Plan for any Offering Period (as hereinafter defined) under
this Plan except the following:
(a) employees who are customarily employed for less than 20 hours
per week;
(b) employees who are customarily employed for not more than five
months in a calendar year;
(c) employees who, together with any other person whose stock would
be attributed to such employee pursuant to Section 424(d) of the Code, own
stock or hold options to purchase stock possessing five percent or more of
the total combined voting power or value of all classes of stock of the
Company or any of its Subsidiaries or who, as a result of being granted
Options under this Plan would own stock or hold options to purchase stock
possessing five percent or more of the total combined voting power or
value of all classes of stock of the Company or any of its Subsidiaries;
(d) employees whose employment terms are covered by a collective
bargaining agreement in situations where the applicable union or other
collective bargaining unit has either refused to bargain with respect to
this Plan as an employee benefit or has considered this Plan as a
potential employee benefit and has rejected this Plan or has otherwise
determined that employees which such union or other bargaining unit
represents may not participate in this Plan; and
(e) employees who are citizens of a foreign country which prohibits
foreign corporations from granting stock options to any of its citizens.
For all purposes of this Plan, the term Designated Subsidiaries shall mean
those Subsidiaries listed on Annex A to this Plan or Subsidiaries which may
hereafter be determined by the Committee or the Board to be Designated
Subsidiaries. A Designated Subsidiary will cease to be a Designated Subsidiary
on the earlier of (i) the date the Committee or the Board determines that
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such Subsidiary is no longer a Designated Subsidiary or (ii) such Designated
Subsidiary ceases for any reason to be a "parent corporation" or "subsidiary
corporation" as defined in Sections 424(e) and 424(f), respectively, of the
Code.
6. OFFERING PERIODS.
The offering periods of this Plan (individually, an "Offering Period")
shall be of periods not to exceed the maximum period permitted by Section 423 of
the Code. Until determined otherwise by the Committee or the Board, (a) Offering
Periods shall commence on January 1 and July 1 of each calendar year; provided,
however, that the first Offering Period may begin subsequent to January 1, 1999
and prior to July 1, 1999, and (b) each Offering Period, with the exception of
the first Offering Period (if commenced subsequent to January 1, 1999 and prior
to July 1, 1999), shall consist of one six-month purchase period during which
payroll deductions of the participants are accumulated under this Plan. The
first day of each Offering Period is referred to as the "Offering Date." The
last day of each Offering Period is referred to as the "Purchase Date." Subject
to the requirements of Section 423 of the Code, the Committee or the Board shall
have the power to change the duration of Offering Periods with respect to future
offerings if such change is announced at least 30 days prior to the Offering
Date of the first Offering Period to be affected by such change.
7. PARTICIPATION IN THIS PLAN.
Eligible employees may become participants in an Offering Period under
this Plan on the first Offering Date after satisfying the eligibility
requirements by delivering an enrollment form provided by the Company to the
administrator for this Plan ("Plan Administrator") not later than the 15th day
of the month (or if such day is not a business day for the Company or the
applicable Subsidiary, on the immediately preceding business day) before such
Offering Date unless a later time for filing the enrollment form authorizing
payroll deductions is set by the Committee for all eligible employees with
respect to a given Offering Period. Once an employee becomes a participant in
the Plan with respect to an Offering Period, such employee will automatically
participate in the Offering Period commencing immediately following the last day
of the prior Offering Period unless the employee withdraws from this Plan or
terminates further participation in the Offering Period as set forth in Sections
13 and 14 below. Such participant is not required to file any additional
enrollment form in order to continue participation in this Plan, except that the
Committee may require the filing of new enrollment forms by participants who
transfer to another division of the Company or a Designated Subsidiary.
8. GRANT OF OPTION ON ENROLLMENT.
Enrollment by an eligible employee in this Plan with respect to an
Offering Period will constitute the grant by the Company to such employee of an
Option to purchase on the Purchase Date up to that number of shares of Common
Stock of the Company, and any fraction of a share, determined by dividing (a)
the amount accumulated in such employee's payroll deduction account during the
Offering Period ending on such Purchase Date, by (b) the Purchase Price as
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that term is defined in Section 9; provided, however, that the number of shares
which may be purchased pursuant to an Option may in no event exceed the number
of shares determined in the manner set forth in Section 11(b) of the Plan or
such other maximum number of shares as may be specified in the future by the
Committee in lieu of the limitation set forth in Section 11(b).
9. PURCHASE PRICE.
The purchase price per share (the "Purchase Price") at which a share of
Common Stock will be sold in any Offering Period shall initially be the lower of
(a) 85 percent of the fair market value of such share on the Offering Date or
(b) 85 percent of the fair market value of such share on the Purchase Date;
provided, however, that in no event may the purchase price per share of Common
Stock be below the par value per share of Common Stock.
For purposes of this Plan, the term "fair market value" shall mean, as of
any given date, the average of the highest and lowest sales prices of the Common
Stock reported on the New York Stock Exchange Composite Tape for such date, or
if the Common Stock was not traded on the New York Stock Exchange on such date,
then on the last preceding date on which the Common Stock was traded (or, if not
listed on such exchange, the average of the highest and lowest sales prices on
any other national securities exchange on which the Common Stock is listed or on
NASDAQ). If there is no regular public trading market for the Common Stock, fair
market value shall be determined by such other source as the Committee may
select. The Committee may change the manner in which the Purchase Price is
determined with respect to future offerings (provided such determination does
not have the effect of lowering the Purchase Price to an amount less than that
which would be computed utilizing the method for determining the Purchase Price
set forth in the first paragraph of this Section 9) if such changed manner of
computation is announced at least 30 days prior to the Offering Date of the
first Offering Period to be affected by such change.
10. PURCHASE OF SHARES; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF SHARES.
(a) Funds contributed by each participant for the purchase of shares under
this Plan shall be accumulated by regular payroll deductions made during each
Offering Period. The deductions shall be made as a percentage of the
participant's Compensation in 1 percent increments comprising not less than 1
percent and not more than 15 percent of the participant's Compensation. As used
herein, "Compensation" shall mean all base salary, wages, commissions, and
overtime; provided, however, that, for purposes of determining a participant's
Compensation, any election by such participant to reduce his or her regular cash
remuneration under Sections 125 or 401(k) of the Code shall be treated as if the
participant did not make such election. "Compensation" does not include cash
bonuses, severance pay, hiring and relocation allowances, pay in lieu of
vacation, automobile allowances, imputed income arising under any Company group
insurance or benefit program, income received in connection with stock options,
or any other special items of remuneration. Payroll deductions shall commence on
the first payday following the Offering Date and shall continue through the last
payday of the Offering Period unless sooner altered or terminated as provided in
this Plan.
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(b) A participant may lower (but not increase) the rate of payroll
deductions during an Offering Period by filing with the Plan Administrator a new
authorization for payroll deductions, in which case the new rate shall become
effective for the next payroll period commencing more than 15 days after the
Plan Administrator's receipt of the authorization and shall continue for the
remainder of the Offering Period unless changed as described below. Such change
in the rate of payroll deductions may be made at any time during an Offering
Period, but not more than one change may be made effective during any Offering
Period. Notwithstanding the foregoing, a participant may lower the rate of
payroll deductions to zero for the remainder of the Offering Period. A
participant may increase or decrease the rate of payroll deductions for any
subsequent Offering Period by filing with the Plan Administrator a new
authorization for payroll deductions not later than the 15th day of the month
(or if such date is not a business day, the immediately preceding business day)
before the beginning of such Offering Period. A participant who has decreased
the rate of withholding to zero will be deemed to continue as a participant in
the Plan until the participant withdraws from the Plan in accordance with the
provisions of Section 13 or his or her participation is terminated in accordance
with the provisions of Section 14. A participant shall have the right to
withdraw from this Plan in the manner set forth in Section 13 regardless of
whether the participant has exercised his or her right to lower the rate at
which payroll deductions are made during the applicable Offering Period.
(c) All payroll deductions made for a participant will be credited to his
or her account under this Plan and deposited with the general funds of the
Company. No interest will accrue on payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
(d) On each Purchase Date, provided that the participant has not
terminated employment in accordance with Section 14 or has not submitted to the
Plan Administrator a signed and completed withdrawal form, in either case on or
before the 15th day (or if such date is not a business day, on the immediately
preceding business day) of the last month of the Offering Period in accordance
with Section 10(b) or Section 13 of this Plan, or the Plan has not been
terminated prior to the date referred to in the foregoing clause, the Company
shall apply the funds then in the participant's account to the purchase at the
Purchase Price of whole and any fractional shares of Common Stock issuable under
the Option granted to such participant with respect to the Offering Period to
the extent that such Option is exercisable on the Purchase Date.
(e) During a participant's lifetime, such participant's Option to purchase
shares hereunder is exercisable only by him or her or, in the event of the
participant's disability, the participant's legal representatives. The
participant will have no interest or voting right in shares covered by his or
her Option until such Option has been exercised.
(f) Unless the Committee shall in the future determine otherwise, the
maximum amount which may be deducted from any participant's Compensation for the
purpose of purchasing Common Stock under this Plan shall not exceed $21,250 in
any single calendar year.
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11. LIMITATIONS ON RIGHTS TO PURCHASE.
(a) No employee shall be granted an Option to purchase Common Stock under
this Plan at a rate which, when aggregated with his or her rights to purchase
stock under all other employee stock purchase plans of the Company or any
Subsidiary which is intended to meet the requirements of Code Section 423,
exceeds $25,000 in fair market value, determined as of the applicable date of
the grant of the Option, for each calendar year in which the employee
participates in this Plan (or any other employee stock purchase plan described
in this Section 11(a)).
(b) The number of shares which may be purchased by any employee on the
first Purchase Date to occur in any calendar year may not exceed the number of
shares determined by dividing $25,000 by the fair market value (as defined in
Section 9) of a share of Common Stock on the Offering Date of the Offering
Period in which such Purchase Date occurs. The number of shares which may be
purchased by any employee on any subsequent Purchase Date which occurs in the
same calendar year (as that referred to in the preceding sentence) shall not
exceed the number of shares determined by performing the calculation described
below, with all computations to be made to the nearest ten thousandth of a whole
share of Common Stock or one hundredth of one cent, as the case may be.
Step One: The number of shares purchased by the employee during any
previous Offering Period which occurred in the same calendar year shall be
multiplied by the fair market value (as defined in Section 9) of a share
of Common Stock on the first day of such previous Offering Period in which
such shares were purchased.
Step Two: The amount determined in Step One shall be subtracted from
$25,000.
Step Three: The amount determined in Step Two shall be divided by the fair
market value (as defined in Section 9) of a share of Common Stock on the
Offering Date of the Offering Period in which the subsequent Purchase Date
(for which the maximum number of shares which may be purchased is being
determined by this calculation) occurs. The quotient so obtained shall be
the maximum number of shares which may be purchased by any employee on
such subsequent Purchase Date.
Subject to the limitations of Section 423 of the Code, the Committee may
from time to time determine that a different maximum number of shares may be
purchased on any given Purchase Date in lieu of the maximum amounts described
above in this Section 11(b), in which case the number of shares which may be
purchased by any employee on such Purchase Date may not exceed such different
limitation.
(c) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then available
for issuance under this Plan, then the Company will make a pro rata allocation
of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Committee shall determine to be equitable. In such event,
the Company shall give written notice of such reduction of the number of shares
to be purchased under a participant's Option to each participant affected
thereby.
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(d) Any payroll deductions accumulated in a participant's account which
are not used to purchase stock due to the limitations in this Section 11 shall
be returned to the participant as soon as practicable after the end of the
applicable Offering Period without interest.
12. EVIDENCE OF STOCK OWNERSHIP.
(a) Promptly following each Purchase Date, a stock certificate for the
number of full shares of Common Stock purchased by each participant shall be
deposited into an account established in the participant's name at a stock
brokerage or other financial services firm designated or approved by the
Committee (the "Plan Financial Agent"). A participant may request, no more than
twice during any 12-month period, that a stock certificate for full (but not
fractional) shares be issued and delivered to him or her. Such request shall be
made by filing notice with the Plan Financial Agent, and the Plan Financial
Agent shall cause such shares to be delivered promptly following receipt of such
notice. Cash shall be paid in lieu of fractional shares. In the event a
participant or former participant shall have an account balance of less than one
full share with the Plan Financial Agent as of the Offering Date of any Offering
Period for which such participant has elected not to participate in the Plan,
the Plan Financial Agent shall cause such fractional share to be sold as
promptly as possible and the cash proceeds from such sale to be paid to the
account holder.
(b) Following termination of a participant's employment for any reason,
the participant shall have a period of 30 days to notify the Plan Financial
Agent whether such participant desires (i) to receive a certificate representing
all full shares then in the participant's account with the Plan Financial Agent
and cash in lieu of any fractional share interest or (ii) to sell the shares,
including any fractional share, in the participant's account through the Plan
Financial Agent. If the terminated participant fails to file such notice with
the Plan Financial Agent within 30 days after termination, he or she shall be
deemed to have elected the alternative set forth in clause (i) above.
13. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under this Plan
by signing and delivering to the Plan Administrator a written notice to that
effect on a form provided for such purpose. Such withdrawal may be elected at
any time on or prior to the 15th day of the last month (or if such date is not a
business day, the immediately preceding business day) of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll deductions of
the participant not theretofore utilized for the purchase of shares of Common
Stock on a Purchase Date shall be returned to the withdrawn participant, without
interest, and his or her participation in this Plan shall terminate. In the
event a participant voluntarily elects to withdraw from this Plan, he or she may
not resume his or her participation in this Plan during the same Offering
Period, but he or she may participate in any subsequent Offering Period by
filing a new authorization for payroll deductions in the same manner as set
forth above for initial participation in this Plan.
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14. TERMINATION OF EMPLOYMENT; LEAVE OF ABSENCE.
Termination of a participant's employment for any reason, including
retirement, death, or the failure of a participant to remain an eligible
employee, immediately terminates his or her participation in this Plan. In such
event, except as provided in Section 15, the payroll deductions credited to the
participant's account will be returned to him or her or, in the case of his or
her death, to his or her beneficiary or heirs, without interest. For purposes of
this Section 14, an employee will not be deemed to have terminated employment or
failed to remain in the continuous employ of the Company in the case of any
leave of absence approved by the Committee.
15. RETURN OF PAYROLL DEDUCTIONS.
In the event a participant's interest in this Plan is terminated by
withdrawal, termination of employment, or otherwise, or in the event this Plan
is terminated by the Board, the Company shall promptly deliver to the
participant all contributions of the participant to the Plan which have not yet
been applied to the purchase of stock unless such termination of participation
occurs later than the 15th day of the final month of the Offering Period (or if
such date is not a business day, on the preceding business day), in which event
such contributions will be utilized to purchase Common Stock for the
participant; provided, however, that upon termination of the Plan the Board may
accelerate the Purchase Date. No interest shall accrue on the payroll deductions
of a participant in this Plan.
16. CAPITAL CHANGES.
In the event of any change in corporate capitalization, such as a stock
split or a corporate transaction, such as any merger, consolidation, separation,
including a spin-off, or other distribution of stock or property of the Company,
any reorganization (whether or not such reorganization comes within the
definition of such term in Section 368 of the Code) or any partial or complete
liquidation of the Company or sale of all or substantially all of the Company's
assets or stock then the Committee, in its sole discretion, shall make such
equitable adjustments as it shall deem appropriate in the circumstances in the
maximum number and kind of shares of stock subject to this Plan as set forth in
Sections 1 and 2, the number and kind of shares subject to outstanding Options,
and/or the Purchase Price. The determination by the Committee as to the terms of
any of the foregoing adjustments shall be conclusive and binding.
17. NONASSIGNABILITY.
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an Option or to receive shares under this
Plan may be assigned, transferred, pledged, or otherwise disposed of in any way
(other than by will, the laws of descent and distribution, or as provided in
Section 24 hereof) by the participant. Any such attempt at assignment, transfer,
pledge, or other disposition shall be void and without effect.
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18. REPORTS AND STATUS OF ACCOUNTS.
Individual accounts will be maintained by the Plan Financial Agent for
each participant in this Plan. The participant shall have all ownership rights
with respect to shares of Common Stock held in his or her account by the Plan
Financial Agent, including the right to vote such shares and to receive any
dividends or distributions which may be declared thereon by the Board. The Plan
Financial Agent shall send to each participant promptly after the end of each
Offering Period a report of his or her account setting forth with respect to
such Offering Period the total payroll deductions accumulated, the number of
whole and any fractional share purchased, and the per share price thereof, and
also setting forth the total number of shares (including any fractional share)
then held in his or her account. Neither the Company nor any Designated
Subsidiary shall have any liability for any error or discrepancy in any such
report.
19. NO RIGHTS TO CONTINUED EMPLOYMENT; NO IMPLIED RIGHTS.
Neither this Plan nor the grant of any Option hereunder shall confer any
right on any employee to remain in the employ of the Company or any Subsidiary
or restrict the right of the Company or any Subsidiary to terminate such
employee's employment. The grant of any Option hereunder during any Offering
Period shall not give a participant any right to similar grants thereafter.
20. EQUAL RIGHTS AND PRIVILEGES.
All eligible employees shall have equal rights and privileges with respect
to this Plan except as required by applicable law so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company, the Board, or
the Committee, be reformed to comply with the requirements of Section 423. This
Section 20 shall take precedence over all other provisions in this Plan.
21. NOTICES.
All notices or other communications by a participant to the Company under
or in connection with this Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof.
22. AMENDMENT OF PLAN.
The Board may amend this Plan in such respects as it shall deem advisable;
provided, however, that stockholder approval will be required for any amendment
that will increase the total number of shares as to which Options may be granted
under this Plan or, but for such
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shareholder approval, cause this Plan to fail to continue to qualify as an
"employee stock purchase plan" under Section 423 of the Code.
23. TERMINATION OF THE PLAN.
The Board may suspend or terminate this Plan at any time, provided that,
upon a termination of the Plan while an Offering Period is in progress, such
Offering Period shall be shortened by setting a new Purchase Date as of the day
immediately preceding the date of termination of the Plan (or such other date as
determined by the Board). Unless this Plan shall have been terminated by the
Board, this Plan shall terminate on, and no Options shall be granted after,
December 31, 2009. No Options shall be granted during any period of suspension
of this Plan.
24. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if any, from the participant's account under
this Plan in the event of such participant's death prior to delivery to him or
her (or to the Plan Financial Agent on his or her behalf) of such shares and
cash.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under this Plan who is living at
the time of such participant's death, the Company shall deliver such shares or
cash to the executor or administrator of the estate of the participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares or cash to the
spouse or to any one or more dependents or relatives of the participant or, if
no spouse, dependent, or relative is known to the Company, to such other person
as the Company may in good faith determine to be the appropriate designee.
25. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an Option unless the exercise
of such Option and the issuance and delivery of such shares pursuant thereto
shall comply with all applicable provisions of law, domestic or foreign,
including, without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange or automated
quotation system upon which the shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
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26. EFFECTIVE DATE.
The effective date of this Plan shall be the date upon which the
registration statement filed by the Company under the Securities Act of 1933, as
amended, for the initial public offering of the Common Stock is declared
effective.
27. GOVERNING LAW.
Except to the extent that provisions of this Plan are governed by
applicable provisions of the Code or any other substantive provision of federal
law, this Plan and actions taken under this Plan shall be governed by and
construed in accordance with the laws of the State of Delaware without reference
to principles of conflict of laws.
11
EXHIBIT 10.06
FULLY DISCLOSED CLEARING AGREEMENT
OF
PERSHING DIVISION
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
THIS AGREEMENT is made and entered into as of this October 22, 1992 by and
between the Pershing Division of Donaldson, Lufkin & Jenrette Securities
Corporation ("Pershing"), a Delaware Corporation and Keefe, Bruyette & Woods,
Inc. ("Broker"), a New York Corporation.
1. Subject to the approval of the New York Stock Exchange, from the
opening of business on or about February 19,1993, until the termination
of this Agreement as provided for in Paragraph 17 hereof, Pershing will
carry the cash and margin accounts of the customers introduced by
Broker to Pershing, and accepted by Pershing, and will clear
transactions on a fully disclosed basis for such accounts, all as more
specifically provided in Paragraph 3 hereof and subject to the terms
and conditions hereinafter set forth.
2. REPRESENTATIONS AND WARRANTIES
(a) Broker represents and warrants that:
Broker is duly registered and in good standing as a
broker/dealer with the Securities and Exchange Commission and
is a member firm in good standing of the National Association
of Securities Dealers, Inc. ("NASD").
Broker has all requisite authority, whether arising under
applicable federal or state laws or the rules and regulations
of any securities exchange or regulatory authority to which
Broker is subject, to enter into this Agreement and to retain
the services of Pershing in accordance with the terms hereof;
and
Broker and each of its employees is in substantial compliance
and during the term of this Agreement will remain in
substantial compliance with the registration, qualification,
capital, financial reporting, customer protection, and other
requirements of every securities exchange of which Broker is a
member, of the NASD, of the Securities and Exchange Commission
and every state to which jurisdiction Broker and each of its
employees are subject.
<PAGE>
(b) Pershing represents and warrants that:
Pershing is duly registered and in good standing as a
broker/dealer with the Securities and Exchange Commission and
is a member firm in good standing of the National Association
of Securities Dealers, Inc. ("NASD").
Pershing has all requisite authority, whether arising under
applicable federal or state laws, or the rules and regulations
of any securities exchange or regulatory authority to which
Pershing is subject, to enter into this Agreement; and
Pershing is in substantial compliance and during the term of
this Agreement will remain in substantial compliance with the
registration, qualification, capital, financial reporting,
customer protection requirements of every regulatory and
self-regulatory organization to whose jurisdiction Pershing is
subject.
3. SERVICES TO BE PERFORMED BY PERSHING
Pershing, acting as Broker's agent, shall carry the customers' cash and
margin accounts introduced by Broker on a fully disclosed basis and
perform the following services:
(a) Execute transactions in the customers' accounts and release or
deposit money or securities to or for the accounts, only upon
Broker's instructions;
(b) Prepare confirmations and prepare and mail summary monthly
statements to Broker's customers on forms disclosing that the
account is carried on a fully disclosed basis for the Broker;
(c) Settle contracts and transactions in securities (i) between
Broker and other brokers and dealers, (ii) between Broker and
its customers and (iii) between Broker and third persons; and
(d) Perform cashiering functions for such customers' accounts,
including receipt and delivery of securities purchased, sold,
borrowed and loaned; make and receive payments therefor,
provide custody and safekeeping of securities and cash; and
handle margin accounts dividends and exchanges, and rights and
tender offers with respect to such securities.
(e) Mail to each customer a copy of the Notice to Customers as
required by New York Stock Exchange Rule 382(c).
Notwithstanding subparagraph (a) through (d) above, Pershing may, in
its sole discretion, after giving reasonable notice and for reasonable
cause, refuse to open an account for a specific customer; close an
account already opened; refuse to confirm and/or cancel a confirmation;
reject a delivery or receipt of securities and/or money; refuse to
clear any trade executed by Broker; or refuse to execute any trade for
the account of a
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customer introduced by Broker.
Broker acknowledges that in connection with the performance of the
above described services, Pershing may retain, at its option, one or
more independent data processing service bureaus to perform any of the
required functions, and agrees that Pershing shall not be responsible
for any losses, damages, liability or expenses incurred by or claims
made by the Broker or its customers arising from the failure of any
such service bureau to perform said functions accurately, in accordance
with specifications, or within the customary time periods. Pershing's
only obligation will be to cause any such service bureau to correct any
processing error in its next regularly scheduled processing and to
deliver any overdue work as soon as reasonably practicable. In no event
shall Pershing be responsible for indirect or consequential damages.
Pershing may authorize certain of Broker's employees designated by
Broker in writing, to sign checks to Broker's customers for amounts due
and requested by them with respect to their accounts. All checks must
be signed by two of such authorized employees and no check or checks
payable in any one day to any one customer shall exceed $100,000 in the
aggregate without the prior written approval of Pershing. All expenses
incurred in connection with such authorization shall be charged to
Broker. Any lien on the customer's property granted by the customer to
Broker or Pershing shall extend to any funds which may be segregated in
a separate account to carry out the purposes of this paragraph.
4. SERVICES FOR WHICH PERSHING IS NOT RESPONSIBLE
Unless otherwise expressly agreed in writing, Pershing will not provide
nor be responsible for providing any services specifically enumerated
in this Paragraph:
(a) Accounting, bookkeeping or record keeping, cashiering, or
other services in respect to commodity transactions, or any
other transaction not involving securities;
(b) Preparation of Broker's payroll records, financial statements
or any analysis thereof;
(c) Preparation or issuance of checks in payment of Broker's
expenses, other than expenses incurred by Pershing on behalf
of Broker pursuant to this Agreement;
(d) Payment of commissions to Broker's salesmen;
(e) Preparation or filing of any of Broker's reports to the
Securities and Exchange Commission, any state securities
commission, or any securities exchange, securities association
or other membership to which Broker is subject; but Pershing
will, at the request of Broker, furnish Broker with any
necessary information and data contained in records kept by
Pershing and not otherwise available to Broker for use in
making such reports by Broker; and
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(f) Verification of address changes of Broker's customers.
5. DUTIES, OBLIGATIONS AND RESPONSIBILITIES OF BROKER
(a) Information to be supplied by Broker:
Broker will provide Pershing with such basic data and
documents, including (without limitation) copies of records of
any receipts of customers' funds and securities received
directly by Broker as shall be necessary or appropriate to
permit Pershing to discharge its service obligations
hereunder. In all cases, such data and documents must be
compatible with the requirements of Pershing's bookkeeping
system. In addition, Broker will furnish Pershing such
information and signatures as are requested by Pershing for
the opening and carrying of customer accounts on forms which
have been approved by Pershing. All accounts shall be opened
in accordance with Pershing's requirements, and the acceptance
of an opening of an account without such requirements being
fulfilled shall not be deemed to be waiver of such
requirements. A duly authorized principal executive officer of
Broker will approve in writing the opening of each customer's
account. Broker shall be responsible for maintaining proper
customer addresses and Pershing may for all purposes rely on
such addresses as they are furnished by Broker.
(b) Receipt of money and securities:
In all cash accounts, Broker shall be responsible for
purchases for customers until actual and complete payment
therefor has been received by Pershing, and in the case of
checks representing such payment received by Pershing, Broker
shall be responsible until they shall have been paid and the
proceeds actually received and credited to Pershing by its
bank. Pershing agrees to use due diligence in depositing such
checks promptly.
Broker shall be responsible for sales until acceptable
deliveries to Pershing of the securities involved have been
made. Broker agrees to turn over promptly to Pershing funds or
securities received by Broker from its customers, together
with such information as may be relevant or necessary to
enable Pershing to promptly and properly to record such
remittances and receipts in the respective customer accounts.
Broker shall arrange for timely settlement of "delivery versus
payment" transactions and shall not introduce any retail or
individual accounts requiring settlement on a "delivery vs.
payment" or, "receive versus payment" basis without the prior
written approval of Pershing. Broker shall obtain each
customer's agreement to accept "partial deliveries" and to
abide by other clearance arrangements as may be directed by
the New York Stock Exchange, Inc., the American Stock
Exchange, Inc., or the NASD. Pershing may at its option
charge, for late payments or deliveries, interest at 1%, or
such other rate as may be agreed upon in writing, above the
broker's call rate.
Pershing reserves the right to give prior oral or written
notice to Broker and to any customer of failure to make timely
settlement and
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Pershing's intention to take remedial action. In the case of
the purchase or sale of securities "when issued" or where
distribution or delivery is otherwise delayed in an account
other than a margin account, Broker shall be responsible for
the transaction until necessary and satisfactory margin has
been received by Pershing and for checks representing such
margin until they shall have been paid and the proceeds
actually received and credited to Pershing by its bank.
With respect to any settlements which involve the drafting of
securities; draft charges, including interest expense, will be
borne by Broker. Interest costs on settling in locations not
herein specified will be borne as Pershing and Broker may
mutually agree in writing, with the general understanding that
Pershing will bear the interest costs associated with
delivering securities within New York City and Broker will
bear the costs associated with the movement of securities from
or to New York City to or from any other location.
(c) Communication with customers:
Broker and Pershing each agree to forward to the other any
written complaint received from a customer.
(d) Duties of Broker with respect to customers:
The customer shall remain the customer of Broker, and Broker
shall be responsible for obtaining all of the essential facts
relative to every customer, every cash or margin account,
every order, and every person holding power of attorney over
any account accepted by Broker. Broker shall also be
responsible for the conduct of customer accounts and the
supervision thereof, including but not limited to, assessing
the suitability of a transaction for the customer when
required under applicable rules, the authenticity of all
orders, signatures and endorsements, the frequency of trading
by a customer and the genuineness of all signatures,
certificates and papers, the status under the Securities Act
of 1933 of securities proposed to be sold or margined by a
customer, and reviewing the accounts for, among other things,
manipulative practice and insider trading, and compliance with
all federal, state, securities exchange and association laws,
rules and regulations to which Broker and the customer are
subject.
Broker undertakes to comply with Rule 405(1), (2) and (3) of
the New York Stock Exchange, Inc. and other rules of
regulatory organizations having jurisdiction over Broker and
to diligently supervise compliance through the use of a
compliance manual or other written procedures. It is
understood that Broker will establish adequate procedures
regarding Rule 405 and will make a diligent attempt in every
case to conform to this rule.
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Broker must notify Pershing in each case where Broker and a
customer authorize a Registered Representative of Broker to
exercise discretion in an account. In addition, Broker will
advise Pershing at the time an order is placed if such order
is for a discretionary account of one of Broker's Registered
Representatives.
It is understood that Broker warrants that, to its best
knowledge, the customers introduced to Pershing by Broker
shall not be minors and shall not be such as to come under any
prohibition referred to in Rule 407 of the New York Stock
Exchange, Inc., or in any other law, rule or regulation of any
other regulatory authority; that Broker's customers shall in
fact be the owners of accounts opened by Pershing in their
names, and that any orders and instructions given by Broker or
any of Broker's employees shall have been previously fully and
properly authorized.
Prior to engaging in option trading for any of Broker's
customers, Broker will deliver to such customer a current
prospectus of the Options Clearing Corporation together with
any effective supplements thereto. Broker will take all
appropriate steps to assure that customers engaging in such
trading are sophisticated investors, fully aware of the risks
involved, and that option trading is suitable for such
customers. Broker will comply in all respects with Pershing's
options compliance program, including the obtaining of
information, written approval of option accounts by the Senior
Registered Options Principal of Broker, and execution of forms
required by Pershing. Pershing shall not be required to
endorse any put or call options for any account unless the
account is satisfactory to Pershing.
This agreement places the responsibility for "knowing the
customer" and "suitability" on the Broker. It permits Pershing
to satisfy itself, for its own benefit, that Broker has the
ability to comply itself, for its own benefit, and that Broker
has the ability to comply and has complied with the
requirements of Rule 405 of the New York Stock Exchange, Inc.
and comparable requirements of similar rules of any other
self-regulatory organization to which Broker belongs. It is
understood that the preparation and possession of surveillance
records or any new data, including exception reports, by
Pershing on behalf of or for the use of Broker shall neither
obligate Pershing to review such material nor make Pershing
responsible to know its contents.
(e) Financial Data
Broker agrees to furnish Pershing a copy of all FOCUS Reports
at the same time Broker files such with its primary examining
authority.
(f) Broker shall make and maintain reports, records and regulatory
filings required to be kept by the Broker by any entity that
regulates it, including any reports and records required to be
made or kept under the Currency and Foreign Transactions
Reporting Act of 1970, the Money Laundering Act of 1986, and
any rules and regulations promulgated pursuant thereto.
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6. BROKER INDEMNIFICATION
Broker hereby agrees to indemnify, defend and hold harmless Pershing
from and against all claims, demands, proceedings, suits and actions
made or brought against Pershing and to indemnify Pershing's
liabilities, losses, damages, expenses, attorneys' fees and costs
arising out of one or more of the following:
(a) Failure of Broker or the Broker's customer to make payment
when due for securities purchased or to deliver when due
securities sold for the account of Broker or the Broker's
customers;
(b) Failure of a customer of Broker to meet any initial margin
call or any maintenance call, except that Pershing shall be
responsible only for the portion of any such losses that are
directly attributable to Pershing's failure to give proper and
timely notification to the customer of any maintenance call;
(c) Failure of Broker to properly perform its duties, obligations
and responsibilities with respect to customer accounts (as set
forth in Paragraph 5, above), it being understood that the
participation of any employee of Pershing in any transactions
referred to in Paragraph 5 shall not affect Broker's
indemnification obligations hereunder, unless such
participation by Pershing's employee was fraudulent or
negligent;
(d) Any dishonest, fraudulent, negligent or criminal act or
omission on the part of any of Broker's officers, partners,
employees, agents or customers;
(e) All claims or disputes between Broker and its customer with
respect to the matters set forth in Paragraph 5 (d), it being
understood: (i) that Broker guarantees the validity of
customer orders in the form such orders are transmitted to
Pershing by Broker and guarantees to Pershing that each
customer will promptly and fully perform his commitments and
obligations with respect to all transactions in all of his
accounts carried by Pershing hereunder and, (ii) that checks
received by Pershing from Broker's customer shall not
constitute payment until they have been paid and the proceeds
actually received and credited to Pershing by its bank;
(f) Any adverse claims with respect to any customer securities
delivered or cleared by Pershing it being understood that
Pershing shall be deemed to be an intermediary between Broker
and customer and shall be deemed to make no warranties other
than as provided in Section 8-306(3) of the Uniform Commercial
Code;
(g) The default by any over-the-counter broker with whom the
Broker deals on a principal basis, giving up Pershing for
clearance;
(h) The default by any third-party broker with whom the Broker
rather than Pershing executes a transaction for itself or a
customer;
7
<PAGE>
(i) The negligence, malfeasance, or mistakes of any employee of
Broker with respect to the use of the check-signing authority
granted under Paragraph 3;
(j) The breach by the Broker of any warranty made by it under this
Agreement;
(k) Pershing's guarantee of any signatures with respect to
transactions in the accounts of Broker's customers;
(l) The failure of Broker's customers to fulfill their obligations
to the Broker or to Pershing (whether or not such failure is
in the Broker's control).
If within 30 days or such lesser time as required by law after
receiving notice thereof in writing, Broker shall fail to properly
institute the defense of Pershing against any claim, demand, suit,
proceeding or action arising out of one or more of the above matters,
Pershing will have the right to defend against the same at Broker's
cost and expense, or in its sole discretion, to settle the same at
Broker's cost and expense.
7. COMMISSION PAYMENTS
(a) Pershing shall charge each of Broker's customers the
commission which Broker directs it to charge for each
transaction. If specific instructions are not received with
respect to a specific transaction in the time period required
by Pershing to implement same, Pershing shall charge the
customer the commission prescribed in the basic commission
schedule delivered to Pershing by Broker. Such basic schedule
may be amended from time to time by Broker by written
instructions delivered to Pershing; provided, however, that
such changes shall be implemented only to the extent they are
within the usual capabilities of Pershing's data processing
and operations systems and only within such reasonable time
limitations as Pershing may deem necessary to avoid disruption
of its normal operating capabilities. For purposes of
confirmation preparation, Broker will also furnish from time
to time the source and amount of any commission or other
payment received by Broker in connection with transactions in
the customers' account.
(b) Commissions charged Broker's customers shall be collected by
Pershing and credited to Broker daily, after deducting
Pershing's compensation referred to in Paragraph 9 (and any
other amount owed to Pershing pursuant to this Agreement).
Such commissions shall be remitted to Broker on a monthly
basis, approximately 10 days after the final settlement date
of each month. More frequent remittances may be made if the
estimated current activity in the accounts and remittance
experiences in the past justify such advances, and if agreed
to by both parties.
8. COMPENSATION
8
<PAGE>
As compensation for services provided hereunder by Pershing, there
shall be deducted from the commissions charged Broker's customers the
amounts set forth in the fully disclosed pricing schedule attached
hereto. Said compensation schedule may be changed by Pershing at any
time on thirty (30) days prior written notice to Broker or from time to
time as may be agreed to by both parties. However, during the period
from the effective date of this Agreement to the second anniversary
thereof, the pricing schedule may not be changed except by agreement of
the parties. Thereafter any charge imposed by Pershing shall not be
greater in its entirety than that charge generally made by Pershing for
all correspondents of a similar size and business mix.
9. MARGIN ACCOUNTS
(a) Any transaction for a customer will be considered a cash
transaction until such time as Broker has furnished Pershing
with an executed customer's margin agreement and consent to
loan of securities in a form acceptable to Pershing.
(b) All margin accounts introduced by Broker shall be subject to
Pershing's "house margin requirements." Pershing currently
imposes a 30% maintenance requirement, but said requirement
and other margin requirements may be changed at any time by
giving the Broker 10 days prior written notice of such change.
In all such margin accounts, Broker shall be responsible for
the initial margin requirement for any transaction until such
initial margin has been received by Pershing in acceptable
form. Pershing reserves the right to refuse to accept any
transaction in a margin account after the initial transaction,
without the actual receipt of the necessary margin, and to
impose a higher margin requirement, when, in Pershing's
opinion, the past history or nature of such account or the
securities therein justifies such action. Pershing shall
endeavor to notify Broker in advance of all margin calls, and
shall provide Broker with copies of such calls. In the event
that satisfactory margin is not provided within the time
specified by Pershing, Pershing shall be at liberty to take
such actions as Pershing may in its judgment deem best. After
such initial margin has been received, subsequent margin calls
may be made by Pershing. Broker agrees to cooperate with
Pershing in complying with and obtaining margin on subsequent
calls.
(c) Interest charged with respect to debit balance in customers'
accounts shall be determined in accordance with the fully
disclosed pricing schedule attached hereto.
(d) Broker shall be responsible for any failure on the part of a
customer to meet a "maintenance call", except to the extent
directly attributable to Pershing's failure to give proper and
timely notification to the customer. An officer of Broker who
has been designated by Broker (and acknowledged in writing by
Pershing) may request, to the extent permitted by the margin
rules, that Pershing withhold temporarily any contemplated
action to "Sell-out" or "Buy-in" accounts which have failed to
meet a margin call. Such requests shall
9
<PAGE>
be made in writing and shall clearly set forth the period of
time during which the contemplated action be withheld. Should
Pershing comply in whole or in part with such request, Broker
guarantees to reimburse Pershing immediately for the maximum
amount of loss or liability which Pershing may sustain or
incur by reason of any compliance with such request, by
depositing sufficient funds with Pershing in a reserve or
other appropriate account at a bank of Pershing's choosing
over which Pershing shall be a signatory, to reimburse
Pershing for the loss or unsecured indebtedness held in the
account of the particular customer; provided, however, that
compliance with such a request shall not be deemed a waiver by
Pershing of any of its rights hereunder, including but not
limited to, the right to close out a contract or position, if
in Pershing's judgment, changing conditions render such action
advisable.
(e) Broker shall be responsible for sending to each margin
customer a written statement at the time of the opening of a
margin account in compliance with Rule 10b-16 under the
Securities Exchange Act of 1934.
(f) Broker shall obtain from each margin account introduced to
Pershing a margin agreement, including a hypothecation
authority, in a form and substance acceptable to Pershing.
10. UNSECURED DEBITS OR UNSECURED SHORT POSITIONS
Unsecured debit or short position (on a "mark to market" basis) in a
customer's account not resolved by payment or delivery within thirty
calendar days shall be charged to the account of the Broker maintained
by Pershing to which Pershing credits the Broker with commissions due
Broker. Such unpaid debits or short positions shall be netted against
commissions due on a monthly basis. Any excess of such unpaid debits or
short positions over commissions due shall be applied against Broker's
Deposit Account and be considered a claim against Broker pursuant to
paragraph 7 of this Agreement.
11. RESPONSIBILITIES AND RIGHTS OF PERSHING
Pershing will maintain prescribed books and records of all transactions
executed or cleared through it. Pershing also undertakes to perform in
good faith the services agreed to be performed in this Agreement
including the foregoing, but shall not be bound to make any
investigation into the facts surrounding any transaction that it may
have with Broker or that Broker may have with its customer or other
persons, nor shall Pershing be under any responsibility for compliance
by Broker with any laws or regulations which may be applicable to
Broker.
Nothing herein shall be deemed to restrict in any way the right of
Pershing or any affiliate of Pershing to compete with Broker in any or
all respects of Broker's business.
12. PERSHING INDEMNIFICATION
10
<PAGE>
Pershing shall have no liability to any of Broker's customers for any
loss suffered by any customer. Pershing's liability will be only to
Broker and then only to the extent hereinafter expressly set forth.
Pershing hereby agrees to indemnify, defend and hold harmless Broker
from and against all claims, demands, proceedings, suits and actions
and all liabilities, expenses, attorney fees, and costs in connection
therewith arising out of any negligent, dishonest, fraudulent, or
criminal act or omission on the part of any of its officers, partners
or employees with respect to the services provided by Pershing under
this Agreement.
13. EMPLOYEES
Without the prior written consent of Pershing, Broker will not during
the period of this Agreement and for one year thereafter, hire or
attempt to hire any person who is employed by Pershing on the
termination of this Agreement or whose employment with Pershing
terminated within the one year period prior to the termination of this
Agreement.
14. CONSTRUCTION OF AGREEMENT
Neither this Agreement nor the performance of the services hereunder
shall be considered to create a joint venture or partnership between
Pershing and Broker or between Broker and other brokers for whom
Pershing may perform the same or similar service. Neither Pershing nor
Broker will utilize the name of the other in any way without the
other's consent and under no circumstances shall either party employ
the other's name in such a manner as to create the impression that the
relationship created or intended between them is anything other than
that of clearing broker and correspondent broker.
During the term of this Agreement, Broker will not enter into any other
similar Agreement or obtain the services contemplated by this Agreement
from any other party, without prior written notice to Pershing.
15. CONFIDENTIALITY
Broker agrees not to disclose the terms of this Agreement to any
outside parties except to regulatory bodies with appropriate
jurisdiction and to authorized employees of the Broker on a
need-to-know basis. Any other publication or disclosure of the terms of
this Agreement may be made only with the prior written consent of
Pershing.
Pershing represents and warrants that the names and addresses of the
Broker's customers that have or may come to its attention in connection
with the clearing and related functions it has assumed under this
Agreement are confidential and shall not be utilized by Pershing except
in connection with the functions performed by Pershing pursuant to this
Agreement.
Pershing shall keep confidential any information it may acquire as a
result of this Agreement regarding the business and affairs of the
broker, which requirement shall survive the life of this Agreement.
11
<PAGE>
16. TERMINATION
This Agreement shall continue until terminated as hereinafter provided
(a) Upon any unilateral change of more than 5% per annum as per
Paragraph 8, by Pershing in the compensation schedule pursuant
to Paragraph 9 hereof, Broker may, upon fifteen (15) days
prior written notice to Pershing, terminate this Agreement on
the effective date of such unilateral change.
(b) This Agreement may be terminated by either party without cause
upon ninety (90) days written notice delivered in person or by
registered or certified mail.
If either party terminates the Agreement pursuant to this
subparagraph, Pershing shall have the right to impose
reasonable limitations upon Broker's activities during the
period between the giving of notice and the transfer of
Broker's accounts.
(c) In the event either party defaults in the performance of its
obligations under this Agreement, the nondefaulting party may
terminate this Agreement on the following terms and
conditions. Written notice must be delivered to the defaulting
party specifying the nature of the default and notifying the
defaulting party that unless the default is cured within a
period of thirty (30) days from receipt of the notice, this
Agreement may be terminated without further proceedings by the
nondefaulting party.
(d) This Agreement may be terminated by Pershing or Broker
immediately in the event that the other party is enjoined,
disabled, suspended, prohibited or otherwise unable to engage
in the securities business or any part of it as a result of
any administrative or judicial proceeding or action by the
Securities and Exchange Commission, any state securities law
administrator or any self-regulatory organization having
jurisdiction.
(e) Termination of this Agreement however caused shall not release
Broker or Pershing from any liability or responsibility to the
other with respect to transactions effected prior to the
effective date of such termination, whether or not claims
relating to such transactions shall have been made before or
after such termination.
(f) If prior to one year from the date set forth in Paragraph 1,
Broker terminates this Agreement pursuant to subparagraph (b)
above, or Pershing terminates this Agreement pursuant to
subparagraph (c) or (d) above, Broker will pay to Pershing
termination fee equal to the reasonable expenses incurred by
Pershing (i) in establishing systems procedures and capacity
for servicing Broker and its customers, and (ii) in
discontinuing the clearing arrangement; provided, however,
that in no event shall said termination fee be less than
$5,000. Said fee shall be paid within 10 days after receipt of
Pershing's statement setting forth in reasonable detail the
expenses incurred by Pershing.
12
<PAGE>
17. ACTION AGAINST CUSTOMERS
Pershing shall have the right upon written notice to Broker, in its
sole discretion (but shall not be obliged), and at its sole expense
to institute and prosecute in its name, any action or proceeding
against any of Broker's customers as to any controversy or claim
arising out of Pershing's transactions with Broker or with Broker's
customers, and nothing contained in this Agreement shall be deemed or
construed to impair or prejudice such right in any way whatsoever, nor
shall the institution or prosecution of any such action or proceeding
relieve Broker of any liability or responsibility which Broker would
otherwise have had under this Agreement. Broker shall assign to
Pershing its rights against its customers to the extent requested by
Pershing and necessary to carry out the intent of this Paragraph.
18. NOTICES
Any notice or request required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by hand or by
certified mail, in either case, return receipt requested, to the
parties at the following address:
Broker: Keefe, Bruyette & Woods, Inc.
2 World Trade Center
New York, NY 10048
Attn: Guy Woelk
Senior Vice President & CFO
or Randy Resnick
Operations Manager
Pershing:
Pershing Division
Donaldson, Lufkin & Jenrette Securities Corporation
One Pershing Plaza
Jersey City, N.J. 07399
Attn: Peter Farkas, Senior Vice President
19. AMENDMENTS
This Agreement represents the entire Agreement between the parties with
respect to the subject matter contained herein. This Agreement may not
be changed orally, but only by an agreement in writing and signed by
the parties.
20. EXCHANGE REGULATION
13
<PAGE>
The parties acknowledge they will be subject to the rules of the New
York Stock Exchange, Inc., the American Stock Exchange, Inc., and any
other securities exchanges or associations of which either party is or
may or may become a member, and of any governmental agencies to whose
jurisdiction either party may be subject.
21. ASSIGNMENT
This Agreement shall be binding upon and shall inure to the benefit of
the respective successors and assigns of Broker and Pershing.
22. APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
23. ARBITRATION DISCLOSURE
o ARBITRATION IS FINAL AND BINDING ON THE PARTIES.
o THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT,
INCLUDING THE RIGHT TO JURY TRIAL.
o PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND
DIFFERENT FROM COURT PROCEEDINGS.
o THE ARBITRATORS' AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS
OR LEGAL REASONING AND ANY PARTY'S RIGHT TO APPEAL OR TO SEEK
MODIFICATION OF RULINGS BY THE ARBITRATORS IS STRICTLY LIMITED.
o THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF
ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE SECURITIES INDUSTRY.
24. ARBITRATION AGREEMENT
ANY CONTROVERSY BETWEEN US ARISING OUT OF YOUR BUSINESS OR THIS
AGREEMENT SHALL BE SUBMITTED TO ARBITRATION CONDUCTED BEFORE THE NEW
YORK STOCK EXCHANGE, INC. OR THE NATIONAL ASSOCIATION OF SECURITIES
DEALERS, INC. AS PERSHING MAY ELECT AND IN ACCORDANCE WITH THE RULES
OBTAINING OF THE SELECTED ORGANIZATION. ARBITRATION MUST BE COMMENCED
BY SERVICE UPON THE OTHER PARTY OF A WRITTEN DEMAND FOR ARBITRATION OR
A WRITTEN NOTICE OF INTENTION TO ARBITRATE, THEREIN ELECTING THE
ARBITRATION TRIBUNAL.
25. This Agreement shall be submitted to and/or approved by any National
Securities Exchange, or other regulatory and self-regulatory bodies
vested with the authority to review and/or approve this Agreement or
any amendment or modifications hereto. In the event of any such
disapproval, the parties hereto agree to bargain in good faith to
achieve the requisite approval.
26. If any provision or condition of this Agreement shall be held to be
invalid or unenforceable by any court, or regulatory or self-regulatory
agency or body, such invalidity or unenforceability shall attach only
to
14
<PAGE>
such provision or condition. The validity of the remaining provisions
and conditions shall not be affected thereby and this Agreement shall
be carried out as if any such invalid or unenforceable provision or
condition were not contained herein.
27. This Agreement is between the parties and is not intended to confer any
benefits on third parties, including, but not limited to, customers of
Broker.
28. Addendum dated 11/9/93.
IN WITNESS WHEREOF the parties have hereto affixed their hands and seals on the
day and year first above written.
This Agreement contains a pre-dispute arbitration clause in paragraph 25 on page
15. I acknowledge receiving a copy of this Agreement.
BROKER: Keefe, Bruyette & Woods, Inc.
2 World Trade Center
New York, NY 10048
/s/ Guy Woelk
By: Guy Woelk
Title: Senior Vice President & Treasurer
PERSHING DIVISION
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
/s/ Peter Farkas
By: Peter Farkas
Title: Senior Vice President
15
<PAGE>
PERSHING
Division of Donaldson, Lufkin & Jenrette Securities Corporation
One Pershing Plaza, Jersey City, New Jersey 07399 o (201)413-2000
THOMAS F. GUINAN
Senior Vice President
(201) 413-2115
November 9, 1993
Mr. Guy Woelk
Senior Vice President & Treasurer
Keefe Bruyette and Woods Inc.
Two World Trade Center, 85th Floor
New York, NY 10048
Re: Amendment to Fully Disclosed Clearing Agreement by and between Pershing
Division of Donaldson, Lufkin & Jenrette Securities Corporation and Keefe
Bruyette and Woods Inc. (the "Agreement")
Dear Mr. Woelk:
This letter, as required by the New York Stock Exchange is intended as
an amendment to the Agreement. Except as modified herein, the Agreement
shall remain in full force and unmodified.
The agreement is modified by the addition of a new paragraph which
reads in full.
28. SEC Release 34-31511 Provision
Pursuant to the interpretation of Introducing Accounts on a Fully
Disclosed Basis contained in the above referenced release, it is hereby
agreed between us that, insofar as the "financial responsibility rules"
of the SEC and the Securities Investor Protection Act only are
applicable to our relationship, the accounts Broker introduces to
Pershing on a fully disclosed basis shall be considered to be accounts
of Pershing and not Broker's accounts. Nothing in this paragraph will
otherwise change or affect the provisions of the Agreement which
provides that the customer account remains Broker's customer account
for all other purposes, including, but not limited to, supervision,
suitability and indemnification.
If the foregoing is acceptable, please sign both copies of this letter and
return one copy for our files.
<PAGE>
PERSHING
Mr. Guy Woelk
November 9, 1993
Page 2
Very truly yours,
Pershing Division of Donaldson, Lufkin
& Jenrette Securities Corporation
by: /s/Thomas G. Guinan
Thomas F. Guinan, Senior Vice President
Accepted and Agreed
--------------------------------
(Correspondent)
by: /s/
-------------------------------
(Name and Title)
/psj
Pershing Division of Donaldson, Lufkin & Jenrette Securities Corporation
EXHIBIT 10.07
WTC-OL-81595 Lease No. WT-3415-B-88,89 (1770)
================================================================================
THE PORT AUTHORITY
OF
NEW YORK AND NEW JERSEY
WORLD TRADE CENTER
----------------------
AGREEMENT OF LEASE
between
THE PORT AUTHORITY
OF
NEW YORK AND NEW JERSEY
and
KEEFE, BRUYETTE & WOODS, INC.
----------------------
================================================================================
<PAGE>
AGREEMENT OF LEASE
between
THE PORT AUTHORITY OF NEW YORK AND NEW JERSEY
and
KEEFE, BRUYETTE & WOODS, INC.
TABLE OF CONTENTS
Section Title Page
- ------- ----- ----
Section 1. Letting......................................................... 1
Section 2. Term............................................................ 1
Section 3. Rights of User by the Lessee.................................... 3
Section 4. Basic Rental.................................................... 5
Section 5. Governmental Requirements....................................... 6
Section 6. Rules and Regulations........................................... 8
Section 7. Responsibilities of the Lessee.................................. 9
Section 8. Maintenance and Repair......................................... 12
Section 9. Casualty....................................................... 13
Section 10. Indemnity...................................................... 19
Section 11. Ingress and Egress............................................. 20
Section 12. Construction by the Lessee..................................... 22
Section 13. Signs.......................................................... 41
Section 14. Injury and Damage to Person or Property........................ 42
Section 15. Additional Rent and Charges.................................... 42
Section 16. Rights of Entry Reserved....................................... 43
Section 17. Condemnation................................................... 47
Section 18. Abatement of Rental............................................ 48
Section 19. Assignment and Sublease........................................ 49
Section 20. Termination.................................................... 59
Section 21. Existing Lease................................................. 62
Section 22. Survival of the Obligations of the Lessee...................... 64
Section 23. Reletting by the Port Authority................................ 66
Section 24. Waiver of Redemption........................................... 67
Section 25. Remedies and Suits Against the Lessee.......................... 67
Section 26. Surrender...................................................... 67
Section 27. Acceptance of Surrender of Lease............................... 68
Section 28. Brokerage...................................................... 68
Section 29. Notices........................................................ 69
Section 30. Payments....................................................... 69
Section 31. Additional Provisions Relating to a Successor Owner............ 70
Section 32. Quiet Enjoyment................................................ 71
Section 33. Non-Liability of Individuals................................... 71
Section 34. Headings....................................................... 72
Section 35. Construction and Application of Terms.......................... 72
Section 36. Definitions.................................................... 72
Section 37. Insurance...................................................... 73
Section 38. Late Charges................................................... 77
Section 39. Force Majeure.................................................. 79
Section 40. Premises....................................................... 81
Section 41. Governmental Compliance........................................ 81
Section 42. Services and Utilities......................................... 82
Section 43. Partnership Provision.......................................... 92
Section 44. Additional Space............................................... 93
Section 45. Lessee's Right to Extend the Letting........................... 96
Section 46. Port Authority Work............................................ 98
Section 47. Termination by the Lessee..................................... 101
Section 48. Certain Obligations of the Port Authority..................... 102
Section 49. Additional Provisions......................................... 106
Section 50. Security Deposit or Letter of Credit.......................... 107
Section 51. Entire Agreement.............................................. 109
EXHIBITS: A (89th Floor), A-1 (88th Floor), C (Tenant Alteration
Application), P (Parking Permit), X (Assignment of Lease with
Assumption and Consent), Y (Consent to Subletting) and R
(Rules and Regulations);
SCHEDULES: A, A-1, B (Cleaning Schedule), D (heat, ventilation and air
conditioning systems) and E
<PAGE>
THIS AGREEMENT, made as of June 19, 1998, by and between THE
PORT AUTHORITY OF NEW YORK AND NEW JERSEY (hereinafter called the "Port
Authority"), a body corporate and politic, created by Compact between the States
of New Jersey and New York, with the consent of the Congress of the United
States of America, and having an office at One World Trade Center, in the
Borough of Manhattan, City, County, and State of New York, and KEEFE, BRUYETTE &
WOODS, INC. (hereinafter called the "Lessee"), a corporation of the State of New
York having an office and place of business at Two World Trade Center, New York,
New York 10048 whose representative is Guy Woelk,
WITNESSETH That:
The Port Authority and the Lessee, for and in consideration of
the rents, covenants and agreements hereinafter contained, mutually covenant and
agree as follows:
Section 1. Letting
The Port Authority hereby lets to the Lessee and the Lessee
hereby hires and takes from the Port Authority, at the World Trade Center, in
the Borough of Manhattan, City, County and State of New York, the spaces as
shown in diagonal hatching, diagonal cross hatching, vertical hatching, cross
hatching, horizontal hatching and stipple on the sketches annexed hereto, made a
part hereof and marked "Exhibit A" and "Exhibit A-1", together with the
fixtures, improvements and other property of the Port Authority located or to be
located therein or thereon, the said space shown on Exhibit A, together with
such fixtures, improvements and other property being hereinafter sometimes
referred to as "Area A", the said space shown on Exhibit A-1, together with such
fixtures, improvements and other property being hereinafter sometimes referred
to as "Area A-1", and Area A and Area A-1 being hereinafter sometimes
collectively referred to as the "premises" and sometimes individually referred
to as an "Area". The Port Authority and the Lessee hereby acknowledge that the
premises constitute non-residential real property and that for all purposes
under this Agreement the premises are comprised of ninety-seven thousand seven
hundred ninety-nine (97,799) rentable square feet, consisting of forty-nine
thousand four hundred twenty-one (49,421) rentable square feet in the portion of
the premises shown on Exhibit A and forty-eight thousand three hundred
seventy-eight (48,378) rentable square feet in the portion of the premises shown
on Exhibit A-1.
Section 2. Term
(a) The term of the letting of Area A under this Agreement
shall commence at 12:01 o'clock A.M. on July 1, 1998, said date as the same may
be postponed pursuant to paragraph (b) of this Section being hereinafter called
the "Area A Commencement Date" and the term of the letting of Area A-1 under
this Agreement shall commence at 12:01 o'clock A.M. on January 1, 1999, said
date as the same may be postponed pursuant to paragraph (b) of this Section
being hereinafter called the "Area A-1 Commencement Date". For the purposes of
this Agreement the Area A Commencement Date and the Area A-1 Commencement Date
are sometimes individually referred to herein as the Commencement Dates for such
Areas, respectively. The term of the letting under this Agreement shall expire,
unless sooner terminated, or unless extended, at 11:59 o'clock P.M. on the day
preceding the fifteenth (15th) anniversary of the earlier of the Area A Rent
Commencement Date and the Area A-1 Rent Commencement Date, as such terms are
defined in paragraph (e) of the Section of this Agreement entitled "Basic
Rental", such earlier Rent Commencement Date being hereinafter referred to as
the "Lease Commencement Date" and such preceding day being hereinafter referred
to as the "Expiration Date".
(b) If on July 1, 1998, in the case of Area A, or January 1,
1999, in the case of Area A-1, such Area is not available or ready for occupancy
or use by the Lessee, by reason of the
<PAGE>
fact that such Area or any part thereof, or any part of the World Trade Center,
is in the course of construction, repair, alteration or improvement or by reason
of the fact that the occupant of such Area, or a part thereof, failed or refused
to deliver possession, or by reason of any causes or conditions beyond the
control of the Port Authority, the letting of such Area shall be postponed and
the Port Authority shall not be subject to any liability for such postponement
or failure to give possession on July 1, 1998, in the case of Area A, or January
1, 1999, in the case of Area A-1. However, in the event of such postponement the
Lessee shall be entitled to a rental credit as set forth in paragraph (c) of
this Section and if any occupant of Area A or Area A-1 holds over after the date
of expiration or earlier termination (whether pursuant to a surrender agreement
or otherwise) of the tenant's lease with respect to such Area, the Port
Authority, at its expense, shall promptly institute and diligently prosecute
holdover and other appropriate legal proceedings against such occupant, shall
endeavor to notify the Lessee of such holdover and shall endeavor to keep the
Lessee reasonably informed of the status of such holdover (and, upon written
request by Lessee, the Port Authority shall so notify the Lessee). No such
postponement or failure to give possession on such date shall affect the
validity of this Agreement or the obligations of the Lessee hereunder except as
may be expressly provided herein. However, rental for such Area shall not
commence until the Rent Commencement Date for that Area (determined as set forth
in paragraph (e) of the Section of this Agreement entitled "Basic Rental" );
tender shall be made by notice given at least five (5) days prior to the actual
date on which vacant possession of such Area is delivered to the Lessee and, in
the event of a postponement as provided in this paragraph (b), the letting of
such Area shall not commence until vacant possession of such Area is delivered
by the Port Authority to the Lessee. In the event that neither the Area A
Commencement Date nor the Area A-1 Commencement Date shall have occurred on or
before June 1, 2001, then this Agreement and the letting thereunder shall be
deemed cancelled, except that each party shall and does release and discharge
the other party from any and all claims or demands based on this Agreement, or a
breach or alleged breach thereof, provided, that the Port Authority shall not be
relieved of any liability which may exist in the event it has failed to
institute and prosecute holdover and other legal proceeding in the manner and
under the circumstances set forth in this paragraph (b). In the event that only
one of the Area A Commencement Date or the Area A-1 Commencement Date shall have
occurred on or before July 1, 2014, but not both of them, then the letting of
the Area which has not then commenced under this Agreement shall be deemed
cancelled and each party shall and does release and discharge the other party
from any and all claims or demands based on the letting of such Area under this
Agreement or a breach or alleged breach thereof in connection therewith.
(c) In the event that the Commencement Date for an Area has been postponed
pursuant to paragraph (b) of this Section and vacant possession of such Area has
not been tendered on or prior to September 1, 1998, in the case of Area A, or
March 1, 1999, in the case of Area A-1, then, in addition to the postponement of
the Rent Commencement Date for that Area which may result from such
postponement, and effective on the Rent Commencement Date for that Area, as so
postponed, the Lessee shall be entitled to a credit against its rental
obligations next becoming due in an amount equal to the product obtained by
multiplying the daily basic rental for that Area, as defined in this paragraph
(c), by the number of days in the period commencing on September 2, 1998, in the
case of Area A, or March 2, 1999, in the case of Area A-1, and ending on the
actual date on which vacant possession of such Area is delivered to the Lessee
in the condition required by this Agreement. The "daily basic rental for Area A"
for the purposes of this Agreement shall be Four Thousand Three Hundred Twelve
Dollars and Forty-nine Cents ($4,312.49) and the "daily basic rental for Area
A-1" for the purposes of this Agreement shall be Four Thousand Two Hundred
Twenty-one Dollars and Forty-nine Cents ($4,221.49). The granting of the rental
credit described in this paragraph (c), and the postponement of the Rent
Commencement Date for an Area pursuant to the provisions of paragraph (e) of the
Section of this Agreement entitled "Basic Rental" shall be
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the sole remedies available to the Lessee for any injury or damages resulting
from the postponement of the Commencement Date of that Area or of this Agreement
in accordance with the provisions of paragraph (b) of this Section, provided,
that the parties acknowledge that the letting of the premises under the Existing
Lease, as defined in the Section of this Agreement entitled "Existing Lease",
may also be extended as provided in said Section as a result of such
postponement .
Section 3. Rights of User by the Lessee
(a) The Lessee and its Permitted Occupants shall use the
premises for the following purposes only and for no other purpose whatsoever: as
clerical, administrative and executive offices for the Lessee's international
and domestic business as underwriters and distributors of municipal and
corporate securities, dealers in securities and general investment counselors
and for such other type or types of business or operations engaged in or
previously engaged in by office tenants at the World Trade Center whose
eligibility and qualifications are determined by the Port Authority under the
provisions of the Statutes, as defined in paragraph (g) of Section 7 of this
Agreement entitled "Responsibilities of the Lessee", strictly on the basis of
their functions, activities and services in world trade and commerce. Nothing in
this Section shall be deemed to prohibit the Lessee from using the premises for
such uses which are incidental and ancillary to the office uses provided in the
preceding sentence.
(b) In the event that title to the building in which the
premises is located is transferred to a landlord which shall not be subject to
the Statutes and the Statutes are no longer applicable to the purposes for which
the office space in such building may be used, then the Lessee may use the
premises, in addition to the purposes set forth in paragraph (a) of this Section
3, as clerical, administrative and executive offices for any other lawful
purpose, provided that such use shall not violate any of the covenants,
agreements, terms, provisions or conditions of this Agreement (other than the
provisions of this Section 3) and, provided, further, that the Lessee may not
use the premises for any unlawful purpose or in any unlawful manner and in
violation of any Legal Requirements (as defined in paragraph (b) of the Section
of this Agreement entitled "Governmental Requirements") including, but not
limited to, any applicable certificate of occupancy or certificate of use for
the premises or the building in which the premises is located nor shall the
Lessee use the premises in any manner or permit anything to be done, brought
into or kept in the premises that in the landlord's reasonable opinion shall or
might impair or interfere with (1) the safety, character, reputation or
appearance of the building in which the premises is located as a first class
office building, (2) any of such building's systems or the heating, ventilating,
cleaning, air-conditioning or other services in the building or the premises, or
(3) the use of any of the other areas of the building by any of the other
tenants or occupants of the building in which the premises is located or of the
World Trade Center.
(c) The Lessee and its Permitted Occupants solely in
conjunction with the activities permitted pursuant to paragraph (a) of this
Section 3 shall have the right to conduct activities and operations which are
incidental and ancillary thereto, including without limitation thereto:
(1) messenger and mail room operations;
(2) reproduction and copying operations;
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(3) a sales office but not for retail or open to the
general public for off-the-street transactions;
(4) word processing center;
(5) computer and communication systems operations;
(6) employee lounges;
(7) libraries;
(8) file rooms;
(9) meeting and conference rooms;
(10) lunch rooms and dining rooms;
(11) kitchens and food warming areas;
(12) exercise rooms; and
(13) additional bathrooms.
Nothing in this paragraph is intended or shall be deemed to amend or modify the
provisions of paragraph (e) of the Section of this Agreement entitled
"Responsibilities of the Lessee" or of the Section of this Agreement entitled
"Construction by the Lessee". The Port Authority reserves the right to charge
the Lessee for domestic cold and hot water and for any and all utilities or
other building services used in connection with any bathrooms or eating
facilities installed in any such special purpose area, in each case, to the
extent provided in the Section of this Agreement entitled "Services and
Utilities", it being understood that the Port Authority shall have the right to
install a meter on the Lessee's premises at the Port Authority's cost to measure
the Lessee's consumption of such domestic hot and cold water. The Lessee shall
set forth on its Lessee's plans and specifications submitted to the Port
Authority in accordance with the Section of this Agreement entitled
"Construction by the Lessee" any special purpose area requiring additional
utilities or heat, ventilation, air-cooling or other building services as well
as the lines, conduits, wires, pipes or ducts needed to supply such additional
utilities or services.
Section 4. Basic Rental
(a) The Lessee, subject to any rental abatement provisions
specifically set forth elsewhere in this Agreement, agrees to pay to the Port
Authority a basic rental for Area A for the period from the Area A Commencement
Date continuing throughout the balance of the term of the letting under this
Agreement at the rate of One Million Five Hundred Seventy-four Thousand
Fifty-eight Dollars and No Cents ($1,574,058.00) per annum, payable in advance
in equal monthly installments of One Hundred Thirty-one Thousand One Hundred
Seventy-one Dollars and Fifty Cents ($131,171.50) on the Area A Rent
Commencement Date and on the first day of each and every calendar month
thereafter throughout the balance of the term of the letting under this
Agreement. Without in any way modifying the foregoing, no basic rental shall be
payable by the Lessee during
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the period from the Area A Commencement Date through and including the day
preceding the Area A Rent Commencement Date.
(b) The Lessee, subject to any rental abatement provisions
specifically set forth elsewhere in this Agreement, agrees to pay to the Port
Authority a basic rental for the premises for the period from the Area A-1
Commencement Date continuing throughout the balance of the term of the letting
under this Agreement at the rate of One Million Five Hundred Forty Thousand
Eight Hundred Forty-two Dollars and No Cents ($1,540,842.00) per annum, payable
in advance in equal monthly installments of One Hundred Twenty-eight Thousand
Four Hundred Three Dollars and Fifty Cents ($128,403.50) on the Area A-1 Rent
Commencement Date and on the first day of each and every calendar month
thereafter throughout the balance of the term of the letting under this
Agreement. Without in any way modifying the foregoing, no basic rental shall be
payable by the Lessee during the period from the Area A-1 Commencement Date
through and including the day preceding the Area A-1 Rent Commencement Date.
(c) If the Area A Rent Commencement Date or the Area A-1 Rent
Commencement Date shall occur on a day other than the first day of a calendar
month, the installment of basic rental payable on the Rent Commencement Date for
such Area for the portion of that month from and after such Rent Commencement
Date shall be an amount equal to the monthly installment of basic rental
described in paragraph (a) or paragraph (b) of this Section, as the case may be,
multiplied by a fraction, the numerator of which shall be the number of days in
the period commencing on the applicable Rent Commencement Date and ending on the
last day of the calendar month in which such applicable Rent Commencement Date
shall fall, both dates inclusive, and the denominator of which shall be the
actual number of days in that calendar month.
(d) If the Expiration Date occurs on a date which is other
than the last day of a calendar month, or the letting is terminated effective on
a date which is other than the last day of a calendar month, the basic rental
for the premises for the portion of that calendar month during which the letting
is effective shall be an amount equal to the total of the monthly installments
of basic rental described in paragraph (a) and (b) of this Section payable for
that calendar month multiplied by a fraction the numerator of which shall be the
number of days in the period commencing on the first day of that calendar month
and ending on the Expiration Date or such effective date of termination and the
denominator of which shall be the actual number of days in that calendar month.
In the event that the letting is terminated effective on a date which is other
than the last day of a calendar month any basic rental paid by the Lessee prior
to such termination in excess of the prorated amount determined as provided in
the preceding sentence and any additional basic rental paid by the Lessee in
excess of an amount prorated for the portion of such calendar month in which
such letting was in effect shall be refunded by the Port Authority to the Lessee
within thirty (30) days after the effective date of such termination. The Port
Authority's obligations under this paragraph (d) shall survive the expiration or
earlier termination of this Agreement.
(e) For the purposes of this Agreement the "Area A Rent
Commencement Date" shall be the earlier of the two-hundred seventieth (270th)
day following the Area A Commencement Date or the date that the Lessee commences
in Area A the business operations permitted therein pursuant to the provisions
of the Section of this Agreement entitled "Rights of User by the Lessee" and the
"Area A-1 Rent Commencement Date" shall be the earlier of the two-hundred
seventieth (270th) day following the Area A-1 Commencement Date or the date that
the Lessee commences in Area A-1 the business operations permitted therein
pursuant to the provisions of such Section. The Area A Rent Commencement Date
and the Area A-1 Rent Commencement Date are sometimes individually referred to
in this Agreement as a "Rent Commencement Date".
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(f) In addition to the basic rental for the premises as set
forth above, the Lessee shall pay additional basic rental for the premises
during the term of the letting in accordance with the provisions of Schedule A
(or Schedule A-1 as the case may be) attached to this Agreement and hereby made
a part hereof on the basis of the number of rentable square feet constituting
the premises from time to time.
Section 5. Governmental Requirements
(a) The Lessee shall procure all licenses, certificates,
permits or other authorization from all governmental authorities having
jurisdiction over the operations of the Lessee at the premises or at the World
Trade Center which are necessary for the conduct of its operations.
(b) Subject to the provisions of this Agreement that expressly
require the Port Authority's compliance with the following and subject to the
proviso contained at the end of the following sentence, the Lessee shall
promptly observe, comply with and execute the provisions of any and all present
and future governmental laws, rules and regulations, requirements, orders and
directions which pertain or apply to the operations of the Lessee on the
premises or at the World Trade Center or its occupancy of the premises which are
applicable or which would be applicable if the Port Authority were a private
corporation (such governmental laws, rules and regulations, requirements, orders
and directions being sometimes herein called the "Legal Requirements"). The
Lessee shall, in accordance with and subject to the provisions of the Section of
this Agreement entitled "Construction by the Lessee", make any and all
improvements, alterations or repairs of the premises that are required at any
time during the term of the letting under this Agreement by any such present or
future law, rule, regulation, requirement, order or direction, provided, that
the Lessee shall not be required to make improvements, alterations or repairs to
the premises pursuant to this paragraph (b) unless the requirement results from
the particular manner of use or operations of the Lessee in the premises as
opposed to general office use. Nothing in this paragraph (b) shall be construed
to require the Lessee to make improvements, alterations or repairs to the
premises if the necessity for such improvements, alterations or repairs result
from a casualty of the type described in paragraph (a) of the Section of this
Agreement entitled "Casualty".
(c) If the Lessee shall contest against any governmental
authority by appropriate legal proceedings diligently prosecuted in good faith
the validity or applicability to the Lessee of any governmental requirements,
referred to in paragraph (b) above of this Section, the Lessee shall not be in
default thereof unless Lessee fails to comply with same in the time period
required under law after the final determination of the validity or
applicability in such proceedings, provided, however, that the Lessee shall not
make any such contest if it is based in whole or in part on the status of the
Port Authority and the Lessee will not delay compliance if the delay shall
result in the creation or continuance of a condition endangering persons or
property (other than Lessee's property). In the event that as a result of a
contest made by the Lessee, the Port Authority incurs any reasonable
out-of-pocket cost or expense which cost or expense would not have been incurred
but for such contest, then the Lessee within thirty (30) days after demand
therefor will reimburse the Port Authority such costs and expenses. It is not
intended by this paragraph (c) to give the Lessee any right to make any contest
against any governmental authority which the Lessee would not have had in the
absence of this provision.
(d) The provisions of this Section are not to be construed as
a submission by the Port Authority to the application to itself of such
requirements, or any of them.
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(e) Wherever the term "governmental authority", "governmental
agency" or "governmental" is used in this Agreement, it shall not be deemed to
include the Port Authority, when acting solely as landlord or solely as the
owner of the World Trade Center. Without in any way limiting the generality of
the Section of this Agreement entitled "Rules and Regulations", nothing in this
Section shall be deemed to permit the Port Authority to discriminate against the
Lessee in the Port Authority's application and enforcement of its resolutions,
rules, regulations, instructions and orders governing the operation of the World
Trade Center or any portion thereof except to the extent that same may be
inapplicable to the Lessee or any other occupant of the World Trade Center.
Section 6. Rules and Regulations
(a) The Lessee covenants and agrees to observe and obey (to
compel its officers, members, employees, agents and representatives to observe
and obey and to use reasonable efforts to have its contractors, customers,
guests, invitees and those doing business with it to observe and obey) the Rules
and Regulations of the Port Authority (a copy of which is attached hereto,
hereby made a part hereof and marked "Exhibit R") for the government of the
conduct of the Lessee, and such further reasonable rules and regulations
(including amendments and supplements thereto) as may from time to time and
throughout the letting be promulgated by the Port Authority for reasons of
safety, health or preservation of property, or for the maintenance of the good
and orderly appearance of the premises and the World Trade Center or for the
safe or efficient operation of the World Trade Center, provided, however, that
in case of any conflict or inconsistency between the provisions of this
Agreement and any of the Rules and Regulations, the provisions of this Agreement
shall control, provided, that the Lessee shall not be required to use reasonable
efforts to have its customers, guests, invitees and those doing business with
the Lessee to observe and obey the Rules and Regulations when such customers,
guests, invitees and persons doing business with the Lessee are outside of the
premises. The Port Authority agrees that, except in the case of an emergency in
which case it shall give the Lessee such notice as may be practicable, it will
give notice to the Lessee of every such further rule or regulation adopted by it
at least ten (10) business days before the Lessee shall be required to comply
therewith and the Lessee shall not be required to comply with same unless and
until it receives such notice. If the Port Authority shall adopt a further rule
or regulation which unreasonably discriminates against the Lessee, then such
further rule or regulation shall not be applicable to the Lessee solely to the
extent of such unreasonable discrimination. The Port Authority shall not apply
or enforce any of the Rules and Regulations in such manner as to unreasonably
discriminate against the Lessee except to the extent that any such Rule or
Regulation may be inapplicable to the Lessee or any other occupant in the World
Trade Center. If a Rule or Regulation shall conflict with any provision of this
Agreement, such provision shall control. In the event that the Lessee shall
notify the Port Authority that another tenant of the World Trade Center is
violating the Rules and Regulations, specifying the manner of such violation,
and such violation is actually interfering with the Lessee's operations under
this Agreement, the Port Authority will use best efforts to obtain such other
tenant's conformance to the Rules and Regulations.
(b) (1) Notwithstanding the provisions of Rule 15 of the Rules
and Regulations attached to this Agreement, the Lessee and its
contractors may use appropriate welding equipment where necessary to
perform its construction and installation work in the premises,
provided, that the Lessee shall obtain the approval of the Port
Authority for such use, whether as part of the approval of the Lessee's
plans and specifications for such work or otherwise, and all such use
shall be conducted in compliance with all applicable governmental laws,
rules and regulations, requirements, orders and directions.
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(2) Notwithstanding the provisions of Rule 23 of the Rules and
Regulations attached to this Agreement, the Port Authority shall not
require the Lessee to purchase particular draperies to cover its
exterior windows, but the Lessee shall obtain the approval of the Port
Authority for the Lessee's exterior window coverings, whether as part
of the approval of the Lessee's plans and specifications for such work
or otherwise, and shall use such window coverings to assist in the
control of temperature in the premises as set forth in said Rule 23.
Section 7. Responsibilities of the Lessee
(a) The Lessee shall conduct its operations in an orderly
manner and so as not to unreasonably annoy, unreasonably disturb or be
unreasonably offensive to others at the World Trade Center, and the Lessee shall
control the conduct of its officers, members, employees, agents,
representatives, and contractors, and shall use reasonable efforts to control
the conduct of its customers, guests, invitees and those doing business with it.
Upon objection from the Port Authority concerning the conduct of any of the
Lessee's officers, members, employees, agents, representatives, contractors,
customers, guests, invitees and those doing business with it in violation of the
preceding sentence, the Lessee shall promptly take all reasonable and practical
steps necessary to remove the cause of the objection. Upon notice from the
Lessee that other tenants or occupants (or their officers, members, employees,
agents, representatives, contractors, customers, guests, invitees or those doing
business with them) in the Building are unreasonably disturbing the Lessee or
its Permitted Occupants in its premises, the Port Authority, if in its
reasonable opinion the Lessee's complaint is justified, will register objection
to any such conduct with the offending tenant or occupant and will use
reasonable efforts to correct the condition giving rise to the Lessee's
objection but any continuation of such condition after such use of reasonable
efforts by the Port Authority shall not be or be deemed to be a violation or
breach of this Agreement on the part of the Port Authority or constitute the
basis for any claim or other action against the Port Authority by the Lessee.
(b) The Lessee shall not commit any nuisance on the premises,
or do or knowingly permit the creation or commission of a nuisance on the
premises, and the Lessee shall not cause or knowingly permit to be caused or
produced upon the premises, to permeate the same or to emanate therefrom, any
noxious or unreasonable smokes, gases, vapors, odors or noises.
(c) Subject to the provisions of the following sentence, the
Lessee shall not use or connect any equipment or engage in any activity or
operation in the premises which will cause an overloading of the capacity of any
then existing utility, mechanical, electrical, communication or other systems,
or portion thereof, serving the premises, nor shall the Lessee do or permit to
be done anything which unreasonably interferes with the effectiveness or
accessibility of then existing utility, mechanical, electrical, communication or
other systems or portions thereof on the premises or elsewhere at the World
Trade Center. The Port Authority hereby represents and warrants to the Lessee
that the system for the supply of electricity to the Lessee has and throughout
the term of this Agreement, including any extension of said term, shall have the
capacity per usable square foot set forth in paragraph (c) of the Section of
this Agreement entitled "Services and Utilities" and hereby made a part hereof.
(d) The Lessee shall not overload any floor, roadway,
passageway, pavement or other surface or any wall, partition, column or other
supporting member (but nothing herein shall be construed to prevent the Lessee
from increasing the load bearing capacity of any floor, by performing
reinforcement work subject to the applicable provisions of the Section of this
Agreement entitled
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"Construction by the Lessee"), or any elevator or other conveyance, in the
premises or at the World Trade Center and without limiting any other provision
of this Agreement, the Lessee shall repair, replace or rebuild the damaged
portion of any such floor, roadway, passageway, pavement or other surface, wall,
partition, column or other supporting member, or elevator or other conveyance,
to the extent such damage was caused by the Lessee's overloading. The Port
Authority hereby represents and warrants to the Lessee that, as of the Lease
Commencement Date, the "live load" capacity of the premises shall be as shown on
Schedule D attached hereto and hereby made a part hereof.
(e) Subject to the following provisions of this paragraph (e),
the Lessee shall not install, maintain or operate or permit the installation,
maintenance or operation on the premises of any vending machine or service
designed to dispense or sell food, beverages, tobacco products or merchandise of
any kind, whether or not included in the above categories, or any restaurant,
cafeteria, kitchen, stand or other establishment for the preparation, dispensing
or sale of food, beverages, tobacco or tobacco products, or merchandise of any
kind or any equipment or device for the furnishing to the public of a service of
any kind, including without limitation thereto any telephone pay-stations,
provided, that, subject to all of the terms and provisions of this Agreement,
including without limitation thereto the Section thereof entitled "Services and
Utilities", the Lessee and the Permitted Occupants may install facilities
(including those customarily found in a small kitchenette such as a dwyer unit
or microwave oven, sink, refrigerator, vending machines and hot tea and coffee
dispensing equipment) for a cafeteria or kitchen or for the warming and serving
of food and beverages, both alcoholic and non-alcoholic, to be consumed on the
premises solely by the Lessee's or the Permitted Occupants' officers, members,
employees, agents, representatives, contractors and business guests and
invitees, or arrange for the installation and operation of such equipment
provided that if such facilities are operated or supplied by an independent
contractor, operator or supplier, such contractor, operator or supplier shall be
approved by the Port Authority. The Port Authority shall not act unreasonably in
determining whether or not to approve the use of any such independent
contractor, operator or supplier. None of the foregoing equipment or machines
shall be installed unless and until the Port Authority has consented in writing
to the type of machine or equipment, the method of installation and the location
where such machine or equipment may be installed, either separately or as part
of the Port Authority's approval of the Lessee's Construction Application
relating to the construction and installation of such machine or equipment
pursuant to the Section of this Agreement entitled "Construction by the Lessee",
provided, however, that the Port Authority's consent shall not be required for
the installation of any such equipment or machine if the Port Authority's
consent would not be required pursuant to said Section of this Agreement
entitled "Construction by the Lessee". In the event the installation of such
machines and equipment shall require modifications or alterations to building
systems or equipment (including heating, ventilating or air-conditioning
systems) and whether such modifications or installations thereof are performed
by the Lessee or by the Port Authority, the Lessee shall be responsible for the
cost of such machines and equipment, the installation thereof and any such
modifications or alterations and no such installation, alteration or
modification shall be commenced until the Lessee has received an approved
Construction Application (in the form referred to in the Section of this
Agreement entitled "Construction by the Lessee") therefor (but only to the
extent the same is required under the Section of this Agreement entitled
"Construction by the Lessee"). The Lessee shall pay to the Port Authority for
domestic cold and hot water and for any and all utilities or other building
services used in connection with any eating facilities or any of the aforesaid
machines and equipment, in each case, to the extent provided in the Section of
this Agreement entitled "Services and Utilities", it being understood that the
Port Authority shall have the right to install a meter on the Lessee's premises
at the Port Authority's cost to measure the Lessee's consumption of such
domestic hot and cold water. The Lessee agrees that no recognizable or
measurable odors will emanate from the premises as a result of its intended use
of any such machines and equipment installed by the Lessee and the Lessee
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covenants and agrees that upon notification from the Port Authority that
objectionable odors emanate from the premises as a result of the Lessee's use of
any such machines and equipment in the premises (whether through the building
heating, ventilating or air-conditioning systems or otherwise), the Lessee will
immediately discontinue use of any such machine or equipment and shall not
resume the use or operation thereof until such machine or equipment has been
repaired or modified so as to prevent the emanation of such objectionable odors.
(f) The Lessee shall not use or make any reference, by
advertising or otherwise, to the names "World Trade Center" (except to designate
the Lessee's business address and then only in a conventional manner and without
emphasis or display), "The Port Authority of New York and New Jersey", "Port
Authority" or any simulation or abbreviation of any such names, or any emblem,
picture or reproduction of the World Trade Center, for any purpose whatsoever.
Upon notice from the Port Authority the Lessee shall immediately discontinue any
such use or reference.
(g) The Lessee recognizes that the Port Authority has
undertaken the planning, construction and operation of the World Trade Center as
a facility of commerce pursuant to concurrent legislation of the State of New
York, Chapter 209, Laws of New York, 1962 and the State of New Jersey, Chapter
8, Laws of New Jersey, 1962 (herein called the "Statutes"). The Statutes provide
that the Port Authority should be regarded as performing an essential
governmental function in the construction and operation of the World Trade
Center and that all details of the effectuation of the World Trade Center
including the leasing and contracts thereof shall be within the sole discretion
of the Port Authority and its decisions shall be controlling and conclusive and
that it is of the essence of the Statutes and of this Agreement that the Port
Authority retain in its sole discretion the determination of all matters
concerning the World Trade Center including the occupancy of the World Trade
Center. Accordingly, the purpose, character and scope of the Lessee's occupancy,
operation and usage of the premises as described in the Section of this
Agreement entitled "Rights of User by the Lessee" are of primary importance and
inducement to the Port Authority in entering into this Agreement with the
Lessee. The Lessee has represented to the Port Authority that all its occupancy,
operation and usage, throughout the term of the letting hereunder, will be in
strict accordance with and subject to the provisions and requirements of the
Section of this Agreement entitled "Rights of User by the Lessee" and the Port
Authority has relied on such representations in entering into this Agreement.
The Lessee further acknowledges for itself and for any successor to its interest
in this Agreement that this Agreement cannot be assigned or a sublease entered
into by the Lessee without the prior written consent of the Port Authority
except in accordance with the provisions of the Section of this Agreement
entitled "Assignment and Sublease", provided, that nothing in this Section is
intended or shall be deemed to increase, decrease or otherwise alter the
specific requirements for subleasing or assignment set forth in the Section of
this Agreement entitled "Assignment and Sublease".
Section 8. Maintenance and Repair
(a) Except to the extent of such items of cleaning service as
may be supplied by the Port Authority as stated in the Section of this Agreement
entitled "Services and Utilities", the Lessee shall at all times keep the
premises in a reasonably clean and orderly condition and appearance, together
with all fixtures, equipment and personal property of the Lessee located in or
on the premises, including without limitation thereto the interior surface of
windows and both sides of all entrance doors. Nothing in this Section shall
require the Lessee to clean the exterior surface of window glass in the
premises.
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(b) Subject to the provisions of the Section of this Agreement
entitled "Casualty" and the Section of this Agreement entitled "Insurance", the
Lessee shall repair, replace, rebuild and paint all or any part of the premises
which may be damaged or destroyed by the wilful misconduct or negligent acts or
omissions of the Lessee, its officers, members, employees, agents,
representatives, contractors, customers, guests, invitees or other persons who
are doing business with the Lessee or who are on or at the premises (other than
the Port Authority or any of its Commissioners, members, officers, employees,
agents, representatives or contractors) and the Lessee shall repair, replace,
rebuild and paint all or any part of the World Trade Center which may be damaged
or destroyed by the wilful misconduct or negligent acts or omissions of the
Lessee, its officers, members, employees, agents, representatives or
contractors, provided, that nothing in this paragraph (b) is intended, or shall
be deemed, to increase, decrease or otherwise alter the obligations of the
Lessee or the Port Authority in the event that the premises or the World Trade
Center are damaged by a casualty, which obligations shall be as provided in the
Sections of this Agreement entitled "Casualty" and "Insurance".
(c) Subject to the provisions of the Section of this Agreement
entitled "Casualty" and, the Section of this Agreement entitled "Insurance", the
Lessee shall take good care of the premises, including therein, without
limitation thereto, walls, partitions, floors, ceilings, doors and columns, and
all parts thereof, and all equipment and fixtures, and except to the extent the
same is the responsibility of the Port Authority pursuant to the express
provisions of this Agreement, shall do all preventive maintenance and make all
necessary non-structural repairs, replacements, rebuilding and painting
necessary to keep each Area of the premises in the condition existing on the
Commencement Date for that Area and to keep any improvements, additions and
fixtures made or installed during the term of the letting in the condition they
were in when made or installed except for reasonable wear and tear which does
not adversely affect the watertight condition or structural integrity of the
Building. Nothing set forth in this paragraph (c) is intended or shall be deemed
to impose upon the Lessee an obligation to maintain, repair, replace or rebuild
any portion of the exterior building walls other than the interior drywall or
gypsum board surfaces thereof (and without limiting the foregoing the Lessee
shall not be required to repair the exterior, structural portions or the window
glass forming a part of such exterior walls), floor slabs, structural steel
members and core walls or to rebuild, repair or replace (except for damage
thereto caused by the willful misconduct or negligent acts or omissions of the
Lessee, its officers, directors, members, agents, contractors and
representatives): (1) the perimeter convector units in the premises; (2) the
vertical aspects of any utility, mechanical, electrical, communication and other
systems passing through the premises which provide services and utilities to the
Lessee or other parties of the premises; and (3) the utility, mechanical,
electrical, communication and other systems outside of the premises which
provide services and utilities to the premises or to clean the exterior side of
exterior building walls, unless such walls, slab, members or systems shall have
been damaged by the willful misconduct or negligent acts or omissions of the
Lessee, its officers, members, employees, agents, representatives or
contractors, in which case the Lessee shall have the obligations set forth in
paragraph (b) of this Section, nor is anything set forth in paragraph (b) of
this Section or in this paragraph (c) intended nor shall it be deemed to
increase, decrease or otherwise alter the obligations of the Lessee and the Port
Authority in the event that the premises or the World Trade Center are damaged
by a casualty, which obligations shall be as provided in the Sections of this
Agreement entitled "Casualty" and "Insurance", nor shall anything in this
Section increase, decrease or otherwise alter the obligations of the Lessee and
the Port Authority set forth in of the Section of this Agreement entitled "Port
Authority Work", including without limitation thereto the parties' obligations
set forth therein relating to the abatement of Hazardous Materials, nor shall
anything in this Section relieve the Lessee from the obligation to obtain the
approval of the Port Authority under the circumstances described in the Section
of this Agreement entitled "Construction by the Lessee".
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(d) In the event the Lessee fails to commence so to make or do
any repair, replacements, rebuilding or painting required by this Agreement
within a period of thirty (30) days after notice from the Port Authority so to
do (other than by reason of causes and conditions beyond the Lessee's control),
or fails diligently to continue to completion the repair, replacement,
rebuilding or painting of all of the premises required to be repaired, replaced,
rebuilt or painted by the Lessee under the terms of this Agreement, other than
by reason of causes and conditions beyond the Lessee's control, the Port
Authority may, at its option, and in addition to any other remedies which may be
available to it, repair, replace, rebuild or paint all or any part of the
premises included in the said notice, the Port Authority's reasonable
out-of-pocket cost thereof to be paid by the Lessee within thirty (30) days
after demand therefor (which demand will include receipts or other reasonable
evidence of the Port Authority's costs). This option or the exercise thereof
shall not be deemed to create or imply any obligation or duty to the Lessee or
others.
Section 9. Casualty
(a) In the event that, as a result of a casualty insurable
under the New York standard form of fire insurance policy and extended coverage
endorsement, the premises, or other areas of the World Trade Center, are damaged
so as to render the premises untenantable or inaccessible in whole or part, then
the Port Authority within forty-five (45) days after the occurrence of such
casualty shall provide the Lessee in writing with a statement from its Chief
Engineer setting forth his good faith estimate of the time necessary to complete
the repairs and rebuilding caused by such casualty. The term "Estimate" as used
herein shall mean the estimate of the Chief Engineer of the Port Authority of
the time necessary for completion of such repairs and rebuilding.
(1) If the Estimate provides that the necessary repairs or
rebuilding can be completed within three hundred sixty five (365) days
after the occurrence of the damage, and provided that this Agreement
has not been terminated by the Port Authority or the Lessee as
hereinafter provided, the Port Authority shall, at its own cost and
expense (provided, that nothing in this subdivision (1) shall be deemed
to waive or release any claim of the Port Authority against the
proceeds of insurance which may be available to cover the cost of
repairing or rebuilding such damage, whether such insurance is
maintained by the Port Authority, the Lessee or others) repair or
rebuild such damaged portions of the premises and the World Trade
Center with due diligence (including, in the case of the premises, all
alterations or improvements thereto made during the term of the letting
under this Agreement, whether made therein by the Port Authority or by
the Lessee with the approval of the Port Authority, to the extent such
approval is required under this Agreement, and subject to the
provisions of paragraph (f) of this Section, the rental hereunder shall
be abated, as hereinafter provided in the Section of this Agreement
entitled "Abatement of Rental", only for the period from the occurrence
of the damage to the earlier of (i) thirty (30) days after notification
by the Port Authority to the Lessee of the completion of the repairs or
rebuilding, whether or not the work of repair or rebuilding is actually
completed within the said three hundred sixty five (365) days, or (ii)
the commencement of business operations by the Lessee in the premises
or the damaged portion thereof, as the case may be (it being understood
that Lessee shall not be deemed to have commenced business operations
solely by reason of occupancy for the performance of alterations and
installation of property), provided, that if the Estimate provides that
the necessary repairs or rebuilding can be completed within the three
hundred sixty-five (365) day period following the occurrence of the
damage and such repairs or rebuilding have not actually been completed
within thirty (30) days (hereinafter called the "Thirty Day Period")
after the end of such three hundred
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sixty-five (365) day period, and, provided, further, that at no time
during the term of the letting up to the expiration of such Thirty Day
Period did the Lessee have the right pursuant to paragraph (b) of this
Section 9 to terminate this Agreement, then the Lessee shall have the
right, by notice given to the Port Authority not later than sixty (60)
days subsequent to the end of such Thirty Day Period and prior to the
completion of such repairs or rebuilding, to terminate the letting of
the entire premises under this Agreement with the same effect as
expiration, such termination to be effective on the date specified in
the Lessee's notice but not later than one hundred eighty (180) days
following the date of the Lessee's notice; it being understood that in
the event of termination by the Lessee pursuant to this subparagraph
(1) the rental hereunder shall be abated as hereinafter provided in the
Section of this Agreement entitled "Abatement of Rental" for the period
from the occurrence of the damage to the effective date of termination;
or
(2) if the Estimate provides that such repairs or rebuilding
cannot be completed within three hundred sixty five (365) days after
the occurrence of the damage, then the Port Authority shall have the
options: (i) to proceed with due diligence to repair or to rebuild the
premises as necessary; or (ii) subject to the provisions of
subparagraph (3) below, to terminate the letting as to the entire
premises by notice given to the Lessee within forty-five (45) days
after the delivery to the Lessee of the statement setting forth the
Estimate, such termination not to be effective earlier than one hundred
eighty (180) days after such termination notice is given to the Lessee
and, subject to the provisions of paragraph (f) of this Section, the
rental hereunder shall be abated, as provided in the Section of this
Agreement entitled "Abatement of Rental" either, as the case may
require, (x) for the period from the occurrence of the damage to the
earlier of thirty (30) days after notification by the Port Authority to
the Lessee of the completion of the repairs or rebuilding, whether or
not the work of repair or rebuilding is actually completed within said
three hundred sixty-five (365) day period or the commencement of
business operations by the Lessee in the premises or the damaged
portion thereof, as the case may be (it being understood that the
Lessee shall not be deemed to have commenced business operations solely
by reason of occupancy for the performance of alterations and
installation of property) or (y) from the period of the occurrence of
the damage to the effective date of termination; or
(3) Notwithstanding the provisions of subdivision (ii) of
subparagraph (2) above of this paragraph (a), the Port Authority shall
not have the right to terminate the letting as to the entire premises
pursuant to said subdivision (ii) unless the Port Authority elects not
to rebuild as office space all the space from and above the 90th floor
in the Building damaged by such casualty and used as office space prior
to the occurrence of such casualty.
Neither the three hundred sixty five (365) day period for completion of the
repair or rebuilding nor the additional Thirty Day Period thereafter for
completion of the repair or rebuilding, nor any notice period in this paragraph
(a) shall be extended by reason of a cause or condition beyond the control of
the Port Authority; but the Port Authority shall have no liability to the Lessee
by reason of a failure to complete any repair or rebuilding required by this
Section within the estimated time period, the specific termination rights set
forth in this paragraph (a) and paragraph (b) below of this Section being the
Lessee's sole remedy for any such failure to complete any such repairs or
rebuilding unless the Port Authority fails to comply with its obligation,
subject to causes and conditions beyond its control, to diligently proceed to
perform the repairs or rebuilding resulting from such casualty. Nothing in the
foregoing shall be construed to deny the Lessee a right to abatement of basic
and additional basic rental where same is specifically provided for in this
Section.
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(b) Notwithstanding anything in paragraph (a) of this Section
to the contrary, if the Estimate provides for completion of the repairs and
rebuilding within three hundred sixty-five (365) days after the occurrence of
the casualty, the Lessee may request from time to time (but in no event no
earlier than one hundred twenty (120) days after the occurrence of the casualty
nor more often than once in any ninety (90) day period thereafter) by written
notice to the Port Authority that the Port Authority deliver to Lessee updated
estimates with respect to the anticipated completion date of the repair and
rebuilding work (each of such updated estimates being sometimes herein called a
"Revised Estimate"). All Revised Estimates shall be delivered to Lessee within
thirty (30) days after Port Authority's receipt of Lessee's request therefor and
shall contain the estimate of the Port Authority's Chief Engineer of the
completion date of the repair and rebuilding work. A "Materially Revised
Estimate" shall be a Revised Estimate with an anticipated completion date of
such repair and rebuilding work later than all of the following: (x) three
hundred ninety-five (395) days after the occurrence of the damage, (y) the
expiration of the time period set forth by the Chief Engineer in the initial
Estimate as the completion date for the repair and rebuilding work, plus thirty
(30) days and (z) the completion date for the repair and rebuilding work
theretofore set forth in the most recently delivered Revised Estimate, plus
thirty (30) days. In the event that the Lessee (at the Lessee's request or at
the Port Authority's initiative) shall have received a Materially Revised
Estimate, the Lessee shall have a further right to terminate this Agreement and
the letting thereunder upon written notice to the Port Authority given not later
than sixty (60) days following the Lessee's receipt of such Materially Revised
Estimate provided such repair and rebuilding work is not completed prior to
receipt of such notice by the Port Authority, and such termination shall be
effective on the date specified in the Lessee's notice but in no event later
than one hundred eighty (180) days from the date of such notice. In the event
the Lessee shall not elect to terminate this Agreement within the sixty (60) day
period set forth above, the Lessee also shall not thereafter have a right to
terminate this Agreement under this paragraph (b) with respect to the casualty
in question unless and until Lessee shall receive another Materially Revised
Estimate or unless the actual completion date is later than the date (the
"Outside Revised Estimate Date") which is the latest of all of the following:
(A) the estimated completion date set forth in the last Revised Estimate, plus
thirty (30) days, (B) the three hundred ninety-fifth (395th) day after the
occurrence of the damage, and (C) the date set forth by the Chief Engineer in
the initial Estimate as the completion date for the repair and rebuilding work,
plus thirty (30) days; and the Lessee exercises its right to terminate not later
than sixty (60) days after the Outside Revised Estimate Date. provided, that
such notice of termination from the Lessee shall not be effective if the actual
completion date occurs prior to receipt by the Port Authority of such notice of
termination from the Lessee. Anything to the contrary notwithstanding, the
Lessee shall also have the right to terminate this Agreement upon written notice
to the Port Authority if the Port Authority shall fail both to deliver to Lessee
a Revised Estimate within thirty (30) days after Lessee's request therefor and
shall further fail within five (5) business days after a second written request
by Lessee for same to deliver same to the Lessee, provided, such notice of
termination from the Lessee shall not be effective if the actual completion date
occurs prior to receipt by the Port Authority of such notice of termination from
the Lessee. Any termination by the Lessee pursuant to this paragraph (b) shall
be effective on the date specified in Lessee's notice but in no event later than
one hundred eighty (180) days from the date of such notice. No termination by
the Lessee under this paragraph (b) shall be effective if at the time of the
attempted exercise thereof the Lessee is under a notice of termination from the
Port Authority. Termination of this Agreement and the letting hereunder by the
Lessee pursuant to this paragraph (b) shall be with the same force and effect as
expiration.
(c) The parties do hereby stipulate that neither the
provisions of Section 227 of the Real Property Law of the State of New York nor
those of any other similar statute shall extend or apply to this Agreement.
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(d) The Lessee shall give the Port Authority prompt notice in
case of any fire, accident or casualty in the premises or elsewhere in the World
Trade Center if the occurrence elsewhere in the World Trade Center is known to
the Lessee and involves the Lessee, its officers, members, employees, agents,
representatives, contractors, customers, guests or invitees.
(e) In the event of a partial or total destruction of the
premises, the Lessee shall as soon as practicable remove any and all of its
furniture, equipment, trade fixtures and other personal property from the
premises or the portion thereof destroyed, as the case may be, and if the Lessee
does not promptly so remove, the Port Authority may after giving the Lessee ten
(10) business days' prior notice of such may remove the Lessee's property to a
public warehouse for deposit or retain the same in its own possession and at its
discretion upon sixty (60) days prior notice to the Lessee may sell the same at
either public auction or private sale, the proceeds of which shall be applied
first to the reasonable out-of-pocket expenses of the Port Authority in
connection with such removal, storage and sale, second to any sums owed by the
Lessee to the Port Authority, with any balance remaining to be paid to the
Lessee; if the expenses of such removal, storage and sale shall exceed the
proceeds of sale, the Lessee shall pay such excess to the Port Authority upon
demand.
(f) If the damage to the premises or other areas of the World
Trade Center was caused by the fault of the Lessee, its officers, members,
employees, agents, representatives and contractors, then, notwithstanding the
provisions of paragraph (a) above, the Lessee shall not be entitled to an
abatement of rentals unless and only to the extent that the Port Authority
actually receives proceeds of rental insurance in effect in connection with the
damage (or would have been entitled to receive rental insurance proceeds
assuming the Port Authority was in compliance with the terms and conditions of
its rental insurance policy and such policy is customarily carried by owners of
first-class office buildings in Manhattan containing no less than one million
(1,000,000) rentable square feet)(such owners being hereinafter referred to in
this Agreement as "First Class Owners") or would have been entitled to receive
such proceeds if the Port Authority had carried a policy of rental insurance
providing such proceeds, provided such policy of rental insurance is then
available on commercially reasonable terms to First Class Owners, provided,
however, that if at any time because of this provision for abatement the
insurance carrier of any policy covering the premises or any part thereof shall
increase the premiums otherwise payable for any policy of fire, extended
coverage, or rental coverage applicable to the premises and it is then customary
for insurance carriers to impose an increased premium on First Class Owners with
respect to such provision for abatement, the Lessee shall pay to the Port
Authority within thirty (30) days after demand an amount equivalent to the
product obtained by multiplying such increase or increases by the Lessee's
Proportionate Share as defined in Schedule A or Schedule A-1, whichever is in
effect at such time, (it being understood that the amount of such increase shall
not be included as an Operating Expense in Schedule A or Schedule A-1, as the
case may be) and in the event the Lessee elects not to so pay the Lessee's
Proportionate Share of such increase to the Port Authority the same shall not
constitute a default hereunder, but the Lessee shall not be entitled to such
rent abatement; and provided, further, that if at any time this provision for
abatement shall invalidate any such policy of insurance or void the rights of
the Port Authority thereunder or if because of this provision for abatement any
such carrier shall cancel any such policy or shall refuse to issue or renew the
same or shall take any other action to materially alter, decrease or diminish
the benefits of the Port Authority under the policy, then this provision for
abatement shall be void and of no effect unless it is customary for First Class
Owners to carry a policy of rental insurance providing for the rent abatement
described in this paragraph (f) without the restrictions and conditions set
forth in this proviso. Nothing contained in this paragraph (f) shall be deemed
to obligate the Port Authority to
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maintain or procure any policy of fire, extended coverage, or rental coverage
applicable to the premises.
(g) In the event that, as a result of a casualty not insurable
under the New York standard form of fire insurance policy and extended coverage
and not caused by the fault of the Lessee, its officers, members, employees,
agents, representatives or contractors, the premises, or other areas of the
World Trade Center, are damaged so as to render the premises untenantable or
inaccessible in whole or in part, then the following provisions shall apply. The
Port Authority shall have no obligation to repair, rebuild or restore the damage
caused by such casualty but the rental hereunder shall be abated as provided in
subdivision (i) of subparagraph (1) of paragraph (a) of this Section with the
same force and effect as if the damage resulted from a casualty insurable under
the New York standard form of fire insurance and extended coverage. Within
forty-five (45) days after the occurrence of the casualty, the Port Authority
will notify the Lessee (hereinafter in this paragraph (g) called the "Casualty
Notice") as to whether the Port Authority elects to repair, rebuild or restore
the damage caused by such casualty and if the Port Authority does so elect to
repair, rebuild or restore the Casualty Notice shall contain an estimate from
the Chief Engineer of the Port Authority setting forth his good faith estimate
of the time necessary to complete such repairs and rebuilding. The term
"Estimate" as used herein to have the same meaning as provided in paragraph (a)
of this Section. In the event that the Port Authority has elected to repair,
rebuild and restore the damage caused by such casualty and the Estimate provides
that the necessary repairs or rebuilding can be completed within three hundred
sixty-five (365) days after the occurrence of the damage, then the provisions of
subparagraph (1) of paragraph (a) of this Section 9 shall be applicable with the
same force and effect, except as hereinafter specifically provided otherwise, as
if the damage resulted from a casualty insurable under the New York standard
form of fire insurance policy and extended coverage endorsement. In the event
that the Port Authority has elected to repair, rebuild and restore the damage
caused by such casualty and the Estimate provides that the necessary repairs or
rebuilding cannot be completed within three hundred sixty-five (365) days after
the occurrence of the damage, then the provisions of subparagraph (2) of
paragraph (a) of this Section 9 shall be applicable with the same force and
effect, except as hereinafter specifically provided otherwise, as if the damage
resulted from a casualty insurable under the New York standard form of fire
insurance policy and extended coverage endorsement except that the Port
Authority's right to terminate the letting of the premises in its entirety as
set forth in said subparagraph (2) shall not be applicable. In the event the
Port Authority's Casualty Notice states that the Port Authority will not make
the repairs or rebuilding resulting from such casualty, then, and subject to the
provisions of paragraph (h) of this Section, the term of the letting as to the
premises shall be deemed terminated as of the date set forth in such Casualty
Notice. Any termination hereunder shall be with the same force and effect as
expiration.
(h) In the event the Port Authority elects not to restore,
repair and rebuild the damage caused by a casualty of the type described in the
first sentence of paragraph (g) above and the Lessee does not elect to terminate
the letting pursuant to said paragraph (g), then the Lessee by written notice
given to the Port Authority no later than sixty (60) days after receipt of the
Port Authority's Casualty Notice may elect at its cost and expense to repair and
restore the premises or the damaged portion thereof, provided the Lessee shall
only be permitted to so restore and rebuild if (x) the casualty damaged solely
the Lessee's premises and common areas on the floors of Lessee's premises or (y)
the casualty damaged areas at the World Trade Center in addition to the Lessee's
premises and all such damage off the premises is to be restored and rebuilt by
the Port Authority or other occupants at the World Trade Center. In the event
the Lessee elects to rebuild and restore pursuant to and in accordance with the
provisions of the preceding sentence then the Port Authority's Casualty Notice
shall be null and void, the Lessee shall promptly commence and diligently
prosecute to completion in accordance with the provisions of this Agreement
entitled "Construction by the
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Lessee" the necessary repair and rebuilding work for the premises and the common
areas on the floors of the Lessee's premises and the Lessee shall be entitled to
an abatement of basic rental and additional basic rental in accordance with the
provisions of the Section of this Agreement entitled "Abatement of Rental" from
the occurrence of the damage to the day preceding the date the Lessee commences
business operations in the damaged portion of the premises or such earlier date
as is set forth in the Estimate referred to in paragraph (g) above as the
reasonable time period necessary to complete such repairs and rebuilding, such
date in the Estimate to be extended by the number of days the Lessee is actually
delayed in performing such repair and rebuilding work due to causes and
conditions beyond the control of the Lessee.
Section 10. Indemnity
(a) Subject to the provisions of the Section of this Agreement
entitled "Insurance", the Lessee shall indemnify and hold harmless the Port
Authority, its Commissioners, officers, agents and employees from (and shall
reimburse the Port Authority for the Port Authority's reasonable out-of-pocket
costs or expenses including reasonable out-of-pocket legal expenses incurred in
connection with the defense of) all claims and demands of third persons
including but not limited to those for death, for bodily injuries, or for
property damages, arising out of any default of the Lessee in performing or
observing any term or provision of this Agreement, or out of the use or
occupancy of the premises by the Lessee or by others with its consent, or out of
any of the willful misconduct or negligent acts or omissions of the Lessee, its
officers, members, employees, agents, representatives, contractors, customers,
guests, invitees and other persons who are doing business with the Lessee or who
are at the premises with the Lessee's consent where such willful misconduct or
negligent acts or omissions are on the premises, or arising out of any willful
misconduct or negligent acts or omissions of the Lessee, its officers, members,
employees, agents, representatives and contractors where such willful misconduct
or negligent acts or omissions are elsewhere at the World Trade Center
(provided, that such negligent acts or omissions or willful misconduct of the
Lessee's employees, agents, representatives and contractors while elsewhere at
the World Trade Center occur while they are acting in such capacity) excepting
only claims and demands to the extent the same result from the willful
misconduct or negligent acts or omissions of the Port Authority, its
Commissioners, officers, employees, agents, representatives, contractors,
customers, guests or invitees where such willful misconduct or negligent acts or
omissions are on the premises or to the extent such willful misconduct or
negligent acts or omissions of the Port Authority, its Commissioners, officers,
employees, agents, representatives, and contractors occur elsewhere at the World
Trade Center.
(b) If so directed, the Lessee shall at its own expense defend
any suit based upon any such claim or demand (even if such suit, claim or demand
is groundless, false or fraudulent), and in handling such it shall not, without
obtaining express advance permission from the General Counsel of the Port
Authority, raise any defense involving in any way the jurisdiction of the
tribunal over the person of the Port Authority, the immunity of the Port
Authority, its Commissioners, officers, agents or employees, the governmental
nature of the Port Authority or the provision of any statutes respecting suits
against the Port Authority. In the event that an action to recover amounts based
on any such claim or demand is commenced against the Port Authority, the Port
Authority will notify the Lessee of such commencement, as soon as practicable
after the service on the Port Authority of the papers commencing such action,
and shall promptly forward copies of the papers commencing such action to the
Lessee. Nothing in this Section shall be deemed to prohibit the Lessee from
selecting its own counsel or utilizing counsel for the Lessee's insurer in
connection with the Lessee's defense of any suit based on any claim or demand
set forth in paragraph (a) of this
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Section or be deemed to prohibit the Lessee from settling any such claim or
demand so long as such settlement does not require any payment from the Port
Authority or from any other indemnified party.
Section 11. Ingress and Egress
(a) The Lessee solely for itself and for its Permitted
Occupants and its and their officers, members, employees, agents,
representatives, contractors, and such customers, guests and other business
invitees shall have the right of ingress and egress between the premises, the
Concourse Level of the World Trade Center and the streets outside the World
Trade Center twenty-four (24) hours per day, three hundred sixty-five (365) days
per year (except in case of emergency, casualty or causes or conditions beyond
the control of the Port Authority) subject to such security arrangements and
reasonable rules and regulations that may be imposed by the Port Authority from
time to time, provided, such rules and regulations are imposed in accordance
with the provisions of the Section of this Agreement entitled "Rules and
Regulations". In addition such right shall be exercised by means of such
corridors, lobbies, public areas and pedestrian or vehicular ways, and by means
of such elevators, escalators or other facilities for movement of persons or
property, to be used subject to all the provisions of this Agreement and in
common with others having rights of passage and movement within the World Trade
Center, as may from time to time be designated by the Port Authority for the use
of the public, subject to the following provisions hereof. The use of any such
facility, way or other area shall be subject to the rules and regulations of the
Port Authority which are now in effect or which may hereafter be promulgated
pursuant to the Section of this Agreement entitled "Rules and Regulations" for
the safe and efficient operation of the World Trade Center. The Port Authority
may, at any time, temporarily or permanently close, move, change or limit the
use of, or consent to or request the closing, moving, changing or limitation of
the use of, any such facility, way or any other area at or near the World Trade
Center presently or hereafter used as such, so long as a reasonably comparable
means of ingress and egress as provided above remains available to the Lessee
and the common areas are maintained in a manner consistent with the manner in
which they are maintained on the date of this Agreement. Nothing in the
immediately preceding sentence shall be construed to diminish the Port
Authority's obligations pursuant to the Section of this Agreement entitled
"Services and Utilities". The Lessee shall not do or permit anything to be done
which will interfere with the free access and passage of others to space
adjacent to the premises or in any areas, streets, ways, facilities and walks
near the premises. In addition thereto, the Lessee and its Permitted Occupants
and its and their officers, members, employees, agents, representatives,
contractors, customers, guests, members and others doing business with them,
subject to the rules and regulations of the Port Authority which are now in
effect or which may hereafter be promulgated pursuant to the Section of this
Agreement entitled "Rules and Regulations" for the safe and efficient operation
of the Facility, shall have the right to use the common areas of the Facility
designated by the Port Authority for use by the general public during such times
as the Port Authority permits the use of such common areas by the general public
and by all tenants of the World Trade Center. The Lessee understands that the
Port Authority shall have the right in its sole discretion to designate and
redesignate from time to time which common areas at the Facility may be used by
the general public and during which times they may be so used, provided, that
nothing herein shall be construed to alter the provisions of the first sentence
of this paragraph (a).
(b) Except when an emergency condition renders ingress and
egress unsafe or impracticable, and subject to the provisions of the Section of
this Agreement entitled "Force Majeure", the Lessee, its Permitted Occupants and
its and their officers, members, employees, agents, representatives,
contractors, and such customers, guests and other business invitees may
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exercise the right of ingress or egress provided in paragraph (a) of this
Section, twenty-four (24) hours per day, three hundred sixty-five (365) days per
year, provided, that the Lessee understands that reduced elevator service is
available outside of normal business hours as set forth in the Section of this
Agreement entitled "Services and Utilities" and that the Lessee and Permitted
Occupants, officers, members, employees, agents, representatives, contractors,
customers, guests and invitees may be subject to additional security checks
outside of normal business hours. The Lessee acknowledges that the Port
Authority and its contractors will be required to retain personnel to perform
work and to provide utilities and services in the event that the Lessee shall
use the premises outside of normal business hours, and for that reason imposes
the charges for the use of freight elevator service and heating, ventilation and
air-cooling outside of normal business hours set forth in the Section of this
Agreement entitled "Services and Utilities". Except as expressly provided in
paragraph (a) of the Section of this Agreement entitled "Services and Utilities"
with respect to certain freight elevator service and except as provided in the
last sentence of this paragraph (b), the Lessee hereby agrees to pay to the Port
Authority the charges for the use of heat, ventilation and air-cooling services
outside of normal business hours as set forth in the Section of this Agreement
entitled "Services and Utilities" and the charges established by the Port
Authority for freight elevator services outside of normal business hours, as
such charges may be increased from time to time, as well as charges for any
other services for which charges are in the future generally imposed by the Port
Authority at the World Trade Center for usage outside of normal business hours,
it being understood that the Lessee shall be required to pay such charges only
when the specific services or utilities for which such charges are imposed have
been requested or ordered by the Lessee, it being further understood that the
Port Authority shall have no obligation to provide such services or utilities to
the Lessee outside of normal business hours unless such are specifically
requested by the Lessee, provided, that except as set forth in paragraph (f) of
the Section of this Agreement entitled "Services and Utilities", the Port
Authority will not impose a charge for the use outside of normal business hours
of services which are on the date of this Agreement provided without charge
during such periods, but nothing herein shall be deemed to prohibit the Port
Authority from charging for new or additional services provided to the Lessee
during such periods or from time to time increasing the existing charges imposed
on existing services except to the extent specifically provided otherwise in the
Section of this Agreement entitled "Services and Utilities". The Port Authority
shall not impose a charge for the use of services outside of normal business
hours in such manner as to discriminate against the Lessee.
Section 12. Construction by the Lessee
(a) Except as provided in paragraphs (i) and (j) of this
Section, the Lessee shall not erect any structures, make any modifications,
alterations, additions, improvements, repairs or replacements or do any
construction work on or to the premises, or install any fixtures in or on the
premises (other than trade fixtures, removable without substantial injury to the
premises) without the prior consent of the Port Authority, which shall not be
arbitrarily and capriciously withheld, and the Port Authority shall not withhold
such Consent except for reasons of safety, health, operational utility, impact
on or compatibility of the proposed work on building systems, or other parts of
the World Trade Center, or unless the proposed work, in the opinion of the Port
Authority's Chief Engineer, acting in a non-arbitrary and non-capricious manner,
shall fail to comply with (i) all governmental laws, ordinances, enactments,
resolutions, rules and orders, including, without limitation, the enactments,
ordinances, resolutions, and regulations of the City of New York and its various
Departments, Boards and Bureaus that are applicable, or which would be
applicable if the Port Authority were a private corporation, or (ii) all
applicable requirements of the Port Authority's Tenant Construction Review
Manual (hereinafter called the "Tenant Design Guide") issued by the
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Port Authority Engineering Department dated March, 1984, revised March, 1990,
together with Amendment No. 1 dated October 1990 (as the same may be further
amended in a non-arbitrary and non-capricious manner prior to the date the
Lessee submits its plans and specifications) (the foregoing requirements in
clauses (i) and (ii) hereinafter in this Agreement called the "Standards").
Except as provided below in this paragraph (a), any construction, improvement,
alteration, modification, addition, repair or replacement made by or on behalf
of Lessee, whether prior to or during the term, shall become the property of the
Port Authority (subject to Lessee's right to use the same during the term of
this Agreement and, to remove, modify, alter, improve, repair or replace the
same in connection with construction and installation work performed in
accordance with this Section 12 or otherwise in connection with the performance
of Lessee's rights and obligations under this Agreement, provided, that any such
removal, modification, alteration, improvement, repair or replacement shall be
made in accordance with the applicable provisions of this Agreement, including
but not limited to this Section 12). Notwithstanding the foregoing, immediately
upon notice from the Port Authority given at any time during the letting, the
Lessee shall remove or change any of the same made or done by it without the
Port Authority's consent (but only to the extent such consent was required
hereunder), and in the case of any of the same made or done with the Port
Authority's consent, the Lessee if so required by notice from the Port
Authority, shall remove or change the same on or prior to the expiration of the
letting under this Agreement or within thirty (30) days after any earlier
termination thereof, provided, that the Lessee shall not be required to remove
or change any of the same made with the explicit consent of the Port Authority
except for any security vaults, cafeterias, kitchens and other particular items
which may be specified by the Port Authority in its approval of the Lessee's
construction applications and which are not typically installed in an ordinary
business office, which vaults, cafeterias, kitchens and other installations
shall be removed by the Lessee, upon the expiration of the letting under this
Agreement or within thirty (30) days after any earlier termination thereof, as
provided in the Section of this Agreement entitled "Surrender" and all
penetrations of the floor slabs, other than those for one set of inter-floor
stairs connecting Area A and Area A-1 (which set, in case there are more than
one, shall be the one which the Lessee has selected not to remove, as provided
below), shall be repaired and restored, in the case of large openings, or capped
or covered, in the case of electrical, plumbing and similar utility openings, as
set forth in this Section, provided, further, that the Lessee shall not be
required to remove or restore one set of inter-floor stairs connecting Area A
and Area A-1 and constructed by it pursuant to this Section as part of its
construction and installation work in Area A and Area A-1 (which set, in case
there are more than one, shall be selected by the Lessee in its sole
discretion). The Lessee shall not be required to remove the Bathroom Work, as
defined in paragraph (m) of this Section, performed by it or to restore the
restrooms shown in horizontal hatching on Exhibit A and Exhibit A-1 attached to
this Agreement to their condition prior to the date of this Agreement at the
expiration or termination of the letting under this Agreement. With respect to
any modifications, additions, alterations, improvements, installations or
construction made or done by the Port Authority at the request of the Lessee
either prior to or during the term of the letting, the Lessee shall have the
same obligations as provided above with respect to that made or done by the
Lessee with the Port Authority's consent, provided, that the Lessee shall not be
required to remove any modifications, additions, alterations, improvements,
installations or construction performed by the Port Authority pursuant to the
Section of this Agreement entitled "Port Authority Work". Any supplemental
heating, ventilation and air conditioning equipment, computer/data processing
equipment and raised flooring installed by or on behalf of the Lessee shall
remain the property of the Lessee, and upon the Expiration Date, the same shall
be removed from the premises by the Lessee and the Lessee shall repair and
restore in a good and workmanlike manner to a condition which is customary for
such removal in first class office buildings in the downtown area of Manhattan
any damage to the premises or the Building caused by such removal, provided,
that Lessee shall not be required to repair or restore any such damage to the
premises if the Port Authority has determined that it intends
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to demolish said space and if on the Expiration Date such determination has not
yet been made by the Port Authority then the Lessee shall have no obligation to
repair or restore such damage on the Expiration Date and if the Port Authority
determines subsequent to the Expiration Date not to demolish such space, the
Lessee will pay the Port Authority within thirty (30) days after request the
Port Authority's reasonable out-of-pocket costs to repair and restore such
damage. Nothing in this paragraph (a) shall be deemed to prohibit the Lessee
from removing, modifying, altering, improving, repairing or replacing the
Lessee's furniture, equipment, trade fixtures and other personal property at any
time during the term of the letting hereunder or upon the termination or
expiration thereof so long as the Lessee shall repair any damage to the premises
caused by such removal or other actions in accordance with the provisions of the
preceding sentence and the following sentence. In the event that the Lessee
removes electrical or plumbing fixtures, whether as part of its restoration work
or otherwise, the Lessee shall cap all altered electrical and plumbing lines
flush with walls, floors and ceilings.
(b) The Lessee has thoroughly examined and inspected the
premises and agrees to take each Area "as is" in the condition it is in on the
Commencement Date for that Area. Except as expressly provided otherwise herein,
the Lessee acknowledges that it has not relied upon any representation or
statement of the Port Authority or of its Commissioners, officers, agents or
employees as to the suitability of the premises for the operations permitted
thereon by this Agreement. Nothing in this paragraph (b) is intended, or shall
be deemed, to release the Port Authority from its obligations to provide the
services and utilities referred to the Sections of this Agreement entitled
"Responsibilities of the Lessee" and "Services and Utilities" and in Schedule D
attached hereto or from any of its other obligations expressly set forth in this
Agreement. Except as set forth in the Sections of this Agreement entitled "Port
Authority Work" and "Casualty", or specifically set forth elsewhere in this
Agreement, the Port Authority shall have no obligation hereunder for finishing
work or preparation of the premises for the Lessee's use. The Lessee agrees to
perform at its sole cost and expense, except as set forth in paragraph (k) of
this Section, or as expressly set forth elsewhere in this Agreement, all
construction and installation work that it may require to finish off and
decorate the premises. Without limiting the generality of the foregoing, the
Lessee acknowledges that facilities for heat, ventilation and air cooling have
heretofore been installed in the premises pursuant to a certain design
configuration and the Port Authority makes no representations that such heat,
ventilation and air cooling shall be adequate for the Lessee's needs, provided,
that nothing herein shall be construed to relieve the Port Authority from
providing heat, ventilation and air cooling in accordance with the
specifications set forth in Schedule D.
(c) Except as provided in paragraphs (i) and (j) of this
Section, with respect to all modifications, alterations, additions,
improvements, repairs, replacements or other construction or installation work
proposed to be performed in or on the premises (hereinafter referred to as the
"construction and installation work") the Lessee shall submit to the Port
Authority for its approval (which approval shall not be withheld if the proposed
work is in conformance with the Standards as determined by the Port Authority
acting in a non-arbitrary and non-capricious manner) a Tenant Alteration
(Construction) Application in the form (as such form may be amended from time to
time during the term of the letting under this Agreement for use generally by
office tenants at the Facility) annexed to this Agreement, hereby made a part
hereof and marked "Exhibit C") setting forth in detail and by appropriate plans
and specifications all of the construction and installation work the Lessee
proposes to perform and the manner of and estimated time periods for performing
such work. If the Port Authority arbitrarily and capriciously determines that
work proposed to be performed by the Lessee pursuant to this Section 12 is not
in conformance with the Standards and consequently withholds its approval with
respect to such proposed work (including, without limitation, any arbitrary and
capricious disapproval of the Lessee's plans and specifications) or if the Port
Authority
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arbitrarily and capriciously determines pursuant to paragraph (d)(1) of this
Section that work performed by the Lessee is not in accordance with the
Standards and consequently refuses to issue a temporary or permanent permit to
occupy the space where such work was performed or if the Port Authority
arbitrarily or capriciously determines pursuant to paragraph (d)(2) of this
Section that structural modifications or work involving connection of
facilities, equipment, lines, wires, pipes or ducts to the Building systems is
not in accordance with the Standards and consequently refuses to issue a consent
to use and/or occupy a particular portion of the premises, then nothing in this
Section 12 shall be construed to prevent the Lessee from exercising any rights
or seeking any remedies otherwise allowed to the Lessee at law or equity but
nothing herein shall be deemed to create any rights or remedies in the Lessee
that are otherwise not allowed at law or in equity. With respect to its initial
construction and installation work in the premises or any portion thereof the
Lessee may submit a separate construction application with respect to each Area
but each construction application shall cover all of the construction and
installation work proposed to be performed in such Area. In connection with the
performance by the Lessee of its initial work in the premises or any portion
thereof, there will be no charge imposed by the Port Authority for the filing of
such Construction Application, the review of the Lessee's plans and
specifications and inspection of the work except as specifically set forth in
said Construction Application and if the Lessee elects the Professional
Certification option set forth in Rider G of said Construction Application with
respect to any such initial work then any charges for said filing review and
inspection set forth in said Construction Application shall be deemed waived.
The Lessee shall not be required to perform any portion of its construction and
installation work during overtime periods or at overtime or premium pay rates
except for core drilling and other noisy or objectionable work which is
customarily required by landlords of first class office buildings containing no
less than one million (1,000,000) rentable square feet in the downtown area of
Manhattan to be performed during overtime periods. Except as provided in
paragraphs (i) and (j) of this Section, no construction and installation work
shall be commenced by the Lessee in any Area of the premises until the
construction application and plans and specifications covering the work to be
performed therein have been finally approved by the Port Authority, unless the
Lessee elects to submit its plans using the Professional Certification option
set forth in Rider G of such Construction Application, in which case such work
may only be commenced as set forth in subparagraph (2) of paragraph (d) of this
Section. In the event of any inconsistency between the provisions of this
Agreement and the construction application, the provisions of this Agreement
shall control. The Port Authority shall not charge any fees in connection with
the Lessee's performance of the construction and installation work, the Port
Authority's inspection of the construction and installation work or the Port
Authority's issuance of any temporary or permanent permit to occupy and/or use
the premises except for (i) the applicable fees set forth in the Construction
Application for review of the Construction Application and the plans and
specifications covering the construction and installation work, if the Lessee
does not elect the option for Professional Certification provided in this
Section, and (ii) the applicable fees and expenses charged to the contractor for
hoisting and trash removal as provided in the Construction Application and for
overtime freight elevator services as provided in the Section of this Agreement
entitled "Services and Utilities". The data to be supplied by the Lessee shall
describe in reasonable detail the fixtures, equipment and systems, if any, to be
installed by the Lessee or, if already installed, to be modified by the Lessee,
including those for the emission, handling and distribution of heat, air
conditioning, domestic hot and cold water and electrical and other systems and
shall show the proposed method of tying in the same to the utility lines or
connections provided by the Port Authority either on or off the premises. The
Lessee shall install in the premises all electrical distribution equipment
required, including but not limited to, service switches, current transformer
cabinets and, if the consumption and demand for electricity by the Lessee is to
be metered, meter pans, suitable for the installation by the Port Authority of
an electric meter or meters. Except as it may be specifically provided otherwise
elsewhere in this Section, the Lessee shall be responsible at its sole expense
for retaining all
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architectural, engineering and other technical consultants and services as may
be reasonably required by the Port Authority taking into account the nature of
the alteration, and for developing, completing and submitting detailed plans and
specifications for the work in form and detail sufficient to enable the Port
Authority to review the same in accordance with the provisions of this Section
12. The plans and specifications to be submitted by the Lessee to the Port
Authority shall bear the seal of a qualified architect or professional engineer
licensed in the State of New York, who shall be responsible for the
administration of the work, and shall be in sufficient detail for a contractor
to perform the work. The Lessee shall not engage any contractor unless and until
each such contractor shall have been approved by the Port Authority. The Lessee
shall include in each such contract or subcontract such provisions as are
required to be included therein pursuant to the provisions of the Construction
Application, provided, that such provisions do not expressly conflict with the
provisions of this Agreement. The Port Authority hereby approves the contractors
and the subcontractors selected by the Lessee and listed on the schedule annexed
to this Agreement, hereby made a part hereof and marked "Schedule C" (the
"Approved Contractor List") for the performance of the construction and
installation work required to prepare the premises for the Lessee's initial
occupancy (the "Lessee's initial construction and installation work"). In the
event that subsequent to the completion of the Lessee's initial construction and
installation work the Lessee is required or elects to perform any construction
or installation work in the premises, the Port Authority, within five (5)
business days of its receipt of a written request from the Lessee, shall advise
the Lessee whether any of the contractors or subcontractors on the Approved
Contractor List are not then approved for the performance of such work, and, if
so, which ones (it being understood that the Port Authority will not remove any
contractor or subcontractor from the List unless such contractor or
subcontractor fails to meet the requirements set forth in clauses (i), (ii) or
(iii) below). In the event the Port Authority fails to advise the Lessee as to
whether the status of those on the Approved Contractor List has changed and the
nature of such change within five (5) business days after receipt of the
Lessee's request therefor, all contractors and subcontractors on the Approved
Contractor List shall be deemed to remain approved. The Lessee shall not engage
any contractor or permit the use of any subcontractor not listed on the Approved
Contractor List, or which the Lessee has been advised has been removed from the
Approved Contractor List, unless and until each such contractor or subcontractor
shall have been approved by the Port Authority as hereinafter provided. In
considering the Lessee's requests for approval of contractors and subcontractors
not listed on the Approved Contractor List, the Port Authority shall within five
(5) business days after receiving the Lessee's written request therefor, advise
the Lessee of its approval or disapproval of the contractors and/or
subcontractors proposed by the Lessee and shall not disapprove of a contractor
or subcontractor unless such contractor or subcontractor (i) has been suspended,
debarred, or otherwise disqualified from bidding or submitting a proposal on
contracts by any governmental agency, (ii) has had a contract terminated by any
governmental agency for breach of contract or any cause directly or indirectly
related to an indictment or conviction, or (iii) unless the Port Authority,
acting in a non-arbitrary and non-capricious manner, shall determine that such
contractor or subcontractor will adversely affect or adversely interfere with
the Port Authority's operation of the World Trade Center, or will cause or
contribute to the causing of labor problems or labor disturbances thereat. In
the event the Port Authority fails to respond to the Lessee's request for
approval of a contractor or subcontractor not listed on the Approved Contractor
List within five (5) business days after receipt of the request therefor, such
contractor or subcontractor shall be deemed approved by the Port Authority.
(d) (1) Unless the Lessee shall elect the option for
professional certification described in subparagraph (2) of this paragraph (d),
the Port Authority will review each initial submission of a construction
application and plans and specifications and forward its comments thereon in
reasonable detail to the Lessee within twenty (20) days after the Port
Authority's receipt
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of the same and will review and comment on any resubmissions of corrected,
modified or amended plans and specifications within ten (10) days after the Port
Authority's receipt of the same. Upon completion of the construction and
installation work to be performed by the Lessee pursuant to the construction
applications and the final plans and specifications forming a part thereof
approved by the Port Authority, the Lessee shall deliver to the Port Authority a
certificate signed by an authorized officer of the Lessee and a certificate
signed by the Lessee's qualified architect or professional engineer, each
certifying that the construction and installation work (other than "punch list"
items not affecting health, safety, fire resistance or life safety systems) has
been performed substantially in accordance with the construction applications
and the final plans and specifications approved by the Port Authority and the
applicable provisions of this Section and in compliance with all applicable
governmental laws, ordinances, enactments, resolutions, rules, regulations and
orders, including all such governmental laws, ordinances, enactments,
resolutions, rules, regulations and orders that would be applicable if the Port
Authority were a private corporation, and that all life safety items have been
completed strictly in accordance with the same. Within five (5) business days
after receipt of such certificates, the Port Authority shall (i) inspect the
construction and installation work and (ii) if such work has been substantially
completed as certified by the Lessee and its architect or engineer, deliver to
the Lessee a temporary or permanent permit to occupy the premises or the
applicable portion thereof in which such work is being performed, subject to the
condition that all risks thereafter with respect to the construction and
installation work and any liability therefor for negligence or other reason
shall be borne by the Lessee or, if such work has not been so completed, deliver
to the Lessee a statement setting forth in reasonable detail its reasons for not
issuing such permit. If with respect to a Construction Application the Port
Authority has failed to review the same or any resubmission of corrected,
modified or amended plans and specifications with respect to such Construction
Application or has failed to inspect the work performed by the Lessee pursuant
to such Construction Application within the time periods set forth herein, then
the total number of calendar days following the last day of the applicable
review period for each submission or resubmission or inspection period with
respect to such Construction Application through and including the day on which
the Port Authority submits its approval or disapproval to the Lessee shall be
deemed a "Delay Period". Subject to the provisions of the last sentence of this
subparagraph (1), with respect to each Construction Application with respect to
any construction work to be performed by the Lessee in any portion of the
premises (including without limitation thereto any Additional Space added to the
premises) the Port Authority shall grant the Lessee a credit against its basic
rental and additional basic rental obligations next becoming due under this
Agreement equal to the sum of:
(X) for each of the first thirty (30) days in the
Delay Period, one hundred percent (100%) of the "daily rate of basic
rental per rentable square foot" and one hundred percent (100%) of the
"daily rate of additional basic rental per rentable square foot" (both
as hereinafter defined) multiplied by the number of rentable square
feet in the portion of the premises in which the Lessee is performing,
or proposes to perform, work pursuant to such Construction Application;
(Y) for each of the next thirty (30) days in the
Delay Period, one hundred fifty percent (150%) of the daily rate of
basic rental per rentable square foot and one hundred fifty percent
(150%) of the daily rate of additional basic rental per rentable square
foot multiplied by the number of rentable square feet in the portion of
the premises in which the Lessee is performing, or proposes to perform,
work pursuant to such Construction Application; and
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(Z) for each calendar day in the Delay Period
thereafter, two hundred percent (200%) of the daily rate of basic
rental per rentable square foot and two hundred percent (200%) of the
daily rate of additional basic rental per rentable square foot
multiplied by the number of rentable square feet in the portion of the
premises in which the Lessee is performing, or proposes to perform,
work pursuant to such Construction Application;
provided, that, in the case of any Construction Application for other than the
initial construction and installation work to be performed in the premises, such
sum shall be prorated by multiplying it by a factor (hereinafter called the
"Cost Factor" for that Construction Application) equal to the lesser of (I) one
(1), or (II) a fraction, the numerator of which shall be the initial
construction contract price for the work described in that Construction
Application, and the denominator of which shall be Three Million Two Hundred
Fifty Thousand Dollars and No Cents ($3,250,000.00). For the purposes of this
Section 19, the terms "daily rate of basic rental per rentable square foot" and
the "daily rate of additional basic rental per rentable square foot" shall be
separately determined for each Delay Period and for each portion thereof during
which the credit is calculated at a different daily rate and shall be determined
by dividing either (i) the annual basic rental or the additional basic rental
(as the case may be) in effect during each such period (provided, that if the
basic rental or additional basic rental changes during any such period then the
basic rental and additional basic rental shall be averaged based upon the number
of days each such rental was in effect during such period) which basic rental or
additional basic rental is applicable to the portion of the premises in which
such work has been performed, or (ii) if no annual basic rental or additional
basic rental is then payable with respect to the portion of the premises in
which such work has been performed, the annual basic rental or the additional
basic rental (as the case may be) first payable thereafter with respect to such
portion of the premises, by the total number of rentable square feet as to which
such annual basic rental or additional basic rental is payable and by dividing
each of the quotients derived therefrom by three hundred sixty-five (365).
Notwithstanding anything herein to the contrary, the Lessee shall not be
entitled to a credit against its rental obligations hereunder nor shall the Port
Authority be subject to any liability to the Lessee if the Port Authority fails
to review any submission or resubmission of the Lessee's plans and
specifications or fails to inspect or reinspect the work performed by the Lessee
within the time periods for review and inspection set forth herein unless each
such submission or resubmission of plans and specifications, or the certificates
submitted by the Lessee and its qualified architect or professional engineer
pursuant to this subparagraph (1) certifying substantial completion of the work,
as the case may be, is accompanied by a conspicuous written statement (or,
thereafter, such conspicuous written statement is given but the time periods for
such review and inspection by the Port Authority for purposes of this sentence
shall not commence until such conspicuous written statement is given to the Port
Authority) on the front of such submission or resubmission from the Lessee
setting forth (i) the number of days provided in this Section for the review by
the Port Authority of such submission or resubmission as the case may be, of the
Lessee's plans and specifications or the time period for inspection, as the case
may be and (ii) the specific rent credits the Lessee will be entitled to for the
Port Authority's failure to so review or inspect within the applicable time
periods.
(2) In the event the Lessee elects the option for Professional
Certification as described in Rider G of Exhibit C attached to this Agreement,
then, notwithstanding the provisions of subparagraph (1) above the following
provisions of this subparagraph (2) shall be applicable to the Port Authority's
review of the Lessee's construction applications and plans and specifications.
The Port Authority shall review each construction application and the complete
plans and specifications forming a part thereof for purposes of determining the
proposed construction and installation work's compliance with the Standards and
shall forward its findings in reasonable detail to the Lessee and its licensed
architect or engineer, within ten (10) business days after the Port
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Authority's receipt of the construction application and the complete plans and
specifications forming a part thereof. The Lessee may commence the construction
and installation work set forth in the construction application and plans and
specifications attached thereto on the tenth (10th) business day following the
Port Authority's receipt of the construction application and such plans and
specifications, whether or not the Lessee has received the Port Authority's
findings, provided, that prior to commencing its construction and installation
work in the premises the Lessee shall meet with the Assistant Director-Physical
Facilities of the Port Authority's World Trade Department or his designee,
provided, further, that the Lessee may not commence any structural modifications
to be performed by it in the premises or connect any facilities, equipment,
lines, wires, pipes or ducts installed or modified by the Lessee to the building
systems providing services or utilities to the premises prior to the Lessee's
receipt of the Port Authority's findings and, if, as part of its findings, the
Port Authority has requested revisions or changes to the structural
modifications or connections to such building systems proposed by the Lessee,
the Lessee may not commence the structural modifications or the connections to
building systems, or both, as the case may be, with respect to which the Port
Authority has requested revisions or changes until the Lessee has submitted
corrected plans and specifications for such structural modifications or such
connections, or both, as the case may be, and the Port Authority has informed
the Lessee that the Port Authority has no further comments on such corrected
plans and specifications. The Port Authority will make the Assistant
Director-Physical Facilities of its World Trade Department or his designee
available to meet with the Lessee at the World Trade Center during normal
business hours within three (3) business days after request by the Lessee and if
the Assistant Director-Physical Facilities or his designee is not made so
available the Lessee may commence its construction work to the extent the Lessee
would be able to do so in accordance with the provisions of this subparagraph
(2) but for the failure to so meet with the Assistant Director-Physical
Facilities or his designee. If revisions or changes to any structural
modifications or connections to building systems to be performed by the Lessee
in the premises are requested by the Port Authority in its findings on the
Lessee's initial submission or on any resubmission requested by the Port
Authority, the Port Authority will review and comment on any resubmissions of
corrected, modified, revised or amended plans and specifications relating to
such structural modifications or to such connections within five (5) days after
such resubmissions are received by the Port Authority. If the Lessee shall
revise any other aspects of its plans and specifications subsequent to its
initial submission it may submit such revised plans and specifications to the
Port Authority but the Port Authority shall have no obligation to review any
revised plans and specifications submitted by the Lessee other than corrected
plans and specifications, if any, relating to revisions and changes requested by
the Port Authority to structural modifications or connections to building
systems proposed by the Lessee. Subject to the provisions of the last sentence
of this subparagraph (2), in the event that the Lessee elects the option for
Professional Certification as described in said Rider G for work in any portion
of the premises (including without limitation thereto any Additional Space added
to the premises) which includes structural modifications or connections to
building systems and the number of days actually required by the Port Authority
for any review of plans and specifications relating to such structural
modifications or connections to building systems shall exceed fifteen (15)
business days, or shall exceed five (5) business days in case of resubmissions,
then, for each of such calendar days in excess of such fifteen (15) business day
or five (5) business day period, the Port Authority shall grant the Lessee a
credit against its basic rental and additional basic rental obligations next
becoming due under this Agreement equal to the sum of:
(Q) for each of the first thirty (30) such excess
days, one hundred percent (100%) of the daily rate of basic rental per
rentable square foot and one hundred percent (100%) of the daily rate
of additional basic rental per rentable square foot (as such terms are
defined in subparagraph (1) of this paragraph (d)) multiplied by the
number of rentable
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square feet in the portion of the premises in which the Lessee is
performing, or proposes to perform, work pursuant to such Construction
Application;
(R) for each of the next thirty (30) such excess
days, one hundred fifty percent (150%) of the daily rate of basic
rental per rentable square foot and one hundred fifty percent (150%) of
the daily rate of additional basic rental per rentable square foot
multiplied by the number of rentable square feet in the portion of the
premises in which the Lessee is performing, or proposes to perform,
work pursuant to such Construction Application; and
(S) for each such excess calendar day thereafter, two
hundred percent (200%) of the daily rate of basic rental per rentable
square foot and two hundred percent (200%) of the daily rate of
additional basic rental per rentable square foot multiplied by the
number of rentable square feet in the portion of the premises in which
the Lessee is performing, or proposes to perform, work pursuant to such
Construction Application;
provided, that, in the case of any Construction Application for other than the
initial construction and installation work to be performed in the premises, such
sum shall be prorated by multiplying it by the Cost Factor for the work
described in that Construction Application. If one or more of the Lessee's
construction applications are selected by the Port Authority for complete
construction document review as provided in paragraph 7 of Form G-2 of Rider G,
such review shall be in addition to the review set forth above in this
subparagraph (2), the Lessee may commence its construction and installation work
as set forth above in this subparagraph (2) without regard to the performance of
such complete construction document review and there shall be no rental credit
if the Port Authority shall fail to deliver the findings of its complete
construction document review of such construction application(s) within the time
period set forth in paragraph 12 of Form G-1 of said Rider G, provided, however,
that nothing herein shall be construed to deprive the Lessee of a rental credit
as specifically provided above in this subparagraph (2) for the Port Authority's
failure to review plans relating to structural modifications or connections to
building systems within the time period provided above. All work to be performed
by the Lessee pursuant to this subparagraph (2) shall be in accordance with the
construction application and final plans and specifications submitted by the
Lessee and certified by its architect as complying with all applicable codes and
Port Authority technical standards as provided in Rider G and shall be subject
to inspection by the Port Authority during the progress of the work and after
the completion thereof. Upon substantial completion of the construction and
installation work to be performed by the Lessee pursuant to the construction
application and final plans and specifications forming a part thereof submitted
by the Lessee pursuant to the provisions of this subparagraph (2), the Lessee
shall deliver to the Port Authority a final certificate signed by an authorized
officer of the Lessee and a final certificate signed by the Lessee's licensed
architect or engineer who originally prepared and sealed the Lessee's plans and
specifications, each certifying that the construction and installation work
(other than "punch list" items not affecting health, safety, fire resistance or
life safety systems) has been substantially performed in accordance with the
construction application and the plans and specifications attached thereto and
any revisions or modifications thereto submitted by the Lessee or its licensed
architect or engineer and the provisions of this Section and in compliance with
all applicable governmental laws, ordinances, enactments, resolutions, rules,
regulations and orders, including all such governmental laws, ordinances,
enactments, resolutions, rules, regulations and orders that would be applicable
if the Port Authority were a private corporation as well as the Port Authority
technical/design standards referred to in said Schedule G, and that all life
safety items have been completed strictly in accordance with the same. Within
five (5) business days after receipt of such certificates, the Port Authority
shall (i) inspect the construction and installation work and (ii) if the
structural modifications performed by the Lessee in the premises and the
connections of facilities,
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equipment, lines, wires, pipes or ducts installed or modified by the Lessee to
the building systems providing services or utilities to the premises were
performed substantially in accordance with the Lessee's plans and specifications
and any Port Authority findings delivered to the Lessee, deliver to the Lessee a
consent to use and/or occupy the premises, and if such structural modifications
or connections to such building systems were not performed substantially in
accordance with such findings the Port Authority shall deliver to the Lessee a
statement setting forth in reasonable detail its reasons for not certifying the
construction and installation work as being finally completed. If the total
number of days actually required by the Port Authority for inspection of the
Lessee's construction and installation work in any portion of the premises
(including without limitation thereto any Additional Space added to the
premises) and delivery of such consent to use and/or occupy or delivery of such
statement of non-certification, as the case may be, should be in excess of five
(5) business days, then for each calendar day in excess of such five (5)
business day period the Port Authority shall grant the Lessee a credit against
its basic rental and additional basic rental obligations next becoming due under
this Agreement equal to the sum of:
(X) for each of the first thirty (30) such excess
days, one hundred percent (100%) of the daily rate of basic rental per
rentable square foot and one hundred percent (100%) of the daily rate
of additional basic rental per rentable square foot (as such terms are
defined in subparagraph (1) of this paragraph (d)) multiplied by the
number of rentable square feet in the portion of the premises in which
the Lessee has performed work pursuant to such Construction
Application;
(Y) for each of the next thirty (30) such excess
days, one hundred fifty percent (150%) of the daily rate of basic
rental per rentable square foot and one hundred fifty percent (150%) of
the daily rate of additional basic rental per rentable square foot
multiplied by the number of rentable square feet in the portion of the
premises in which the Lessee has performed work pursuant to such
Construction Application; and
(Z) for each such excess calendar day thereafter, two
hundred percent (200%) of the daily rate of basic rental per rentable
square foot and two hundred percent (200%) of the daily rate of
additional basic rental per rentable square foot multiplied by the
number of rentable square feet in the portion of the premises in which
the Lessee has performed work pursuant to such Construction
Application;
provided, that, in the case of any Construction Application for other than the
initial construction and installation work to be performed in the premises, such
sum shall be prorated by multiplying it by the Cost Factor for the work
described in that Construction Application. Subject to the provisions of the
Sections of this Agreement entitled "Casualty" and "Insurance" the Lessee
understands that if the Lessee elects to use the said Professional Certification
option the Port Authority's inspection of the premises will be limited in scope
and that, in any case, all risks thereafter with respect to all of the
construction and installation work and any liability therefor for negligence or
other reason shall be borne by the Lessee. The Lessee shall redo or replace at
its own expense (to the extent necessary to comply with same) any work not done
in accordance with all applicable governmental laws, ordinances, enactments,
resolutions, rules, regulations and orders, including all such governmental
laws, ordinances, enactments, resolutions, rules, regulations and orders that
would be applicable if the Port Authority were a private corporation or not done
substantially in accordance with the Port Authority technical/design standards
referred to in said Rider G, and all life safety work not done strictly in
accordance with the same. The Lessee hereby agrees that the granting of the
rental credits pursuant to the provisions of this subparagraph (2) shall be the
sole remedy available to the Lessee based upon the Port Authority's failure to
review and to comment upon the Lessee's
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resubmission of the construction application(s) pursuant to the Professional
Certification Option or to inspect the Lessee's construction and installation
work performed thereunder and deliver the consent or the statement in the time
periods provided for herein, provided, that this sentence shall not be deemed to
limit or affect the second sentence of paragraph (c). Notwithstanding anything
herein to the contrary, the Lessee shall not be entitled to any credit against
its rental obligations pursuant to this subparagraph (2) nor shall the Port
Authority be subject to any liability to the Lessee if the Port Authority fails
to review any submission or resubmission of the Lessee's plans and
specifications or fails to inspect or reinspect the work performed by the Lessee
within the time periods for review and inspection set forth herein unless each
such submission or resubmission of plans and specifications or the certificates
submitted by the Lessee and its qualified architect or professional engineer
certifying the substantial completion of the applicable work, as the case may
be, is accompanied by a conspicuous written statement (or thereafter such
conspicuous written statement is given but the time periods for such review and
inspection by the Port Authority shall not commence until such conspicuous
written statement is given to the Port Authority) on the front of such
submission from the Lessee setting forth (i) the number of days provided in this
Section for the review by the Port Authority of such submission or resubmission,
as the case may be, of the Lessee's plans and specifications or the time period
for inspection and (ii) the specific rent credits the Lessee will be entitled to
for the Port Authority's failure to so review or inspect within the applicable
time periods.
(e) Subject to the provisions of this Agreement entitled
"Casualty" and "Insurance", the Lessee hereby assumes the risk of loss or damage
to all of the construction and installation work performed by it prior to the
completion of such work and the risk of loss or damage to all property of the
Port Authority arising out of or in connection with the performance of the
construction and installation work, excepting only loss and damage which result
from willful misconduct or negligent acts or omissions done by the Port
Authority, its Commissioners, officers, employees, agents, representatives and
contractors with respect to the construction and installation work, provided,
that for the purposes of this sentence such work shall be deemed to have been
completed notwithstanding the fact that minor and insubstantial work not
violating the Standards remains to be performed. Subject to the provisions of
the Section of this Agreement entitled "Casualty" and "Insurance", in the event
of such loss or damage, the Lessee shall forthwith repair and replace the
construction and installation work and the property of the Port Authority
without cost or expense to the Port Authority. The Lessee shall itself and shall
also use its best efforts to require its contractors, and if required by the
construction application, its qualified architect or professional engineer, to
indemnify and hold harmless the Port Authority, its Commissioners, officers,
employees, agents, representatives and contractors from and against all claims
and demands, just or unjust, of third persons (including officers, employees,
agents, representatives and contractors of the Port Authority) to the extent
arising or alleged to arise out of the performance of the construction and
installation work and for all reasonable out-of-pocket expenses, including
without limitation thereto reasonable legal expenses incurred by it and by them
in the defense, settlement or satisfaction thereof, including without limitation
thereto, claims and demands for death, for bodily injury or for property damage,
whether they arise from the acts or omissions of the Lessee or of any
contractors of the Lessee, or agents or employees of the Lessee, excepting only
claims and demands which result from willful misconduct or negligent acts or
omissions done by the Port Authority, its Commissioners, officers, employees,
agents, representatives and contractors with respect to the construction and
installation work and except to the extent that such claims or demands are
covered by workers compensation insurance maintained by the Port Authority,
provided, however, that the Lessee shall not be required to indemnify the Port
Authority where such indemnity would be precluded pursuant to the provisions of
Section 5-322.1 of the General Obligations Law of the State of New York. The
provisions of paragraph (b) of the Section of this Agreement entitled
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"Indemnity" shall be applicable to the foregoing indemnity. The Lessee shall,
and shall use best efforts to cause each of its contractors and subcontractors
to, obtain and maintain in force such insurance coverage, including without
limitation a contractual liability endorsement covering the obligations assumed
by the Lessee in the three (3) preceding sentences. Nothing in this paragraph
(e) is intended, or shall be deemed to increase, decrease or otherwise alter the
obligations of the Lessee or the Port Authority in the event that the premises
or the World Trade Center are damaged by a casualty, which obligations shall be
as provided in the Sections of this Agreement entitled "Casualty" and
"Insurance", except that the Port Authority shall not be required to repair or
rebuild any alterations or improvements forming a part of the Lessee's
construction and installation work damaged or destroyed by such casualty unless
the Lessee's construction and installation work has been completed substantially
prior to the occurrence of such casualty, provided, that for the purposes of
this sentence such work shall be deemed to have been completed in its entirety
notwithstanding the fact that minor and insubstantial work not involving the
Standards remains to be performed. The Lessee shall not use or permit the use of
any portion of the premises in which the Lessee's initial construction and
installation work is being performed for any purpose whatsoever until it has
received the permit to occupy referred to in subparagraph (1) of paragraph (d)
of this Section or the consent to use and/or occupy referred to in subparagraph
(2) of said paragraph (d), as the case may be, with respect to such portion of
the premises and the Lessee shall not use or permit the use of such portion of
the premises even if such certificate or such consent is received with respect
to a portion of such initial construction and installation work if any such
certificate or consent states that such portion of the premises cannot be used
until other specified portions of the construction and installation work are
completed. In the event that the Lessee shall perform construction and
installation work in a portion of the premises (including any Additional Space,
as defined in the Section of this Agreement entitled "Additional Space", which
shall become a part of the premises) subsequent to its commencement of
operations in the premises, the Lessee may continue to use portions of the
premises not affected by such construction and installation work subject to the
Port Authority's approval, which approval shall not be arbitrarily and
capriciously withheld by the Port Authority and which approval shall not be
required for the Lessee to continue to use any portion of the premises, if any,
located on a floor other than the floor on which such work is being performed.
Upon completion of all of the construction and installation work in accordance
with the construction applications and the final plans and specifications
forming a part thereof finally approved by the Port Authority, the Lessee shall
supply the Port Authority with (1) one (1) set of reproducible Mylar "as built"
drawings together with a standard three and one-half inch (3-1/2") micro-floppy
disk carrying a copy of such "as built" drawings in Auto-CAD version 14 format,
in the case of the Lessee's initial construction and installation work in the
premises, or in the computer aided design (CAD) system format reasonably
requested by the Port Authority, in the case of any subsequent work or, (2) at
the option of the Lessee, with twenty (20) sets of "as built" drawings.
(f) The Lessee shall be solely responsible for the plans and
specifications used by it, and for the adequacy and sufficiency of such plans
and specifications and all the improvements depicted thereon or covered thereby,
regardless of the consent thereto or approval thereof by the Port Authority or
the incorporation therein of any Port Authority requirements or recommendations.
The Port Authority shall have no obligations or liabilities in connection with
the performance of any construction and installation work performed by the
Lessee or on its behalf or the contracts for the performance thereof entered
into by the Lessee. The Lessee will use reasonable efforts to provide that any
warranties extended or available to the Lessee in connection with the aforesaid
work shall be for the benefit of the Port Authority as well as the Lessee.
(g) Subject to the provisions of paragraph (a) of this
Section, title to and property in all construction and installation work and to
all fixtures, equipment and systems installed pursuant
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to this Section (except for furniture, equipment, trade fixtures and other
personal property) and any replacements thereof shall vest in the Port Authority
upon the construction, installation or replacement thereof and the Lessee shall
execute such necessary documents confirming the same as the Port Authority may
reasonably require.
(h) Without limiting or affecting any other term or provision
of this Agreement including, but not limited to, the provisions of paragraph (c)
of the Section of this Agreement entitled "Maintenance and Repair", the Lessee
shall be solely responsible for the design, adequacy and operation of all
utility, mechanical, electrical, communications and other systems installed by
the Lessee in the premises. Nothing set forth in this paragraph (h) is intended
nor shall it be deemed to alter the obligations of the Lessee and the Port
Authority in the event that the premises are damaged by a casualty, which
obligations shall be as provided in the Sections of this Agreement entitled
"Casualty" and "Insurance".
(i) Notwithstanding the provisions of paragraph (a) of this
Section, and without otherwise limiting the generality thereof, the Lessee shall
not be required to obtain the Port Authority's consent (and the Lessee shall not
be required to submit a Construction Application) to perform decorating work,
such as painting, wall papering and floor covering, including carpeting, (so
long as the materials used meet Port Authority standards therefor), to perform
minor installations of, or alterations in or to the Lessee's computer and
communications cabling or to install or replace the furniture and furnishings
located in the interior portions of the premises, provided, that, the Lessee
shall deliver to the Port Authority within fifteen (15) days' following the
completion of the work a full and detailed statement describing the work it
performed pursuant to this paragraph, setting forth a description of each item
of furnishings (including without limitation thereto any furniture whose
composition, construction or use may affect health, safety, fire resistance or
life safety systems and excluding that furniture whose composition, construction
or use does not affect health, safety, fire resistance or life safety systems),
and the specifications of all cabling, paint and wallpaper in such detail as may
permit the Port Authority to make a determination as to whether the requirements
hereinafter set forth in this paragraph have been met, and accompanied by a
written certification subscribed by an authorized officer of the Lessee (or a
licensed architect or engineer on behalf of the Lessee, the Lessee to be bound
by such certification with the same force and effect as if such certification
had been executed by the Lessee) that: (1) no part of the work which the Lessee
performed affected the structure of the building, or affected, modified or
attached to the automatic sprinkler system, fire alarm system or other life
safety systems forming a part of the building in which the premises is located;
(2) no part of the work which the Lessee performed affected, modified or
attached to any portion of any utility or other system located at the World
Trade Center; (3) all of the work which the Lessee performed is in conformance
with all applicable governmental laws, rules and regulations, including all
governmental laws rules, and regulations which would be applicable if the World
Trade Center were under private ownership, and with the requirements and
criteria set forth in the World Trade Center-Tenant Design-Guide in effect at
the time of the commencement of the work (copies of which shall be available at
the Lessee's request from time to time at the offices of the Port Authority);
and (4) the work which the Lessee performed is of such a nature that if the
World Trade Center were under private ownership no aspect of the work would
require filing of plans with or other approval by the Buildings Department of
the City of New York, provided, further, that Lessee's failure to deliver such
certification with respect to any work shall not constitute a default under this
Agreement unless Lessee fails to deliver the same within fifteen (15) days after
request by the Port Authority. In the event that upon inspection of the work the
Port Authority shall determine that the requirements set forth in this paragraph
have not been met, the Lessee shall promptly perform such acts as shall be
necessary to meet such requirements, including without limitation thereto
redoing or replacing the work performed, all at the Lessee's sole cost and
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expense. In connection with review by the Port Authority of any work performed
by the Lessee pursuant to this paragraph the Lessee shall submit to the Port
Authority, at the Port Authority's request, such additional data, detail or
information as the Port Authority may reasonably determine to be necessary for
such review. Nothing contained herein shall affect the Lessee's obligation to
obtain the Port Authority's consent to the performance of any work other than as
to those items described in this first sentence of this paragraph (i).
(j) In the event the Lessee elects to perform any work other
than that described in the first sentence of paragraph (i) of this Section 12,
and the work which the Lessee proposes to perform involves only minor changes to
the non-structural interior portions of the premises, and the work which the
Lessee proposes to perform is of such a nature that if the World Trade Center
were under private ownership no aspect of the work would require filing of plans
with or other approval by the Buildings Department of the City of New York, the
Port Authority's written approval shall not be required prior to commencement of
such work by the Lessee and notwithstanding the provisions of paragraph (c) of
this Section, the Lessee need not submit a construction application covering
such work, provided, that no later than ten (10) days prior to the commencement
of the work (hereinafter in this paragraph (j) called the "Notice Period") the
Lessee shall deliver to the Port Authority the plans and specifications covering
the work it proposes to perform pursuant to this paragraph, or, in the absence
of such plans and specifications, a written description of the work, accompanied
by a written certification subscribed by an authorized officer of the Lessee or
the Lessee's licensed architect or engineer that: (1) no part of the work which
the Lessee proposes to perform affects the structure of the building, or
affects, modifies or attaches to the building's automatic sprinkler system, fire
alarm system or other building life safety systems; (2) no part of the work
which the Lessee proposes to perform affects, modifies or attaches to the point
of connection of the Lessee's utility or other systems to the Building's
systems; and (3) all of the work which the Lessee proposes to perform is in
conformance with the requirements and criteria set forth in the World Trade
Center-Tenant Design-Guide in effect at the time of the submission of the
Lessee's plans and specifications or written description, and, provided,
further, that such plans and specifications, or written description, are in such
detail as may permit the Port Authority to make a determination as to whether
the requirements set forth in this paragraph are met. In connection with the
review by the Port Authority of the Lessee's plans and specifications, or
description, covering the proposed work the Lessee shall submit to the Port
Authority, at the Port Authority's request, such additional data, detail or
information as the Port Authority may reasonably determine to be necessary for
such review. In the event the Port Authority at any time acting in a
non-arbitrary and non-capricious manner determines that the work the Lessee
proposes to perform, notwithstanding the provisions of this paragraph (j),
requires the prior written approval of the Port Authority, then and
notwithstanding the fact that the Port Authority did not respond to the Lessee
within the Notice Period with respect to the Lessee's plans and specifications
or written description, as the case may be, (i) if such work has not commenced
the Port Authority may direct the Lessee not to commence such work or (ii) if
such work has commenced, the Port Authority may direct the Lessee to cease
performance thereof until the Lessee in accordance with the provisions of
paragraph (c) of this Section, including the submission of a construction
application to the Port Authority, obtains the prior approval of the Port
Authority for such work (or until such dispute is resolved in the Lessee's
favor) and the Port Authority may direct the Lessee at its cost and expense to
redo and replace such work as has been so performed by the Lessee to the extent
such work is not in compliance with the Standards. In the event that the Port
Authority pursuant to the provisions of the preceding sentence acted arbitrarily
and capriciously in determining that the work the Lessee proposed to perform
required prior Port Authority approval and the Port Authority as a result of
such arbitrary and capricious determination directed the Lessee pursuant to the
preceding sentence either to not commence such proposed work or if such work had
commenced, directed the Lessee to cease
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performance thereof and/or to replace or redo any such work, then nothing herein
shall be construed to prevent the Lessee from exercising any rights or seeking
any remedies otherwise allowed to the Lessee at law or in equity but nothing
herein shall be deemed to create any rights or remedies in the Lessee that are
otherwise not allowed at law or in equity.
(k) The Port Authority, in connection with the Lessee's
performance of the initial construction and installation work in the premises
will pay to the Lessee an amount equal to the lesser of (1) the Lessee's cost
(as such term is defined in this Section) of such construction and installation
work performed in the premises or (2) the sum of Four Million Five Hundred Two
Thousand Three Hundred Thirty-five Dollars and No Cents ($4,502,335.00) (such
lesser amount being hereinafter referred to as the "Lessee's Finishing Work
Allowance"), provided, that prior to the Area A-1 Commencement Date the Lessee's
Finishing Work Allowance shall equal the lesser of the Lessee's cost of
performing the initial construction and installation work in Area A, or Two
Million Two Hundred Sixty-three Thousand Eight Hundred Forty Dollars and No
Cents ($2,263,840.00), or, in the event that the Area A-1 Commencement Date
shall occur prior to the Area A Commencement Date, then prior to the Area A
Commencement Date the Lessee's Finishing Work Allowance shall equal the lesser
of the Lessee's cost of performing the initial construction and installation
work in Area A-1, or Two Million Two Hundred Thirty-eight Thousand Four Hundred
Ninety-five Dollars and No Cents ($2,238,495.00). The Lessee's Finishing Work
Allowance will be paid to the Lessee as follows: On or about the 10th day of the
calendar month following the calendar month in which the Lessee's cost of
performing the initial construction and installation work in the premises
actually paid by the Lessee exceeds One Hundred Thousand Dollars and No Cents
($100,000.00) and on the 10th day of each calendar month thereafter during the
period of performance of such construction and installation work in which the
Lessee's cost of performing such construction and installation work not covered
by a certificate previously submitted by the Lessee exceeds One Hundred Thousand
Dollars and No Cents ($100,000.00), the Lessee shall deliver a certificate to
the Port Authority signed by a responsible officer of the Lessee which shall
certify as follows:
(V) the amount of all payments made by the Lessee
since the commencement of the initial construction and installation
work in the premises or since the delivery of the last such
certificate, as the case may be, which are properly includible in the
Lessee's cost of performing the initial construction and installation
work in the premises pursuant to the provisions of this Agreement, and
the Lessee's cost of the initial construction and installation work for
which such payments were made;
(W) the cumulative amount of all payments made by the
Lessee which are properly includible in the Lessee's cost of performing
the initial construction and installation work in the premises pursuant
to the provisions of this Agreement, from the commencement of such work
to the date of such certificate, and the Lessee's cost of the initial
construction and installation work, from the commencement of such work
to the date of such certificate;
(X) that the portion of the Lessee's initial
construction and installation work performed by the Lessee since the
last such certificate (or since the commencement of the initial
construction and installation work, in the case of the first such
certificate) and covered by such certificate has been performed in
accordance with the terms of this Agreement and the construction
application or applications covering that portion of the initial
construction and installation work; and
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(Y) that attached to such certificate are copies of
cancelled checks or other evidence of payment satisfactory to the Port
Authority for all amounts certified in such certificate as having been
by paid the Lessee since the last such certificate (or since the
commencement of the initial construction and installation work, in the
case of the first such certificate).
Within twenty (20) days after the delivery of each such officer's certificate by
the Lessee, the Port Authority shall pay to the Lessee the lesser of (1) the
amount certified by the Lessee in such certificate as paid, or (2) the amount
constituting the Lessee's cost of performing the initial construction and
installation work in the premises certified by the Lessee in such certificate as
performed in the period covered by such certificate, less ten percent (10%)
thereof, provided, that the total of such periodic payments made by the Port
Authority shall not exceed ninety (90%) of the Lessee's Finishing Work
Allowance, determined at the time of the making of each payment. Without in any
way limiting the effect of the proviso to the first sentence of this paragraph
(k), which limits the Lessee's Finishing Work Allowance in the event only one of
the Area A Commencement Date or the Area A-1 Commencement Date has occurred
prior to a payment of the Lessee's Finishing Work Allowance, once both such
Commencement Dates have occurred the entire Lessee's Finishing Work Allowance
may be used to reimburse the Lessee for payments of the Lessee's cost of the
initial construction and installation work performed in either Area of the
premises and in any proportion between such Areas as the Lessee in its sole
discretion elects, so long as such work is actually performed in the premises.
Upon completion of all of the initial construction and installation work in the
premises or an Area (in the event such work is completed in one Area prior to
its completion in the premises) in accordance with the construction application
or application covering such work and receipt by the Port Authority of the
certificates of the Lessee and the Lessee's qualified architect or professional
engineer described in subparagraph (1) of paragraph (d) of this Section, the
Lessee shall deliver to the Port Authority a full statement of the Lessee's cost
thereof, certified by a responsible officer of the Lessee. After examination and
approval of such certified statement and after such further examination of the
records and books of account of the Lessee relating to the initial construction
and installation work as the Port Authority may reasonably require, the Port
Authority will finally determine the "Lessee's cost" of the construction and
installation work performed in the premises or such Area, as the case may be,
and the amount of the Lessee's Finishing Work Allowance (at the time of such
determination), and if such final determination discloses that the amounts
previously paid by the Port Authority pursuant to this paragraph (k) exceed the
Lessee's Finishing Work Allowance, at that time, the Lessee shall repay to the
Port Authority the amount of such excess within ten (10) business days of its
receipt of notice from the Port Authority setting forth the amount thereof; if
the final determination discloses that a part of Lessee's Finishing Work
Allowance (determined at that time) remains unpaid, including without limitation
thereto any portion of the ten percent (10%) deductions made in connection with
the prior periodic payments of such Lessee's Finishing Work Allowance, the Port
Authority will pay the same to the Lessee within thirty (30) business days after
the date of the said final determination and in the event that the sum of such
periodic payments and all other payments of the Lessee's Finishing Work
Allowance is less than Four Million Five Hundred Two Thousand Three Hundred
Thirty-five Dollars and No Cents ($4,502,335.00) (or, in the event that the
letting of Area A-1 has been cancelled pursuant to the provisions of paragraph
(b) of the Section of this Agreement entitled "Term", Two Million Two Hundred
Sixty-three Thousand Eight Hundred Forty Dollars and No Cents ($2,263,840.00),
or, in the event that the letting of Area A has been cancelled pursuant to the
provisions of said paragraph (b), Two Million Two Hundred Thirty-eight Thousand
Four Hundred Ninety-five Dollars and No Cents ($2,238,495.00)), then the excess
of such dollar amount over such sum shall be credited by the Port Authority
against the Lessee's rental obligations first becoming due. For the purposes of
this paragraph, and to the extent permitted by sound accounting practice the
"Lessee's cost" as used
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herein shall mean the sum of (i) direct labor and material costs, (ii) contract
costs (including without limitation thereto the fees of the Lessee's
construction manager and additional costs permitted under the general conditions
of such construction contracts) for the purchase and installation of fixtures,
equipment and other finishing and decorating work, including without limitation
thereto the cost of purchasing and installing computer and communications
cabling in the premises and (iii) the cost of engineering, architectural,
planning and design services performed in connection with the construction and
installation work provided that the total of such items shall not exceed twenty
percent (20%) of the total of the Lessee's cost. For all purposes of this
Section, the Lessee's cost of any construction and installation work shall
include not only the portion of the cost of such work payable over the course of
its performance but also any portion of such cost retained by the Lessee or the
Port Authority, as the case may be, and payable subsequent to the completion of
all such work. In no event whatsoever shall the "Lessee's cost", as defined and
computed in subdivisions (i), (ii) and (iii) above, include any expenses,
outlays or charges whatsoever by or for the account of the Lessee for or in
connection with any equipment or fixtures, or the making of any finishing or
decorating work, unless such are actually and completely installed in and or
made to the premises, nor include the cost of any equipment, fixtures or
improvements which is secured by liens, mortgages, other encumbrances or
conditional bills of sale. Without limiting the generality of the foregoing, it
is specifically understood that payments to employees of the Lessee,
administrative, financing or other overhead charges of the Lessee in connection
with the work, whether or not allocable to such work by the Lessee's accounting
practices, and payments made to persons, firms or corporations which own any of
the outstanding shares of the capital stock and voting rights of the Lessee or
any of whose outstanding shares of capital stock and voting rights are owned by
the Lessee or any persons, firms or corporations any of whose outstanding shares
of capital stock or voting rights are owned by the same persons, firms or
corporations which own any of the outstanding shares of the capital stock and
voting rights of the Lessee shall not constitute items of the "Lessee's cost"
hereunder. For a period of three (3) years following completion of the
construction and installation work, the Lessee shall maintain at the Lessee's
address first set forth in this Agreement and in accordance with sound
accounting practice books and records of account pertaining to the Lessee's cost
of the construction and installation work performed in the premises. The Lessee
shall permit the Port Authority by its agents, employees and representatives
during normal business hours upon reasonable notice to examine and audit and
copy the records and other documentation of the Lessee which pertain to and will
substantiate the Lessee's cost. In lieu of such examination, at the option of
the Port Authority and at its request, the Lessee shall deliver copies of such
records to the Port Authority, without cost to the Port Authority.
(l) In any instance in this Section 12 where the provisions
hereof require submission of certificates from an authorized officer of the
Lessee and the Lessee's licensed architect or engineer then the Lessee, in lieu
of its own certificate, may deliver to the Port authority the certificate of the
Lessee's licensed architect or engineer together with a statement signed by the
Lessee stating that the statement of the Lessee's licensed architect or engineer
is being delivered by such licensed architect or engineer as an authorized
representative of the Lessee as well as in the capacity of licensed architect or
engineer, and that the Lessee agrees to be bound by such certificate with the
same force and effect as if the certificate had been executed by the Lessee.
(m) As part of its initial construction and installation work
in the premises, the Lessee will perform such work as shall be necessary to put
the existing public restrooms located in the premises and shown in horizontal
hatching on Exhibit A and Exhibit A-1 attached hereto in compliance with the
applicable provisions and implementing regulations of the ADA (as hereinafter
defined) and to put all such restrooms in good working condition, including
without limitation thereto the replacement of all cracked tiles, the acid
washing of grout, the replacement all broken
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fixtures and all ceiling tiles, and the repainting of all partitions, all such
work being hereinafter referred to as the "Bathroom Work". Upon the completion
of the Bathroom Work in each Area and the receipt by the Port Authority of the
certificates of the Lessee and the Lessee's qualified architect or engineer
described in subparagraph (1) of paragraph (d) of this Section with respect to
the Area in which such bathroom is located, the Port Authority shall pay to the
Lessee an amount equal to the product obtained by multiplying Twenty-seven
Thousand Five Hundred Dollars and No Cents ($27,500.00) by the number of
bathrooms in that Area in which the Bathroom Work has been performed by the
Lessee. The payments made to the Lessee pursuant to this paragraph (m) shall be
in addition to the payments of the Lessee's Finishing Work Allowance described
in paragraph (k) of this Section and to the payments made pursuant to the
provisions of paragraph (n) of this Section and no part of the cost of
performing the Bathroom Work in any Area shall form a part of the Lessee's cost
of its initial construction and installation work in the premises.
(n) The Lessee will perform in each Area of the premises, as
part of its initial construction and installation work, the demolition work to
be performed by the Port Authority in any Additional Space as set forth in
subparagraphs (1), (4) and (5) of paragraph (b) of the Section of this Agreement
entitled "Port Authority Work", shall also remove the existing sprinkler loop
and all floor mounted electrical boxes ("doghouses" or "aftersets") as part of
its demolition work in each Area, and shall also install appropriate
soundproofing material around the elevator machine room in Area A-1 shown in
white on Exhibit A-1 attached to this Agreement, and the cost of all such work
shall form a part of the Lessee's cost of its initial construction and
installation work in the premises. The Port Authority and the Lessee hereby
acknowledge that their respective contractors will be performing work in the
premises at the same time pursuant to this paragraph (n) and to paragraph (b) of
the Section of this Agreement entitled "Port Authority Work" and each agrees to
use reasonable efforts to have their respective contractors cooperate with each
other in the performance of their respective work in order to prevent delays in
the performance of such work and the occupancy of each Area of the premises.
There shall be no charge for connecting or activating the sprinkler loop to be
installed by the Port Authority pursuant to said Section.
Section 13. Signs
(a) Except with the prior consent of the Port Authority, the
Lessee shall not erect, maintain or display any signs, advertising, posters or
similar devices at or on the exterior parts of the premises or in the premises
so as to be visible through the windows, glass walls or exterior doors thereof.
Upon the expiration or termination of the letting, the Lessee shall remove,
obliterate or paint out, as the Port Authority may direct, any and all signs and
advertising, posters or similar devices, and in connection therewith shall
restore the area affected to the same condition as at the commencement of the
letting.
(b) The Lessee and its Permitted Occupants shall be entitled
in the aggregate (1) to the use of one (1) building standard line for each one
thousand (1,000) rentable square feet contained in the premises as set forth in
Schedule A (or Schedule A-1 as the case may be) attached hereto, such lines to
be located on the main building directory maintained in the lobby of the
Building, and (2) to the use of one (1) building standard line to be located on
the directory, if any, maintained in the sky lobby on the seventy-eighth (78th)
floor of the Building. The Port Authority will initially supply imprinted lines
for such purpose without charge. The Lessee shall pay the Port Authority for all
replacement imprinted lines at the Port Authority's standard rates for such
lines in effect from time to time. In the event the Port Authority installs a
computerized Building directory in the Lobby of the Building, it being
understood that the Port Authority shall have no obligation to
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do so, then the Lessee and its Permitted Occupants shall be entitled to listing
thereon without limitation and without cost but such listings shall be limited
to the employees, officers, directors, partners, members or other owners of the
Lessee and its Permitted Occupants located in the World Trade Center.
Section 14. Injury and Damage to Person or Property
Except as otherwise expressly provided in this Agreement and
subject to the provisions of the Section of this Agreement entitled "Casualty"
and "Insurance", the Port Authority shall not be liable to the Lessee or anyone
claiming through the Lessee for any bodily injury, death or property damage from
falling material, water, rain, hail, snow, gas, steam, dampness, explosion,
smoke, radiation and/or electricity, whether the same may leak into or fall,
issue or flow from any part of the premises or of the World Trade Center,
including without limitation thereto any utility, mechanical, electrical,
communication or other systems therein, or from any other place or quarter
except to the extent said damage, injury or death shall be due to the willful
misconduct or negligent acts or omissions of the Port Authority, its
Commissioners, officers, employees, agents, representatives and contractors or
the failure of the Port Authority to perform obligations expressly undertaken by
it as set forth in this Agreement. Notwithstanding the foregoing provisions of
this Section, the Lessee covenants and agrees that (a) any rights of the Lessee
to make a claim against the Port Authority as contemplated herein shall be
subject to the waiver of subrogation provisions set forth in the Section of this
Agreement entitled "Liability Insurance" and (b) in no event shall the Lessee be
entitled to make a claim for consequential, indirect or special damages pursuant
to this Section.
Section 15. Additional Rent and Charges
(a) If the Lessee shall fail or refuse to perform any of its
obligations under this Agreement (including, without limitation, any act or
negligent omission contrary to such obligation) after notice and the expiration
of any applicable cure period (provided that if no notice or grace period is
expressly set forth in this Agreement, thirty (30) days shall be deemed to be
the applicable notice and grace period except in case of emergency in which case
the Port Authority shall give such notice as is practicable) the Port Authority,
in addition to all other remedies available to it, shall have the right (but
shall not be obligated to) to perform any of the same after ten (10) days'
notice, except in the case of an emergency, in which event the Port Authority
shall give such oral notice as may be practicable and the Lessee shall pay the
Port Authority's cost thereof within thirty (30) days after demand therefor,
provided, however, that if the Lessee has actually commenced to perform the
obligations set forth in the Port Authority's notice prior to the date the Port
Authority enters the premises to perform the same and diligently continues to
completion the performance of such obligation (subject to causes and conditions
beyond the control of the Port Authority), the Port Authority shall not perform
the same and, provided, further, however, that if the Lessee has diligently
commenced to perform whatever may be required to fulfill its obligation under
this Agreement and such obligation is not capable of being cured with diligent
performance within said thirty (30) day grace period then such thirty (30) day
period shall be extended until the Lessee has fulfilled such obligation provided
the Lessee diligently continues such performance until such fulfillment subject
to causes and conditions beyond its control. If the Port Authority has paid any
sum or sums or has incurred any obligations, expense or cost which the Lessee
has expressly agreed to pay or reimburse the Port Authority for, or if the Port
Authority is required or elects to pay any sum or sums or incurs any
obligations, expense or cost pursuant to this paragraph (a) by reason of
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the failure, neglect or refusal of the Lessee to perform or fulfill any one or
more of the conditions, covenants or agreements contained in this Agreement,
including reasonable legal expenses or costs in connection with any actions or
proceeding brought by the Port Authority against the Lessee or by third parties
against the Port Authority, the Lessee agrees to pay the sum or sums so paid or
the expense and the Port Authority's cost so incurred, including all interest
costs, damages and penalties, and the same may be added to any installment of
rent thereafter due hereunder and each and every part of the same shall be and
become additional rent, recoverable by the Port Authority in the same manner and
with like remedies as if it were originally a part of the basic rental as set
forth in the Section of this Agreement entitled "Basic Rental".
(b) "Cost" or "costs" of the Port Authority in this Agreement
shall mean and include (1) actual in-house costs incurred by the Port Authority;
(2) cost of materials, supplies and equipment used (including rental thereof);
(3) payments to contractors; and (4) any other reasonable out-of-pocket costs.
Section 16. Rights of Entry Reserved
(a) The Port Authority, by its officers, employees, agents,
representatives and contractors shall have the right during normal business
hours, and, except in case of an emergency (in which event the Port Authority
shall give such oral notice as is practicable), and upon reasonable written
notice (which if given to a management level employee may be given orally other
than entry to perform work) to enter upon the premises for the purpose of
inspecting the same, for observing the performance by the Lessee of its
obligations under this Agreement, and for the doing of any act or thing which
the Port Authority may be obligated or have the right to do under this Agreement
or as a matter of law subject to the provisions of paragraph (b) below.
(b) Without limiting the generality of the foregoing, and
subject to the further provisions hereof, the Port Authority, by its officers,
employees, representatives and contractors, shall have the right, for its own
benefit, for the benefit of the Lessee or for the benefit of others at the World
Trade Center, to maintain initially existing and future utility, mechanical,
electrical, communication and other systems or portions thereof on the premises,
and to enter upon the premises at reasonable times and upon reasonable written
notice to make such repairs, alterations and replacements as may, in the opinion
of the Port Authority, be deemed necessary or advisable and, from time to time,
to construct or install over, in, under or through the premises new lines,
pipes, mains, wires, conduits, equipment and other such provided that it is not
practicable to use space in the building core or shaft to perform such work; and
to use the premises for access to other portions of the World Trade Center not
otherwise conveniently accessible; and to take all material into and upon the
premises that may be required for such repairs, alterations and replacements;
provided, however, that in connection with such repair, alteration, replacement,
construction or access or in connection with any other access, maintenance,
repair, alteration, replacement or construction the Port Authority may be
obligated to perform after the date the Lessee has completed its initial work in
the premises as set forth in the Section of this Agreement entitled "Certain
Obligations of the Port Authority", as set forth in the Section of this
Agreement entitled "Port Authority Work" or which may be expressly set forth
elsewhere in this Agreement, the Port Authority shall use reasonable efforts to
minimize interference to the extent practicable with the Lessee's use and
occupancy of the premises, including performance of such work other than during
normal business hours to the extent required under paragraph (l) of this
Section, and taking commercially reasonable steps to maintain a clean work site
and to minimize the area of the premises occupied by any such material brought
into the premises in connection with such repairs, alterations
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and replacements. Upon the completion of any work described in this paragraph
(b), the Port Authority will repair any damage to the premises caused by such
work and will restore the premises to substantially the condition existing prior
to the commencement of such work. Notwithstanding the provisions of paragraph
(g) of this Section and without otherwise limiting the generality thereof, in
the event that the rentable square footage of the premises shall be diminished
permanently by any new installation installed by the Port Authority pursuant to
this paragraph (b), rental shall be abated in accordance with the Section of
this Agreement entitled "Abatement of Rental", provided, that the Port Authority
shall use all commercially reasonable efforts to avoid diminishing the usable
area of the premises by more than an immaterial amount and in no event shall
diminish the area of the premises by more than one hundred (100) rentable square
feet.
(c) In the event that any property of the Lessee shall
obstruct the access of the Port Authority, its employees, agents or contractors
to any of the existing or future utility, mechanical, electrical, communication
and other systems (and there is no other practicable means of access thereto)
and thus shall interfere with the inspection, maintenance, repair or
modification of any such system, the Lessee shall move such property as
requested by the Port Authority (provided, that the Port Authority will
reimburse the Lessee for any reasonable out of pocket costs to remove and
replace such property), in order that access may be had to the system or part
thereof for its inspection, maintenance, repair or modification.
(d) Except as specifically provided elsewhere in this
Agreement, nothing in this Section shall or shall be construed to impose upon
the Port Authority any obligations to construct or maintain or to make repairs,
replacements, alterations or additions which the Port Authority has the right to
make, whether pursuant to this Section or otherwise, or shall create any
liability for any failure so to do. From and after the commencement date of the
letting of any Area hereunder and prior to the expiration or termination of the
letting under this Agreement or to any re-entry of the Port Authority (other
than pursuant to this Section) the Lessee is and shall be in exclusive control
and possession of such Area of the premises and, subject to the sections of this
Agreement entitled "Casualty" and "Insurance", the Port Authority shall not in
any event be liable to the Lessee or anyone claiming through the Lessee for any
injury or damage to any property or to any person happening on or in the
premises nor for any injury or damage to the premises nor to any property
located therein or thereon of the Lessee or of any other person claiming through
the Lessee (other than to the extent occasioned by the willful misconduct or
negligent acts or omissions of the Port Authority, its Commissioners, officers,
agents, employees, representatives and contractors). Without limiting the
generality of the foregoing or of any express provision of this Agreement,
nothing in this paragraph (d) or in this Agreement is intended to create any
third-party beneficiary of this Agreement or to create any obligation of the
Port Authority to the Lessee's officers, members, employees, agents,
representatives, contractors, customers, guests or invitees or to any other
person or organization not a party to this Agreement.
(e) At any time and from time to time during normal business
hours upon reasonable prior notice within the six (6) months next preceding the
expiration of the letting, as it may have been extended from time to time,
whether pursuant to this Agreement or otherwise, the Port Authority, by its
agents and employees, whether or not accompanied by prospective lessees,
occupiers or users of the premises, shall have the right, at all reasonable
times during normal business hours and upon reasonable oral notice to a
management level employee, to enter thereon for the purpose of exhibiting and
viewing all parts of the same.
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(f) In exercising the rights set forth in this Section 16, the
Port Authority, its Commissioners, employees, agents or contractors shall at all
times conduct themselves in a manner consistent with customary practices in
first class office buildings.
(g) The exercise of any or all of the foregoing rights by the
Port Authority or others set forth in this Section in accordance with the
provisions thereof shall not be or be construed to be an eviction of the Lessee
nor be made the grounds for any abatement of rental or any claim or demand for
damages, consequential or otherwise, except as expressly provided in this
Section or expressly provide elsewhere in this Agreement.
(h) The Lessee may designate certain areas of the premises
which require special security arrangements, and if, in the exercise of its
rights of entry set forth in this Section, the Port Authority requires entry to
any such designated area, other than in case of an emergency, the Port Authority
will only enter such designated area when accompanied by an authorized
representative of the Lessee, provided, the Lessee will designate such
authorized representative to the Port Authority on receipt of the Port
Authority's oral or other notice referred in this Section and shall make such
authorized representative available to the Port Authority at the time of entry
specified in the notice provided such time and notice are reasonable except in
case of emergency.
(i) Any work performed or installations made by the Port
Authority pursuant to this Section 16 shall be made with reasonable diligence in
a good and workmanlike manner in accordance with customary construction
practices in first class office buildings in the downtown area of Manhattan and
in compliance with the substantive requirements of the life safety provisions of
the New York City Building Code to the extent set forth in paragraph (a) of the
Section of this Agreement entitled "Certain Obligations of the Port Authority".
The Port Authority shall (i) promptly repair any damage to the premises or the
Lessee's property caused by such work or installations or by any of the parties
performing the same, (ii) take reasonable care during performance of the work to
safeguard the affected portion of the premises and the property of the Lessee;
and (iii) upon completion of such activity, restore the portion of the premises
that is the subject of such activity to substantially the condition existing
before such activity.
(j) Any pipes, ducts or conduits installed in or through the
premises pursuant to this Section 16 shall either be concealed behind, beneath
or within partitioning, columns, ceilings or floors located in the premises, or
completely furred at points immediately adjacent to partitioning columns or
ceilings located in the premises, provided that the installation of such pipes,
ducts or conduits, when completed, shall not adversely affect the appearance of
the premises or adversely affect the Lessee's installations or wiring. In no
event shall the Port Authority install any wet pipes over the Lessee's
computer/data processing or telephone equipment areas (meaning in the ceiling
under the slab of the floor over said computer/data processing or telephone
equipment areas) unless such location is the only practicable location therefor
and the Port Authority takes all necessary steps (in accordance with customary
construction practice) to protect such areas.
(k) Except in the event of an emergency or if necessary in
order to comply with any law, the Port Authority shall not enter the premises
unless a representative of the Lessee is present, which representative the
Lessee agrees to have present at the premises upon reasonable notice from the
Port Authority.
(l) The Port Authority shall use reasonable efforts to
minimize interference with the Lessee's access and use and occupancy of the
premises in making any repairs, alterations, additions or improvements;
provided, however, that the Port Authority shall have no obligation to
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employ contractors or labor at so-called overtime or other premium pay rates or
to incur any other overtime costs or expenses whatsoever, except that the Port
Authority, at its expense, 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) results in a
denial of access to the premises, (ii) threatens the health or safety of
occupants of the premises, or (iii) unreasonably interferes with Lessee's
ability to conduct its business in the premises. In all other cases, at the
Lessee's request, the Port Authority 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,
provided the Lessee shall pay to the Port Authority, as additional rent, within
thirty (30) days after demand, an amount equal to the difference between (i) the
overtime or other premium pay rates, including all fringe benefits and other
elements of such pay rates, and (ii) the regular pay rates for such labor,
including all fringe benefits and other elements of such pay rates.
Section 17. Condemnation
(a) In any action or proceeding instituted by any governmental
or other authorized agency or agencies for the taking for a public use of any
interest in all or any part of the premises, or in case of any deed, lease or
other conveyance in lieu thereof (all of which are in this Section referred to
as "taking or conveyance") the Lessee shall not be entitled to assert any claim
to any compensation, award or part thereof made or to be made therein or
therefor or any claim to any consideration or rental or any part thereof paid
therefor, or to institute any action or proceeding or to assert any claim
against such agency or agencies or against the Port Authority for or on account
of any such taking or conveyance, (i) except for a possible claim to an award
for moving expenses or for trade fixtures owned and installed by the Lessee or
for other improvements or personal property owned by the Lessee, and any other
separate claim which the Lessee may be entitled to make provided that such
claims are independent of and in addition to any claims of the Port Authority
and provided further that the Port Authority's award is not thereby reduced or
otherwise adversely affected, and (ii) except for a possible claim for the
unexpired term of the estate vested by this Agreement in the Lessee, it being
understood and agreed between the Port Authority and the Lessee that except for
such claims the Port Authority shall be entitled to all the compensation or
awards made or to be made or paid and all such consideration or rentals, free of
any claim or right of the Lessee. No taking by or delivery to any governmental
authority under this paragraph (a) shall be or be construed to be an eviction of
the Lessee or be the basis for any claim by the Lessee for damages,
consequential or otherwise. It is expressly understood that nothing in this
paragraph shall be deemed a recognition by the Port Authority of the validity of
the claims which the Lessee is entitled to make hereunder.
(b) In the event of a taking or conveyance of the entire
premises by any governmental or other authorized agency or agencies, then the
letting under this Agreement shall, as of the date possession is taken from the
Port Authority by such agency or agencies, cease and terminate in the same
manner and with the same effect as if the term of the letting had on that date
expired.
(c) In the event of a temporary or permanent taking or
conveyance by any governmental or other authorized agency or agencies of a part
of the premises then the letting as to such part only shall, as of the date
possession thereof is taken from the Port Authority by such agency or agencies,
cease and terminate, and the basic rental and additional basic rental thereafter
to be paid by the Lessee to the Port Authority shall be abated as provided in
Section 18 of this Agreement
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entitled "Abatement of Rental" from and after the date of such taking or
conveyance, provided, however, that the Lessee may elect to terminate this
Agreement if (1) the Lessee no longer has a reasonable means of access to the
remaining portion of the premises, or (2) the portion of the premises taken
constitutes more than twenty thousand (20,000) rentable square feet and a
responsible officer of the Lessee certifies that in the good faith judgment of
the Lessee, the Lessee cannot reasonably operate its business in the remaining
portion of the premises in substantially the same manner as such business was
operated prior to such taking. The Lessee shall give notice to the Port
Authority of any election to terminate this Agreement within forty-five (45)
days after such taking or conveyance, such termination to be effective on the
date specified in the Lessee's notice but not later than one hundred twenty
(120) days following the date of the Lessee's notice. Upon the date specified in
the Lessee's notice, the term of this Agreement shall terminate with the same
force and effect as if the effective date of termination were the original date
of expiration hereof. Any notice of termination given by the Lessee pursuant to
the provisions of this paragraph (c) shall not be effective if at the time of
the giving of such notice or on the intended effective date thereof the Lessee
is in default (after the giving of any required notice and the expiration of any
applicable cure period) in the payment to the Port Authority of any monetary
amount under this Agreement. If any basic rental or additional basic rental is
due to the Port Authority for any portion of the term prior to the effective
date of termination or if any basic rental or additional basic rental has been
paid by the Lessee for any portion of the term subsequent to the effective date
of termination, the same shall be payable by the Port Authority or by the Lessee
to the other, as the case may be, within twenty (20) days after demand therefor.
(d) In the event of a taking that does not result in the
termination of this Agreement, the Port Authority shall, at its sole cost and
expense and regardless of whether any award(s) shall be sufficient for the
purposes, proceed with due diligence, except for causes or conditions beyond its
control, to repair, alter and restore the portion of the building in which the
premises is located and the remaining part of the premises (including, without
limitation, all leasehold improvements), to the extent feasible, to their
condition immediately prior to the taking so as to constitute the remaining
portion of the building and the remaining part of the premises complete and
tenantable.
(e) As used in this Section 17, the terms "governmental or
other authorized agency or agencies" or "governmental authority" shall not be
deemed to include the Port Authority or any governmental entity (other than the
condemning entity) that has prior to such condemnation succeeded to the interest
of the Port Authority as landlord under this Agreement.
Section 18. Abatement of Rental
(a) In the event that the Lessee shall at any time become
entitled to an abatement of rent, the basic rental set forth in the Section of
this Agreement entitled "Basic Rental" and the additional basic rental set forth
in Schedule A (or Schedule A-1 as the case may be) attached to this Agreement
shall be abated for the period the abatement is in effect by the same percentage
that the area of the part of the premises the use of which is denied to the
Lessee, or as to which the Lessee is unable to use and with respect to which is
entitled to an abatement as set forth in paragraph (c) of the Section of this
Agreement entitled "Force Majeure", is of the total area of the premises.
(b) For the purposes of this Section, the number of square
feet contained in the premises or parts thereof shall be computed as follows: By
measuring from the inside surface of outer building walls to the surface of the
public area side, or of the non-exclusive area side, as the
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case may require, of all partitions separating the space measured from adjoining
areas designated for the use of the public or for use by the Lessee in common
with others, and to the center of partitions separating the space measured from
adjoining space exclusively used by others; no deduction will be made for
columns, partitions, pilasters or projections necessary to the building and
contained within the space measured. Permanent partitions enclosing elevator
shafts, stairs, fire-towers, vents, pipe-shafts, meter-closets, flues, stacks
and any vertical shafts have the same relation to the space measured as do outer
building walls.
(c) In the event that during the term of the letting under
this Agreement the Lessee shall be partially evicted and shall remain in
possession of the premises or the balance thereof, for the conduct of its
business the Lessee agrees that notwithstanding that it might have the right to
suspend payment of the rent in the absence of this provision, it agrees to pay
and will pay at the times and in the manner herein provided, the full rent
reserved less only an abatement thereof computed in accordance with the above.
Section 19. Assignment and Sublease
(a) Except as specifically set forth herein, the Lessee
expressly covenants that it shall not assign, mortgage or encumber this
agreement nor sublet, or suffer or permit the premises or any part thereof to be
used by others, without the prior written consent of the Port Authority in each
instance. A merger or consolidation shall not be deemed a violation of this
paragraph (a) provided the conditions set forth in paragraph (a)(5) of the
Section of this Agreement entitled "Termination" are met. The term "Permitted
Occupant" shall mean any entity described in paragraphs (b) or (c) of this
Section 19 which has become a subtenant of whatever tier of all or a portion of
the premises or to which the Lease has been assigned pursuant to and in
accordance with all the terms and conditions of paragraphs (b) and (c)
respectively of this Section 19 and shall also include any desk space user who
meets the requirements of paragraph (b) of this Section 19.
(b) Notwithstanding the provisions of paragraph (a) of this
Section, the Lessee shall have the right to assign this Agreement and the
letting hereunder in its entirety to, or to sublet to or to permit the use of
desk space by:
(1) an individual, corporation, partnership, limited
partnership, limited liability partnership, limited liability company
or other business entity which controls the Lessee,
(2) a corporation, partnership, limited partnership, limited
liability partnership, limited liability company or other business
entity which is controlled by the Lessee, or
(3) a corporation, partnership, limited partnership, limited
liability partnership, limited liability company or other business
entity which is controlled by the same individual, corporation,
partnership, limited partnership, limited liability partnership,
limited liability company or other business entity which controls the
Lessee;
such assignment, subletting or desk space use to continue only as long as the
said person or corporation continues in one of the above described relationships
to the Lessee, provided, that any such Assignee, Sublessee or desk space user of
the premises shall use the premises solely for the purposes set forth in the
Section of this Agreement entitled "Rights of User by the Lessee" and for
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no other purpose whatsoever, provided, however, that such assignment shall not
be effective until an agreement in the form attached hereto as Exhibit X has
been executed by the Port Authority, the Lessee and the proposed assignee and
such subleasing shall not be effective until an agreement in the form attached
hereto as Exhibit Y has been executed by the Port Authority, the Lessee and the
proposed subtenant. In the event that the Lessee shall notify the Port Authority
that it proposes to sublet or assign this Agreement to a proposed subtenant or
proposed assignee, as the case may be, meeting the requirements of subparagraph
(1), (2) or (3) of this paragraph (b) and the agreement of sublease or
assignment, as the case may be, between the Lessee and the proposed subtenant or
assignee shall comply with this Agreement, the Port Authority will prepare and
deliver to the Lessee an agreement in the form attached hereto as Exhibit X or
Exhibit Y, as the case may be, on or before the later of (i) the thirtieth
(30th) day (or the twentieth (20th) day if such assignment is in connection with
the purchase of all or substantially all of the Lessee's assets as permitted by
this paragraph (b)) following the later of the date of the delivery of the
Lessee's request to sublet or assign or the delivery to the Port Authority of
the Lessee's proposed sublease or assignment agreement, or (ii) the tenth (10th)
day following the delivery to the Port Authority of any additional information
reasonably requested by the Port Authority within such thirty (30) day period
with respect to the relationship between the Lessee and such proposed subtenant
or assignee as to the Lease, and upon delivery to the Port Authority of three
(3) copies of such agreement executed on behalf of the Lessee and the proposed
subtenant or assignee, the Port Authority will execute such agreement and
deliver two (2) copies thereof to the Lessee. Notwithstanding the provisions of
paragraph (a) of this Section, the Lessee shall have the right to assign this
Agreement to a business entity or corporation into which the Lessee is merged or
consolidated, if such assignment is requested by such business entity or
corporation in connection with such merger or consolidation, but the Port
Authority will not require an assignment of this Agreement to such business
entity or corporation, it being understood that, subject to the law of the
jurisdiction under which such business entity or corporation is organized and
without in any way limiting the applicability of the express provisions of this
Agreement, including without limitation thereto subparagraph (5) of paragraph
(a) of the Section of this Agreement entitled "Termination", such business
entity or corporation shall as a result of such merger or consolidation be the
Lessee under this Agreement with the same force and effect as if such business
entity or corporation had been the original signatory to this Agreement. The
Lessee shall also have the right to assign this Agreement to a person, business
entity or corporation which acquires all or substantially all of the assets of
the Lessee, provided the conditions set forth in said subparagraph (5) are met,
treating the Lessee prior to the sale as the acquired corporation and the
purchaser of all or substantially all of the Lessee's assets subsequent to such
sale as the resulting corporation. Neither such assignment shall be effective
until the Lessee, the proposed assignee and the Port Authority have executed an
agreement in the form attached hereto as Exhibit X, in the manner provided in
this paragraph (b). The Lessee may also permit the use of desk space in the
premises subject to all the terms and conditions of this Section by an
individual, corporation, partnership, limited partnership, limited liability
partnership, limited liability company or other business entity having an
ongoing nexus to the Lessee's business and such desk space use being in
conjunction with such business relationship; such use to continue only as long
as the said individual, corporation, partnership, limited partnership, limited
liability partnership or limited liability company continues in such business
relationship with the Lessee. The Lessee shall not be required to obtain the
consent of the Port Authority prior to permitting the use of desk space in the
premises as permitted by this paragraph (b) but upon request by the Port
Authority made no more than twice each year, the Lessee shall notify the Port
Authority of the name of each such desk space user, its relationship to the
Lessee and such information data and documents as would reasonably substantiate
the business relationship of the desk space user to the Lessee. The Lessee, and
the assignee, or the subtenant, as the case may be, shall furnish to the Port
Authority such information, data and
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documents as may be requested by the Port Authority from time to time but not
more than twice annually to substantiate the relationship between the Lessee and
such assignee or subtenant.
(c) Notwithstanding the provisions of paragraph (a) of this
Section, and in addition to the rights contained in paragraph (b) of this
Section, the Lessee may, after the commencement of the letting, sublet a part or
all of the premises (but under no circumstances shall there be more than four
(4) subtenants on any floor in the premises at any one time pursuant to the
provisions of this paragraph (c)), provided, that all of the following
conditions precedent and requirements have been met or satisfied: (1) Each
proposed subtenant shall, in the opinion of the Port Authority, be eligible,
suitable and qualified as a World Trade Center tenant, so long as the Statutes
remain in effect with respect to the Building, and in exercising its judgment
with respect to a proposed subtenant the Port Authority shall on the basis of
its functions, activities and services in world trade and commerce not apply
criteria which are different from or more stringent than those criteria which it
has applied or it is then applying with respect to other lessees of space in the
World Trade Center; (2) The Lessee, or any broker retained by the Lessee, shall
not publicly advertise the availability of the subleased space at a rental or
other consideration which is less than the then current rental (including
additional basic rental payable pursuant to the provisions of Schedule A or
Schedule A-1, as the case may be) for comparable space and for a comparable term
on the date of such subletting, but nothing in this clause shall be deemed to
prohibit the Lessee from subletting such space at less than such current rate;
(3) If the rental and any other consideration payable by the subtenant to the
Lessee for or in connection with its use or occupancy of the subleased space
shall be in excess of the rental rate provided in this Agreement for the portion
of the premises proposed to be subleased, the Lessee shall so notify the Port
Authority and the Lessee shall pay fifty percent (50%) of such excess to the
Port Authority as received, subject to the prior deduction of the subleasing
expenses referred to in paragraph (e) of this Section; (4) Unless the Port
Authority does not have comparable space available for leasing for a comparable
term, the proposed subtenant has not been in active discussions with the Port
Authority toward the proposed subtenant's occupancy of space in the World Trade
Center in the ninety (90) day period preceding the Lessee's request to sublet
and is not a current occupant of the World Trade Center who has been in active
discussions with the Port Authority toward the proposed subtenant's current or
future occupancy of space in the World Trade Center in the ninety (90) day
period preceding the Lessee's request to sublet; and (5) the Lessee, the
subtenant and the Port Authority have executed the form of agreement entitled
"Consent to Sublease Agreement", annexed to this Agreement and marked "Exhibit
Y".
(d) Execution of the Consent to Sublease Agreement referred to
in paragraph (c) above by the Port Authority and return thereof to the Lessee
shall constitute the determination referred to in subdivision (1) of paragraph
(c) above. Notwithstanding the provisions of Paragraph 5 of said Consent to
Sublease Agreement, of the Section of this Agreement entitled "Rights of User by
the Lessee" and of paragraph (g) of the Section of this Agreement entitled
"Responsibilities of the Lessee", a subtenant may carry on in the subleased
premises any use which is found to be eligible, suitable and qualified by the
Port Authority in accordance with the provisions of subparagraph (1) of
paragraph (c) of this Section, as evidenced by the execution of the Consent to
Sublease Agreement relating to the sublease between the Lessee and such
subtenant. The Lessee shall request the Port Authority's consent to any
subletting pursuant to paragraph (c) of this Section by notice setting forth the
name and address of the proposed subtenant, the use to which the proposed
subtenant will put the subleased premises and the amount and rate of payment of
all consideration to be paid by the proposed subtenant for or in connection with
its use or occupancy of the subleased premises, and the Lessee and subtenant
shall also present in advance all documents, information and other data which
the Port Authority may reasonably require relating to the matters covered in
subdivisions (1), (2), (3) and (4) of paragraph (c) above and each subtenant
shall supply during the
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continuance of any approved subletting such additional or current documents,
information or other data as the Port Authority may from time to time reasonably
require. The Lessee may prior to submitting the documents, information or other
data relating to subdivisions (2), (3) and (4) request a determination from the
Port Authority as to the proposed sublessee's eligibility, suitability and
qualifications as a World Trade Center Tenant in accordance with subdivision (1)
of paragraph (c) of this Section and the Port Authority agrees to advise the
Lessee of its determination within ten (10) business days after receipt of such
request from the Lessee and receipt by the Port Authority of all documents,
information and other data which the Port Authority may reasonably request in
connection with its determination as to the eligibility, suitability and
qualifications of the proposed subtenant as a tenant in the World Trade Center.
In the event that the Lessee and the proposed subtenant shall have complied with
or met all the requirements of subdivisions (2), (3) and (4) of paragraph (c) of
this Section, the proposed subtenant shall, in the opinion of the Port
Authority, have been found to be eligible, suitable and qualified as a World
Trade Center tenant in accordance with the provisions of subdivision (1) of
paragraph (c) of this Section, and the agreement of sublease between the Lessee
and the proposed subtenant shall comply with this Agreement, the Port Authority
will prepare and deliver to the Lessee a Consent to Sublease Agreement, in the
form of Exhibit Y annexed to this Agreement on or before the later of (i) the
thirtieth (30th) day following the later of the date of the delivery of the
Lessee's request to sublet or the delivery to the Port Authority of the Lessee's
proposed sublease agreement, or (ii) the tenth (10th) day following the delivery
to the Port Authority of any additional information reasonably requested by the
Port Authority within such thirty (30) day period, and upon delivery to the Port
Authority of three (3) copies of such Consent to Sublease Agreement executed on
behalf of the Lessee and the proposed subtenant, the Port Authority will execute
such Consent and deliver two (2) copies thereof to the Lessee.
(e) If, in connection with any subletting to a third party
pursuant to the provisions of paragraph (c) of this Section consented to by the
Port Authority as provided in this Section, the Lessee:
(1) has paid or incurred a brokerage commission at
the rates prevailing in the City of New York on the effective date of such
sublease to one or more real estate brokers licensed to do business in the State
of New York, or has paid a fee to a real estate broker licensed to do business
in the State of New York for professional consulting services solely in
connection with such subletting, the amount of such consulting fee not to exceed
rates in excess of rates prevailing in New York City on the effective date of
the sublease that would have been paid to a real estate broker as the procuring
agent in connection with such subletting, which brokerage commission or fee
payment is not reimbursed to the Lessee by the subtenant, is actually paid for
services rendered, is incurred solely in connection with such subletting and
would not have been required to have been paid except for such subletting,
provided, that if any such brokerage commission or fee paid by the Lessee is
based on rates in excess of the rates prevailing in the City of New York on the
effective date of such sublease, then only that portion of such brokerage
commission or fee which is not in excess of a commission based on such
prevailing rates shall be included in "subleasing expenses" as hereinafter
defined;
(2) has actually paid or incurred reasonable
advertising expenses for advertisements of the availability for sublease of such
subleased space,
(3) has incurred or paid any reasonable cost or
reasonable work allowance for finishing and decorating (including without
limitation thereto any reasonable costs for architectural and engineering fees,
demolition work or other construction and installation work) such
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sublet space solely to prepare the same for such subtenant which is not
reimbursed to the Lessee by the subtenant,
(4) has actually paid or incurred reasonable legal
fees and disbursements to one or more attorneys who are not employees of the
Lessee for representation of the Lessee in connection with such subletting;
(5) has granted to the subtenant a basic rental or
similar concession for or in connection with its use or occupancy of the
subleased space;
(6) has actually paid or incurred moving expenses
solely in connection with relocating such subtenant from its prior space;
(7) to the extent same is not included in subdivision
(3) above, the unamortized and unreimbursed (prior to the commencement of the
subletting, whether by part of the Lessee's Finishing Work Allowance or
otherwise) cost of any construction and installation work performed by or on
behalf of the Lessee in the sublet portion of the premises, including fixtures,
equipment and other property of the Lessee installed on the sublet portion of
the premises and available for use by such subtenant at the subleased premises
during the term of the sublease;
(8) has paid or incurred expenses in connection with
the takeover of a subtenant's other lease obligations less any amounts received
by the Lessee from the subtenant or other occupants of the subtenant's other
space net of subleasing expenses actually paid or incurred by the Lessee in
connection with subletting the subtenant's other space; and
(9) has paid or incurred any New York State transfer
tax gains (or any other transfer tax, if any, imposed by a governmental entity
but not an income, estate, gift or capital gains tax) in connection with the
subletting;
(the total of items (1), (2), (3), (4), (5), (6), (7), (8) and (9) being
hereinafter referred to as the "subleasing expenses"), then the total of such
subleasing expenses shall be applied as a credit against the excess, if any, of
the amount of the rental or other consideration actually paid by the subtenant
to the Lessee for each succeeding month during the term of the relevant sublease
over the rental rate payable by the Lessee to the Port Authority for the sublet
space for that month under the Lease until such allowable subleasing expenses
have been exhausted. Upon request by the Port Authority, the Lessee shall submit
to the Port Authority such documents and further supporting information as the
Port Authority may reasonably request (including but not limited to
certifications by a responsible officer of the Lessee setting forth the amounts
of the subleasing expenses actually paid by the Lessee and the person to whom
paid, and certifying that the Lessee has made such payments), provided, that if
the Port Authority shall have requested such documents and other information and
examination of such documents and other information by the Port Authority
discloses that any part of such subleasing expenses has not been credited
against such excess subleasing rental then fifty percent (50%) of such amount
will be credited against any such excess subleasing rental payable to the Port
Authority subsequent to such determination (provided, that in the event that at
the time of the expiration or termination of the letting under this Agreement,
any amount of such credit shall not have been so applied against such excess
subleasing rental and the Lessee's other obligations owing to the Port Authority
under this Agreement are less than the amount of such remaining credit, then the
Port Authority shall pay such remaining credit, less the amount of the Lessee's
other obligations under this Agreement, if any, to the Lessee within thirty (30)
days after demand therefor); but if such determination discloses that the
credits previously granted against such excess subleasing rental
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exceed the allowable subleasing expenses, the Lessee shall repay fifty percent
(50%) of such excess subleasing expenses to the Port Authority within thirty
(30) days after demand therefor.
(f) Use or occupancy of any portion of the premises by any
subtenant or desk space user, pursuant to the consent granted in this Section,
shall not entitle such subtenant or desk space user to any rights or privileges
which the Port Authority has or may hereafter accord to lessees of space in the
World Trade Center, including, without limitation thereto, listings on
directories, boards or in publications or similar privileges but nothing herein
shall be deemed to prohibit the Lessee from sharing with its permitted
subtenants or desk space users any such rights or privileges which the Port
Authority has accorded to the Lessee. The Lessee shall at all times be solely
responsible for complying with any laws which would apply if the World Trade
Center were privately owned regarding the permissible number of persons who may
use or occupy the premises. The Port Authority shall not impose requirements or
limitations on the use and occupancy of the premises by the Lessee's subtenants
or desk space users different or more stringent than those generally imposed by
the Port Authority throughout the World Trade Center.
(g) If the Lessee assigns, sells, conveys, transfers,
mortgages, pledges or sublets or permits the use of desk space in the premises
in violation of paragraphs (a), (b) or (c) of this Section or if the premises
are occupied by anybody other than the Lessee and its Permitted Occupants, the
Port Authority may, upon Lessee's default (after the giving of any required
notice and the expiration of any subsequent period to cure such default
specifically provided for in this Agreement) collect rent from any assignee,
sublessee, desk-space user or anyone who claims a right to this Agreement or
letting or who occupies the premises, and shall apply the net amount collected
to the basic rental herein reserved; and no such collection shall be deemed a
waiver by the Port Authority of the covenants contained in paragraphs (a), (b)
or (c) of this Section nor an acceptance by the Port Authority of any such
assignee, sublessee, desk-space user, claimant or occupant as Lessee, nor a
release of the Lessee by the Port Authority from further performance by the
Lessee of the covenants contained herein. The granting of consent by the Port
Authority to any assignment or subletting shall not be deemed to operate as a
waiver of the requirement for obtaining the express prior written consent of the
Port Authority to any other or subsequent assignment or subletting.
(h) As used in this Section, "control" shall mean, with
respect to a corporation, partnership, limited partnership, limited liability
partnership, limited liability company, or other business entity (1) the
ownership, directly or indirectly by one corporation, partnership, limited
partnership, limited liability partnership, limited liability company or other
business entity of fifty-one percent (51%) or more of the issued and outstanding
shares of the capital stock or of the general partnership interest or membership
interest or other ownership interest of another corporation, partnership,
limited partnership, limited liability partnership, limited liability company or
other business entity; (2) the ownership, directly or indirectly by one
corporation, partnership, limited partnership, limited liability partnership,
limited liability company or other business entity of fifty percent (50%) or
more of the issued and outstanding shares of the capital stock or of the general
partnership interest or membership interest or other ownership interest of
another corporation, partnership, limited partnership, limited liability
partnership, limited liability company or other business entity together with
such first entity having the power, whether by agreement or otherwise, to direct
the management and policies of such other corporation, partnership, limited
partnership, limited liability partnership, limited liability company or other
business entity; (3) the power of one corporation, partnership, limited
partnership, limited liability partnership, limited liability company or other
business entity by agreement or pursuant to legal or regulatory order to direct
the management and policies of another corporation, partnership, limited
partnership, limited liability partnership, limited liability company or other
business entity; or (4) the holding, by the partners,
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officers, members, employees or other owners of one corporation, partnership,
limited partnership, limited liability partnership, limited liability company or
other business entity of a majority of the seats on the board of directors of
another corporation or limited liability company. The Lessee shall furnish to
the Port Authority on request a copy of any agreement or legal or regulatory
order referred to in subdivisions (2) and (3) of this paragraph (h) relating to
the power of one business entity to direct the management and policies of
another business entity either of which is proposed as a subtenant, assignee or
desk-space user pursuant to the provisions of paragraph (b) of this Section. As
used in this Section, the indirect ownership of a particular percentage of the
issued and outstanding shares of capital stock or partnership interest or
membership interest or other ownership interest of any business entity shall
mean that each of the business entities in the chain between the indirect owner
and the indirectly owned business entity shall own at least that percentage or
more of the issued and outstanding shares of capital stock or partnership
interest or membership interest or other ownership interest of the immediately
adjacent business entity in such chain.
(i) (1) In the event that the Lessee shall request the consent
of the Port Authority to an assignment of this Agreement and the
letting thereunder other than an assignment permitted by paragraph (b)
of this Section, the Port Authority shall not act arbitrarily and
capriciously in determining whether or not to consent to such
assignment, provided, that in the event that ownership of the building
in which the premises is located is transferred to private ownership as
distinguished from governmental or quasi-governmental ownership, then
the Port Authority shall not act unreasonably in determining whether or
not to consent to such assignment. In determining whether or not to
consent to any such assignment the Port Authority may consider such
facts and matters as it may deem relevant including without limitation
thereto: (i) whether the proposed assignee shall, in the opinion of the
Port Authority, be eligible, suitable and qualified as a World Trade
Center tenant; (ii) the consideration proposed to be paid by the Lessee
to the Port Authority in connection with such assignment; (iii) whether
the proposed assignee is a current occupant of the World Trade Center
or has been in discussion with the Port Authority toward its current or
future occupancy of space in the World Trade Center, and (iv) the
financial standing of the proposed assignee, and the security it is
willing to deposit to secure its performance under this Agreement. No
such assignment shall be effective unless the Lessee, the assignee and
the Port Authority have each executed the form of agreement entitled
"Assignment of Lease with Assumption and Consent" annexed to this
Agreement and marked "Exhibit Y".
(2) Execution of the Assignment of Lease with
Assumption and Consent referred to in subparagraph (1) of this
subparagraph (h) by the Port Authority and return thereof to the Lessee
shall constitute the determination to consent referred to in paragraph
(1) of this subparagraph (i). The Lessee and Assignee shall present in
advance all documents, information and other data which the Port
Authority may reasonably require relating to the matters covered in
said subparagraph (1).
(j) Subject to and in accordance with the provisions of this
paragraph (j), upon the request of the Lessee, the Port Authority shall enter
into an agreement (hereinafter called an "Attornment Agreement") in form
reasonably satisfactory to the Port Authority and any subtenant under a
sublease, to which the Port Authority has consented pursuant to the provisions
of paragraph (c) of this Section 19, covering a portion of the premises
constituting not less than one full floor of the Building, stating that, under
the terms set forth in such Attornment Agreement, the Port Authority shall not
disturb the possession of such subtenant of the space covered by the sublease in
the event the Port Authority elects to terminate the letting of the premises
under this Agreement pursuant to
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the Section thereof entitled "Termination", or otherwise by reason of the
Lessee's default after notice thereof to the Lessee and the expiration of any
applicable cure period, so long as such subtenant is not in default under such
sublease, beyond the giving of any required notice and the expiration of any
applicable cure period provided for therein, and is not in default under the
terms of such Attornment Agreement, beyond the giving of any required notice and
the expiration of any applicable cure period provided for therein, provided that
such subtenant shall attorn to and recognize the Port Authority, or its
designee, as landlord under such sublease and the Port Authority or its
successor in interest of the Building shall recognize such subtenant subject to
the provisions of this paragraph (j). Notwithstanding anything to the contrary
set forth in this subparagraph, any Attornment Agreement entered into by the
Port Authority pursuant to the provisions of this paragraph shall be
conditional, and shall provide that if this Agreement terminates as a result of
any reason other than the Lessee's default, such as by reason of the occurrence
of a casualty or condemnation, the provisions of the Attornment Agreement shall
be deemed null and void and of no force and effect, and the sublease covering
the space occupied by such subtenant shall automatically terminate on the
effective date of the termination of this Agreement without further act of the
parties. Pursuant to the terms of such Attornment Agreement, if, in the event
the letting of the premises under this Agreement is in fact terminated by the
Port Authority by reason of the Lessee's default after any required notice and
the expiration of any applicable cure period, such termination occurs prior to
the expiration or termination of such sublease, and possession of the premises
is in fact obtained by the Port Authority, then the Port Authority shall either
elect to:
(A) continue such sublease in effect as a direct
lease between the Port Authority, as lessor, and such subtenant, as
lessee, with the same force and effect as if the Port Authority, as
lessor, and such subtenant, as lessee, had entered into a lease
covering the subleased premises as of the effective termination date of
this Agreement, containing the same terms, covenants and conditions as
those contained in such sublease, provided, that the annual basic
rental and additional basic rental payable to the Port Authority by
such subtenant from and after the effective date of termination of this
Agreement shall be the greater of (i) the annual basic rental and
additional basic rental set forth in such sublease, or (ii) an annual
basic rental and additional basic rental computed at the same annual
per rentable square foot rate of annual basic rental and additional
basic rental which would have been payable by the Lessee with respect
to the subleased portion of the premises under this Agreement if this
Agreement had remained in full force and effect, or
(B) enter into a new lease with respect to the
premises with a new lessee (which new lease is hereinafter referred to
as the "New Lease" and which new lessee is hereinafter referred to as
the "New Lessee"), with such sublease continuing in effect as a
sublease between the New Lessee, as lessor, and such subtenant, as
lessee, with the same force and effect as if the New Lessee, as lessor,
and such subtenant, as lessee, had entered into a sublease covering the
subleased premises as of the termination date of this Agreement,
containing the same terms, covenants and conditions as those contained
in such sublease, provided, that the annual basic rental and additional
basic rental payable to the New Lessee by such subtenant from and after
the effective date of termination of this Agreement shall be the
greater of (i) the annual basic rental and additional basic rental set
forth in the sublease between the Lessee and such subtenant or (ii) an
annual basic rental and additional basic rental computed at the same
annual per rentable square foot rate of annual basic rental and
additional basic rental which would have been payable by the Lessee
with respect to the subleased portion of the premises under this
Agreement if this Agreement had remained in force and effect.
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From and after such subtenant's attornment to the Port Authority, or the New
Lessee, as the case may be, such subtenant shall pay to the Port Authority, or
the New Lessee, as the case may be, all rental payments and any and all other
payments then due or thereafter becoming due to the Port Authority or to the
lessor under and in accordance with such sublease, as the case may be, and shall
perform all the terms and covenants, and conditions of such sublease, as if the
Port Authority, or the New Lessee, as the case may be, were the lessor named
therein and except as provided below in this paragraph (j), the Port Authority
or the New Lessee, as the case may be, shall perform all of the terms, covenants
and conditions of such sublease to be performed by the lessor thereunder.
Notwithstanding the foregoing, the obligation of the Port Authority, or the New
Lessee, as the case may be, to recognize such subtenant's rights under such
sublease and such subtenant's obligation to attorn to the Port Authority, or the
New Lessee, as the case may be, are subject to the following terms and
conditions:
(1) the Port Authority, or the New Lessee, as the case may be,
shall not be liable for any act or omission of the Lessee or its
officers, directors, partners, members, contractors, agents, employees
or representatives under this Agreement or under such sublease
occurring prior to the effective date that such sublease becomes a
direct lease with the Port Authority or prior to the effective date of
the New Lease;
(2) the Port Authority, or the New Lessee, as the case may be,
shall not be subject to any credit, offsets, claims, counterclaims,
demands, or defenses which such subtenant may have against the Lessee,
its officers, directors, partners, members, contractors, agents,
employees or representatives;
(3) subject to subparagraph (5) below, the Port Authority, or
the New Lessee, as the case may be, shall not be bound by any payment
of rent which such subtenant might have paid for more than the current
month to the Lessee;
(4) the Port Authority, or the New Lessee, as the case may be,
shall not be bound or obligated to construct or complete construction
of all or any portion of the subleased premises or to undertake the
construction of any other improvements described in such sublease or in
this Agreement (except for maintenance, repair and restoration
obligations contained in such sublease to be performed after the
effective date of attornment);
(5) the Port Authority, or the New Lessee, as the case may be,
shall not be bound by any security deposit or any other pre-paid sum
that such subtenant has paid to the Lessee, unless the Port Authority,
or the New Lessee, as the case may be, has actually received such
deposit or sum from the Lessee;
(6) the Port Authority, or the New Lessee, as the case may be,
shall not be bound by any financing obligation the Lessee has incurred
with respect to such subtenant;
(7) the Port Authority, or the New Lessee, as the case may be,
shall not be bound by any obligation to make any tenant improvement
contribution owing at any time or to make any other payment or grant
any credit to such subtenant except those arising after the effective
date of attornment;
(8) the Port Authority, or the New Lessee, as the case may be,
shall not be bound by any agreement entered into by and between the
Lessee and such subtenant that amends such sublease without the prior
written consent of the Port Authority so as to
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increase any of the Lessee's obligations as set forth therein or as to
reduce any benefit accruing to the Lessee thereunder;
(9) the Port Authority, or the New Lessee, as the case may be,
shall have the same rights and remedies to insure the observance and
fulfillment and performance of all terms, covenants and conditions
contained in such sublease to be observed, fulfilled and performed by
such subtenant which the Lessee had or would have had if this Agreement
had not been terminated; and
(10) the Port Authority, or the New Lessee, as the case may
be, shall not be bound or obligated to recognize or to continue in
effect any option or other right of such subtenant to lease additional
space contained in such sublease unless within twenty (20) business
days after the effective date of termination of this Agreement such
subtenant exercises all options or rights to lease additional space
contained in such sublease in accordance with the terms (other than the
time period within which the subtenant is required to exercise such
option or right) of the sublease agreement.
Section 20. Termination
(a) If any one or more of the following events shall occur,
that is to say:
(1) The Lessee shall become insolvent, or shall take the
benefit of any present or future insolvency statute, or shall make a
general assignment for the benefit of creditors, or file a voluntary
petition in bankruptcy or a petition or answer seeking an arrangement
or its reorganization or the readjustment of its indebtedness under the
federal bankruptcy laws or under any other law or statute of the United
States or of any State thereof, or consent to the appointment of a
receiver, trustee, or liquidator of all or substantially all its
property and such assignment, petition, answer or consent shall not
have been cancelled, withdrawn, dismissed or discharged within ninety
(90) days after the filing thereof; or
(2) By order or decree of a court the Lessee shall be adjudged
bankrupt or an order shall be made approving a petition filed by any of
the creditors or, if the Lessee is a corporation, by any of the
stockholders of the Lessee, seeking its reorganization or the
readjustment of its indebtedness under the federal bankruptcy laws or
under any law or statute of the United States or of any State thereof,
and such order or decree is not dismissed, discharged or dissolved
within ninety (90) days after the entry thereof (unless such order or
decree cannot be practically dismissed, discharged or dissolved within
ninety (90) days after the entry thereof and the Lessee shall have
commenced an action to do so and continues diligently to prosecute such
action); or
(3) A petition under any part of the federal bankruptcy laws
or an action under any present or future insolvency law or statute
shall be filed against the Lessee and shall not be dismissed,
discharged or dissolved within ninety (90) days after the filing
thereof (unless such petition cannot be practically dismissed,
discharged or dissolved within ninety (90) days after the entry thereof
and the Lessee shall have commenced an action to do so and continues
diligently to prosecute such action); or
(4) The letting hereunder or the interest or estate of the
Lessee under this Agreement shall be transferred to, pass to or devolve
upon, by operation of law or otherwise,
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any other person, firm or corporation in violation of the terms,
conditions and provisions of this Agreement, including without
limitation thereto the provisions of the Section of this Agreement
entitled "Assignment and Sublease", and such violation is not cured
within thirty (30) days after notice thereof from the Port Authority;
or
(5) The Lessee, if a corporation, shall, without the prior
consent of the Port Authority, become a possessor or merged corporation
in a merger, a constituent corporation in a consolidation, or a
corporation in dissolution, unless (i) the corporation resulting from
such merger or consolidation has either (A) a tangible net worth as of
the date of the merger or consolidation at least as good as the
tangible net worth of the Lessee immediately preceding the merger or
consolidation, or (B) a tangible net worth of not less than Sixty
Million Dollars and No Cents ($60,000,000.00), or both, in each case
determined in accordance with generally accepted accounting principles,
consistently applied, or (ii) the Lessee shall maintain a security
deposit in the amount and manner set forth in the Section of this
Agreement entitled "Security Deposit or Letter of Credit", such deposit
to be maintained at the time of such merger or consolidation and for
the period thereafter set forth in said Section; or
(6) The Lessee is a partnership, and the said partnership
shall be dissolved as the result of any act or omission of its partners
or any of them, or by operation of law or the order or decree of any
court having jurisdiction, or for any other reason whatsoever except as
permitted under the Section of this Agreement entitled "Partnership
Provision"; or
(7) By or pursuant to, or under authority of any legislative
act, resolution or rule, or any order or decree of any court or
governmental board, agency or officer, a receiver, trustee, or
liquidator shall take possession or control of all or substantially all
the property of the Lessee, or any execution or attachment shall be
issued against the Lessee or any of its property, whereupon possession
of the premises shall be taken by someone other than the Lessee, and
any such possession or control shall continue in effect for a period of
ninety (90) days; or
(8) Any lien is filed against the premises because of any act
or omission of the Lessee and is not removed or bonded within
forty-five (45) days after notice thereof from the Port Authority; or
(9) (Subparagraph (9) was intentionally omitted.)
(10) The Lessee shall fail duly and punctually to pay the
rentals or to make any other payment required hereunder when due to the
Port Authority and such failure shall continue for a period of ten (10)
business days after written notice from the Port Authority to the
Lessee stating that such amount is overdue and unpaid; or
(11) The Lessee shall have failed to comply with all the
requirements of paragraph (g) of the Section of this Agreement entitled
"Responsibilities of the Lessee" within a period of thirty (30) days
after notice from the Port Authority of such non-compliance (except
where fulfillment of its obligation requires activity over a period of
time, and the Lessee shall have commenced to perform whatever may be
required for such fulfillment within thirty (30) days after receipt of
such notice from the Port Authority and
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continues diligently such performance without interruption except for
causes and conditions beyond its control; or
(12) The Lessee shall fail to keep, perform and observe each
and every other promise, covenant and agreement set forth in this
Agreement on its part to be kept, performed, or observed, within thirty
(30) days after receipt of written notice of default thereunder from
the Port Authority (except where fulfillment of its obligation requires
activity over a period of time, and the Lessee shall have commenced to
perform whatever may be required for fulfillment within thirty (30)
days after receipt of such notice from the Port Authority and continues
diligently such performance without interruption except for causes and
conditions beyond its control); or
(13) If this Agreement shall require a guarantor of one or
more of the Lessee's obligations under this Agreement and any of the
events described in subparagraphs (1), (2), (3) or (7) above shall
occur to or with respect to the guarantor (whether or not they shall
also occur to or with respect to the Lessee);
then upon the occurrence of any such event or at any time thereafter during the
continuance thereof, the Port Authority may by ten (10) business days' notice
terminate the letting, such termination to be effective upon the date specified
in such notice. Such right of termination and the exercise thereof shall be and
operate as a conditional limitation.
(b) No acceptance by the Port Authority of rentals, fees,
charges or other payments in whole or in part for any period or periods after a
default (after the giving of any required notice and the expiration of any
subsequent period to cure such default specifically provided for in this
Agreement) in any of the terms, covenants and conditions to be performed, kept
or observed by the Lessee shall be deemed a waiver of any right on the part of
the Port Authority to terminate the letting unless such payments effect a cure
of the default prior to the giving of the Port Authority's termination notice.
(c) No waiver by either party of any default on the part of
the other party in performance of any of the terms, covenants or conditions
hereof to be performed, kept or observed by such other party shall be or be
construed to be a waiver of any other or subsequent default in performance of
any of the said terms, covenants and conditions.
(d) The rights of termination described above shall be in
addition to any other rights of termination provided in this Agreement and in
addition to any rights and remedies that the Port Authority would have at law or
in equity consequent upon any breach of this Agreement by the Lessee, and the
exercise by the Port Authority of any right of termination shall be without
prejudice to any other such rights and remedies.
(e) Each party hereby waives its right to trial by jury in any
summary proceeding or action that may hereafter be instituted by the Port
Authority against the Lessee in respect of the premises or in any action that
may be brought by the Port Authority to recover rent, damages, or other sums
payable hereunder. The Lessee shall not interpose any claims as counterclaims in
any summary proceeding or action for non-payment of rental which may be brought
by the Port Authority unless such claims would be deemed waived if not so
interposed or are otherwise compulsory counterclaims.
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Section 21. Existing Lease
(a) The Port Authority, and the Lessee have heretofore entered
into an agreement of lease, dated as of February 24, 1984, said agreement of
lease, as the same has heretofore been supplemented and amended, being referred
to herein as the "Existing Lease".
(b) Effective on the earlier of (1) the day subsequent to the
Area A-1 Commencement Date that the Lessee shall, upon not less than forty-five
(45) days' prior notice, vacate the entire premises under the Existing Lease
(such premises being hereinafter referred to as the "surrendered premises") and
deliver actual physical possession of the same to the Port Authority, in the
condition required by the Existing Lease upon surrender, as amended by the
proviso to the first sentence of paragraph (c) of this Section, or (2) the day
preceding the later of (i) the date that the Lessee shall commence in Area A any
of the operations permitted by the Section of this Agreement entitled "Rights of
User by the Lessee", (ii) the date that the Lessee shall commence in Area A-1
any of the operations permitted by said Section, or (iii) June 1, 2002, in the
event of the cancellation of the letting of Area A and Area A-1 together with
this Agreement pursuant to the provisions of paragraph (b) of the Section of
this Agreement entitled "Term" (said earlier day being hereinafter referred to
as the "Surrender Date"), the Lessee hereby surrenders and yields up and does by
these presents grant, bargain, sell, surrender and yield up to the Port
Authority, its successors and assigns, forever the surrendered premises and the
term of years with respect thereto under the Existing Lease yet to come, and has
given, granted and surrendered and by these presents does give, grant and
surrender to the Port Authority, its successors and assigns, all the rights,
rights of renewal, licenses, privileges and options of the Lessee granted by the
Existing Lease with respect to the surrendered premises, all to the intent and
purpose that the said term under the Existing Lease and the said rights of
renewal, licenses, privileges and options may be wholly merged, extinguished and
determined on the Surrender Date with the same force and effect as if the said
term were in and by the provisions of the Existing Lease originally fixed to
expire on such date.
(c) In consideration of the making of this Agreement by the
Port Authority, the Lessee hereby agrees to terminate its occupancy of the
surrendered premises and to deliver actual physical possession of the same to
the Port Authority on or before the Surrender Date, in the condition required by
the Existing Lease upon surrender, provided, that, notwithstanding anything to
the contrary contained in the Existing Lease, the Lessee shall not be required
to remove or change any of the construction and installation work performed, or
any improvements made, in the premises as defined in the Existing Lease, but the
Lessee may at its option remove items of construction and installation work it
has installed in the premises under the Existing Lease. The Lessee further
agrees that it will remove from the surrendered premises on or prior to the
fifth (5th) business day following the Surrender Date all furniture, equipment,
inventories, trade fixtures and other personal property of the Lessee or for
which the Lessee is responsible and all substantial debris, repairing any damage
to the premises caused by such removal or the removal by the Lessee of any
construction and installation work from the surrendered premises. In the event
that the Lessee removes electrical or plumbing fixtures from the surrendered
premises, whether as part of such removal or otherwise, the Lessee shall cap all
altered electrical and plumbing lines flush with walls, floors and ceilings.
(d) In the event that the Surrender Date shall not occur on or
prior to July 29, 1999, the term of the letting under the Existing Lease shall
hereby be extended through and including the Surrender Date, at an annual basic
rental rate of One Million Three Hundred Seventy-six Thousand One Hundred Twelve
Dollars and No Cents ($1,376,112.00), payable in equal monthly installments of
One Hundred Fourteen Thousand Six Hundred Seventy-six Dollars and No Cents
($114,676.00) commencing on July 30, 1999, and on the first day of each calendar
month thereafter,
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in the manner and subject to proration (in case the first or last month of such
extension period shall be a partial month) as set forth in the Existing Lease.
In addition to the foregoing basic rental, the Lessee shall pay additional basic
rental for the premises commencing on July 30, 1999, under the Existing Lease at
the rate set forth in Schedule A attached thereto, provided, that for the
purpose of calculating such additional basic rental the term "commencement date
of the letting" shall mean the commencement date of such extension period, the
term "basic wage rate" shall mean the wage rate in effect on January 1, 1999,
and the term "tax base" shall mean the annual per rentable square foot factor
finally established to be the annual per rentable square foot factor to be used
in computing payments in lieu of taxes for the tax year beginning July 1, 1999.
(e) Prior to the Surrender Date, the Lessee shall have the
right, subject to the rights of the Port Authority and to the existing rights of
other tenants and occupants of the Building and, except as to such existing
rights, in common with other tenants and occupants of the Building, to utilize
the Building shaftways, including those contained in telephone and electrical
closets, without charge on a first-come, first-served basis in order to run a
reasonable number of ducts, risers, cables, wiring, conduits, piping and other
similar items from the surrendered premises to the premises under this Agreement
in connection with its combined use of the premises and the surrendered
premises, the exact location and diameter of such items to be designated by the
Lessee in its plans as part of a tenant alteration application which part shall
be subject to the approval of the Port Authority as set forth in the Section of
this Agreement entitled "Construction by the Lessee" even in the event that such
tenant alteration application is submitted under the Professional Certification
option set forth in said Section, provided, however, that the foregoing right
granted to the Lessee to utilize such Building shaftways shall not be deemed to
convey an interest to the Lessee in any particular shaftway and the Port
Authority retains the right to isolate particular Building shaftways or portions
thereof as shall be necessary in connection with the ownership, operation and
leasing of the Building and for the supply of services to other tenants and
occupants of the World Trade Center. The Lessee shall have the right to enter
the Building shaftways in which such ducts, risers, cables, wiring, conduits,
piping and other similar items are located or are to be located in accordance
with such approved plans, from time to time on not less than forty-eight (48)
hours' prior notice to the Port Authority except in the case of an emergency
when the Lessee shall give such notice as may be practicable, in order to
install, maintain, repair, replace and remove such items.
Section 22. Survival of the Obligations of the Lessee
(a) In the event that the letting shall have been terminated
in accordance with a notice of termination as provided in the Section of this
Agreement entitled "Termination", or the interest of the Lessee cancelled
pursuant thereto, or in the event that the Port Authority has re-entered,
regained or resumed possession of the premises following the termination of this
Agreement pursuant to the Section of this Agreement entitled "Termination",
then, except as may be expressly provided to the contrary in this Agreement, all
the obligations of the Lessee under this Agreement shall survive such
termination or cancellation, re-entry, regaining or resumption of possession,
and shall remain in full force and effect, for the full term of this Agreement,
and the amount or amounts of damages or deficiency shall become due and payable,
as more specifically stated in paragraph (b) below, to the Port Authority to the
same extent, at the same time or times and in the same manner as if no
termination, cancellation, re-entry, regaining or resumption of possession had
taken place.
(b) Immediately upon any termination or cancellation pursuant
to the Section of this Agreement entitled "Termination", or upon any re-entry,
regaining or resumption of possession following such termination there shall
become due and payable (and if unpaid shall be recoverable
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in the manner specified in paragraph (c) of this Agreement) by the Lessee to the
Port Authority, without notice or demand and as damages, the sum of the
following:
(1) subject to the provisions of paragraph (c) below, an
amount equal to the sum of the then present value of all basic rental
provided for in this Agreement for the entire term following the
effective date of termination, as originally fixed in the Section of
this Agreement entitled "Term" (as it may have been extended from time
to time, whether pursuant to this Agreement or otherwise), and the then
present value of all the additional basic rental payable pursuant to
this Agreement for the balance of the term of the letting under this
Agreement, which future additional basic rental shall be deemed to be
payable at the annual rate in effect at the time of such termination,
cancellation, re-entry, regaining or resumption of possession, in each
case less the amount thereof which may have been actually paid by the
Lessee;
(2) the amount of all other unfulfilled monetary obligations
of the Lessee under this Agreement, including without limitation
thereto, all sums constituting additional rental hereunder and the cost
to and expenses of the Port Authority for fulfilling all obligations of
the Lessee, other than the basic rental and additional basic rental
referred to in subparagraph (1) of this paragraph (b), which have
accrued or matured prior to such termination, cancellation, re-entry,
regaining or resumption of possession or which would have accrued or
matured during the balance of the term or on the expiration date
originally fixed or within a stated time after expiration or
termination but which by the terms of this Agreement accrue or mature
on the date of such termination, cancellation, re-entry, regaining or
resumption of possession; and
(3) an amount equal to the reasonable cost to and the expenses
of the Port Authority in connection with the termination, cancellation,
regaining possession and restoring and reletting the premises, the Port
Authority's reasonable legal expenses and cost including the actual
costs to the Port Authority of its in-house counsel, and the Port
Authority's cost and expenses for the care and maintenance of the
premises during any period of vacancy, and any brokerage fees and
commissions in connection with any reletting.
(c) The Port Authority may at any time bring an action to
recover all the damages as set forth above not previously recovered in separate
actions, or it may bring separate actions to recover the items of damages set
forth in subparagraphs (2) and (3) of paragraph (b) above and separate actions
periodically to recover from time to time only such portion of the damages set
forth in subparagraph (1) of paragraph (b) above as would have accrued as rental
up to the time of the action if there had been no termination or cancellation.
In any such action the Lessee shall be allowed a credit against its survived
damages obligations equal to the amounts which the Port Authority shall have
actually received from any tenant, licensee, permittee or other occupier of the
premises or a part thereof during the period for which damages are sought, and
if recovery is sought for a period subsequent to the date of suit a credit equal
to the market rental value of the premises during such period (discounted to
reflect the then present value thereof). If at the time of such action the Port
Authority has relet the premises to an unrelated party or parties pursuant to an
arms-length transaction, the rental for the premises obtained through such
reletting shall be deemed prima facie to be the market rental value of the
premises or be deemed to be the basis for computing such market rental value if
less than the entire premises were relet. In no event shall the Port Authority
be required to make any payment to the Lessee pursuant to the provisions of this
Section 22 nor shall the provisions of this Section 22 be construed to require
the Port Authority to grant the Lessee a credit against any of the Lessee's
obligations accruing on or prior to the effective date of termination.
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In determining present value of rental, an annual interest rate equivalent to
the last twelve (12) month average of the twenty-five (25) year bond Revenue
Bond Index as published each Friday in the "Bond Buyer" at the time the Port
Authority brings such action hereunder shall be used.
(d) Without in any way modifying anything set forth in this
Section, nothing in this Agreement is intended or shall be deemed to permit the
Port Authority to recover the same damages more than once; paragraph (b) of this
Section merely enumerates the damages made due and payable by paragraph (a) of
this Section and paragraph (c) sets forth the possible methods of recovering
such damages if they are not paid by or on behalf of the Lessee. In the event of
termination or cancellation of this Agreement pursuant to the provisions of the
Sections of this Agreement entitled "Termination" or the re-entry, regaining or
resumption of possession following such termination or cancellation only those
obligations expressly specified in this Agreement as surviving shall survive
and, except for those obligations of the Lessee to vacate the premises, and to
remove its property from the premises and to restore the premises, the Lessee
shall not have any obligation under this Agreement to perform specific actions
subsequent to such termination, cancellation, re-entry, regaining or resumption
of possession, but only to pay damages, provided, that nothing in this paragraph
shall, or shall be deemed to, relieve or release the Lessee of or from any
obligations accruing or maturing on or prior to the date of such termination,
cancellation, re-entry, regaining or resumption of possession.
Section 23. Reletting by the Port Authority
The Port Authority, upon termination or cancellation pursuant
to the Section of this Agreement entitled "Termination", or upon any re-entry,
regaining or resumption of possession following such termination or cancellation
may occupy the premises or may relet the premises, and shall have the right to
permit any person, firm or corporation to enter upon the premises and use the
same. The Port Authority may, in its reasonable discretion, grant free rental or
other concessions and such reletting may be of part only of the premises or of
the premises or a part thereof together with other space, and for a period of
time the same as or different from the balance of the term hereunder remaining,
and on terms and conditions and for purposes the same as or different from those
set forth in this Agreement. The Port Authority shall also, upon termination or
cancellation pursuant to the Section of this Agreement entitled "Termination",
or upon its re-entry, regaining or resumption of possession following such
termination or cancellation, have the right in its reasonable discretion to
repair or to make structural or other changes in the premises, including changes
which alter the character of the premises and the suitability thereof for the
purposes of the Lessee under this Agreement, without affecting, altering or
diminishing the obligations of the Lessee hereunder. In the event either of any
reletting or of any actual use and occupancy by the Port Authority (the mere
right to use and occupy not being sufficient however) there shall be credited to
the account of the Lessee against its survived obligations hereunder any net
amount remaining after deducting from the amount actually received from any
lessee, licensee, permittee or other occupier as the rental or fee for the use
of the said premises or portion thereof during the balance of the letting as the
same is originally stated in this Agreement, or from the market value of the
occupancy of such portion of the premises as the Port Authority may during such
period actually use and occupy, all reasonable expenses, costs and disbursements
incurred or paid by the Port Authority in connection therewith (but only to the
extent such expenses, costs and disbursements have not been otherwise charged to
the Lessee). No such reletting or such use and occupancy shall be or be
construed to be an acceptance of a surrender. If any reletting of the premises
or any part thereof should be for a term which is longer than the remaining term
of this Agreement following the effective date of termination, then the expenses
of such reletting shall be amortized on a straight line basis over the
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term of such reletting and only the portion of such expenses attributable to the
remaining term of this Agreement will be included for purposes of this Section
23 and the Section of this Agreement entitled "Survival of the Obligations of
the Lessee".
Section 24. Waiver of Redemption
The Lessee hereby waives any and all rights of redemption,
granted by or under any present or future law, arising in the event it is
evicted or dispossessed for any cause pursuant to the provisions of this
Agreement or of law, or in the event the Port Authority obtains or retains
possession of the premises in any lawful manner.
Section 25. Remedies and Suits Against the Lessee
Unless specifically provided otherwise, all remedies provided
in this Agreement shall be deemed cumulative and additional and not in lieu of
or exclusive of each other or of any other remedy available to the Port
Authority or the Lessee at law or in equity. In the event of a breach or
threatened breach by the Lessee of any term, covenant, condition or provision of
this Agreement, the Port Authority shall have the right of injunction and the
right to invoke any other remedy allowed by law or in equity as if termination,
re-entry, summary proceedings and any other specific remedies including without
limitation thereto, indemnity and reimbursement, were not mentioned herein, and
neither the mention thereof nor the pursuance or exercise or failure to pursue
or exercise any right or remedy shall preclude the pursuance or exercise of any
other right or remedy.
Section 26. Surrender
(a) The Lessee covenants and agrees to yield and deliver
peaceably to the Port Authority possession of the premises on the date of the
cessation of the letting, whether such cessation be by termination, expiration
or otherwise, promptly and in the condition described in paragraph (c) of the
Section of this Agreement entitled "Maintenance and Repair" with those items of
construction and installation work which the Lessee is required to remove as set
forth in paragraph (a) of the Section of this Agreement entitled "Construction
by the Lessee" so removed, provided, that in the event such cessation shall be
by termination said items of construction and installation work shall be removed
within thirty (30) days after such termination.
(b) The Lessee shall have the right at any time during the
letting to remove from the premises, and, on or before the expiration or earlier
termination of the letting, shall so remove its equipment, removable fixtures
and other personal property, and all property of third persons for which it is
responsible, repairing all damages caused by such removal to the extent required
by the Section of this Agreement entitled "Construction by the Lessee". If the
Lessee shall fail to remove such property within thirty (30) days after the
termination or expiration of the letting, such property shall be deemed
abandoned and the Lessee shall reimburse the Port Authority within ten (10) days
of demand therefor for all of the Port Authority's reasonable out-of-pocket
expenses incurred or paid to remove such property from the World Trade Center
and otherwise dispose of same.
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Section 27. Acceptance of Surrender of Lease
No agreement of surrender or to accept a surrender shall be
valid unless and until the same shall have been reduced to writing and signed by
the duly authorized representatives of the Port Authority and of the Lessee.
Except as expressly provided in this Section, neither the doing of, nor any
omission to do, any act or thing, by any of the officers, agents or employees of
the Port Authority, shall be deemed an acceptance of a surrender of the letting
or of this Agreement. Without limiting the foregoing, no employee or officer of
the Port Authority shall be authorized to accept the keys of the premises prior
to the expiration date of the letting as fixed in the Section of this Agreement
entitled "Term" and no delivery of the keys by the Lessee shall constitute a
termination of this Agreement or acceptance of surrender.
Section 28. Brokerage
The Lessee and the Port Authority each represents and warrants
that it has not had any contacts, dealings, acts or conversations with any
broker in connection with the negotiation or execution of this Agreement or in
connection with the letting of the premises hereunder except Insignia/ESG, Inc.,
a Delaware corporation and successor by merger to Edward S. Gordon Company,
Incorporated, having an office and place of business at One Liberty Plaza, New
York, New York, New York 10006 and that there is no broker with whom the Lessee
or the Port Authority, as the case may be, has dealt or had contacts or dealings
or conversations with who is or may be entitled to be paid a commission in
connection with this Agreement and the letting of the premises hereunder other
than Insignia/ESG, Inc. The Lessee shall indemnify and save harmless the Port
Authority from and against any claims for commission, brokerage or fees which
have been or which may be made by any and all persons, firms or corporations
whatsoever for services in connection with the negotiation and execution of this
Agreement or in connection with the letting of the premises hereunder arising
out of the contacts, dealings, acts or conversations of the Lessee except for a
claim of Insignia/ESG, Inc. if the said claim is made in accordance with the
terms of the agreement between the Port Authority and Insignia/ESG, Inc. dated
as of May 29, 1998. The Port Authority shall indemnify and save harmless the
Lessee from and against any claims for commission, brokerage or fees which have
been or which may be made by any and all persons, firms or corporations
whatsoever for services in connection with the negotiation and execution of this
Agreement or in connection with the letting of the premises hereunder arising
out of the contacts, dealings, acts or conversations of the Port Authority
including without limitation the claims of Insignia/ESG, Inc. if the claims are
made in accordance with the terms of the agreement between the Port Authority
and Insignia/ESG, Inc., dated as of May 29, 1998. The Port Authority agrees to
pay the commissions set forth in such brokerage agreement in accordance with the
terms thereof.
Section 29. Notices
(a) Notices, requests, permissions, consents and approvals
given or required to be given to or by either party under this Agreement, shall
not be effective unless they are given in writing, and all such notices and
requests shall be personally delivered or delivered by a nationally recognized
overnight courier service or sent by registered or certified mail, postage
prepaid and return receipt requested to the party or a duly designated officer
or representative of such party at the office of such party or a duly designated
officer or representative. The Lessee shall designate an officer or
representative whose regular place of business is at an office within the Port
of New York District, it being understood that until further notice such officer
or representative as of the date
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hereof is the representative named on the first page of this Agreement. Until
further notice, the Port Authority hereby designates its Executive Director as
its officer or representative upon whom notices and requests may be served. The
Port Authority, until further notice, designates its office at One World Trade
Center, New York, New York 10048, and until further notice, the Lessee
designates its office at its address stated on the first page hereof, as their
respective offices where notices and requests may be served. Notices may be
given by the attorneys for either party.
(b) All notices shall be deemed to have been given or made on
the date actually received and in the event of failure to deliver by reason of
changed address of which no notice was given or refusal to accept delivery shall
be deemed given as of the date of such failure.
Section 30. Payments
(a) All payments required of the Lessee by this Agreement
shall be made to the Port Authority and mailed to The Port Authority of New York
and New Jersey, P. O. Box 17309, Newark, New Jersey 07194, or to such office or
address as may be substituted therefor, by written notice to the Lessee.
(b) No payment by the Lessee or receipt by the Port Authority
of a lesser rental amount than that which is due and payable under the
provisions of this Agreement at the time of such payment shall be deemed to be
other than a payment on account of the earliest rental then due, nor shall any
endorsement or statement on any check or in any letter accompanying any check or
payment be deemed an accord and satisfaction, and the Port Authority may accept
such check or payment without prejudicing in any way its right to recover the
balance of such rental or to pursue any other remedy provided in this Agreement
or by law.
Section 31. Additional Provisions Relating to a Successor Owner
(a) In the event that title to the building of which the
premises are a part or a portion thereof (such building or portion thereof being
hereinafter referred to in this Section as the "private space") is transferred
(i) to private ownership (as distinguished from governmental or
quasi-governmental ownership) or (ii) to another governmental or
quasi-governmental entity, and as a result of such transfer the City Agreement
as defined in Schedule A shall no longer be in effect (any such transferee being
hereinafter referred to in this Section as the "Owner"), then from and after the
date real estate taxes and assessments first become payable by the Owner of the
private space the following shall apply:
(1) The annual basic rental thereafter payable by the Lessee
for the premises shall be increased by the amount of additional basic
rental under paragraph 2 of Schedule A of this Agreement payable by the
Lessee from and after the July 1 immediately preceding such transfer of
title to the private space; and
(2) Schedule A attached to this Agreement shall be deemed
deleted and Schedule A-1 attached to this Agreement shall be deemed
inserted in lieu thereof and the Lessee shall pay additional basic
rental in accordance with the provisions of Schedule A-1 attached to
this Agreement.
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(b) In the event that title to the building of which the
premises are a part or a portion thereof is transferred to private ownership (as
distinguished from governmental or quasi-governmental ownership), then, in
addition to the obligations of the Owner, as successor to the Port Authority,
under this Agreement, the following shall apply:
(1) All references to "non-arbitrary and non-capricious" or
"arbitrary and capricious" or similar words appearing in Section 12 or
elsewhere in this Agreement shall be deemed changed to "reasonable" or
"non-reasonable" or similar words, as the case may be. Without limiting
the foregoing and in addition thereto the Owner will not unreasonably
withhold or delay its consent required pursuant to the Section of this
Agreement entitled "Construction by the Lessee" to any contractor or
subcontractor or any construction, improvement, alteration,
modification, addition, repair or replacement work proposed to be done
by the Lessee so long as the Lessee's plans and specifications therefor
conform to the requirements of the New York City Building Code and so
long as such work shall not (i) unreasonably interfere with the
operation of the World Trade Center, (ii) materially and adversely
affect the exterior walls or exterior appearance of the building in
which the premises are located, (iii) materially and adversely affect
the slab, structural steel members or core walls of such building, or
(iv) affect the proper functioning of the mechanical, plumbing,
electrical and heating, ventilating and air-cooling systems of such
building. Any dispute between the Owner and the Lessee arising out of
this subparagraph (1) as to whether the Owner unreasonably withheld or
unreasonably delayed its consent shall be resolved by arbitration in
accordance with the then existing rules of the American Arbitration
Association (expedited procedures).
(2) The Owner, in addition to performing the obligations
expressly undertaken by the Port Authority pursuant to the provisions
of this Agreement, will maintain and repair the building in which the
premises are located in compliance with all applicable laws,
ordinances, enactments, resolutions, rules, regulations, requirements,
orders and directions including, without limitation thereto, the New
York City Building Code.
(3) Wherever in the Section of this Agreement entitled
"Assignment and Subleasing" the consent of the landlord is required in
connection with any assignment or subletting referred to therein, the
Owner will not unreasonably withhold or delay such consent. Any dispute
between the Owner and the Lessee arising out of this subparagraph (3)
as to whether the Owner unreasonably withheld or unreasonably delayed
its consent shall be resolved by arbitration in accordance with the
then existing rules of the American Arbitration Association (expedited
procedures).
(4) The Owner, upon written request from the Lessee, shall
join in any applications for any permits, approvals or certificates
required to be obtained by the Lessee in connection with any
construction or installation work the Lessee is permitted to perform in
the premises (provided, that the provisions of the applicable legal
requirement shall require that the owner joins in such application) and
shall otherwise cooperate with Lessee in connection therewith,
provided, that the owner shall not be obligated to incur any
out-of-pocket cost or expense including, without limitation, attorney's
fees and disbursements unless Lessee shall pay such reasonable cost or
expense.
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Section 32. Quiet Enjoyment
The Lessee shall and may peaceably and quietly have, hold and
enjoy the premises free of any act or acts of the Port Authority or any
successor landlord or anyone claiming superior title through the Port Authority
or such successor landlord, except as expressly provided in this Agreement, it
being understood and agreed that the Port Authority's liability hereunder shall
continue in effect only for the period that it remains the owner of the Building
provided, the landlord directly succeeding the Port Authority shall assume such
liability. The provisions of this Section 32 shall not be deemed to modify the
rights expressly granted to the Port Authority to terminate this Agreement
and/or exercise any other remedies which it may have in the event of a default
by the Lessee in its obligations hereunder after the giving by the Port
Authority of any required notice and the expiration of any applicable cure
period.
Section 33. Non-Liability of Individuals
Neither the Commissioners of the Port Authority nor the
directors of the Lessee nor any of them, nor any officer, agent or employee
thereof, shall be charged personally by any party hereto with any liability or
held liable to them under any term or provision of this Agreement, or because of
its execution or attempted execution, or because of any breach or attempted or
alleged breach thereof.
Section 34. Headings
The section headings and the paragraph headings, if any, are
inserted only as a matter of convenience and for reference and in no way define,
limit or describe the scope or intent of any provision hereof.
Section 35. Construction and Application of Terms
(a) Wherever in this Agreement a third person singular neuter
pronoun or adjective is used referring to the Lessee, the same shall be taken
and understood to refer to the Lessee, regardless of the actual gender or number
thereof.
(b) If more than one individual or other legal entity is the
Lessee under this Agreement, each and every obligation hereof shall be the joint
and several obligation of each such individual or other legal entity.
(c) This Agreement does not constitute the Lessee, the agent
or representative of the Port Authority for any purpose whatsoever.
(d) All designations of time herein contained shall refer to
the time-system then officially in effect in the municipality wherein the
premises are located.
(e) No greater rights or privileges with respect to the use of
the premises or any part thereof or with respect to the World Trade Center are
granted or intended to be granted to the Lessee by this Agreement, or by any
provision thereof, than the rights and privileges expressly granted hereby.
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(f) This Agreement shall be governed by, and interpreted and
applied in accordance with, the laws of the State of New York, excluding the
conflict of laws rules and provisions thereof.
Section 36. Definitions
The following terms, when used in this Agreement, shall have
the respective meanings given below:
(a) "World Trade Center" shall mean the building complex
constructed by the Port Authority within the area in the Borough of Manhattan,
City, County and State of New York, bounded generally by the east side of Church
Street on the east, the south side of Liberty Street and the south side of
Liberty Street extended on the south, the Hudson River on the west, and on the
north by a line beginning at the point of intersection of the Hudson River and
the north side of Vesey Street extended, running along the north side of Vesey
Street extended and the north side of Vesey Street to the west side of
Washington Street, then along the west side of Washington Street to the north
side of Barclay Street, then along the north side of Barclay Street to the east
side of West Broadway, then along the east side of West Broadway to the north
side of Vesey Street, then along the north side of Vesey Street to the east side
of Church Street, together with such additional contiguous area, maintained by
the Port Authority on February 1, 1997, as may be agreed upon from time to time
between the Port Authority and the said City of New York.
(b) The phrase "utility, mechanical, electrical, communication
and other systems" shall mean and include (without limitation thereto) the
following: machinery, engines, dynamos, boilers, elevators, escalators,
incinerators and incinerator flues, systems for the supply of fuel, electricity,
water, gas and steam, plumbing, heating, sewerage, drainage, ventilating, air
conditioning, communications, fire-alarm, fire-protection, sprinkler, telephone,
telegraph and other systems, fire hydrants, fire hoses, and their respective
wires, mains, conduits, lines, tubes, pipes, equipment, motors, cables, fixtures
and other equipment.
(c) "Causes or conditions beyond the control" of the Port
Authority or the Lessee, shall mean and include acts of God, the elements,
weather conditions, tides, earthquakes, settlements, fire, acts of governmental
authority (other than the Port Authority so long as the Port Authority owns the
Building or any successor owner thereof which is a governmental or
quasi-governmental entity), war, shortage of labor or materials, acts of third
parties (who are not employees of the Port Authority or the Lessee) for which
the Port Authority or the Lessee is not responsible, injunctions, strikes,
boycotts, picketing, slowdowns, work stoppages, labor troubles or disputes of
every kind (including all those affecting the Port Authority or the Lessee, its
contractors, suppliers or subcontractors) or any other condition or
circumstances, whether similar to or different from the foregoing (it being
agreed that the foregoing enumeration shall not limit or be characteristic of
such conditions or circumstances) which is beyond the control of the Port
Authority or the Lessee or which could not be prevented or remedied by
reasonable effort and at reasonable expense.
(d) "Normal business hours" shall mean 8:00 o'clock A.M. to
6:00 o'clock P.M. Mondays to Fridays inclusive, legal holidays as defined in
Exhibit R excepted.
(e) "Building" shall mean the building in which the premises
are located.
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Section 37. Insurance
(a) The Lessee shall not knowingly do or knowingly permit its
officers, members, employees, agents, representatives, contractors, customers,
guests and invitees to do any act or thing upon the premises, and shall not do
any act or thing at the World Trade Center, which will invalidate or conflict
with the standard insurance policies customarily maintained by landlords owning
comparable first-class buildings in the Borough of Manhattan south of 60th
Street at that time, including without limitation thereto the New York Standard
Form of Fire Insurance Policy and the New York Standard Form of Extended
Coverage Endorsement, or which, in the reasonable opinion of the Port Authority,
constitutes an extra-hazardous condition, so as to increase the risks normally
attendant upon the operations contemplated by the Section of this Agreement
entitled "Rights of User by the Lessee", provided, that the Port Authority will
not enforce this provision in a discriminatory manner against the Lessee and the
Lessee shall timely observe, comply with and execute the provisions of any and
all present and future rules and regulations, requirements, orders and
directions of the National Fire Protection Association and the Insurance
Services Office, Inc. and of any other board or organization exercising or which
may exercise similar functions, which pertain or apply to the operations of the
Lessee in the premises and of which the Lessee is aware or has notice and the
Lessee shall, subject to and in accordance with the provisions of the Section of
this Agreement entitled "Construction by the Lessee", make any and all
improvements, alterations or repairs of the premises that are required at any
time hereafter by any such present or future rule, regulation, requirement,
order or direction provided that the Lessee shall not be required to make such
improvements, alterations or repairs unless the requirement results from the
particular manner of use or operations of the Lessee in the premises as opposed
to general office use. In the event that the Lessee shall fail to comply with
the provisions of the preceding sentence, any notice of default delivered by the
Port Authority pursuant to the provisions of subparagraph (12) of paragraph (a)
of the Section of this Agreement entitled "Termination" with respect to such
failure shall specify the act or thing done, extra-hazardous condition existing,
or regulatory organization rule, regulation, requirement, order or direction
violated in connection with such failure. If by reason of any failure on the
part of the Lessee to comply with the provisions of this Agreement any insurance
rate on the premises or any part thereof or on the World Trade Center or any
part thereof, shall at any time be higher than it otherwise would be, then the
Lessee shall pay to the Port Authority, within thirty (30) days of demand
therefor accompanied by a statement from the insurance carrier, if obtainable
and if not obtainable then from the Port Authority, identifying the specific use
or activity causing such increase, and a statement from the Port Authority
identifying the provisions of this Agreement breached by the Lessee, as an item
of additional rental, that part of all insurance premiums paid by the Port
Authority which shall have been charged because of such failure by the Lessee,
but no such payment shall relieve the Lessee of its other obligations under this
paragraph.
(b) (i) Subject to the provisions of the last sentence of this
subparagraph (i), the Lessee in its own name as insured shall secure and keep in
full force and effect throughout the term of the letting under this Agreement,
at Lessee's sole cost and expense, (a) a policy of commercial general liability
insurance including a contractual liability endorsement for such coverage as may
reasonably be required from time to time by the Port Authority covering the
Lessee's operations hereunder which shall be effective throughout the letting
under this Agreement and shall initially be in a combined single limit of not
less than Two Million Dollars and No Cents ($2,000,000.00) for liability for
bodily injury, for wrongful death and for property damage arising from any one
occurrence; and (b) a fire or other casualty policy insuring eighty percent
(80%) full replacement value of the Lessee's furniture, trade fixtures,
equipment and other personal property, such insurance to include a replacement
cost endorsement, with a deductible of no more than One Hundred Thousand Dollars
and No Cents ($100,000.00) against loss or damage by fire and theft and
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such other risks or hazards as are insurable under present or future forms of
"All Risk" insurance policies. The Port Authority will not require the Lessee to
maintain amounts of liability insurance coverage in excess of the amounts of
such coverage which landlords owning comparable first-class buildings in the
Borough of Manhattan south of 60th Street at that time customarily require to be
maintained by tenants conducting similar operations to those conducted by the
Lessee in the premises.
(ii) The Port Authority shall be included as an additional
insured in any policy of liability insurance required by this Section. The
Lessee shall have the right to insure and maintain the insurance coverages set
forth in this Section under primary or umbrella policies (or both) or under
blanket insurance policies covering the premises and other space occupied by
Lessee, if any, so long as such blanket policies comply in all respects with the
insurance provisions set forth in this Agreement; provided that upon request,
Lessee shall deliver to the Port Authority a certificate of Lessee's insurer
evidencing the portion of such blanket policy of insurance allocated to the
premises.
(iii) As to any insurance required by this Section, a
certified copy of each of the policies or a certificate or certificates
evidencing the existence thereof (including all required endorsements and
evidence of the waivers of subrogation required by paragraph (c) of this
Section), or binders, shall be delivered to the Port Authority prior to the date
of this Agreement. In the event any binder is delivered, it shall be replaced
within thirty (30) days by a certified copy of the policy or a certificate
including said endorsements and such waiver of subrogation. In the event that at
any time during the term of the letting under this Agreement a notice of claim
shall be filed or an action or proceeding commenced against the Port Authority
which is required to be covered by insurance pursuant to the provisions of this
Agreement or in the event that an action or proceeding at law or in equity or a
dispute shall arise, whether between the Port Authority and the Lessee or
between the Port Authority and a third party or which otherwise involves the
Port Authority, which may relate to a matter covered by any such policy, then in
either such event the Lessee shall deliver a certified copy of any policy
covering the premises, which provides coverage against such claim, action or
proceeding or which relates to such dispute, to the Port Authority within thirty
(30) days after request of the Port Authority. Each such copy or certificate
shall contain endorsements that (a) the policy may not be cancelled, terminated,
adversely changed or adversely modified without giving ten (10) days written
advance notice thereof to the Port Authority; (b) the insurer shall not, without
obtaining express advance permission from the General Counsel of the Port
Authority, raise any defense involving in any way the jurisdiction of the
tribunal over the person of the Port Authority, the immunity of the Port
Authority, its Commissioners, officers, agents or employees, the governmental
nature of the Port Authority or the provisions of any statutes respecting suits
against the Port Authority; and (c) the Lessee shall be solely responsible for
the payment of premiums therefor notwithstanding that the Port Authority is
named as an additional insured. A renewal policy or certificate or binder shall
be delivered to the Port Authority at least fifteen (15) days prior to the
expiration date of each expiring policy, except for any policy expiring after
the Expiration Date. If at any time any of the policies shall be or become
unsatisfactory to the Port Authority as to form or substance, or if any of the
carriers issuing such policies shall be or become unsatisfactory to the Port
Authority, the Port Authority shall notify the Lessee to that effect in writing
and the Lessee shall promptly obtain a new and satisfactory policy in
replacement. A carrier shall be deemed satisfactory to the Port Authority if it
has and maintains a rating by Best's Insurance Reports or any successor
publication of comparable standing of "A-X" or better or the then equivalent of
such rating. The Port Authority will not find a policy issued by a satisfactory
carrier to be unsatisfactory as to form or substance unless it contains an
exclusion not generally included in commercial general liability policies which
landlords owning comparable first-class office buildings in the Borough of
Manhattan
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south of 60th Street at the time of such determination require to be maintained
by tenants conducting operations similar to those conducted by the Lessee in the
premises.
(c) Each party shall include in each of its insurance policies
covering loss, damage or destruction by fire or other casualty (insuring the
World Trade Center and the Port Authority's property therein in the case of the
Port Authority, and insuring the Lessee's property required to be insured by
Lessee under paragraph (b) above in the case of the Lessee) a waiver of the
insurer's right of subrogation against the other party and any Permitted
Occupants or, if such waiver should be unobtainable or unenforceable, (i) an
express agreement that such policy shall not be invalidated if the insured
waives before the casualty the right of recovery against any party responsible
for a casualty covered by such policies, or (ii) any other form of permission
for the release of the other party. If any party hereto is unable to obtain such
waiver, agreement or permission without additional charge, then such party shall
be relieved from providing such waiver, agreement or permission unless the other
party shall elect to pay the carrier's additional charge therefor it being
understood that failure of a party to so elect to pay the carrier's additional
charge shall not be deemed an event of default under this Agreement; provided
that if such waiver, agreement or permission would have been obtainable from an
insurance carrier by payment of an additional charge (and in the case of the
Port Authority it is customary for First Class Owners to pay an additional
charge therefor or in the case of the Lessee it is customary for tenants in
first class office buildings in downtown Manhattan containing no less than one
million (1,000,000) rentable square feet to pay an additional charge therefor)
then such self-insuring party shall notify the other party of the amount of such
additional charge and the release by such party described in paragraph (d) below
shall only be effective if the other party shall pay such additional charge, it
being understood that failure of a party to so elect to pay the carrier's
additional charge shall not be deemed an event of default under this Agreement.
(d) Each party hereby releases the other party with respect to
any claim (including a claim for negligence) which it might otherwise have
against the other party for loss, damage or destruction with respect to its
property (including business interruption or lost rental) occurring during the
term of the letting under this Agreement and with respect and to the extent to
which it is insured under a policy or policies containing a waiver of
subrogation or permission to release liability as provided in paragraph (c)
above or self-insured.
(e) Nothing contained in said paragraphs (c) or (d) above of
this Section shall be deemed to impose upon either party any duty to procure or
maintain any of the kinds of insurance referred to therein except as otherwise
required in this Section. If the Lessee shall fail to maintain insurance in
effect as required in this Section or shall self-insure as permitted by
paragraph (g) of this Section, the release by the Lessee set forth in paragraph
(d) above of this Section shall be in full force and effect to the same extent
as if such required insurance (containing a waiver of subrogation) were in
effect. Notwithstanding anything to the contrary contained in this Agreement,
the carrying of insurance by the Lessee in compliance with this Section shall
not modify, reduce, limit or impair the Lessee's obligations and liability under
the Section of this Agreement entitled "Indemnity" and the carrying of
insurance, if any, by the Port Authority shall not modify, reduce, limit or
impair the Port Authority's obligations and liability under paragraph (c) of the
Section of this Agreement entitled "Certain Obligations of the Port Authority".
(f) The Port Authority hereby represents that at the time of
the execution of this Agreement there is in effect a policy of insurance under
which the Port Authority is the insured covering damage to the premises and the
World Trade Center, and permitting the release described in paragraphs (c) and
(d) of this Section. The Port Authority does not represent or warrant that it
will
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continue to maintain such insurance. In the event that the Port Authority elects
to act as self-insurer with respect to any loss caused by damage to the premises
or the World Trade Center resulting from risks that are or would have been
covered under the New York Standard Form of Fire Insurance Policy including the
standard form of Extended Coverage Endorsement (the term "self insurer" meaning
that the Port Authority either (i) purchases no insurance covering such loss;
(ii) purchases insurance with a deductible provision applicable to such loss; or
(iii) insures for less than the full replacement value of such loss to the World
Trade Center), then solely with respect to the self-insured portion of such loss
for which the Port Authority does not actually receive the proceeds of
insurance, the Lessee's obligation to the Port Authority pursuant to the
provisions of paragraph (b) of the Section of this Agreement entitled
"Maintenance and Repair" with respect to any single occurrence of damage
resulting from such risks, both to the premises and the World Trade Center,
shall be limited to One Hundred Thousand Dollars and No Cents ($100,000.00)
hereinafter referred to as the "Threshold Amount") so long as the waiver or
release described in paragraphs (c) and (d) of this Section shall remain
available on commercially reasonable terms to owners of comparable first-class
buildings in the Borough of Manhattan south of 60th Street. Nothing herein shall
or shall be deemed to limit the Lessee's liability pursuant to paragraph (b) of
the Section of this Agreement entitled "Maintenance and Repair" for the portion
of such loss which does not exceed the Threshold Amount and with respect to the
portion of such loss which does not exceed the Threshold Amount the provisions
of paragraph (b) of the Section of this Agreement entitled "Maintenance and
Repair" shall control, and nothing contained in this paragraph shall or shall be
deemed to limit or affect the Lessee's liability with respect to damage not
insurable under the New York Standard Form of Fire Insurance Policy and the New
York Standard Form of Extended Coverage Endorsement.
Section 38. Late Charges
(a) If the Lessee should fail to pay any amount required under
this Agreement when due to the Port Authority, including without limitation any
payment of basic, percentage or other rental or any payment of utility or other
charges or if any such amount is found to be due as the result of an audit,
then, in such event, the Port Authority may impose (by statement, bill or other
writing delivered to the Lessee) a late charge with respect to each such unpaid
amount for each late charge period (hereinbelow described) during the entirety
of which such amount remains unpaid, each such late charge not to exceed an
amount equal to eight-tenths of one percent (.8%) of such unpaid amount for each
late charge period. There shall be twenty-four (24) late charge periods on a
calendar year basis; each late charge period shall be for a period of at least
fifteen (15) calendar days except one late charge period each calendar year may
be for a period of less than fifteen (15) (but not less than thirteen (13))
calendar days. Without limiting the generality of the foregoing, late charge
periods in the case of amounts found to have been owing to the Port Authority as
the result of Port Authority audit findings shall consist of each late charge
period following the date the unpaid amount should have been paid under this
Agreement. If the precise amount of any payment required to be made by the
Lessee under this Agreement cannot be known to the Lessee or if a payment is not
due until the delivery of a statement, notice or bill, such payment shall not be
deemed due to the Port Authority for purposes of this Section until fifteen (15)
days after the date on which the Port Authority gives notice to the Lessee of
the amount of such payment. No periodic payment of basic rental or additional
basic rental shall be deemed to be a payment the amount of which cannot be known
until the delivery of a bill, notice or statement. Each late charge shall be
payable immediately upon demand made at any time therefor by the Port Authority.
No acceptance by the Port Authority of payment of any unpaid amount or of any
unpaid late charge amount shall be deemed a waiver of the right of the Port
Authority to payment of any late charge or late charges payable under the
provisions of this Section with respect to such unpaid amount. Each late charge
shall be and become
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additional rent, recoverable by the Port Authority in the same manner and with
like remedies as if it were originally a part of the rental as set forth in the
Section of this Agreement entitled "Basic Rental". Nothing in this Section is
intended to, or shall be deemed to, affect, alter, modify or diminish in any way
(i) any rights of the Port Authority under this Agreement, including without
limitation the Port Authority's rights set forth in the Section of this
Agreement entitled "Termination" or (ii) any obligations of the Lessee under
this Agreement. In the event that any late charge imposed pursuant to this
Section shall exceed a legal maximum applicable to such late charge, then, in
such event, each such late charge payable under this Agreement shall be payable
instead at such legal maximum. In the event that a late charge or charges is
imposed on an unpaid amount which is later finally determined by written
agreement of the parties or by a court of competent jurisdiction not to have
been due and payable by the Lessee, the Port Authority shall refund the amount
of such late charge or charges to the Lessee at the time of the refund of such
unpaid amount.
(b) In the event that the Lessee shall in good faith dispute
the amount of any charge or other amount claimed by the Port Authority as due
and payable to it by the Lessee under this Agreement, and shall withhold solely
the portion of such charge or amount in dispute (and shall pay the remainder of
such charge or amount to the Port Authority), after notice to the Port Authority
of the amount to be withheld and the reason for such withholding, no late charge
shall be imposed on any such withheld amount pursuant to the provisions of
paragraph (a) of this Section for a period of thirty (30) days following such
notice so long as the withheld amount shall be the subject of a bona fide
dispute between the Lessee and the Port Authority, provided, that nothing in
this paragraph shall permit or be deemed to permit the Lessee to dispute and
withhold any payment of basic rental, additional basic rental, or other periodic
payment, or any portion thereof, or all or part of any other charge or amount if
such amount, or the rate necessary to calculate such amount, is specified in
this Agreement or is otherwise known to the Lessee, except by reason of offset
or abatement expressly provided for in this Agreement. The Lessee and the Port
Authority will promptly meet and make good faith efforts to resolve any such
dispute, and from and after the resolution of such dispute, if any amount shall
be due and owing to the Port Authority the Lessee shall pay a late charge on
such amount calculated in accordance with the provisions of paragraph (a) of
this Section from the date such amount was originally due to the Port Authority
to the date such amount is paid to the Port Authority. If the Lessee shall pay
to the Port Authority such disputed amount "under protest" then the Lessee shall
promptly serve a Notice of Claim on the Port Authority and shall diligently
commence and prosecute a legal action with respect to the disputed amount to
resolution. Upon resolution of such dispute the Port Authority shall pay to the
Lessee an amount calculated in accordance with the provisions of paragraph (a)
hereof on any part of the disputed amount paid "under protest" that was not due
to the Port Authority from the date such part of the disputed amount was paid to
the Port Authority "under protest" to the date the same was repaid to the
Lessee. Nothing contained in this paragraph shall, or shall be deemed to, affect
the Port Authority's right to terminate this Agreement and the letting hereunder
in accordance with the terms of this Agreement, or exercise any other remedy
available to it under this Agreement, or otherwise, whether in law or in equity,
consequent upon the Lessee's failure to pay any amount in dispute as herein
provided, except that the Port Authority agrees not to exercise such remedies
during the thirty (30) day period after the Lessee notifies the Port Authority
of the reason for the dispute, so long as the Lessee is making a good faith
effort to resolve such dispute during such thirty (30) day period.
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Section 39. Force Majeure
(a) Neither the Port Authority nor the Lessee shall be liable
for any failure, delay or interruption in performing its obligations hereunder
due to causes or conditions beyond its control, provided, however, that this
provision shall not apply to the Lessee's obligations to pay the rentals
specified in this Agreement, or its obligation to pay any other fees, charges or
money payments due to the Port Authority hereunder, or to the Port Authority's
obligation to grant any abatement or a credit against rentals hereunder to pay
any portion of the Lessee's Finishing Allowance, if any, or Reimbursement
Amount, if any, or to pay any other fees, charges or money payments, if any, due
to the Lessee under this Agreement.
(b) Except as expressly set forth in paragraph (c) of this
Section and in the Sections of this Agreement entitled "Casualty",
"Condemnation" and "Governmental Compliance", or expressly provided elsewhere in
this Agreement, no abatement, diminution or reduction of the rent or other
charges payable by the Lessee, shall be claimed by or allowed to the Lessee for
any inconvenience, interruption, cessation or loss of business or other loss
caused, directly or indirectly, by any present or future laws, rules,
requirements, orders, directions, ordinances or regulations of the United States
of America, or of the state, county or city governments, or of any other
municipal, governmental or lawful authority (other than the Port Authority or
any other governmental entity succeeding to the Port Authority's interest)
whatsoever, or by priorities, rationing or curtailment of labor or materials
(not caused by the actions of the Port Authority or any governmental entity
succeeding to the Port Authority's interest), or by war or any matter or thing
resulting therefrom, or by any other cause or condition beyond the control of
the Port Authority, nor shall this Agreement be affected by any such causes or
conditions.
(c) In the event that as a result of any failure to provide
the Lessee with access to the premises in accordance with the Section of this
Agreement entitled "Ingress and Egress", or to supply elevator service to the
premises, or to supply other services which the Port Authority has agreed to
supply pursuant to the Section of this Agreement entitled "Services and
Utilities" (whether or not excused by paragraphs (a) or (b) above of this
Section, paragraph (h) of the Section of this Agreement entitled "Services and
Utilities" or other provisions hereof), or as a result of any removal and
replacement of any Hazardous Materials or any asbestos or asbestos-containing
material by the Port Authority, whether pursuant to the Section of this
Agreement entitled "Port Authority Work" or pursuant to the Section of this
Agreement entitled "Rights of Entry Reserved", or as a result of any work,
repairs or installation performed by the Port Authority or failure by the Port
Authority to perform obligations expressly undertaken by the Port Authority
pursuant to this Agreement:
(1) renders uninhabitable, untenantable or unusable (i) one or
more portions of the premises so that the Lessee's operations under the
Section of this Agreement entitled "Rights of User by the Lessee"
cannot reasonably be conducted therein, (ii) more than fifty percent
(50%) of Area A, Area A-1 or any other portion of the premises
constituting a full floor of the Building, or (iii) more than fifty
percent (50%) of the entire premises;
(2) such failure of service or the presence of such material,
as the case may be, is not the result of the fault of the Lessee, its
officers, employees, agents or contractors, and
(3) the Lessee shall give notice to the Port Authority of such
fact and shall thereafter not use the premises or said portion thereof
for the Lessee's operations permitted
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by the Section of this Agreement entitled "Rights of User by the
Lessee" for three (3) consecutive business days,
then for the period commencing on the date of the Lessee's notice and continuing
for so long as such uninhabitable, untenantable or unusable condition and non
use shall continue, the Lessee shall be entitled to an abatement of the basic
rental and the additional basic rental hereunder (as provided for in the Section
of this Agreement entitled "Abatement of Rental") (X) solely as to the portion
of the premises so rendered uninhabitable, untenantable or unusable and which is
unused, (Y) the entirety of Area A, Area A-1 or such other full floor portion of
the premises, in the case more than fifty percent (50%) of such Area or of such
full floor portion of the premises is rendered uninhabitable, untenantable or
unusable and the entirety of such Area or of such full floor portion of the
premises is unused, or (Z) the entire premises, in the case more than fifty
percent (50%) of the entire premises is rendered uninhabitable, untenantable or
unusable and the entire premises is unused. In the event that such
uninhabitable, untenantable or unusable condition shall continue for more than
sixty (60) consecutive calendar days after such notice of the Lessee or the
number of entire business days in more than one such uninhabitable, untenantable
or unusable period following notice of the Lessee shall exceed sixty (60) entire
business days in any twelve (12) calendar month period, then the Lessee shall
have the right, by thirty (30) days prior notice to the Port Authority given at
any time thereafter in any such uninhabitable, untenantable or unusable period
or within thirty (30) days after the end thereof, to terminate the letting of
the entire premises under this Agreement with the same effect as expiration. For
the purposes of this paragraph (c) the Lessee shall be deemed to not be using
the premises or portion thereof if no employees shall be located thereon for the
regular conduct of its business.
(d) The inability of either party to pay for goods, services
or pay its debts as they become due shall not be deemed to be a cause or
condition beyond the control of such party for the purposes of this Agreement,
nor shall such inability excuse either party from performing any obligation set
forth in or arising under this Agreement.
Section 40. Premises
The Lessee acknowledges that except as expressly set forth in
this Agreement it has not relied upon any representation or statement of the
Port Authority or its Commissioners, officers, employees or agents as to the
suitability of the premises for the operations permitted on the premises by this
Agreement. Without limiting any obligation of the Lessee to commence operations
hereunder at the time and in the manner stated elsewhere in this Agreement, the
Lessee agrees that no portion of the premises will be used initially or at any
time during the letting which is in a condition unsafe for the conduct of the
Lessee's operations hereunder so that there is an unreasonable likelihood of
injury or damage to life or property. For all purposes of this Agreement the
premises hereunder (notwithstanding any statement elsewhere in this Agreement of
any rule for the measurement of the area thereof) shall be deemed to include all
of the enclosing partitions, and the adjacent exterior building walls and glass
to and including the exterior surface thereof, provided, that nothing herein
shall be construed to require the Lessee to clean, maintain or repair the
building's exterior windows (except for the interior surface thereof, to the
extent the cleaning of such surface is not included in the services provided by
the Port Authority without separate charge and described in Schedule B attached
to this Agreement) exterior walls (except for the interior space thereof), or
roof, except under circumstance as to which paragraph (b) of the Section
entitled "Maintenance and Repair" applies, subject to the provisions of the
Section hereof entitled "Casualty" and the provisions of the Section hereof
entitled "Liability Insurance".
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Section 41. Governmental Compliance
(a) In the event that possession of all or any portion of the
premises is required by the Port Authority to comply with any present or future
governmental law, rule, regulation, requirement, order or direction promulgated
by a governmental authority other than the Port Authority, and, provided, that
on an economic or operational basis it would be impracticable to comply with
such requirement in another manner, the Port Authority shall give the Lessee
ninety (90) days' prior written notice, except in the case of an emergency in
which case it shall give the Lessee such notice as may be practicable, that all
or any such portion of the premises is so required and the Lessee shall deliver
all or any such portion of the premises so required on the date specified in
such notice and, if the Lessee does not so deliver, the Port Authority may take
the same. No such taking or delivery shall be or be construed to be an eviction
of the Lessee or a breach of this Agreement. In the event that the Lessee has
received a notice hereunder it shall deliver all or any such portion of the
premises so required in the same condition as that required hereunder for the
delivery of the premises on the cessation of the letting. In the event of the
taking or delivery of all the premises, this Agreement and the letting hereunder
shall on the day of such taking or delivery cease and expire as if that day were
the date originally stated herein for the expiration of this Agreement; and, in
the event of the taking or delivery of any portion of the premises, then, from
and after such taking or delivery, such portion of the premises shall cease to
be a part of the premises hereunder. There shall be an abatement of the rental
in the event of any such taking or delivery of a portion of the premises as
provided in the Section of this Agreement entitled "Abatement of Rental". The
Lessee may elect to terminate this Agreement if as a result of such taking or
conveyance, (1) the Lessee no longer has a reasonable means of access to the
remaining portion of the premises, or (2) the portion of the premises taken
constitutes more than twenty thousand (20,000) rentable square feet and a
responsible officer of the Lessee certifies that in the good faith judgment of
the Lessee, the Lessee cannot reasonably operate its business in the remaining
portion of the premises in substantially the same manner as such business was
operated prior to such taking. The Lessee shall give notice to the Port
Authority of any election to terminate this Agreement within sixty (60) days
after such taking or conveyance set forth in the preceding sentence is given by
the Port Authority to the Lessee, such termination to be effective on the date
specified in the Lessee's notice but not later than one hundred eighty (180)
days following the date of the Lessee's notice. Upon the date specified in the
Lessee's notice, the term of this Agreement shall terminate with the same force
and effect as if the effective date of termination were the original date of
expiration hereof. Any notice of termination given by the Lessee pursuant to the
provisions of this paragraph shall not be effective if at the time of the giving
of such notice or on the intended effective date thereof the Lessee is in
default (after the giving of any required notice and the expiration of any
applicable cure period) in the payment of any monetary obligation owing to the
Port Authority under this Agreement. If any basic rental or additional basic
rental is due to the Port Authority for any portion of the term prior to the
effective date of termination or if any basic rental or additional basic rental
has been paid by the Lessee for any portion of the term subsequent to the
effective date of termination, the same shall be payable by the Port Authority
or by the Lessee to the other, as the case may be, within twenty (20) days after
demand therefor.
In the event of a taking that does not result in the
termination of this Agreement, the Port Authority shall, at its sole cost and
expense and regardless of whether any award(s) shall be sufficient for the
purposes, proceed with due diligence, except for causes or conditions beyond its
control, to repair, alter and restore the portion of the Building in which the
premises are located and the remaining part of the premises (including, without
limitation, all leasehold improvements), to
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the extent feasible, to their condition immediately prior to the taking so as to
constitute the remaining portion of the Building and the remaining part of the
premises complete and tenantable.
Section 42. Services and Utilities
(a) Subject to all the terms and provisions of this Agreement,
the Port Authority will furnish without additional charge to the Lessee the
following:
(1) During normal business hours and during the hours between
8:00 o'clock A.M. and 6:00 o'clock P.M. on legal holidays (as defined
in Exhibit R) on which the New York Stock Exchange is trading, heat,
ventilation and air cooling in accordance with the design criteria and
capacities set forth in Schedule D attached to this Agreement and
hereby made a part hereof;
(2) Cleaning services, including trash removal, as described
in Schedule B attached hereto and hereby made a part hereof;
(3) (i) During normal business hours, passenger elevator
service to the premises, which service shall be reduced outside of
normal business hours to no less than two (2) cars (except in case of
an emergency or repairs); and (ii) during normal business hours, one
(1) freight elevator car serving the premises and the entire Building
on call on a "first come, first served" basis, and outside of normal
business hours, freight elevator service as provided below in this
paragraph (a);
(4) Cleaning of the exterior surfaces of the exterior building
glass no less than once during each twelve (12) month period during the
term of the letting; and
(5) The Lessee shall have non-exclusive access to and use of
the loading dock area in the basement of the World Trade Center on a
"first come, first served" basis in common with, and subject to the
rights of, all other tenants and occupants of the World Trade Center.
The Port Authority has made no representations or warranties with
respect to the security or safety of the loading dock area or of any of
the Lessee's property left therein and the Lessee shall assume all risk
of any damage, loss or theft thereof or thereto occurring from any
cause whatsoever. The Lessee shall not use the loading dock area for
automobile parking or for any other non-commercial use.
There shall be no charge for the reserved use of freight elevator service
outside of normal business hours in connection with the Lessee's initial moving
of its property into the premises or any space added to the premises after the
date hereof at or prior to the commencement of its use of the premises or any
such space added to the premises for the purposes set forth in the Section of
this Agreement entitled "Rights of User by the Lessee", such reservation to be
subject to the availability of elevator capacity at such times. In addition, the
Lessee shall be entitled to up to one hundred twenty (120) hours of freight
elevator lifting and hoisting services, without charge, for its construction
material during the performance of its initial construction and installation
work. All other freight elevator usage and all heating ventilating and
air-conditioning service, in each case outside of normal business hours or on
other than business days, ("overtime usage") including without limitation
thereto the use of freight elevators for transporting construction materials and
personnel, shall be requested by the Lessee in accordance with the Port
Authority's rules and regulations in effect at the time of such request.
Overtime freight elevator service will be on a reservation "first come, first
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served" basis and the Lessee agrees to pay charges to the Port Authority for
such other overtime freight elevator usage at the rates, if any, in effect from
time to time (as they may be increased) generally charged by the Port Authority
to other tenants of the World Trade Center. The charge for overtime heating,
ventilating and air cooling service shall be at the rate of Twenty-seven Dollars
and Fifty Cents ($27.50) per fan hour with a minimum usage of not less than two
(2) hours, and a minimum activation of not less than two (2) fans; such charges
shall be subject to increase by the Port Authority from time to time but shall
in no event exceed the rates, if any, in effect from time to time generally
charged by the Port Authority to other tenants of the World Trade Center. The
charges for overtime freight elevator service and heating ventilating and
air-conditioning service shall be payable within thirty (30) days after demand
therefor and shall be recoverable with like remedies as if they were a part of
the basic rental reserved under this Agreement.
(b) With respect to each partial floor constituting a part of
the premises, the Port Authority shall, without additional charge, furnish
non-exclusive toilet and washroom facilities for the Lessee's officers, members,
employees, agents, representatives, contractors, customers, guests and invitees.
The Port Authority shall furnish, without charge to the Lessee, hot
(approximately 140(Degree)F) and potable cold water for sanitary purposes in the
public bathrooms located in the portions of the premises shown in horizontal
hatching on Exhibit A and on any Exhibit depicting a full floor constituting a
part of the premises and in any pantries, kitchenettes, bathrooms or drinking
fountains constructed or installed by the Lessee pursuant to the applicable
provisions of the Section of this Agreement entitled "Construction by the
Lessee" and in accordance with paragraph (e) of the Section of this Agreement
entitled "Responsibilities of the Lessee". In the event that the Lessee shall
construct one or more full kitchens (not pantries or kitchenettes, which do not
have a stove or conventional oven) in the premises pursuant to the provisions of
the Section of this Agreement entitled "Construction by the Lessee" or shall
construct more than two (2) such pantries or kitchenettes (or any combination
thereof in excess of two (2)) on any one floor comprising the premises, then the
Lessee shall pay the Port Authority for cold and hot water provided to such
kitchens and pantries in accordance with the following provisions. The Port
Authority shall measure the quantities of such cold and hot water supplied to
the Lessee for such kitchens and pantries and kitchenettes (to the extent there
are more than two (2) pantries or kitchenettes or any combination thereof in
excess of two (2) on any one (1) floor) by meters to be installed by the Port
Authority for such purpose and the Lessee shall pay to the Port Authority for
such cold water and hot water as billed by the Port Authority from time to time
at the following rates; (i) cold water at the rate of Thirty-six Dollars and
Sixty-eight Cents ($38.68) per thousand cubic feet, and (ii) hot water at the
rate of Sixty-two Dollars and Seventy-one Cents ($62.71) per thousand cubic
feet; the charges to be subject to increase from time to time by reason of
increase in rates charged the Port Authority as provided in paragraph (f) of
this Section 42, and with respect to the charge for metered hot water to also be
subject to increase from time to time as follows: "Wage rate" as used in this
paragraph shall mean the hourly straight time wage rate for Engineers as that
wage rate is established from time to time by collective bargaining agreement
between the Realty Advisory Board on Labor Relations, Incorporated, acting on
behalf of various building owners, and Local 94 of the International Union of
Operating Engineers, AFL-CIO, and "basic wage rate" shall mean the wage rate in
effect on January 1, 1996. From and after the effective date of each wage rate
established during the term of the letting under this Agreement, the Lessee
shall pay charges for metered hot water in addition to the charge set forth
above, such additional charge to be an amount computed by multiplying the said
charge by the percentage increase in the wage rate so established over the basic
wage rate. If either the Realty Advisory Board on Labor Relations, Incorporated,
or Local 94 of the International Union of Operating Engineers, AFL-CIO shall
cease to exist or a collective bargaining agreement shall cease to be negotiated
between the Realty Advisory Board on Labor Relations Incorporated and Local 94
of the International Union of Operating Engineers, AFL-CIO, then the wage rate
to be used
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for computing increases in the said charge shall be the wage rate for Engineers
established under such collective bargaining agreements as the Port Authority
shall reasonably select. If the job classification "Engineers" shall be renamed
or abolished, then the Port Authority will select the job classification
performing substantially the same labor function as Engineers and the wage rate
of the job classification so selected shall be used in computing increases in
the said charge as provided for herein.
(c) (i) Subject to all the terms and provisions of this
Agreement, the Port Authority shall furnish to the Lessee electricity to the
electric closets on each floor on which the premises are located consisting of
ten watts per usable square foot and the Lessee shall pay for the consumption
and demand for electricity in each Area of the premises by or on behalf of the
Lessee from and after the Commencement Date for that Area (without duplication
of payment for the period prior to execution of the Agreement by the parties
hereto). The consumption of and demand for electricity in the premises (being
hereinafter referred to as "consumption and demand") shall, subject to the
provisions of the following sentence, be measured by a meter or meters having a
glass exterior surface furnished by the Port Authority at its expense for that
purpose and installed at its expense (but nothing herein shall relieve the
Lessee from performing all other work that may be necessary to measure the
Lessee's consumption and demand by meter as provided in the Section of this
Agreement entitled "Construction by the Lessee") on or off the premises, and in
the event any meter fails to record such consumption and demand, the quantity of
electricity so supplied during any period that a meter is out of service, will
be considered to be the same as the quantity supplied during a like period,
either immediately before or immediately after such interruption as reasonably
selected by the Port Authority. In the event that a meter to measure the
consumption and demand for electricity has not been installed in any portion of
the premises on the commencement date of the letting of any such portion of the
premises then in such event and until such meter is so installed in such portion
of the premises the Port Authority shall periodically throughout the term of the
letting at such times as the Port Authority may elect arrange for a survey of
such unmetered portion of the premises by an independent utility consultant to
be selected by the Port Authority (and to be reasonably acceptable to the
Lessee) for the purpose of establishing the Lessee's consumption and demand for
electricity in such portion of the premises. The determination of such
consumption and demand by survey shall be based on the wattage of lamps and any
other electrical machinery and the frequency and duration of the use thereof in
the premises. The Lessee shall pay the cost of such consumption and demand,
either as determined by meter or survey, for each such billing period to the
Port Authority within twenty (20) days of demand therefor and the same shall be
deemed additional rental collectible in the same manner and with like remedies
as if it were part of the basic rental reserved hereunder. The Lessee's
consumption and demand shall be paid for by the Lessee at the rate of one
hundred fifteen percent (115%) of the rates (including the fuel or other
adjustment factor, if any,) which at the time of each billing period (as such
billing periods are established by the public utility providing electricity in
the vicinity of the World Trade Center) is actually paid by the Port Authority
to the Power Authority of the State of New York ("PASNY") provided, that, if the
rates actually paid by the Port Authority to PASNY shall vary based upon the
amount of usage, the Lessee's total consumption and demand in the premises shall
be paid for by the Lessee at the rate of one hundred fifteen percent (115%) of
the average cost per kilowatt hour of consumption and the average cost per
kilowatt of demand (including the fuel or other adjustment factor, if any) per
billing period actually paid by the Port Authority to PASNY. In the event that
the Port Authority shall no longer be eligible or able to receive electricity
from PASNY or in the event that the World Trade Center or the building in which
the premises is located is sold and the new owner thereof is unable to obtain
electricity from PASNY, then the Lessee's consumption and demand of electricity
per billing period shall be paid for by the Lessee at one hundred percent (100%)
of the average cost (including the fuel or other adjustment factor, if any) per
kilowatt hour of consumption and the
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average cost per kilowatt of demand per billing period actually paid to the
public utility company for supplying electricity to the World Trade Center or to
the Building for such billing period. The Lessee acknowledges that its
consumption and demand for electricity shall include the use of electricity by
the Port Authority and its cleaning contractor for lighting and for normal and
usual electrical equipment required to be used in connection with the cleaning
of the premises. The Port Authority will request its cleaning contractor to make
reasonable efforts to conserve the use of electricity in connection therewith.
The Lessee's consumption and demand shall not include any electricity consumed
in connection with the furnishing by the Port Authority of base building heat,
ventilation and air-cooling to the premises. The Lessee shall have the right at
its cost and expense to install a totalizing meter for the measurement of its
demand and consumption of electricity in the premises.
(ii) Notwithstanding that the Port Authority has agreed to
supply electricity to the Lessee, the Port Authority shall be under no
obligation to provide or continue such service if the Port Authority is
prevented by law, agreement or otherwise or by the public utility company
furnishing electricity to the Building from metering or measuring consumption
and demand as set forth in subparagraph (i) of this paragraph (c) or elects not
to so meter or measure the same provided that unless prevented by law or by the
public utility company furnishing electricity to the Building, the Port
Authority will not discontinue the supply of electricity to the Lessee unless it
discontinues such supply to all non-governmental entities in the Building. In
the event the Port Authority does so discontinue the supply of electricity, the
Lessee shall make all arrangements and conversions necessary to obtain
electricity directly from the public utility company supplying electricity in
the vicinity. Also in such event the Lessee shall perform the construction
necessary for conversion and if any lines or equipment of the Port Authority are
with the consent of the Port Authority used therefor the Port Authority may make
an appropriate charge therefor to the Lessee based on its reasonable costs and
expenses for the said lines and equipment. If the Port Authority discontinues
the supply of electricity for reasons other than being prevented by law or by
the public utility company furnishing such electricity, the Port Authority shall
grant the Lessee a credit against its rental obligations next becoming due in an
amount equal to the Lessee's reasonable out-of-pocket costs of performing the
construction necessary for conversion. If the Port Authority discontinues the
supply of electricity because it is prevented by law or by the public utility
company furnishing such electricity, the Port Authority shall grant the Lessee a
credit against its rental obligations next becoming due in an amount equal to
fifty percent (50%) of the Lessee's reasonable out-of-pocket costs of performing
the construction necessary for conversion. The Port Authority shall grant the
credit provided for herein within thirty (30) days after receipt of a statement
certified by the chief financial officer of the Lessee setting forth the
itemized costs of such conversion and all documents reasonably required by the
Port Authority in reasonably sufficient detail to substantiate the reasonable
out-of-pocket costs incurred by the Lessee. So long as the Lessee shall proceed
diligently to perform such necessary construction and to make such arrangements
or conversions, the Port Authority, to the extent permitted by law will not
discontinue supplying electricity to the premises until the Lessee shall have
been able to make all necessary arrangements to obtain such electric service
directly.
(iii) If the Lessee shall be entitled to receive any rebate,
whether from Consolidated Edison, the New York Power Authority or any other
public utility company or federal, state or city agency, by reason of the
installation by the Lessee, at its sole cost and expense and subject to the
provisions and conditions of an approved Construction Application (if required
by the provisions of the Section of this Agreement entitled "Construction by the
Lessee"), of energy efficient lighting, equipment and fixtures in the premises,
and if such rebate is granted to the Port Authority as the owner of the Building
(rather than directly to the Lessee) or is granted to the Lessee,
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the Port Authority shall, subject to authorization of the Board of Commissioners
of the Port Authority (and the Port Authority agrees to use its best efforts to
bring such matter to the Board of Commissioners of the Port Authority if such
authorization is required), if such is required, execute any forms supplied by
the utility company or such agency which must be executed by the owner of the
Building in order to permit the Lessee to obtain such rebate and shall pass
along to the Lessee the entire amount of the rebate applicable to the premises
if such rebate is granted to the Port Authority as the owner of the Building,
rather than directly to the Lessee. The Port Authority shall not be required by
reason of the provisions of this subparagraph, to incur or undertake any
obligation, except as expressly set forth herein, or to incur any unreimbursed
monetary obligation, or to perform any act which is detrimental to the Port
Authority or to the Building in which the premises is located, or the World
Trade Center or to other tenants.
(d) If the Lessee, in accordance with the Section of this
Agreement entitled "Construction by the Lessee" or otherwise, erects any
partitions or makes any improvements which stop, hinder, obstruct or interfere
with the cooling of the air or the heating of the premises, or if the Lessee
shall fail to close and keep closed the window coverings when the sun is shining
on the windows of the premises, then no such action by the Lessee shall impose
any obligations on the Port Authority to install facilities, fixtures or
equipment for air-cooling or for heating additional to those existing or
presently contemplated or to increase the capacity or output of initially
existing facilities, equipment or fixtures and the Lessee shall not in any such
event be relieved of any of its obligations hereunder because a comfortable
temperature is not maintained. Nothing in the foregoing shall be construed to
relieve the Port Authority from supplying heating, ventilating and air cooling
to the premises in accordance with the design capacities and specifications set
forth in Schedule D. No consent given by the Port Authority to the erection of
partitions or the making of any improvements shall be or be deemed to be a
representation that the work consented to will not stop, hinder, obstruct or
interfere with either the cooling of the air or heating of the premises or any
portion thereof. It is hereby understood further that the installation by the
Lessee of any equipment which itself requires air cooling or which requires
additional quantities of air cooling at the portion of the premises where such
equipment is installed or the concentration in any portion of the premises of
such a number of people so as to require additional quantities of air cooling,
shall not impose any obligation on the Port Authority to install facilities,
fixtures and equipment for air cooling additional to those initially existing,
or to increase the capacity or output of initially existing facilities,
equipment or fixtures and the Lessee shall not in any such event be relieved of
any of its obligations hereunder, provided, that nothing herein shall be
construed to relieve the Port Authority from providing heating, ventilation and
air cooling in accordance with the design capacities and specifications set
forth in Schedule D.
(e) The Lessee shall keep closed all entrance doors and all
windows in the premises except that doors may be opened when required for
ingress or egress. The Lessee shall not knowingly otherwise waste or dissipate
the air cooling or heating services.
(f) If any federal, state, municipal or other governmental
body, authority or agency (other than the Port Authority) or any public utility
assesses, levies, imposes, makes or increases any charge, fee or rent on the
Port Authority for any service, system or utility now or in the future supplied
to the premises or to any occupants or users thereof or to the structure or
building of which the premises form a part (including but not limited to any
sewer rent or charge for the use of sewer systems), the Lessee shall, at the
option of the Port Authority exercised at any time and from time to time on
thirty (30) days' prior notice to the Lessee, pay, in accordance with said
notice, the entire amount of such charge, fee or rent or increase thereof (if
such charge, fee or rent relates to a service, system or utility which is only
supplied to the premises), the amount of such charge, fee or rent or increase
thereof allocated to the Lessee by the governmental body, authority or agency or
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the public utility assessing, levying, imposing, making or increasing such
charge, fee or rent or increase (if such charge, fee or rent relates to a
service, system or utility which is billed on a per user basis), or the Lessee's
Proportionate Share thereof, as such term is defined in Schedule A or Schedule
A-1, as the case may be (if such charge, fee or rent relates to a service,
system or utility which is available or supplied to (1) the premises and any
other portion of the World Trade Center, (2) areas of the World Trade Center not
rented to or occupied by tenants, or (3) both), either directly to the
governmental body, authority or agency or to the public utility or directly to
the Port Authority, provided, that the Port Authority may not charge any such
charge, fee or rent or increase thereof directly to the Lessee if it is also
included in Operating Expenses as defined in Schedule A (or Schedule A-1, as the
case may be) attached to this Agreement, but nothing in the foregoing proviso
shall be deemed to prohibit the Port Authority from electing, from time to time,
whether to include such charge, fee or rent or increase thereof in Operating
Expenses or to charge the same directly to the Lessee (and not to so include the
same in Operating Expenses) except as may be provided in the last sentence of
this paragraph (f). In the event that such charge, fee or rent or increase
thereof shall be included in Operating Expenses for the purpose of determining
additional basic rental for any Escalation Year, as defined in such Schedule,
then the appropriate amount of such charge, fee or rent shall also be included
in Operating Expenses for the Base Operating Year, as also so defined, for such
purpose. Nothing in this paragraph (f) shall require or be deemed to require the
Lessee to pay a charge, fee or rent or increase thereof for any service, system
or utility described in this paragraph (f) which is not actually provided to the
premises or actually used by the Lessee, directly or indirectly. The Port
Authority hereby agrees that unless any such charge, fee or rent shall be based
upon the consumption of a service or utility by the Lessee and other tenants at
the Facility, such charge, fee or rent shall, to the extent permitted under
Schedule A or Schedule A-1, as the case may be, be included as a cost of
operation and maintenance pursuant to Schedule A or Schedule A-1, as the case
may be, rather than charged directly to the Lessee pursuant to the provisions of
this paragraph.
(g) Subject to the provisions of this Agreement, including but
not limited to the provisions of the Section of this Agreement entitled "Force
Majeure", the Port Authority shall have the right to discontinue temporarily the
supply of any of the above services when necessary in the reasonable opinion of
the Port Authority in order to make any repairs, alterations, changes or
improvements in the premises or elsewhere in the World Trade Center including
but not limited to all systems for the supply of services. The Port Authority
will give to the Lessee two (2) days' notice prior to discontinuing the supply
of services pursuant to this paragraph, estimating the length of such
discontinuance, except in the case of an emergency in which case it shall give
the Lessee such notice, if any, as may be practicable. The Port Authority will
use reasonable efforts to minimize the duration of any such temporary
discontinuance of services and except in case of emergency, if such
discontinuance threatens the health or safety of any occupant of the premises or
materially interferes with the Lessee's ability to conduct its business, the
Port Authority shall confine all such discontinuances to other than normal
business hours. Nothing in this paragraph (g) shall be deemed to limit the
provisions of paragraph (c) of the Section of this Agreement entitled "Force
Majeure".
(h) No failure, delay, interruption or reduction in any
service or services shall be or shall be construed to be an eviction of the
Lessee, shall be grounds for any diminution or abatement of the rentals payable
hereunder, or shall constitute grounds for any claim by the Lessee for damages,
consequential or otherwise, unless due to the wilful or negligent acts or
omissions of the Port Authority, its Commissioners, employees, agents or
contractors, but nothing in this paragraph (h) shall be deemed to limit the
provisions of paragraph (c) of the Section of this Agreement entitled "Force
Majeure".
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(i) The Port Authority shall be under no obligation to supply
any service or services if and to the extent and during any period that the
supplying of any such service or services or the use of any component necessary
therefor shall be prohibited or rationed by any federal, state or municipal law,
rule, regulation, requirement, order or direction and if the Port Authority
deems it in the public interest to comply therewith, even though such law, rule,
regulation, requirement, order or direction may not be mandatory on the Port
Authority as a public agency, but nothing in this paragraph (i) shall be deemed
to limit the provisions of paragraph (c) of the Section of this Agreement
entitled "Force Majeure".
(j) The Port Authority shall have no obligations or
responsibility with respect to the performance of any services or providing,
supplying or furnishing to the Lessee of any utilities or services whatsoever
except as expressly provided in this Agreement.
(k) The Lessee, subject to all the terms and conditions of
this Agreement and in conjunction with its permissible operations in the
premises, shall have (i) the non-exclusive right to access and use all of the
telephone and electrical closets on each floor where the entire floor is
included in the premises and (ii) the non-exclusive right where reasonably
necessary to access and use all of the telephone and electrical closets on any
floor of the premises where only a portion of such floor is included in the
premises.
(l) Subject to all the terms and conditions of this Agreement
and any reasonable procedures established by the Port Authority in connection
thereunder, the Lessee shall have the right to obtain cable television and other
telecommunications services from suppliers of the same authorized by the Port
Authority to supply the same to tenants in the Building.
(m) From and after the earlier of the Area A Commencement Date
and the Area A-1 Commencement Date, the Port Authority will furnish condenser
water, sufficient for a rated capacity not exceeding fifty-five (55) tons, for
use by the Lessee in air-cooling equipment installed by the Lessee in the
premises, and auxiliary air, not to exceed one thousand one hundred (1,100)
cubic feet per minute in addition to that furnished to the Lessee by the
standard building system, for use by the Lessee in ventilating equipment
installed by the Lessee in the premises. The Lessee agrees to pay to the Port
Authority for such condenser water an annual charge at the rate of One Thousand
One Hundred Twenty-three Dollars and Thirty-one Cents ($1,123.31) per ton of the
rated cooling capacity of the Lessee's equipment as reasonably determined by the
Port Authority and for such auxiliary air an annual charge at the rate of Six
Dollars and Ten Cents ($6.10) per cubic foot per minute of rated capacity for
which the Lessee's equipment is designed as reasonably determined by the Port
Authority; such charges to be subject to increase as provided in paragraph (o)
of this Section. Upon the installation of the Lessee's air-cooling equipment or
ventilating equipment, or in the event of any changes made in such air-cooling
equipment or ventilating equipment or the installation thereof, the Lessee shall
supply to the Port Authority such certifications of rated capacity as the Port
Authority may reasonably request, including certifications of the Lessee's
licensed engineer.
(n) In the event that the Port Authority in its sole
discretion elects to construct a system, including the necessary risers, capable
of providing chilled water to the Lessee's premises for use in air cooling
equipment installed or to be installed by the Lessee in the premises (it being
understood that the Port Authority shall have no obligation to construct such
chilled water system) then the Port Authority upon completion of such chilled
water system will notify the Lessee (hereinafter in this paragraph (n) called
the "Availability Notice") and upon reasonable prior notice thereafter from the
Lessee, and provided the Port Authority has chilled water then available to
supply
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to the Lessee without performing additional construction, will furnish chilled
water to the Lessee in the premises for operation of the equipment comprising
air cooling facilities to be installed by the Lessee, provided, that if the
Lessee requests chilled water within one (1) year after the Availability Notice
then the Port Authority will supply the amount of chilled water requested by the
Lessee sufficient for a rated capacity not to exceed fifty-five (55) tons. The
Lessee agrees to pay to the Port Authority for such chilled water an annual
charge at the rate of One Thousand One Hundred Eighty-four Dollars and
Twenty-four Cents ($1,184.24) per ton of the rated cooling capacity of the
Lessee's equipment as reasonably determined by the Port Authority; such charges
to be subject to increase both prior and subsequent to the commencement of
chilled water usage by the Lessee, as provided in paragraph (o) of this Section.
The Port Authority will not be obligated to furnish chilled water to the Lessee
unless and until the Port Authority and the Lessee enter into an agreement (the
"Chilled Water Agreement") for the furnishing of same, which agreement will be
substantially in accordance with the terms and conditions of this paragraph and
paragraphs (o) and (p) of this Section and shall be promptly prepared by the
Port Authority and delivered to the Lessee after notice from the Lessee
requesting chilled water and the Port Authority agrees to deliver a fully
executed copy of such Chilled Water Agreement to the Lessee within thirty (30)
days after receipt of such Chilled Water Agreement executed and acknowledged by
an authorized officer of the Lessee. Upon the installation of the Lessee's
air-cooling equipment which uses chilled water or in the event of any changes
made thereto, the Lessee shall supply to the Port Authority such certifications
of rated capacity as the Port Authority may reasonably request including
certifications of the Lessee's licensed engineer. The Lessee will be obligated
to pay for all chilled water which is initially requested by the Lessee and
which the Port Authority is obligated to provide hereunder regardless of whether
the Lessee uses or discontinues such use. In the event that the Lessee shall
install air cooling equipment using chilled water the Lessee may discontinue the
use of condenser water in its air cooling equipment, and shall thereafter not be
charged for such condenser water usage, provided, that the Lessee's air cooling
equipment shall be promptly disconnected from the Port Authority's condenser
water system, at the Lessee's sole cost and expense.
(o) The annual charges for condenser water, auxiliary air and chilled
water shall be payable in advance in equal monthly installments and shall be
payable at the same time, in the same manner and shall be recoverable with like
remedies as if they were a part of the basic rental reserved under the Lease.
The said charges shall be subject to increase from time to time as follows:
"Wage rate" as used in this paragraph shall mean the hourly straight time wage
rate for Engineers as that wage rate is established from time to time by
collective bargaining agreement between the Realty Advisory Board on Labor
Relations, Incorporated, acting on behalf of various building owners, and Local
94 of the International Union of Operating Engineers, AFL-CIO, and "basic wage
rate" shall mean the wage rate in effect on January 1, 1998. From and after the
effective date of each wage rate established from and after January 1, 1998, the
Lessee shall pay charges in addition to that stated above for condenser water
and auxiliary air (and the charge for chilled water shall be adjusted, whether
prior or subsequent to the commencement of chilled water usage by the Lessee),
such additional charge for condenser water to be at an annual rate per ton equal
to Two Dollars and Fifty Cents ($2.50) for each one percent (1%), or major
fraction thereof, that the wage rate so established exceeds the basic wage rate,
such additional charge for auxiliary air to be an amount computed by multiplying
the charge for auxiliary air set forth in paragraph (m) of this Section by
one-fifth (1/5th) of the percentage increase in the wage rate so established
over the basic wage rate, and such adjustment or additional charge for chilled
water to be an amount computed by multiplying the charge for chilled water set
forth in paragraph (n) of this Section by the percentage increase in the wage
rate so established over the basic wage rate. If either the Realty Advisory
Board on Labor Relations, Incorporated, or Local 94 of the International Union
of Operating Engineers, AFL-CIO, shall cease to exist or a collective bargaining
agreement shall cease to be negotiated between the
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Realty Advisory Board on Labor Relations, Incorporated, and Local 94 of the
International Union of Operating Engineers, AFL-CIO, then the wage rate to be
used for computing increases in the said charges shall be the wage rate for
Engineers established under such collective bargaining agreements as the Port
Authority shall select. If the job classification, "Engineers", shall be renamed
or abolished, then the Port Authority will select the job classification
performing substantially the same labor functions as Engineers and the wage rate
of the job classification so selected shall be used in computing increases in
the charges provided for herein.
(p) The Port Authority shall have no responsibility whatsoever
under this Section or otherwise for conditioning or cooling the air in those
portions of the premises served by the air-cooling equipment or the ventilating
equipment installed by the Lessee nor for the maintenance therein of any
specified temperature or comfort level, provided, however, that nothing in this
sentence shall be construed to relieve the Port Authority from providing heat,
ventilation and air cooling in the premises in accordance with the
specifications provided in Schedule D. The Lessee shall and does hereby release
the Port Authority from and shall indemnify the Port Authority against any and
all claims and demands, losses or damages (including but not limited to any such
occurring to any data processing or other equipment located in the premises or
any work product thereof or any loss of data, loss of business and business
interruption losses) arising or resulting from the failure to maintain a proper
temperature or air quality in such portions of the premises and regardless of
whether the same is due to the acts or omissions of the Port Authority, the
Lessee or of others. The Port Authority shall remain fully liable for all damage
to equipment and other property owned or leased by the Lessee (excluding,
however, loss of data, loss of business and business interruption losses and all
personal injury) arising as a result of the chilled water which the Port
Authority provides to the point of connection to the Lessee's equipment being
contaminated. Nothing herein shall be construed to relieve the Port Authority
from furnishing heat, ventilation and air cooling in accordance with the
provisions of paragraph (a) of this Section 42 and Schedule D attached hereto.
There shall be no tap-in charge for connecting the Lessee's air cooling and
ventilating system to the Port Authority's condenser water, auxiliary air supply
or chilled water system, provided, that, except in the case of the first
connection of the Lessee's condenser water system to the Building system and the
case of the first connection of the Lessee's chilled water system to the
Building system (if chilled water is made available to the Lessee pursuant to
this Section), the Port Authority may impose a charge if it is necessary to
drain all or part of its condenser water or chilled water system in order to
effectuate such connection, provided, further, that the Lessee shall perform all
such connection work at its sole cost and expense.
Section 43. Partnership Provision
If the Lessee is a partnership on the date set forth in the
first line of this Agreement or, if the Lessee should assign this Agreement to a
partnership with the consent of the Port Authority, the individuals constituting
the partnership from and after the said date or the effective date of such
assignment, as the case may be, shall be and continue to be jointly and
severally liable for performing and observing the obligations of the Lessee
hereunder except as expressly provided in this Section. Furthermore, any new
partners of the Lessee shall, by their admission as partners, be deemed to have
assumed liability jointly and severally with the then partners for the
obligations of the Lessee under this Agreement, arising subsequent to their
admission as partners, and neither the admission of new partners nor the
withdrawal of partners shall be a violation of the Section of this Agreement
entitled "Assignment and Sublease" or of paragraphs (a)(4) or (a)(6) of the
Section of this Agreement entitled "Termination", or any other provision hereof,
if the conditions hereinafter stated in this Section are satisfied. The Lessee
shall notify the Port Authority of the admission of each new partner
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and shall supply to the Port Authority a written agreement executed by each new
partner confirming assumption of liability as described above. Notwithstanding
any provisions of this Agreement, or any law to the contrary, or the provisions
of any agreement executed by the Lessee during the term of the letting, if any
partner of the Lessee shall die during the unexpired portion of the term of this
Agreement, or if any partner of the Lessee shall complete his or her retirement
from the Lessee, or sever his or her connection with the Lessee for reasons
other than death or retirement, during the unexpired portion of the term of this
Agreement, such partner and his or her estate shall be relieved of all liability
for performance of Lessee's obligations under this Agreement accruing after such
death, retirement or severance, provided, that in order to obtain such release
with respect to any such partner the Lessee shall give notice to the Port
Authority on behalf of the deceased, retiring or withdrawing partner of such
death, retirement or severance, and, provided, further, that the total
partnership assets available to meet the obligations of the Lessee under this
Agreement immediately after such death, retirement or severance shall not be
materially less than the total partnership assets available to meet the
obligations of the Lessee under this Agreement immediately prior to such death,
retirement or severance.
Section 44. Additional Space
(a) In the event that any adjacent office space, as defined in
this paragraph (a), shall be or becomes "available for leasing" during the
letting of the premises under this Agreement, and provided the Lessee is not
then in default (after the giving of any required notice and the expiration of
any subsequent period to cure such default specifically provided for in this
Agreement) in the payment of any amount of basic rent, additional basic rent or
cleaning or electricity charges, nor, on the date of the giving of said notice,
has the Lessee been served with a notice of termination of this Agreement by the
Port Authority and that this Agreement is in full force and effect, prior to
entering into an agreement with a third party covering the letting of such
available office space the Port Authority shall offer such Additional Space to
the Lessee by notice in writing setting forth the date that it expects such
space to become available or ready for occupancy and the number of rentable
square feet comprising such available space (the said available office space so
offered being hereinafter called the "Additional Space", provided, that if such
available office space shall constitute all of the office space located on such
floor or if, on the date of the offer referred to in this sentence, the
Additional Space together with one or more portions of the premises leased by
the Lessee pursuant to this Section 44 and located on the same floor as such
Additional Space shall constitute all of the office space located on such floor,
then the Additional Space shall also include the elevator lobby, corridor,
closet (other than utility closet) and toilet spaces on such floor). The Lessee
shall have the right, by written notification to the Port Authority subscribed
by the president or a vice president of the Lessee and delivered to the Port
Authority within thirty (30) days after receipt of the Port Authority's notice,
to accept the Additional Space unconditionally in its entirety on the terms and
conditions set forth in this Section 44 for the balance of the term of the
letting under the Lease. For the purposes of this Agreement space shall be
deemed adjacent at any given time if at that time it is on the same floor as a
portion of the premises or if it is located on a floor immediately above or
below a floor not less than one-half (1/2) of the rentable square feet of which
at that time constitutes a portion of the premises.
(b) Within thirty (30) days after the date that the Lessee
notifies the Port Authority of the Lessee's acceptance of such Additional Space
the Port Authority shall prepare and submit to the Lessee for its execution an
appropriate document supplementing this Agreement and providing for the letting
of such space to the Lessee as part of the premises and thereafter the term
"premises" as used in this Agreement shall include such Additional Space. Said
supplemental agreement shall
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provide for the letting of such Additional Space on the terms and conditions set
forth in this Agreement, except as provided otherwise in paragraph (d) of this
Section 44. The Lessee shall execute the said supplemental agreement by an
authorized officer and return it to the Port Authority within thirty (30) days
after its receipt thereof, provided, that the provisions of said supplemental
agreement are in conformity with the provisions of this Agreement as modified by
this Section 44. If the Lessee complies with the provisions of the foregoing
sentence, the Port Authority agrees to deliver a fully executed original of such
supplemental agreement to the Lessee within thirty (30) days after receipt by
the Port Authority of such supplemental agreement so executed and acknowledged
by the Lessee. In the event that the Lessee fails to notify the Port Authority
of the Lessee's unconditional acceptance of said Additional Space within the
time period set forth in this Section or in the event that the Lessee shall fail
to execute, acknowledge and deliver said supplemental agreement to the Port
Authority within said thirty (30) day period, provided, that the provisions of
said supplemental agreement are in conformity with the provisions of this
Agreement as modified by this Section 44, then the Lessee shall thereupon have
no further rights or interest in or to such Additional Space and the provisions
of this Section with respect thereto shall be of no further force or effect
throughout the balance of the term of the letting under this Agreement and the
Port Authority shall have the right to lease such space, or any portion thereof,
to any third party on terms or conditions (including but not limited to rental,
term, space finishing and use provisions) different from those which would have
governed the letting to the Lessee of such space and on more or less favorable
terms and conditions, all as the Port Authority in its sole discretion may
determine, provided, that in the event that such Additional Space or a portion
thereof which was previously offered to the Lessee hereunder shall be leased to
another and shall thereafter be or become "available for leasing", the Port
Authority will offer such Additional Space or such portion thereof to the Lessee
prior to entering into an agreement with a third party covering the letting of
such Additional Space or such portion thereof as set forth in this Section 44.
(c) The Lessee expressly understands and agrees that the Port
Authority in its reasonable discretion shall determine the availability for
leasing, within the conditions set forth in this Section, of any adjacent space
and nothing contained herein shall obligate or be construed to obligate the Port
Authority to furnish or make available to the Lessee any particular space or to
terminate the letting or otherwise end the occupancy of any tenant in possession
of any space or of any portion thereof prior to the scheduled expiration date of
any such letting, nor shall anything herein prevent the Port Authority, without
any liability of any kind to the Lessee, from extending or renewing any lease or
otherwise continuing in occupancy a tenant of any space, or from consenting to
an assignment of any lease, or from consenting to a sublease covering any space.
No space shall be deemed "available for leasing" for purposes of this Section if
it is then rented to or under negotiation with a then existing tenant of such
space, or under negotiation with a prospective tenant after having been offered
to the Lessee pursuant to this Section, or if a tenant thereof relets or extends
or otherwise modifies or amends the term of the letting of such space or any
portion thereof, or, except with respect to space located on the eighty-seventh
(87th) or ninetieth (90th) floors of the Building, if such space is subject to
the then existing right of another tenant to include such space in the premises
under such other tenant's lease. Nothing herein shall be deemed to limit the
Port Authority's right to freely discuss and negotiate with third parties for
the leasing of any space in the World Trade Center, subject only to the Lessee's
express right to be offered adjacent space which is available for leasing in
accordance with the provisions of this Section.
(d) The supplemental agreement relating to such Additional
Space shall contain an exhibit depicting such Additional Space and a statement
of the number of rentable square feet comprising such Additional Space, such
number of rentable square feet to be determined by the Port Authority in the
same manner as the Port Authority determined the rentable square footage for the
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initial portions of the premises. Said supplemental agreement shall provide for
a commencement date of the letting of such Additional Space occurring on the
date on which vacant possession of such Additional Space for construction
purposes is tendered to the Lessee with the Port Authority Work, as described in
the Section of this Agreement entitled "Port Authority Work", performed in such
Additional Space. Tender shall be made by notice given at least five (5) days
prior to the actual date of such tender. The rent commencement date for such
Additional Space shall be (i) that number of days after the commencement date of
the letting of such Additional Space as shall equal the product obtained by
multiplying one hundred eighty (180) days by a fraction the numerator of which
shall be the number of whole calendar months in the period from the commencement
date of the letting of such Additional Space to the expiration date of the
letting under this Agreement and the denominator of which shall be one hundred
eighty (180) months, or (ii) such earlier date as the Lessee commences business
operations therein. The Port Authority will provide to the Lessee a Finishing
Work Allowance equal to the product obtained by multiplying (x) the product
obtained by multiplying Forty Dollars and No Cents ($40.00) by the number of
rentable square feet in such Additional Space, by (y) a fraction the numerator
of which shall be the number of whole calendar months in the period from the
commencement date of the letting of such Additional Space to the expiration date
of the letting under this Agreement and the denominator of which shall be one
hundred eighty (180) months. The Lessee will accept such Additional Space in its
"as is" condition, but the Port Authority will perform the Port Authority Work
in such Additional Space, prior to the date it is made available to the Lessee.
The basic rental for such Additional Space shall be payable at the annual per
rentable square foot rate of Thirty-one Dollars and Eighty-five Cents ($31.85).
In addition to the basic rental, commencing with the rent commencement date for
such Additional Space, the Lessee shall pay additional basic rental therefor in
accordance with the provisions of Schedule A (or Schedule A-1 as the case may
be) attached hereto, with the base dates and amounts set forth in said Schedule
A or A-1 remaining unchanged and the commencement date of the letting for the
purposes of said Schedules being the commencement date of the letting of such
Additional Space.
Section 45. Lessee's Right to Extend the Letting
(a) The Lessee shall have the right to extend this Agreement
and the term of the letting hereunder, either as to the entire premises only, or
as to one or more full floors then constituting a portion of the premises, for a
five (5) year period effective upon the expiration date of the term of the
letting set forth in the Section of this Agreement entitled "Term", provided,
that the Lessee shall give unconditional written notice to the Port Authority of
its election to do so not later than five hundred forty-eight (548) days prior
to said expiration date and, provided, further, however, that no notice pursuant
to this paragraph (a) shall be effective if on the date of the giving of such
notice the Lessee is in default (after the giving of any required notice and the
expiration of any subsequent period to cure such default specifically provided
for in this Agreement) in the payment of any amount of basic rent, additional
basic rent or cleaning or electricity charges, or if on the date of the giving
of said notice the Lessee has been served with a notice of termination of this
Agreement by the Port Authority or if on the date of the giving of said notice
this Agreement is not then in effect.
(b) In the event the Lessee exercises the right set forth in
paragraph (a) of this Section then the letting during the extension period
provided for in said paragraph (a) shall be upon all of the same terms,
covenants, conditions and provisions of this Agreement including the obligations
of the Lessee to pay additional basic rental in accordance with Schedule A or
Schedule A-1, except that (1) the basic rental during the applicable extension
period shall be as determined
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pursuant to paragraph (c) of this Section 45, (2) "Tax Base" for purposes of
determining additional basic rental payable pursuant to paragraph 2 of Schedule
A shall mean the annual per rentable square foot factor to be used in computing
payments in lieu of taxes for tax year commencing on the July 1 immediately
preceding the commencement of the extension period, (3) "Tax Base" for purposes
of Schedule A-1 shall mean the annual amount of taxes for the tax year
commencing on the July 1 immediately preceding the commencement of the extension
period, (4) "Base Operating Year" for purposes of both Schedule A and Schedule
A-1 shall mean the calendar year immediately preceding the commencement of the
extension period, (5) the term "premises" as used in this Agreement shall mean
either the entire premises or such lesser portion thereof as is designated by
the Lessee in its notice delivered in accordance with the first sentence of
paragraph (a) of this Section, (6) "Rentable Square Feet in the Premises" for
purposes of both Schedule A and Schedule A-1 shall mean the number of rentable
square feet in the entire premises or such designated lesser portion thereof and
the "Lessee's Proportionate Share" as set forth in each such Schedule shall be
adjusted as set forth therein, (7) there shall be no free-rent period, rent
concessions or Lessee's Finishing Work Allowance provided by the Port Authority
with respect to the extension period, (8) the Port Authority shall have no
obligation to perform any construction and installation work in the premises or
provide any construction, finishing or other allowance with respect to the
extension period, and (9) the Lessee shall have no further right of extension.
(c) [Intentionally omitted]
(d) In the event the Lessee shall give to the Port Authority
the notice referred to in paragraph (a) of this Section, the Port Authority
shall, not later than three hundred (300) days prior to the commencement date of
the extension period, advise the Lessee in writing of the Port Authority's good
faith estimate of ninety percent (90%) of the fair market rental value for the
premises for the particular extension period (hereinafter called the "Port
Authority's Determination"). In the event the Lessee concludes that the Port
Authority's Determination exceeds ninety percent (90%) of the fair market rental
value for the premises for the extension period, the Lessee shall within thirty
(30) days after the date of the Port Authority's said notice advise the Port
Authority in writing that it has so concluded and request arbitration with
respect thereto. Such arbitration shall be by three arbitrators, one to be
appointed by the Port Authority, one to be appointed by the Lessee and the third
to be appointed by the arbitrators so appointed. In the event that the
arbitrator selected by the Port Authority and the arbitrator selected by the
Lessee cannot agree on the selection of a third arbitrator within ten (10)
business days after both are appointed, such third arbitrator shall be selected
in accordance with the then rules of the American Arbitration Association. The
arbitrators shall be individuals having at least five (5) years experience in
office leasing in the Borough of Manhattan south of 60th Street, familiar with,
and knowledgeable of, office leasing arrangements in the lower Manhattan real
estate market who have not been employed by either party to this Agreement or by
a consultant, agent or broker to or for either such party for a period of five
(5) years preceding the date of such arbitration. The arbitration shall be
pursuant to the then rules of the American Arbitration Association or any
successor organization and the question to be answered by the arbitrators shall
be:
"Does the Port Authority's Determination exceed ninety percent (90%) of
the fair market rental value for the premises for the extension
period?"
If the arbitrator's decision is in the negative (or if the Lessee does not
dispute the Port Authority's Determination and there is no arbitration) then
from and after the first day of the extension period, the Lessee shall pay to
the Port Authority the annual basic rental set forth in the Port Authority
Determination in equal monthly installments on the first day of the extension
period and on the first
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day of each calendar month thereafter for the balance of the extension period.
If the decision of the arbitrators is that the Port Authority's Determination
exceeds ninety percent (90%) of the fair market rental value for the premises
during the applicable extension period, the arbitrators shall thereupon
determine the fair market rental value for the premises (which annual basic
rental rate determined by the arbitrators shall not exceed the Port Authority's
Determination) and in such event from and after the first day of the extension
period the Lessee shall pay to the Port Authority an annual basic rental equal
to ninety percent (90%) of the fair market rental value for the premises so
determined by the arbitrators, which annual basic rental shall be payable in
equal monthly installments on the first day of the extension period and on the
first day of each calendar month thereafter for the balance of the extension
period. In the event the annual basic rental for the premises has not been
determined as herein provided prior to the commencement of the applicable
extension period, the Lessee shall continue to pay the monthly installments of
basic rental at the annual rate in effect on the last day of the initial term of
the letting, set forth in the Section of this Agreement entitled "Term", and
upon determination of the annual basic rental pursuant to the provisions of this
Section, the Lessee shall within thirty (30) days thereafter pay any amounts due
to the Port Authority arising out of the excess (if any) of the monthly
installments of the annual basic rental as so determined over the monthly
installments thereof actually paid by the Lessee during the period prior to such
determination, or, if the sum of the monthly installments of annual basic rental
actually paid by the Lessee during the portion of any extension period prior to
such determination is in excess of the sum of the monthly installments of annual
basic rental for such portion of such extension period as determined by
arbitration, the Port Authority will credit the Lessee with such excess against
the Lessee's rental obligations next becoming due under this Agreement. The Port
Authority and the Lessee shall each bear the cost of the arbitrator appointed by
them. All other costs of such arbitration, including, but not limited to, the
cost of the third arbitrator shall be borne equally by the Port Authority and
the Lessee.
(e) For the purposes of this Agreement "fair market rental
value" shall mean rent at the rate that a willing tenant would pay and a willing
landlord would accept for comparable space in the World Trade Center taking into
account all appropriate factors presented by the parties to the arbitrators,
including without limitation thereto: (1) the Tax Base and Base Operating Year
to be used in determining additional basic rental payable for the premises
during such extension period, (2) that no consideration shall be given to the
fact that the premises are owned by a public authority, (3) that consideration
be given as to whether or not the Port Authority will incur a brokerage
commission, (4) that consideration be given to the fact that the Port Authority
will not grant a construction allowance or free rent period or incur other
leasing costs, and (5) that no consideration be given to the fact that the Port
Authority may not incur a period during which the premises would be vacant, such
factor having been taken into consideration in specifying that the Lessee is to
pay an annual basic rental equal to ninety percent (90%) of the fair market
rental value determined by the arbitrators; it being understood that such factor
is the only factor which is applicable to the fact that the Lessee is paying
annual basic rental equal to ninety percent (90%) of the fair market rental
value determined by arbitration.
Section 46. Port Authority Work
(a) Subject to the terms, conditions and provisions of the
Section of this Agreement entitled "Force Majeure", the Port Authority through
its employees, agents, representatives, contractors and subcontractors shall,
within thirty (30) days after receipt of written request from the Lessee
following completion by the Lessee of its construction and installation work in
the premises and in any Additional Space, clean, vacuum and put in good working
condition all
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base building heating, ventilation and air cooling induction units, including
the repair and replacement of all convector covers where necessary.
(b) The Port Authority, through its employees, agents,
representatives, contractors and subcontractors, shall perform the following
work in any Additional Space prior to the commencement date of the letting for
such Additional Space:
(1) where necessary, flash patch, smooth and level floors
where floor tiles have been removed;
(2) perform such work as is necessary to put the public
bathroom areas on the floor on which any Additional Space is located in
compliance with the applicable provisions and implementing regulations
of the Americans With Disabilities Act of 1990 (42 U.S.C. ss.12101 et
seq.) as amended effective on or before the date of such work
(hereinafter called the "ADA"); to put all the restrooms in good
working condition, including without limitation thereto the replacement
of all cracked tiles, the acid washing of grout, the replacement all
broken fixtures and all ceiling tiles, and the repainting of all
partitions; and to put the public corridors adjoining any Additional
Space in compliance with the applicable provisions of the ADA and, if
necessary, install Building standard speakers, warden phones and pull
stations in all public corridors adjoining any such Additional Space;
(3) if missing, provide sprinkler loops sized to New York City
Building Code requirement in the portion of the floor on which any
Additional Space is located;
(4) perform "slab to slab" demolition in each Additional Space
or perform such lesser demolition work in any particular Additional
Space as is requested by the Lessee in writing no later than one
hundred eighty (180) days prior to the commencement date for such
Additional Space;
(5) remove all telephone wires, electric wires and all cabling
from existing under-floor ducts in any Additional Space through to the
telephone cabinets on the floors on which such Additional Spaces are
located and flash patch any holes resulting from such work;
(6) Provide and replace any missing fireproofing on the
structural columns and the bottom surface of the floors above each
portion of any Additional Space, including any structural steel members
located in the ceiling area, promptly after all of such columns and
surfaces are exposed by the demolition work; and
(7) where present, remove vinyl asbestos floor tiles and
remove or cause to be removed from the premises and any Additional
Space any known Hazardous Materials, and any known asbestos and
asbestos containing material, as defined in the guidelines established
by the United States Environmental Protection Agency ("EPA") and set
forth in the EPA publication entitled "Guidelines for Controlling
Asbestos Containing Materials in Buildings" (EPA 560/5-85-024, June,
1985) except for certain non-friable asbestos which may remain within
enclosed perimeter columns and in the enclosed diagonal building walls
in the four corners of the building on the floors on which the premises
and such Additional Spaces are located, which remaining asbestos and
asbestos containing materials shall remain encased or enclosed and
shall not be penetrated by the Lessee.
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In addition, the Port Authority, through its employees, agents, representatives,
contractors and subcontractors, shall perform the work in the premises set forth
in subparagraph (3), subparagraph (6) and subparagraph (7) of this paragraph (b)
prior to the commencement of the letting of each Area of the premises, provided,
that the removal of vinyl asbestos tile may take place concurrently with the
demolition work to be performed by the Lessee pursuant to paragraph (n) of the
Section of this Agreement entitled "Construction by the Lessee"
(c) The term "Hazardous Materials", as used herein, shall mean
any flammables, explosives, radioactive materials, hazardous wastes, hazardous
and toxic substances or related materials, asbestos or any material containing
asbestos (as defined in the guidelines established by the EPA) and set forth in
the EPA publication entitled "Guidelines for Controlling Asbestos Containing
Materials in Buildings" (EPA 560/5-85-024, June 1985), or any other substance or
material included in the definition of "hazardous substances", "hazardous
wastes", "hazardous materials", "toxic substances", "contaminants" or any other
pollutant, regulated by any federal, state or local environmental law,
ordinance, rule or regulation, including the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended, the Hazardous
Materials Transportation Act, as amended, and the Resource Conservation and
Recovery Act, as amended, and in the regulations adopted and publications
promulgated pursuant to each of the foregoing Acts. Subject to all of the
provisions of this Agreement (including, but not limited to, Section 39 of this
Agreement entitled "Force Majeure") the Port Authority through its employees,
agents, contractors, and subcontractors, and at its sole cost and expense, shall
if required by law remove or cause to be removed in accordance with all
applicable legal requirements from the premises (provided none of the same was
caused or introduced into the premises by the Lessee, its officers, directors,
partners, agents, members, employees, representatives and contractors) any
Hazardous Materials or shall take such remediation measures with respect thereto
as is required by law (provided none of same was caused or introduced into the
premises by the Lessee, its officers, directors, partners, agents, members,
employees, representatives and contractors) and shall remove or caused to be
removed from the premises any asbestos and asbestos containing material,
discovered or uncovered, whether by the Lessee, the Port Authority or by others,
in the course of performing construction or installation work in the premises or
at any time during the term of the letting, except for certain non-friable
asbestos which may remain within enclosed perimeter columns and in the enclosed
diagonal building walls in the four corners of the building in which the
premises is located, which remaining asbestos and asbestos containing materials
shall remain encased or enclosed and inaccessible and shall not be penetrated by
the Lessee. In addition to any other rights of entry reserved to the Port
Authority under this Agreement, the Port Authority reserves for itself, its
employees, agents, contractors, and subcontractors the right to enter the
premises subject to the provisions of Section 16 hereof entitled "Right of Entry
Reserved" at any time and from time to time in order to perform the asbestos and
Hazardous Materials removal work described in this paragraph, and, in the event
that such removal or remediation work (other than the removal of vinyl asbestos
tile) shall be performed in Area A or Area A-1 prior to the Rent Commencement
Date for that Area, the Lessee shall be entitled to a credit against its rental
obligations next becoming due in the amount of the daily basic rental for that
Area (as defined in paragraph (c) of the Section of this Agreement entitled
"Term") for each day in which the Lessee is unable to perform its construction
and installation work or to use the premises for the purposes set forth in the
Section of this Agreement entitled "Rights of User", as the case may be, by
reason of such removal or remediation. In performing such removal and
replacement work the Port Authority shall use reasonable efforts to minimize the
disruption to the Lessee's business and shall restore the premises in the manner
specified in paragraph (b) of the Section of this Agreement entitled "Rights of
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Entry Reserved" (including performance of such work other than during normal
business hours to the extent required pursuant to the provisions of paragraph
(l) of the said Section of this Agreement entitled "Rights of Entry Reserved").
The Lessee shall not knowingly do anything during the term of the letting of the
premises which may involve or affect any Hazardous Materials or any asbestos or
asbestos-containing materials which may be or may be found to be present in the
premises except in accordance with any law, rule, regulation, requirement, order
or direction of any governmental authority applicable thereto or which would be
applicable if the building of which the premises are a part were under private
ownership.
(d) The Port Authority covenants and warrants that, as of the
Lease Commencement Date, the portions of the premises and those portions of the
World Trade Center necessary for access to the premises from the streets
adjacent to the building in which such portions of the premises are located
shall comply with those provisions of the ADA applicable to the Port Authority,
except with respect to those portions of the World Trade Center and the premises
to be modified in the course of the performance of the Port Authority Work to
bring them into compliance with the ADA.
Section 47. Termination by the Lessee
(a) The Lessee shall have the right to terminate this
Agreement and the letting hereunder, as to the entire premises or, at the
election of the Lessee, as to each of Area A, Area A-1 or any contiguous block
of Additional Space consisting of more than fifty thousand (50,000) rentable
square feet, such termination to be effective solely on the day preceding the
tenth (10th) anniversary of the Lease Commencement Date, provided, that (1) the
Lessee shall have given to the Port Authority unconditional written notice of
its election so to terminate, received by the Port Authority not later than five
hundred forty-eight (548) days prior to such tenth (10th) anniversary of the
Lease Commencement Date and (2) such notice shall be accompanied by a certified
or cashier's check, payable to the Port Authority and drawn on a banking
institution having its main office within the Port of New York District, in an
amount equal to the sum of (i) in the event that the Lessee has elected to
terminate the letting of Area A, One Million Four Hundred Eighty-four Thousand
Ninety-five Dollars and No Cents ($1,484,095.00), plus (ii) in the event that
the Lessee has elected to terminate the letting of Area A-1, One Million Four
Hundred Seventy-nine Thousand Seven Hundred Dollars and No Cents
($1,479,700.00), plus (iii) in the event that the Lessee has elected to
terminate the letting of any Additional Space added to the premises pursuant to
the provisions of the Section of this Agreement entitled "Additional Space", for
each such Additional Space, an amount equal to the product of the number of
rentable square feet in such Additional Space multiplied by the dollar amount
set forth in the column headed "Termination Payment Per Rsf" on the schedule
attached hereto, hereby made a part hereof and marked "Schedule E" opposite the
number of months in the period commencing on the commencement of the letting of
such Additional Space and ending on such tenth (10th) anniversary (without
regard to whether the letting of such Area or Additional Space is terminated by
itself, together with other portions of the premises or as part of the entire
premises).
(b) No notice of termination served by the Lessee in
accordance with paragraph (a) of this Section shall be effective (and any such
given shall be deemed null and void) if (1) on the date of the giving of such
notice or on the intended effective date thereof, the Lessee is in default
(after the giving of any required notice and the expiration of any subsequent
period to cure such default specifically provided for in this Agreement) in the
payment of any amount of basic rent, additional basic rent or cleaning or
electricity charges, or if on the date of the giving of said notice the Lessee
has been served with a notice of termination of this Agreement by the Port
Authority or if on the date of the giving of said notice this Agreement is not
then in full force and effect or (2) the
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Lessee fails to pay the full amount required under subparagraph (2) of said
paragraph (a) under the circumstances described in such paragraph (2). If the
Port Authority has received any payment in connection with an ineffective notice
of termination, said payment may be retained by the Port Authority and applied
to any sums then owing to the Port Authority from the Lessee or, in the event
that such notice is ineffective by reason that the Lessee is in default of any
monetary obligation payable to the Port Authority, any sums which may become due
to the Port Authority under the provisions of the Lease entitled "Survival of
the Obligations of the Lessee", and any excess over the amount of such sums
shall be refunded to the Lessee, within thirty (30) days after demand therefor.
The Lessee shall have no right to terminate the letting as to a portion of the
premises nor on other than the specified effective date set forth above and, in
any case, shall only have a right to terminate the letting if the necessary
prior notice has been served in a timely manner.
(c) In the event of an effective notice of termination by the
Lessee under this Section, the letting under the Lease with respect to the
premises shall cease and expire on the effective date of termination as fully
and completely as if such date were the expiration date of the letting set forth
in this Agreement.
Section 48. Certain Obligations of the Port Authority
(a) Except for those obligations expressly assumed by the
Lessee under the provisions of this Agreement, the Port Authority, at its cost
and expense, will operate, clean, and maintain and make all necessary repairs
and replacements (both structural and non-structural) to the public portions and
common areas of the World Trade Center providing access to the premises, the
structural components of such Building, (by which is meant the exterior walls,
roof, columns, floor slabs (both above and below the premises) and other
structural Building supporting members) and to those systems and all parts
thereof providing services and utilities to the premises which the Port
Authority has expressly undertaken to supply to the Lessee pursuant to the
provisions of this Agreement, and will continue to operate and maintain the
Building and its life-safety systems in substantially the same manner and at the
level existing on the date of this Agreement. The Port Authority agrees to
comply with the substantive requirements of the life safety provisions of the
New York City Building Code (or to comply in a manner which in the Port
Authority's opinion is equivalent to compliance with such provisions of such
Code) to the following extent: (i) in the public and common areas of the
Building and in all other public and common areas of the World Trade Center (if
such life safety provisions affect systems or equipment in such other public
areas of the World Trade Center which service or otherwise impact on the
Building or such life safety provisions affect the Lessee's access to the
premises) (ii) in the non-office areas of the premises, and (iii) all
electrical, plumbing, HVAC and other systems in such Building affecting the
premises, provided, that nothing herein shall be construed to require the Port
Authority to make any improvements or perform any work in the office portions of
the Lessee's premises, except as otherwise specifically set forth in this
Agreement, and nothing herein shall be construed to relieve the Lessee of its
obligations to comply with the provisions of the Section of this Agreement
entitled "Governmental Requirements". Nothing in this Section shall be or be
deemed to be a recognition that said New York City Building Code is applicable
to the World Trade Center or to any other facilities owned or operated by the
Port Authority or that the Port Authority is required by any law, rule,
regulation, order or direction to conform to or comply with the New York City
Building Code. The Port Authority will maintain, operate and make all repairs
and replacements to the Building in compliance with the substantive provisions
of all laws, ordinances, enactments, resolutions, rules, regulations,
requirements, orders and directions with which the Lessee is not required to
comply by the provisions of the Section of this Agreement entitled "Governmental
Requirements" and lack of
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compliance with which would prevent the Lessee from operating in the premises in
the manner set forth in the Section of this Agreement entitled "Rights of User
by the Lessee" or adversely affect other than in an immaterial manner such
operations, but nothing in this Section is intended to modify the provisions of
paragraphs (h) and (i) of the Section of this Agreement entitled "Services and
Utilities" or the provisions of paragraph (c) of the Section of this Agreement
entitled "Force Majeure". The provisions of this Section shall not be deemed to
require the Port Authority to deliver additional services to the premises or to
deliver services at a higher level or to a greater degree or more stringent
specification than specifically provided in the Sections of this Agreement
entitled "Construction by the Lessee" and "Services and Utilities" and in
Schedule D attached to this Agreement.
(b) In the event that (1) the Port Authority shall fail to
perform any of its maintenance, repair or law compliance obligations set forth
in this Section or any such obligations which may be expressly set forth
elsewhere in this Agreement, (other than the obligations to maintain the public
areas of the Building, to make structural repairs to the exterior walls, floor
slab and structural building supporting members, to maintain the automatic
sprinkler system, fire alarm system, or other life safety systems forming a part
of such Building, or to maintain the electrical, plumbing, HVAC and other
systems in the Building), (2) the Lessee shall give the Port Authority specific
notice of such failure, and (3) the Port Authority shall not have performed such
obligation within thirty (30) days after the Port Authority's receipt of such
notice (except where performance of such obligation requires activity over a
period of time, and the Port Authority shall have commenced such performance
within thirty (30) days after the Port Authority's receipt of such notice and
continues diligently such performance without interruption except for causes
beyond its control), then, in such event, the Lessee may give to the Port
Authority notice that the Lessee intends to perform such obligation and in the
further event that the Port Authority shall not have performed such obligation
within ten (10) days after the Port Authority's receipt of such latter notice
(except where performance of such obligation requires activity over a period of
time, and the Port Authority shall have commenced such performance within ten
(10) days after the Port Authority's receipt of such latter notice and continues
diligently such performance without interruption except for causes beyond its
control), then, in such further event the Lessee may perform such obligation
itself and, within thirty (30) days of delivery to the Port Authority of
receipts, invoices, certificates or other evidence reasonably satisfactory to
the Port Authority evidencing the Lessee's reasonable out-of-pocket costs of
performance of such obligation, the Port Authority shall pay to the Lessee the
amount of such cost, such cost of the Lessee to be determined in accordance with
the provisions of paragraph (b) of the Section of this agreement entitled
"Additional Rent and Charges", together, in the event that the full amount of
such cost is not paid by the Port Authority on or before the thirtieth (30th)
day following such delivery, with interest on the unpaid portion of such cost at
the rate of nine per cent (9%) per annum for the period commencing on the
thirty-first (31st) day following such delivery and ending on the date of
payment thereof. Nothing in this paragraph is included or shall be deemed to
permit the Lessee to perform any work in connection with which the Lessee would
be required to file a construction application pursuant to the provisions of the
Section of this Agreement entitled "Construction by the Lessee" without
complying with the provisions of said Section.
(c) Subject to all of the provisions of the Section of this
Agreement entitled "Insurance" the Port Authority shall indemnify and hold
harmless the Lessee, its directors, officers, members, partners, employees,
representatives, contractors and agents from (and shall reimburse the Lessee for
the Lessee's reasonable out of pocket costs or expenses including reasonable out
of pocket legal expenses incurred in connection with the defense of) all claims
and demands of third persons, including, but not limited to, those for death,
for personal injuries, or for property damages, arising (i) out of any default
of the Port Authority in performing or observing the obligations expressly
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undertaken by the Port Authority pursuant to the provisions of this Agreement or
(ii) out of any of the negligent acts or omissions or willful misconduct of the
Port Authority, its Commissioners, officers, agents, employees, representatives,
contractors, guests, invitees, and other persons who are doing business with the
Port Authority or who are on or at the premises at the express direction of the
Port Authority where such negligent acts or omissions or willful misconduct
occur on the premises or (iii) arising out of any negligent acts or omissions or
willful misconduct of the Port Authority, its Commissioners, officers, agents,
employees, contractors and representatives where such negligent acts or
omissions or willful misconduct are elsewhere at the World Trade Center. The
Port Authority shall at its own expense defend any suit based upon any such
claim or demand (even if such suit, claim or demand is groundless, false or
fraudulent). In the event that an action to recover amounts based upon any such
claim or demand is commenced against the Lessee, the Lessee will notify the Port
Authority of such commencement, as soon as practicable after the service on the
Lessee of the papers commencing such action, and shall promptly forward copies
of the papers commencing such action to the Port Authority. Nothing herein shall
be deemed to prohibit the Port Authority from selecting its own counsel or
utilizing counsel of the Port Authority's insurer in connection with the Port
Authority's defense of any suit based on any claim or demand set forth in this
paragraph (c) or be deemed to prohibit the Port Authority from settling any such
claim or demand so long as such settlement does not require any payment from the
Lessee or any other indemnified party. Nothing in the foregoing shall be
construed to require the Port Authority to indemnify the Lessee from claims and
demands of third persons to the extent such claims and demands arise from the
willful misconduct or negligent acts or omissions of the Lessee, its directors,
officers, agents, employees, corporations, representatives, guests, invitees and
other persons who are doing business with the Lessee. The provisions of this
paragraph (c) and the Port Authority's indemnification of the Lessee shall not
extend to or include claims or demands arising out of the acts or omissions of
the Port Authority acting in its governmental capacity with respect to (i) the
review of the Lessee's Construction Applications and the plans and
specifications attached thereto and any recommended actions or requirements made
in connection therewith or (ii) the inspection by the Port Authority of the work
performed by the Lessee pursuant thereto. Nothing set forth in this paragraph
(c) is intended or shall be deemed to alter the obligations of the Lessee and
the Port Authority with respect to damage to the property of the Lessee or of
the Port Authority in the event that the premises are damaged by a casualty,
which obligations shall be as provided in Section 9 of this Agreement entitled
"Casualty".
(d) The Port Authority shall provide to the Lessee ten (10)
non-reserved parking spaces (hereinafter sometimes called the "Parking Spaces")
in such locations in the World Trade Center parking garage as shall be
designated from time to time by the Port Authority. The Parking Spaces will be
provided to the Lessee for the period commencing on the Lease Commencement Date
and continuing throughout the term of the letting under this Agreement. The
Lessee agrees that the Parking Spaces will be used solely by the Lessee's
officers and employees, and that such use thereof shall be subject to and upon
all of the terms, provisions, and conditions contained in the form of parking
permit attached hereto, hereby made a part hereof and marked "Exhibit P"
(hereinafter sometimes called the "Permit") as the same may be hereafter
supplemented or amended or such other agreement with the Port Authority or other
operator of the World Trade Center parking garage as may from time to time be
substituted therefor. The Lessee agrees to pay the parking fees imposed by the
Port Authority or other operator of the World Trade Center parking garage as
such fees may be increased from time to time by the Port Authority or such other
operator. The Lessee upon prior written notification to the Port Authority from
time to time may reduce the number of parking spaces it is entitled to receive
hereunder and from and after the effective date set forth in any such
notification the Port Authority will no longer be obligated to provide the
Lessee with ten (10) parking spaces but will only be obligated to provide the
Lessee with such reduced number of parking
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spaces requested by the Lessee. Without otherwise limiting the provisions of the
Permit, the Lessee agrees that the Port Authority's right to terminate the
Permit without cause on thirty (30) days' notice as set forth in Section 1 of
the Terms and Conditions thereof shall be exercised only in the event that any
or all of the Parking Spaces are required by the Port Authority for reasons of
security, law compliance, construction or other reasonable purposes, and in such
event the Port Authority shall provide the Lessee with substitute parking spaces
in the World Trade Center parking garage. No Parking Spaces will be provided to
the Lessee until a Permit covering each of the Parking Spaces to be provided
hereunder is executed by the Lessee and the Port Authority and delivered to the
Lessee. The Port Authority shall execute and deliver such Permit(s) to the
Lessee within fifteen (15) business days after receipt of the same properly
executed by the Lessee. Without limiting any of the provisions of the Permit,
the Port Authority shall have no obligation to police the use of the Parking
Spaces or of the World Trade Center parking garage or to remove unauthorized
users therefrom and shall have no liability to the Lessee for failure to so
police or to remove unauthorized users therefrom. The Lessee acknowledges and
agrees that its use of the Parking Spaces shall continue only so long as the
World Trade Center parking garage continues in operation as a public parking
facility. Use of the World Trade Center parking garage by governmental entities
and/or its employees shall not constitute the parking garage a public parking
facility for purposes of this paragraph (d).
Section 49. Additional Provisions
(a) Neither the Lessee nor the Port Authority shall record
this Agreement. The Lessee may, at its sole cost and expense, record a
memorandum of this Agreement, prepared by it at its sole cost and expense,
reasonably satisfactory to the Port Authority, and the Port Authority agrees to
execute such memorandum within fifteen (15) business days after request
therefor. If the Lessee so records such memorandum, it shall, at its sole cost
and expense, record a memorandum reasonably satisfactory to the Port Authority
of each and every modification, extension, supplement, assignment, surrender, or
other amendatory agreement relating thereto, which memorandum shall be prepared
by and at the sole cost and expense of the Lessee, in a timely fashion.
(b) If any term, covenant, condition or provision of this
Agreement or the application thereof to any circumstance or to any person, firm
or corporation shall be invalid or unenforceable to any extent, the remaining
terms, covenants, conditions and provisions of this Agreement or the application
thereof to any circumstances or to any person, firm or corporation other than
those as to which any term, covenant, condition or provision is held invalid or
unenforceable, shall not be affected thereby and each remaining term, covenant,
condition and provision of this Agreement shall be valid and shall be
enforceable to the fullest extent permitted by law.
(c) Whenever this Agreement shall provide that the Port
Authority or Lessee shall pay the out-of-pocket costs of the other party, (1)
such out-of-pocket costs shall be commercially reasonable, (2) whenever a party
requests reimbursement for its out-of-pocket costs, upon request of the other
party, such party shall deliver to the requesting party bills, receipts,
invoices or other documentation reasonably evidencing such costs, and (3) in the
event such documentation is not so delivered within five (5) days after request
therefor, the time periods set forth herein with respect to any such payments
shall be tolled until five (5) days after delivery to the requesting party of
such documentation.
(d) With respect to any claim that either party to this
Agreement may assert against the other party pursuant to this Agreement and
subject to the proviso later occurring in this
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sentence, it is hereby agreed that neither party to this Agreement may assert a
claim against the other for consequential or special damages provided, however
that nothing herein shall be construed to prevent the Port Authority from
seeking indemnification from the Lessee pursuant to the Section of this
Agreement entitled "Indemnity" or pursuant to any other Section of this
Agreement, if applicable, or to prevent the Lessee from seeking indemnification
from the Port Authority pursuant to paragraph (c) of the Section of this
Agreement entitled "Certain Obligations of the Port Authority" or any other
Section of this Agreement, if applicable, from and against claims and demands of
unaffiliated third persons for consequential or special damages.
(e) In any instance where the provisions of this Agreement
specifically provide for resolution of disputes by arbitration, it is understood
that a determination by arbitration in any such instance shall be that
determination agreed upon by at least two (2) of the three arbitrators and if at
least two (2) arbitrators are unable to so agree then a determination by
arbitration shall be that determination made by the third arbitrator who was
mutually selected by the arbitrator selected by the Port Authority and the
arbitrator selected by the Lessee (or as selected in accordance with the then
existing rules of the American Arbitration Association).
Section 50. Security Deposit or Letter of Credit
(a) In the event that the Lessee shall be required to maintain
a security deposit in accordance with the provisions of subparagraph (5) of
paragraph (a) of the Section of this Agreement entitled "Termination", the
Lessee shall deposit with the Port Authority (and, except as otherwise provided
in this Section, shall keep deposited throughout the letting under this
Agreement) either the sum of One Million Five Hundred Fifty-seven Thousand Four
Hundred Fifty Dollars and No Cents ($1,557,450.00) in cash, or bonds of the
United States of America, or of the State of New Jersey, or of the State of New
York, or of The Port Authority of New York and New Jersey, having a market value
of that amount, as security for the full, faithful and prompt performance of and
compliance with, on the part of the Lessee, all of the terms, provisions,
covenants and conditions of this Agreement on its part to be fulfilled, kept,
performed or observed. Bonds qualifying for deposit hereunder shall be in bearer
form but if bonds of that issue were offered only in registered form, then the
Lessee may deposit such bond or bonds in registered form, provided, however,
that the Port Authority shall be under no obligation to accept such deposit of a
bond in registered form unless such bond has been re-registered in the name of
the Port Authority (the expense of such re-registration to be borne by the
Lessee) in a manner satisfactory to the Port Authority. The Lessee may request
the Port Authority to accept a registered bond in the Lessee's name and if
acceptable to the Port Authority the Lessee shall deposit such bond together
with a bond power (and such other instruments or other documents as the Port
Authority may require) in form and substance satisfactory to the Port Authority.
In the event the deposit is returned to the Lessee any expenses incurred by the
Port Authority in re-registering a bond to the name of the Lessee shall be borne
by the Lessee. In addition to any and all other remedies available to it, the
Port Authority shall have the right, at its option, at any time and from time to
time, with or without notice, to use the deposit or any part thereof in whole or
partial satisfaction of any of its claims or demands against the Lessee arising
out of any default by the Lessee (after the giving of any required notice
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and the expiration of any subsequent period to cure such default specifically
provided for in this Agreement) of its obligations under this Agreement . There
shall be no obligation on the Port Authority to exercise such right and neither
the existence of such right nor the holding of the deposit itself shall cure any
default or breach of this Agreement on the part of the Lessee. With respect to
any bonds deposited by the Lessee, the Port Authority shall have the right, in
order to satisfy any of its claims or demands against the Lessee arising out of
any default by the Lessee (after the giving of any required notice and the
expiration of any subsequent period to cure such default specifically provided
for in this Agreement) of its obligations under this Agreement, to sell the same
in whole or in part, at any time and from time to time, with or without prior
notice at public or private sale, all as determined by the Port Authority,
together with the right to purchase the same at such sale free of all claims,
equities or rights of redemption of the Lessee. The Lessee hereby waives all
right to participate therein and all right to prior notice or demand of the
amount or amounts of the claims or demands of the Port Authority against the
Lessee prior to realizing the value of such security, but nothing in this
sentence shall be deemed to waive any notice expressly required by this
Agreement prior to a default becoming an event giving rise to a right to
terminate the letting under the Section of this Agreement entitled
"Termination". The proceeds of every such sale shall be applied by the Port
Authority first to the costs and expenses of the sale (including but not limited
to advertising or commission expenses) and then to the amounts due the Port
Authority from the Lessee. Any balance remaining shall be retained in cash
toward bringing the deposit to the sum specified above. In the event that the
Port Authority shall at any time or times so use the deposit, or any part
thereof, or if bonds shall have been deposited and the market value thereof
shall have declined below the above-mentioned amount, the Lessee shall, on
demand of the Port Authority and within two (2) days thereafter, deposit with
the Port Authority additional cash or bonds so as to maintain the deposit at all
times to the full amount above stated, and such additional deposits shall be
subject to all the conditions of this Section. After the expiration or earlier
termination of the letting under this Agreement as the said letting may have
been extended, and upon condition that the Lessee shall then be in no wise in
default under any part of this Agreement, as this Agreement may have been
amended or extended (or both), and upon written request therefor by the Lessee,
the Port Authority will return the deposit to the Lessee less the amount of any
and all unpaid claims and demands (including estimated damages) of the Port
Authority by reason of any default or breach by the Lessee of this Agreement or
any part thereof. In the event the Lessee has deposited the sum set forth above,
or a letter of credit in lieu thereof pursuant to paragraph (b) of this Section,
with the Port Authority and during any consecutive two (2)-year period
thereafter the Lessee's net tangible assets have continuously had a value of
Sixty Million Dollars and No Cents ($60,000,000.00) or more, then the Port
Authority, within thirty (30) days after request by the Lessee, will return to
the Lessee its entire security deposit (or such letter of credit), or such
portion thereof remaining on deposit with the Port Authority, provided, the
Lessee is not then in default of any of its obligations under this Agreement
(after the giving of any required notice and the expiration of any subsequent
period to cure such default specifically provided for in this Agreement) and the
Lessee can demonstrate to the reasonable satisfaction of the Port Authority
(based upon financial statements certified by an independent certified public
accountant) that the value of the Lessee's net tangible assets did not fall
below Sixty Million Dollars and No Cents ($60,000,000.00) during such two
(2)-year period. The Lessee agrees that it will not assign or encumber the
deposit. The Lessee may collect or receive any interest or income earned on
bonds and interest paid on cash deposited in interest-bearing bank accounts,
less any part thereof or amount which the Port Authority is or may hereafter be
entitled or authorized by law to retain or to charge in connection therewith,
whether as or in lieu of an administrative expense, or custodial charge, or
otherwise; provided, however, that the Port Authority shall not be obligated by
this provision to place or to keep cash deposited hereunder in interest-bearing
bank accounts.
(b) In lieu of the security deposit required pursuant to
paragraph (a) of this Section the Lessee may deliver to the Port Authority, as
security for all obligations of the Lessee under this Agreement, a clean
irrevocable letter of credit issued by a banking institution satisfactory to the
Port Authority and having its main office within the Port of New York District,
in favor of the Port Authority in the amount of One Million Five Hundred
Fifty-seven Thousand Four Hundred Fifty Dollars and No Cents ($1,557,450.00).
The form and terms of such letter of credit, as well as the institution issuing
it, shall be subject to the prior and continuing approval of the Port Authority.
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Such letter of credit shall provide that it shall continue throughout the term
of the letting under this Agreement and for a period of not less than six (6)
months thereafter; such continuance may be by provision for automatic renewal or
by substitution of a subsequent satisfactory letter. Upon notice of cancellation
of a letter of credit the Lessee agrees that unless, by a date twenty (20) days
prior to the effective date of cancellation, the letter of credit is replaced by
security in the amount required in accordance with paragraph (a) of this Section
or another letter of credit satisfactory to the Port Authority, the Port
Authority may draw down the full amount thereof and thereafter the Port
Authority will hold the same as security under paragraph (a) of this Section.
Failure to provide such letter of credit at any time during the term of the
letting during which the Lessee is required to maintain a security deposit which
is valid and available to the Port Authority, including any failure of any
banking institution issuing any such letter of credit previously accepted by the
Port Authority to make one or more payments as may be provided in such letter of
credit shall be deemed to be a breach of this Agreement on the part of the
Lessee. Upon acceptance of such letter of credit by the Port Authority, and upon
request by the Lessee made thereafter, the Port Authority will return any
security deposit theretofore made under and in accordance with the provisions of
paragraph (a) of this Section. The Lessee shall have the same rights to receive
such deposit during the existence of a valid letter of credit as it would have
to receive such sum upon expiration of the letting and fulfillment of the
obligations of the Lessee under this Agreement. If the Port Authority shall make
any drawing under a letter of credit held by the Port Authority hereunder, the
Lessee on demand of the Port Authority and within two (2) days thereafter, shall
bring the letter of credit back up to its full amount.
(c) No action by the Port Authority pursuant to the terms of any letter of
credit, or receipt by the Port Authority of funds from any bank issuing any such
letter of credit, shall be or be deemed to be a waiver of any default by the
Lessee under the terms of this Agreement and all remedies under this Agreement
of the Port Authority consequent upon such default shall not be affected by the
existence of or a recourse to any such letter of credit.
(d) For purposes of the provisions set forth in paragraph (a) above the Lessee
hereby certifies that its I.R.S. Employer Identification No. is 13-1964616.
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Section 51. Entire Agreement
This Agreement consists of the following: pages 1 through 127,
inclusive, plus Exhibits A, A-1, C, P, X, Y and R, Schedules A, A-1, B, D and E.
It constitutes the entire agreement of the parties on the subject matter hereof
and may not be changed, modified, discharged or extended except by written
instrument duly executed by the Port Authority and the Lessee. The Lessee agrees
that no representations or warranties shall be binding upon the Port Authority
unless expressed in writing in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed these
presents as of the day and year first above written.
ATTEST: THE PORT AUTHORITY OF NEW YORK
AND NEW JERSEY
/s/ Karen E. Eastman By /s/
- -------------------------------- ---------------------------------
Assistant Secretary (Title) Director of Real Estate
----------------------------
(SEAL)
ATTEST: KEEFE, BRUYETTE & WOODS, INC.
/s/ Josephine A. Fink By /s/ Guy Woelk
- -------------------------------- ---------------------------------
Secretary Title Executive Vice-President
------------------------------
(CORPORATE SEAL)
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INDEX OF DEFINED TERMS
ADA...................................................................... 87
Additional Space......................................................... 82
Approved Contractor List................................................. 23
Area A-1 Rent Commencement Date.......................................... 5
Area A-1 Commencement Date............................................... 1
Area A Commencement Date................................................. 1
Area A Rent Commencement Date............................................ 5
Area..................................................................... 1
Attornment Agreement..................................................... 49
Availability Notice...................................................... 79
basic wage rate.......................................................... 80
basic wage rate.......................................................... 74
Bathroom Work............................................................ 36
Building................................................................. 64
Casualty Notice.......................................................... 16
Causes or conditions beyond the control.................................. 64
Chilled Water Agreement.................................................. 80
construction and installation work....................................... 21
consumption and demand................................................... 75
control.................................................................. 48
Cost..................................................................... 38
Cost Factor.............................................................. 25
daily basic rental for Area A............................................ 2
daily rate of additional basic rental per rentable square foot........... 25
daily rate of basic rental per rentable square foot...................... 25
daily basic rental for Area A-1.......................................... 2
Delay Period............................................................. 24
Engineers................................................................ 81
EPA...................................................................... 87
Estimate................................................................. 12
Existing Lease........................................................... 55
Expiration Date.......................................................... 1
fair market rental value................................................. 86
First Class Owners....................................................... 15
governmental............................................................. 7
governmental agency...................................................... 7
governmental authority................................................... 7
Hazardous Materials...................................................... 88
Lease Commencement Date.................................................. 1
Legal Requirements....................................................... 6
Lessee's cost............................................................ 34
Lessee's Finishing Work Allowance........................................ 33
Lessee's initial construction and installation work...................... 23
Materially Revised Estimate.............................................. 14
New Lessee............................................................... 50
New Lease................................................................ 50
Normal business hours.................................................... 64
Notice Period............................................................ 32
Outside Revised Estimate Date............................................ 14
overtime usage........................................................... 73
Owner.................................................................... 61
Parking Spaces........................................................... 92
PASNY.................................................................... 75
Permit................................................................... 92
Port Authority's Determination........................................... 85
<PAGE>
premises................................................................. 1
private space............................................................ 61
Rent Commencement Date................................................... 5
Revised Estimate......................................................... 14
self insurer............................................................. 68
Statutes................................................................. 10
subleasing expenses...................................................... 47
Surrender Date........................................................... 55
surrendered premises..................................................... 55
Tenant Design Guide...................................................... 19
Thirty Day Period........................................................ 12
Threshold Amount......................................................... 68
utility, mechanical, electrical, communication and other systems......... 64
Wage rate................................................................ 74
Wage rate................................................................ 80
World Trade Center....................................................... 64
<PAGE>
SCHEDULE A
1. For the purposes of this Schedule, the following terms shall have
the respective meanings provided below:
(a) The "annual per rentable square foot factor" referred to
in this Schedule was initially fixed at $1.25 in the City Agreement (as
hereinafter defined) and provision was made in paragraph 7(3) of the City
Agreement for changes therein from time to time to reflect changes in the tax
rate and changes in assessed valuations.
(b) "Amortized Expenses" shall mean the annual amortization of
expenditures incurred by the Port Authority during the term of the letting under
the Lease (as hereinafter defined) on a straight-line basis over a depreciable
life in accordance with generally accepted accounting principles, consistently
applied by the Port Authority, (with interest calculated at an annual rate (the
"Applicable Rate") equal to two (2) percentage points above the last twelve (12)
month average of the twenty-five (25) year bond Revenue Bond Index as published
each Friday in the "Bond Buyer" at the time the Port Authority makes such
expenditure) for any equipment, device or capital improvement (i) which may be
required by the insurance carriers providing insurance coverage on the Facility
(as hereinafter defined) or on any part thereof, provided that such equipment,
device or capital improvement is then customarily required by insurance carriers
providing coverage for first class office buildings in the downtown area of
Manhattan containing one million or more rentable square feet (ii) the use or
presence of which equipment, device or capital improvement at the Facility will
reduce the premiums charged by the insurance carriers providing such insurance
coverage (and the amortization in respect of which for any Escalation Year shall
not exceed the amount by which the said premium was so reduced for any such
Escalation Year), (iii) which is required by law which first takes effect after
the execution of the Lease by the parties thereto or (iv) which is reasonably
designed as a cost-saving measure (and the amortization in respect of which for
any Escalation Year shall not exceed the amount of actual savings for any such
Escalation Year) in the operation or maintenance of the Facility.
Notwithstanding the foregoing, Amortized Expenses shall exclude expenditures for
any equipment, device or capital improvement made as part of the planned capital
upgrade program for the electrical, HVAC, elevator systems and other systems in
the Facility.
(c) "Base Operating Year" shall mean the calendar year 1999.
(d) "City Agreement" shall mean that certain agreement between
the Port Authority and the City of New York dated 1967, as it may have been or
may hereafter be supplemented or amended.
(e) "Escalation Year" shall mean each calendar year subsequent
to the Base Operating Year which shall include any part of the term of the
letting under the Lease.
(f) "Estimate Statement" shall mean, with respect to any
Escalation Year, a written statement setting forth in reasonable detail the Port
Authority's reasonable estimates of Operating Expenses (as hereinafter defined)
and additional basic rental under Paragraph 3 of this Schedule for such
Escalation Year.
Page 1 of Schedule A
<PAGE>
(g) "Facility" for the purposes of this Schedule only, shall
mean the World Trade Center as defined in paragraph (a) of Section 36 of the
Lease, except that there shall be excluded therefrom the following buildings
commonly known as Three World Trade Center (World Trade Center Marriott Hotel),
Six World Trade Center (U.S. Customs House) and Seven World Trade Center.
(h) "Lease" shall mean the agreement of lease to which this
Schedule is attached.
(i) "Lessee's Proportionate Share" shall mean that fraction,
the numerator of which is the number of Rentable Square Feet in the Premises and
the denominator of which is the number of rentable square feet in the Facility,
exclusive of the subgrade space (other than subgrade office space) and all
retail space, which fraction may be expressed as a percentage. The Lessee and
the Port Authority agree that, as of the date hereof, the number of rentable
square feet in the Facility, exclusive of the subgrade space (other than
subgrade office space) and all retail space, is 10,173,368 rentable square feet.
Accordingly, the Lessee's Proportionate Share is nine thousand six hundred
thirteen ten thousandths of one percent (0.9613%), provided, that from and after
the Area A Rent Commencement Date and prior to the Area A-1 Rent Commencement
Date (as such terms are defined in the Lease) the Lessee's Proportionate Share
shall be four thousand eight hundred fifty-eight ten thousandths of one percent
(0.4858%), provided, further, that in the event that the Area A-1 Rent
Commencement Date shall precede the Area A Rent Commencement Date, the Lessee's
Proportionate Share shall be four thousand seven hundred fifty-five ten
thousandths of one percent (0.4755%) in the period commencing on the Area A-1
Rent Commencement Date and ending on the day preceding the Area A Rent
Commencement Date. The Port Authority and the Lessee hereby expressly
acknowledge and agree that the Lessee's Proportionate Share as set forth above
is the percentage as agreed by the Port Authority and the Lessee and shall not
be subject to change, redetermination or remeasurement whatsoever for any
reason, except as set forth in the preceding sentence, except that such
percentage shall be subject to change by reason of an alteration or improvement
made to the Facility which physically increases or decreases the total number of
rentable square feet in the Facility, exclusive of the subgrade space (other
than subgrade office space) and all retail space and except as provided in
subparagraph (c) of Paragraph 3 of this Schedule A. If the number of Rentable
Square Feet in the Premises shall be increased or decreased, the Lessee's
Proportionate Share shall be increased or decreased to take into account such
change in the number of Rentable Square Feet in the Premises, measured on a
consistent basis with the manner in which the number of Rentable Square Feet in
the Premises have been measured as of the date hereof. In no event shall the
Lessee's Proportionate Share be increased by reason of the leasing by the Lessee
of any subgrade space (other than subgrade office space) or retail space in the
Facility.
(j) "Operating Expenses" shall mean the total of Amortized
Expenses and all other reasonable costs and expenses (and taxes thereon, if
any), without duplication, accrued to or by or incurred by or on behalf of the
Port Authority with respect to the operation, maintenance, repair, servicing,
cleaning and policing of the entire Facility, other than space used or intended
to be used exclusively for retail purposes and subgrade space used or intended
to be used for storage purposes, including but not limited to all buildings and
structures, equipment, systems, elevators, escalators, bridges, truck docks,
generators, fuel tanks, common areas, public areas, passageways, lobbies and
mezzanines, sidewalks, curbs, plazas, concourses and other areas adjacent to the
Facility, and with respect to the utilities and services provided Tenants, as
hereinafter defined, subject to clauses (6) and (21) below, sewer and water
rents, rates and charges and annual management fees equal to four percent (4%)
of the total of basic rental, additional basic rental and other charges paid to
the Port Authority by Tenants of the Facility other than Tenants leasing or
occupying retail space
Page 2 of Schedule A
<PAGE>
and non-office subgrade space (subject to the adjustment hereinafter provided
for in this paragraph (j)), provided, however, that Operating Expenses shall
exclude or have deducted, as appropriate:
(1) the compensation to executives, officers and other
personnel above the grade of building manager (consisting of labor
costs and fringe benefits and including without limitation thereto
wages, salaries, bonuses, administrative costs, payroll, social
security, unemployment and other similar taxes, disability benefits,
hospitalization and medical benefits, workers' compensation insurance,
pension, retirement or insurance plans and other similar benefits) and
if the Port Authority shall employ the services of any personnel below
the grade of building manager on a part-time basis or at the Facility
and at additional locations other than the Facility, then only a pro
rata allocation of any compensation (including the aforesaid labor
costs and fringe benefits) incurred on behalf of the Facility shall be
included in Operating Expenses;
(2) expenditures for capital improvements or capital
equipment, other than those included in Amortized Expenses;
(3) amounts received by or reimbursed to the Port Authority
through insurance proceeds (or amounts which would have been received
by or reimbursed to the Port Authority through insurance proceeds if
the Port Authority had maintained insurance coverage with deductible
amounts customarily maintained by the owners of first class office
buildings in downtown Manhattan containing at least one million
rentable square feet of office space), warranties or service contracts
or from any other third parties, including Tenants, to the extent such
amounts are compensation for sums previously included in Operating
Expenses hereunder;
(4) depreciation and amortization, except as the same may be
included in Amortized Expenses;
(5) taxes or payments in lieu of taxes, as defined in and
payable in accordance with this Schedule and any income, gains, estate,
inheritance, franchise, transfer, corporate, succession, gift, gross
receipts (other than sales and value added taxes imposed on items which
are included in Operating Expenses), capital stock, occupancy,
unincorporated business or mortgage tax payable by the Port Authority;
(6) the cost of hot and cold water, condenser water and other
utilities furnished to the premises or to any other space leased or
available for leasing to Tenants for which the Port Authority is
separately reimbursed by the Lessee or by such Tenants;
(7) interest on and amortization of mortgages, and any finance
charges, points and closing costs incurred by the Port Authority in
connection with any mortgages which may hereafter be placed on the
Facility or any part thereof or any interest of the Port Authority
therein;
(8) the cost of (including without limitation the cost of the
design or construction of) alterations, additions, changes or
decorations (including leasehold improvements) made specifically for
any Tenant of the Facility or made pursuant to the express provisions
of a Tenant's lease, license or occupancy agreement or in order to
prepare space in the Facility for occupancy by a new Tenant, including
without limitation thereto all
Page 3 of Schedule A
<PAGE>
permit, license and inspection fees, if any, paid by the Port
Authority, or the amount of any allowance, credit or rent abatement
granted to a Tenant therefor;
(9) financing or refinancing costs, except as the same may be
included in Amortized Expenses;
(10) all costs incurred by reason of breach by a Tenant of its
lease for space in the Facility or of the willful or negligent acts or
omissions of any Tenant;
(11) the cost of any work or services performed or other
expenses incurred in connection with installing, operating and
maintaining any specialty service or facility, such as an observation
deck or broadcasting facility or any luncheon, athletic or recreational
club;
(12) payments for rented equipment the cost of which would
constitute a capital expenditure under generally accepted accounting
principles as consistently applied by the Port Authority if the
equipment were purchased, except to the extent same would be included
in Amortized Expenses;
(13) any cost or expense allocable to retail space, including
without limitation, the cost of providing heating, ventilating, air
cooling, cleaning, plate glass insurance or other services to retail
space located in the Facility;
(14) the portion of the cost of any work or service performed
for the Port Authority which is performed for any Port Authority
facility other than the Facility;
(15) brokerage, leasing and other commissions and fees paid in
order to procure Tenants and other tenant acquisition and inducement
costs such as lease assumption and takeover costs, moving allowances
and design costs;
(16) advertising, entertainment and promotional expenses
incurred for the purpose of marketing space in the Facility or
otherwise related to the Facility;
(17) the Port Authority's general corporate and general
administrative overhead expenses;
(18) legal fees; accounting fees except as specifically
provided below; all other professional and consulting fees, including
auditing, and arbitration fees and costs, incurred by the Port
Authority in connection with the negotiation, preparation and
administration of leases, licenses or other occupancy agreements and
amendments, terminations and extensions thereof, it being expressly
understood and agreed that the cost of such other professional and
consulting fees incurred in connection with the operation, maintenance,
repair, replacement, protection and improvement of the Facility shall
not be excluded by this subdivision (18) and professional and
consulting fees, including accounting, but excluding legal, incurred in
connection with the preparation of the Port Authority Statement and the
Tax Statement pursuant to this Schedule A and the corresponding
Statements referred to in Schedules contained in other Tenants leases
similar to this Schedule A, shall not be excluded by this subdivision
(18);
Page 4 of Schedule A
<PAGE>
(19) ground rent and other amounts payable by the Port
Authority under any ground or underlying lease affecting the Facility;
(20) the cost of repairs, replacements or rebuilding incurred
by reason of the exercise of eminent domain to the extent reimbursed by
the condemning authority or incurred by reason of fire or other
insurable casualty regardless of whether the Port Authority has
maintained an insurance policy covering such risks or has maintained an
insurance policy with a deductible covering such risks, provided,
however, that to the extent the Port Authority self insures or
maintains a deductible amount for all or a portion of such cost then
there shall be included in Operating Expenses an imputed amount which
the Port Authority would have incurred for insurance premiums had it
elected to purchase insurance to cover such risks and not self insure
or purchase insurance with a deductible (provided such insurance is in
an amount and type customarily maintained by owners of first class
office buildings in downtown Manhattan containing at least one million
(1,000,000) rentable square feet and provided, further that in no event
shall the amount included under this clause (20) because of the
maintenance of the deductible amount exceed the amount of such
deductible amount);
(21) expenses incurred in connection with services or other
benefits of a type (i) that are not provided to Tenant at its premises
but that are provided to another tenant or occupant of the Facility at
its premises, (ii) that are provided to Tenant at its premises at a
reasonable or additional charge but that are provided to another tenant
at its premises without charge;
(22) any management or similar fees paid to the operator of
any parking garage located in the Facility and the compensation
(including the labor costs and fringe benefits referred to in
subdivision (1) of this subparagraph) paid to personnel of the Port
Authority engaged in the operation of any other consumer concession
selling to the general public at the Facility;
(23) any costs incurred by the Port Authority representing an
amount paid to an entity or person related to the Port Authority which
is in excess of the amount which would have been paid to such entity or
person in the absence of such relationship;
(24) the cost of any business interruption or rent insurance
purchased by the Port Authority with respect to the Facility;
(25) the cost of the acquisition, leasing, insuring,
restoring, installation, removing or replacing of any artwork,
including without limitation thereto, any statues or paintings, located
within or outside the Facility except for the cost of routine
maintenance of such objects existing in the public areas in the
Facility on the date hereof;
(26) costs incurred in connection with the creation of a
mortgage or lease superior to the Lease or in connection with the sale
of the Facility, the land on which it is located or any portion thereof
or any interest therein or in any person or entity of whatever tier
owning an interest therein, including without limitation thereto
survey, appraisal, engineering, inspection and legal fees and
disbursements incurred in connection therewith;
Page 5 of Schedule A
<PAGE>
(27) (i) costs incurred in curing or fines and penalties
incurred by the Port Authority resulting from a violation or other
default by the Port Authority, its Commissioners, officers, employees,
agents, representatives, contractors, guests, invitees or other persons
doing business with the Port Authority of the terms and conditions of
any lease (including without limitation thereto the Lease), any
agreement of record applicable to the Facility or any portion thereof,
or (ii) the portion of costs incurred by the Port Authority by reason
of the negligence or willful misconduct of the Port Authority, its
Commissioners, officers, employees, agents, representatives,
contractors, guests, invitees or other persons doing business with the
Port Authority, including all costs incurred in connection with any
arbitration or court proceeding to the extent such costs are
attributable to the violation, default, negligence or willful
misconduct of the Port Authority or such persons, provided, however,
that the cost of maintaining liability insurance covering all or a
portion of such costs shall be includible in operating expenses to the
extent such insurance is in an amount and type customarily maintained
by owners of first class office buildings in downtown Manhattan
containing at least one million (1,000,000) rentable square feet and,
provided, further, that to the extent the Port Authority self insures
or maintains a deductible amount for all or a portion of such costs
then there shall be included in Operating Expenses an imputed amount
which the Port Authority would have incurred for insurance premiums had
it elected to purchase insurance covering such risks and not self
insure or purchase insurance with a deductible; provided, that such
insurance is in an amount and type customarily maintained by owners of
first class office buildings in downtown Manhattan containing at least
one million (1,000,000) rentable square feet, but in no event shall the
amount included under this clause (27) because of the maintenance of
the deductible amount exceed the amount of such deductible amount;
(28) penalties, late charges or interest incurred by the Port
Authority for late payment by the Port Authority of its obligations to
third parties;
(29) the cost of electricity furnished directly to the
premises or to any other space leased or available to lease to Tenants;
(30) real estate association dues;
(31) expenditures for repairing and/or replacing any work
defectively performed by Port Authority pursuant to the provisions of
the Lease;
(32) costs incurred to remedy violations of legal requirements
in effect on the date of the Lease that arise by reason of the Port
Authority's failure to construct, maintain or operate the Facility or
any part thereof in compliance with such legal requirements (excluding
the costs of permits and approvals required to comply with legal
requirements in the ordinary course of the operation, maintenance,
repair, replacement, protection, improvement and management of the
Facility);
(33) costs incurred in connection with constructing any
additional buildings at the Facility, any additions to the Facility or
adding additional stories on any building of the Facility or the cost
of constructing buildings or other structures adjoining but off the
Facility, or the cost of connecting the Facility to other structures
adjoining but off the Facility;
Page 6 of Schedule A
<PAGE>
(34) costs incurred in connection with the acquisition or sale
of air rights, transferable development rights, easements or other
similar Facility interests;
(35) costs of any insurance coverage that is not then
customary for first-class office Buildings in downtown Manhattan and
any increased insurance costs to the extent reimbursed directly to the
Port Authority by a tenant, including, without limitation, Tenant,
pursuant to their respective leases regardless of whether the Port
Authority has maintained an insurance policy covering such risks;
(36) costs incurred by Port Authority which result from Port
Authority's breach of a lease or Port Authority's tortious or negligent
conduct;
(37) the cost of repairs or replacements or restorations by
reason of fire or other insurable casualty or condemnation;
(38) costs and expenses incurred by Port Authority in
connection with any obligation of Port Authority to indemnify any
Facility tenant (including Tenant) pursuant to its lease or otherwise;
(39) the cost paid or incurred in connection with the removal,
replacement, enclosure, encapsulation or other treatment (collectively
the "remediation cost") of any Hazardous Materials, defined as such as
of the date of this Agreement, in the Facility, other than the cost of
customary office cleaning materials and supplies used and stored in
compliance with all applicable legal requirements, provided, that such
Hazardous Materials were not introduced at the Facility by the Tenant
or any one acting on its behalf and provided further that the
remediation cost with respect to Hazardous Materials which are first
defined as such subsequent to the date of this Agreement shall be
included in operating costs hereunder and to the extent required
hereunder shall be treated as amortized expenses; and
(40) costs (including, without limitation, any taxes or
assessments) of any revenue generating signs or non-building standard
tenant signs;
(41) any bad debt loss, rent loss or reserves for bad debts or
rent loss;
(42) to the extent any costs includable in operating expenses
are incurred with respect to both the Facility and other properties
there shall be excluded from Operating Expenses a fair and reasonable
percentage thereof which is properly allocable to such other
properties;
(43) charitable contributions and civic donations;
(44) the cost of temporary exhibitions located at or within or
outside the Facility;
(45) costs incurred in connection with the operation of
offices not located at the Facility;
(46) costs relating to withdrawal liability or unfunded
pension liability under the Multi-employer Pension Act or similar law;
Page 7 of Schedule A
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(47) costs to insure property of other tenants at the Facility
to the extent Tenant is required to insure same under its lease
agreement.
If, during all or part of the Base Operating Year or any Escalation Year, the
Port Authority shall not furnish any particular items of work or services (the
cost of which would otherwise constitute an Operating Expense hereunder) to
portions of the Facility due to the fact that: (X) such portions are not
occupied or leased, (Y) such item of work or service is not required or desired
by the Tenant of such portion or (Z) such Tenant is itself obtaining and
providing such item of work or service without cost to the Port Authority, then,
for the purposes of computing Operating Expenses, the additional costs and
expenses for such items of work or services which would reasonably have been
incurred during such Base Operating Year or Escalation Year, as the case may be,
by the Port Authority, calculated on a reasonable basis by the Port Authority,
shall be included as Operating Expenses as if the Port Authority had at its own
expense furnished such items of work or services to such portion of the Facility
or to such Tenant. In the event that during any portion of the Base Operating
Year and/or during any portion of any Escalation Year less than one hundred
percent (100%) of the rentable square feet of office space at the Facility,
including subgrade space used as office space, is occupied then with respect to
determining Operating Expenses for such Base Operating Year and/or Escalation
Year, as the case may be, the management fee component thereof shall be four
percent (4%) of the amount obtained by adding together (x) the total of the
basic rental, additional basic rental and other charges paid to the Port
Authority by Tenants of the Facility, other than Tenants leasing or occupying
retail space and non-office subgrade space, in the Base Operating Year or the
Escalation Year, as the case may be, and (y) the product obtained by multiplying
the amount in the preceding clause (x) by a percentage, such percentage to be
the difference between one hundred percent (100%) and the percentage on average
of the occupied rentable square feet of office space at the Facility, including
subgrade space used as office space, during the Base Operating Year and/or
Escalation Year, as the case may be. In the event the Port Authority "grosses
up" any item as provided in the preceding sentences, the Estimate Statement and
Port Authority Statement (as herein defined) shall include the "grossed-up"
figures, separately stating those amounts which have been so increased.
Operating Expenses shall be computed in accordance with generally accepted
accounting principles as consistently applied by the Port Authority from one
year to the next throughout the term of the letting under the Lease. In making
such computation, no cost or expense shall be included more than once in
Operating Expenses, whether fitting under more than one category provided for in
this subparagraph (j) or otherwise, nor shall any cost or expense be excluded or
deducted from Operating Expenses more than once, whether by reason of its
falling under more than one of the categories set forth in this subparagraph (j)
or otherwise, nor shall any cost or expense be deducted from Operating Expenses
which was not included therein. In no event shall the Port Authority collect for
any Escalation Year more than 100% of the actual costs and expenses incurred or
accrued by the Port Authority for such Escalation Year.
(k) "Payments in lieu of taxes" shall mean such payments as
the Port Authority has agreed to pay The City of New York under the City
Agreement.
(l) "Port Authority Statement" shall mean an instrument
containing a computation of additional basic rental due pursuant to the
provisions of Paragraph 3 of this Schedule furnished by the Port Authority to
the Lessee, certified by the Assistant Comptroller, World Trade Finance, and
accompanied by a statement of Operating Expenses for the Facility from which the
computations of Operating Expenses and additional basic rental set forth in such
Port Authority Statement were made.
Page 8 of Schedule A
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(m) "Rentable Square Feet in the Premises" shall be deemed to
mean 97,799 square feet, and shall be deemed to consist of 49,421 square feet as
shown on Exhibit A and 48,378 square feet as shown on Exhibit A-1, provided,
that from and after the Area A Rent Commencement Date and prior to the Area A-1
Rent Commencement Date such term shall be deemed to mean 49,421 square feet,
provided, further, that in the event that the Area A-1 Rent Commencement Date
shall precede the Area A Rent Commencement Date, such term shall be deemed to
mean 48,378 square feet in the period commencing on the Area A-1 Rent
Commencement Date and ending on the day preceding the Area A Rent Commencement
Date. In the event that the number of rentable square feet in the premises is
changed as a result of a partial termination or extension of the letting under
the Lease pursuant to the express provisions thereof, upon the effectiveness of
such partial termination or extension the number of Rentable Square Feet in the
Premises shall be equal to those in the space constituting the premises
subsequent thereto, as provided in the Lease.
(n) "Tax Base" shall mean the annual per rentable square foot
factor finally established to be the annual per rentable square foot factor to
be used in computing payments in lieu of taxes for the tax year beginning July
1, 1998. "Tax Base" for any Additional Space, as such term is defined in the
Lease, shall be determined as provided in the Lease.
(o) "Tax Year" shall mean the twelve-month period established
by The City of New York as a tax year for real estate tax purposes.
(p) "Tax Statement" shall mean a statement furnished by the
Port Authority to the Lessee and prepared in accordance with the applicable
provisions of this Schedule A containing a computation of additional basic
rental due pursuant to Paragraph 2 of this Schedule for the applicable Tax Year.
Upon written request from the Lessee, the Port Authority will provide the Lessee
with additional information reasonably detailing the computation of the
additional basic rental payable under Paragraph 2 of this Schedule.
(q) "Taxes" shall mean real estate taxes and assessments
(exclusive of penalties and interest thereon) which may be imposed from time to
time by the United States of America, the State of New York or any municipality
or other governmental authority upon the Port Authority with respect to the
buildings, structures, facilities or land at the Facility or with respect to the
rentals or income therefrom in lieu of or in addition to any tax or assessment
which would otherwise be a real estate tax or assessment, and "Taxes" shall
include any payments in lieu of real estate taxes or assessments which may be
agreed upon between the Port Authority and any of the foregoing governmental
authorities, other than payments in lieu of taxes described in subparagraph (k)
of this paragraph. Anything contained herein to the contrary notwithstanding,
Taxes shall not be deemed to include (i) any taxes on Port Authority's, Lessor's
or Mortgagee's income, (ii) any corporation, unincorporated business or
franchise taxes, (iii) any estate gift, succession or inheritance taxes, (iv)
any capital gains, mortgage recording or transfer taxes, (v) any taxes or
assessments attributable to any sign attached to or located on the Facility (vi)
any occupancy taxes which are or may be required to be paid by Port Authority by
reason of Port Authority's tenancy in the Facility. If by law, any assessment
that is included in Taxes pursuant to the terms hereof may be divided and paid
in installments, then, for the purposes of this Schedule, (1) such assessment
shall be deemed to have been so divided and to be payable in the maximum number
of installments permitted by Law (together with any interest charged by the
applicable governmental authority), and (2) there shall be deemed included in
Taxes for each calendar year the installments of such assessment deemed to be
payable during such calendar year.
Page 9 of Schedule A
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(r) "Tenants" shall mean all lessees, permittees, licensees
and all other Port Authority-approved users and occupiers of space in the
Facility, including without limitation thereto the Lessee.
2. From and after each July 1 following the earlier of the Area A Rent
Commencement Date or the Area A-1 Rent Commencement Date, the Lessee shall pay
an additional basic rental under the Lease at the annual rate computed by
multiplying the Rentable Square Feet in the Premises by the excess over the Tax
Base of the total of: (a) the annual per rentable square foot amount of Taxes
for the Tax Year beginning on that July 1; and (b) the annual per rentable
square foot factor used in computing payments in lieu of taxes for the Tax Year
beginning on that July 1. If Taxes become payable on a basis other than an
annual amount per rentable square foot, the Port Authority shall equitably
allocate those Taxes to the rentable square feet of space in the World Trade
Center and will notify the Lessee of the amount of such allocation.
3. (a) In addition to the additional basic rental payable by the Lessee
under Paragraph 2 of this Schedule, for each Escalation Year the Lessee shall
pay to the Port Authority additional basic rental which shall be equal to the
Lessee's Proportionate Share of the amount, if any, by which Operating Expenses
for each such Escalation Year exceed the Operating Expenses for the Base
Operating Year.
(b) The Port Authority shall furnish to the Lessee: (1) a
statement certified by the Assistant Comptroller, World Trade Finance, setting
forth in detail all Operating Expenses for the Base Operating Year (separately
stating any "grossed-up" figures included therein) not later than June 30
following the end of the Base Operating Year, (2) with respect to each
Escalation Year following the Base Operating Year, an Estimate Statement for
such Escalation Year and (3) within 180 days after the end of each Escalation
Year, a Port Authority Statement for such Escalation Year.
(c) In the event a portion of the Facility is sold which
portion does not include the Lessee's premises, then from and after the
effective date of such sale, (1) the Lessee's Proportionate Share shall mean
that fraction the numerator of which is the number of Rentable Square Feet in
the Premises and the denominator of which is the number of rentable square feet
in the portion of the Facility (as originally defined) retained by the Port
Authority, exclusive of the subgrade space (other than subgrade office space)
and all retail space, measured on a consistent basis with the manner in which
the number of Rentable Square Feet in the Premises have been measured as of the
date hereof, (2) Operating Expenses for the Base Operating Year shall be
adjusted (the "Adjusted Operating Expenses") which shall mean the Operating
Expenses for the Base Operating Year multiplied by a fraction, the numerator of
which shall be the number of rentable square feet in the portion of the Facility
(as originally defined) retained by the Port Authority exclusive of the subgrade
space (other than subgrade office space) and retail space, if any, measured on a
consistent basis with the manner in which the number of Rentable Square Feet in
the Premises have been measured for the purposes of this Schedule, and the
denominator of which shall be 10,173,368, (3) "Facility" shall mean the portion
of the Facility (as originally defined) retained by the Port Authority, and (4)
the Lessee shall pay additional basic rental to the Port Authority pursuant to
this Paragraph 3 of this Schedule which shall be equal to the Lessee's
Proportionate Share of the amount, if any, by which the Operating Expenses for
the portion of the Facility retained by the Port Authority for such Escalation
Year exceeds the Adjusted Operating Expenses for the Base Operating Year. In the
event such sale should occur on other than the last day of an Escalation Year,
additional basic rental payable pursuant to this Paragraph 3 of this Schedule
shall be individually determined for the portion of the Escalation Year prior to
such sale and for the portion thereof subsequent to such sale.
Page 10 of Schedule A
<PAGE>
4. If the imposition or allocation of Taxes or the establishment of an
annual per rentable square foot factor to be used in computing payments in lieu
of taxes for any Tax Year or the delivery to the Lessee of an Estimate Statement
for any Escalation Year is delayed for any reason whatsoever, the Lessee shall
nevertheless continue to pay the additional basic rental at the annual rate then
in effect subject to retroactive adjustments at such time as the Taxes are
imposed or allocated, the said per rentable square foot factor shall have been
established or such Estimate Statement shall have been delivered (the Lessee to
pay the Port Authority within thirty (30) days after demand therefor the amount
of any underpayments, the Port Authority to grant the Lessee a credit, as
hereinafter provided in the next sentence, in the amount of any overpayments),
provided, that in the event that no Estimate Statement for an Escalation Year is
delivered prior to the delivery of the Port Authority Statement for the prior
Escalation Year, the Lessee shall pay additional basic rental under Paragraph 3
of this Schedule at the annual rate determined in accordance with the Port
Authority Statement for such prior Escalation Year subject to retroactive
adjustment at the time the earliest of the Estimate Statement or Port Authority
Statement for such Escalation Year shall be delivered (the Lessee to pay the
Port Authority within thirty (30) days of demand therefor the amount of any
underpayments, the Port Authority to grant the Lessee a credit, as hereinafter
provided in the next sentence in the amount of any overpayment) subject to the
provisions of Paragraph 3 above. In the event that as a result of a retroactive
adjustment pursuant to the preceding sentence the Lessee is entitled to a
credit, the Lessee shall be entitled to receive an additional credit against its
ensuing installments of basic rental and additional basic rental equal to the
amount of the overpayment referred to in the preceding sentence, and if the sum
of such payments shall have exceeded the amount which is ultimately determined
to be payable by more than three percent (3%) for the period in question, the
Lessee shall be entitled to an additional credit in an amount determined by
applying the Applicable Rate to the amount of each payment calculated from the
date each such payment was actually made by the Lessee until the Lessee receives
such credit or payment as provided below. If the sum of the payments made by the
Lessee pursuant to an Estimate Statement or the Port Authority Statement for the
prior Escalation Year shall have exceeded the amount which is ultimately
determined to be payable based upon the Port Authority Statement for the
Escalation Year in question, the Lessee shall be entitled to receive a credit
against its ensuing installments of basic rental and additional basic rental
equal to such excess amount, and if the sum of such payments shall have exceeded
the amount which is ultimately determined to be payable by more than three
percent (3%) for the said Escalation Year in question, the Lessee shall also be
entitled to an additional credit in an amount determined by applying the
Applicable Rate to the amount of each payment calculated from the date each such
payment was actually made by the Lessee until the Lessee receives such credit or
payment as provided below. If with respect to any credit referred to in this
Paragraph 4 there would still be an excess amount after application of the
credit against the first installment of rental then owing, then the balance of
such excess after application of such credit shall be paid to the Lessee within
thirty (30) days after delivery of such Port Authority Statement and provided
further that in the event that such adjustment shall occur after the expiration
or termination of the term of the letting under the Lease, as it may be extended
from time to time, or, at the time of such expiration or termination, any amount
of such credit shall not have been so applied against the Lessee's rental
obligations and the Lessee's other obligations owing to the Port Authority under
the Lease are less than the amount of such excess or such remaining credit, as
the case may be, then the Port Authority shall pay such excess or such remaining
credit, as the case may be, less the amount of the Lessee's other obligations
under the Lease, if any, to the Lessee within thirty (30) days after such
expiration or termination.
5. After imposition and allocation of Taxes for any Tax Year and the
establishment for each Tax Year of the annual per rentable square foot factor
used in computing payments in lieu of taxes and at the time of the delivery to
the Lessee of the Tax Statement, Estimate Statement or Port
Page 11 of Schedule A
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Authority Statement, as the case may be, for any Tax or Escalation Year, the
Port Authority will set forth the annual rate or rates of additional basic
rental payable by the Lessee under Paragraph 2 or 3, above, and will notify the
Lessee of the amounts thereof in the Tax Statement, Estimate Statement or Port
Authority Statement, as the case may be. Additional basic rental accruing under
Paragraphs 2 and 3, above, shall be computed separately and shall be payable by
the Lessee to the Port Authority in advance in monthly installments, each
installment being equal to 1/12 of the annual rate set forth in the Tax
Statement, Estimate Statement, or Port Authority Statement, as the case may be,
except that if at the time the Port Authority gives notice to the Lessee under
this Paragraph, additional basic rental shall have accrued for a period prior to
the notice, the Lessee shall pay such additional basic rental in full for such
period, within thirty (30) days after such notice. If the additional basic
rental ultimately determined to be payable pursuant to Paragraphs 2 and 3 of
this Schedule and set forth in the Tax Statement and the Port Authority
Statement for any Tax Year or Escalation Year (as such Tax Statement and Port
Authority Statement may be revised pursuant to Paragraph 8 of this Schedule)
shall exceed the additional basic rental actually paid pursuant to this
Paragraph 5 for that Tax Year or Escalation Year, as the case may be, then the
Lessee shall pay such excess within thirty (30) days after delivery of such Tax
Statement and Port Authority Statement, and if the amounts of such additional
basic rental actually paid by the Lessee during such Tax Year or Escalation Year
exceed the annual amounts set forth in such Tax Statement and Port Authority
Statement (as such Tax Statement and Port Authority Statement may be revised
pursuant to Paragraph 8 of this Schedule) as payable pursuant to Paragraphs 2
and 3 of this Schedule, the Lessee shall be entitled to a credit in such excess
amount against its rental obligations next falling due under the Lease and this
Schedule A, and if the sum of such payments shall have exceeded the amount which
is ultimately determined to be payable by more than three percent (3%) for the
said Escalation Year in question, the Lessee shall also be entitled to a credit
in an amount determined by applying the Applicable Rate to the amount of each
monthly overpayment calculated from the date each such monthly installment was
actually made by the Lessee until the Lessee receives such credit or payment as
provided below, provided, that if there would still be an excess amount after
application of such credit against the first installment of rental then owing,
then the balance of such excess after application of such credit shall be paid
to the Lessee within thirty (30) days after delivery of such Port Authority
Statement or Tax Statement, as the case may be, and provided further that in the
event that such determination shall occur after the expiration or termination of
the term of the letting under the Lease, as it may be extended from time to
time, or, at the time of such expiration or termination, any amount of such
credit shall not have been so applied against the Lessee's rental obligations
and the Lessee's other obligations owing to the Port Authority under the Lease
are less than the amount of such excess or such remaining credit, as the case
may be, then the Port Authority shall pay such excess or such remaining credit,
as the case may be, less the amount of the Lessee's other obligations under the
Lease, if any, to the Lessee within thirty (30) days after such expiration or
termination.
6. (a) If after an amount of additional basic rental shall have been
fixed under Paragraphs 2 or 3, above, for any period, Taxes are imposed or the
amount of Taxes or the annual per rentable square foot factor in regard to
payments in lieu of taxes used for computing such additional basic rental or,
subject to the provisions of the last sentence of subparagraph (c) of this
paragraph 6, the Operating Expenses set forth in the Port Authority Statement
for that period shall be changed or adjusted, then the additional basic rental
payable for that period shall be recomputed and from and after notification of
the imposition, change or adjustment, the Lessee shall make payments based upon
the recomputed additional basic rental and within thirty (30) days after demand
therefor the Lessee shall pay any excess in additional basic rental as
recomputed over amounts of additional basic rental theretofore actually paid. If
such change or adjustment results in a reduction in the amount of additional
basic rental for any period prior to notification, the Port Authority will
Page 12 of Schedule A
<PAGE>
grant the Lessee a credit equal to the excess of the amounts of additional basic
rental theretofore actually paid over the additional basic rental as recomputed
for that period, such credit to be applied against its rental obligations next
falling due under the Lease and this Schedule A, provided, that in the event
that such recomputation shall occur after the expiration or termination of the
term of the letting under the Lease, as it may be extended from time to time,
or, at the time of such expiration or termination, any amount of such credit
shall not have been so applied against the Lessee's rental obligations and the
Lessee's other obligations owing to the Port Authority under the Lease are less
than the amount of such excess or such remaining credit, as the case may be,
then the Port Authority shall pay such excess or such remaining credit, as the
case may be, less the amount of the Lessee's other obligations under the Lease,
if any, to the Lessee within thirty (30) days after such expiration or
termination.
(b) The Port Authority's failure to render a Tax Statement
with respect to any Tax Year or an Estimate Statement or a Port Authority
Statement with respect to any Escalation Year shall not prejudice the Port
Authority's right thereafter to render a Tax Statement, an Estimate Statement or
a Port Authority Statement, as the case may be, with respect thereto or with
respect to any subsequent Tax Year or Escalation Year, nor shall the rendering
of a Tax Statement for any Tax Year or a Port Authority Statement for any
Escalation Year prejudice the Port Authority's right thereafter to render a
corrected Tax Statement or Port Authority Statement for that Escalation Year.
(c) Notwithstanding the provisions of subparagraphs (a) and
(b) of this Paragraph 6, except as provided in this subparagraph (c), the Port
Authority shall not have the right to deliver a Tax Statement with respect to
any Tax Year or an Estimate Statement or a Port Authority Statement with respect
to any Escalation Year, or to make any corrections to a previously delivered Tax
Statement, Estimate Statement or Port Authority Statement, which, in any event,
shall increase or reduce the amount of additional basic rental which is payable
by the Lessee pursuant to Paragraph 2 or 3 hereof, after the date which is the
second (2nd) anniversary of the expiration of the Tax Year or Escalation Year in
question. In the event that any Tax Statement shall be incorrect based upon an
error or omission made by the taxing authority, which error or omission is
subsequently corrected (e.g., an underbilling by the taxing authority which is
subsequently corrected) or based on a change in the facts used to calculate
Taxes or the annual per rentable square foot factor (such as a change in the
assessment of the Facility or of the other buildings used to determine the
annual per rentable square foot factor), the Port Authority may deliver a
revised or corrected Tax Statement beyond the expiration of such two (2) year
period. Except as set forth in the immediately preceding sentence, if the Port
Authority shall deliver any Tax Statement, Estimate Statement or Port Authority
Statement or any correction to a Tax Statement, Estimate Statement or Port
Authority Statement after the expiration of such two (2) year period, the Lessee
shall have no obligation to pay any increased amount which would otherwise be
due in accordance with such Statement but the Port Authority shall credit (or
refund, as provided in this Schedule A) to the Lessee any amount which the
Lessee may have paid in excess of that which would otherwise be due in
accordance with such Statement. Nothing herein contained shall restrict the Port
Authority from issuing a revised Estimate Statement from time to time and at any
time (but not more than twice during any Escalation Year) there is an increase
in Operating Expenses during any Escalation Year (each such revised Estimate
Statement to identify the same categories of Operating Expenses as the initial
Estimate Statement for that Escalation Year).
7. If any Escalation Year begins prior to the earlier of the Area A
Rent Commencement Date or the Area A-1 Rent Commencement Date or ends after the
expiration or earlier termination of the term of the letting under the Lease,
the additional basic rental under Paragraph 3 of this
Page 13 of Schedule A
<PAGE>
Schedule with respect to such Escalation Year shall be apportioned by
multiplying the additional basic rental determined under said Paragraph 3 for
the entire Escalation Year by a fraction the numerator of which (a) in the case
of the Escalation Year in which such earlier Rent Commencement Date shall fall,
shall be the number of days in the period commencing on such earlier Rent
Commencement Date and ending on the last day of the Escalation Year in which
such Rent Commencement Date shall fall, or (b) in the case of the Escalation
Year in which the date of such expiration or termination shall fall, in the
period commencing on the first day of the Escalation Year in which such date
shall fall and ending on the date of such expiration or termination, and the
denominator of which shall be the total number of days in such Escalation Year.
In the event that the Lessee's Proportionate Share shall be adjusted during any
Escalation Year, as expressly provided in this Schedule, the additional basic
rental under Paragraph 3 of this Schedule with respect to such Escalation Year
shall be the sum of (1) the product obtained by multiplying the additional basic
rental determined under said Paragraph 3 using the Lessee's Proportionate Share
in effect prior to the date of such adjustment for the entire Escalation Year,
by a fraction the numerator of which shall be the number of days in the period
commencing on the first day of the Escalation Year in which the date of such
adjustment shall fall and ending on such date and the denominator of which shall
be the total number of days in such Escalation Year, plus (2) the product
obtained by multiplying the additional basic rental determined under said
Paragraph 3 using the Lessee's Proportionate Share in effect subsequent to the
date of such adjustment for the entire Escalation Year, by a fraction the
numerator of which shall be the number of days in the period commencing on the
date of such adjustment and ending on the last day of the Escalation Year in
which such date shall fall and the denominator of which shall be the total
number of days in such Escalation Year; in the event that the Rentable Square
Feet in the Premises shall be adjusted during any Tax Year, as expressly
provided in this Schedule, the additional basic rental under Paragraph 2 of this
Schedule with respect to such Tax Year shall be determined in the same manner.
In the event of a termination of the Lease and the term of the letting
thereunder, if the additional basic rental set forth in the Port Authority
Statement for the Escalation Year in which such termination shall be effective,
as so apportioned, shall exceed the additional basic rental theretofore actually
paid by the Lessee pursuant to Paragraph 3 of this Schedule for that Escalation
Year, then the Lessee shall pay such excess within thirty (30) days after
delivery of such Port Authority Statement and if the amounts of such additional
basic rental actually paid by the Lessee during such Escalation Year exceed the
annual amount set forth in such Port Authority Statement, as so apportioned, the
Port Authority shall pay such excess to the Lessee within thirty (30) days after
the delivery of such Port Authority Statement, provided that such excess shall
be reduced by any other amount owed to the Port Authority by the Lessee.
Notwithstanding the foregoing, in the event that the letting under the Lease
shall have been terminated as provided in the Section of the Lease entitled
"Termination" or the interest of the Lessee cancelled pursuant thereto, or in
the event that the Port Authority has re-entered, regained or resumed possession
of the premises in accordance with the provisions of the Section of the Lease
entitled "Right of Re-entry", the rights and obligations of the Port Authority
and the Lessee under the provisions of this Schedule with respect to additional
basic rental shall survive the termination of the Lease in accordance with the
terms and provisions of the Section of the Lease entitled "Survival of the
Obligations of the Lessee" except that for the purpose of calculating damages
under such Section the additional basic rental under Paragraph 3 of this
Schedule for the balance of the term of the letting under the Lease shall be
deemed to be payable at the annual rate at which such additional basic rental
was payable during the Escalation Year during which such termination,
cancellation, re-entry, regaining or resumption of possession occurred.
8. Any Port Authority Statement or corrected Port Authority Statement
sent to the Lessee shall be conclusively binding upon the Lessee unless, within
twenty-four (24) months after such
Page 14 of Schedule A
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Statement is sent, the Lessee shall send a written notice to the Port Authority
objecting to such Statement. If the Lessee within said twenty-four (24) month
period does not object to such Statement but requests additional reasonable
information with respect to such Statement, the Port Authority will make
reasonable efforts to furnish such information and such twenty-four (24) month
period referred to in the immediately preceding sentence shall be extended for a
period equivalent to the time period from the date the Port Authority receives
such request to thirty (30) days from the date the Port Authority furnishes such
additional information to the Lessee. The Port Authority shall maintain books
and records of account pertaining to the Operating Expenses for each Escalation
Year in accordance with generally accepted accounting principles as consistently
applied by the Port Authority for a period of four (4) years following the end
of each Escalation Year at the Port Authority's office set forth in the Lease.
If such notice objecting to an item or items in the Port Authority Statement is
sent within such twenty-four (24) month period (as such may be extended as
provided above), the Lessee (together with its accountants, agents, employees
and representatives) during normal business hours upon reasonable notice may
examine and copy the Port Authority's books and records relating to the
Operating Expenses set forth in said Statement (but not books and records
pertaining to the composition of the management fees or management expenses of
the Port Authority) to determine the accuracy of the Port Authority Statement.
The Lessee recognizes the confidential nature of such books and records and
agrees to use good faith efforts to maintain the information obtained from such
examination in strict confidence, subject to obligations to disclose pursuant to
law or court order. If after such examination, the Lessee still disputes such
Port Authority Statement or corrected Port Authority Statement, either party may
request arbitration with respect thereto. Arbitration shall be by three
arbitrators, one to be appointed by the Port Authority, one to be appointed by
the Lessee and the third to be appointed by the arbitrators so appointed. Each
arbitrator shall be a certified public accountant with at least ten (10) years
experience in commercial real estate accounting with respect to first class
office buildings containing at lease one million (1,000,000) rentable square
feet in the Borough of Manhattan. The arbitration shall be pursuant to the then
rules of the American Arbitration Association or any successor organization
(expedited procedures). The Port Authority and the Lessee shall each bear the
cost of the arbitrator appointed by them. All other costs of such arbitration,
including but not limited to the cost of the third arbitrator, shall be borne
equally by the Port Authority and the Lessee.
/s/
---------------------------------
For the Port Authority
/s/
---------------------------------
For the Lessee
Page 15 of Schedule A
EXHIBIT 21.01
Subsidiaries of KBW, Inc.
Subsidiary State of Incorporation
- ---------- ----------------------
Keefe, Bruyette & Woods, Inc. New York
KBW Asset Management, Inc. Delaware
EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
KBW, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the headings "Selected Historical Consolidated Financial Data" and
"Experts" in the prospectus.
/s/ KPMG LLP
New York, New York
February 26, 1999
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