<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
[ ] Commission file number 1-6862
DONALDSON, LUFKIN & JENRETTE, INC.
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-1898818
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
277 Park Avenue, New York, New York 10172
--------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (212) 892-3000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
As of August 8, 1997, the latest practicable date, there were 55,801,730
shares of Common Stock, $0.10 par value, outstanding.
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBISDIARIES
FORM 10-Q
FOR THE QUARTER ENDED June 30, 1997
TABLE OF CONTENTS
Part I FINANCIAL INFORMATION
Page Number
-----------
Item 1. Financial Statements
Condensed Consolidated Statements of Financial
Condition at June 30, 1997 and December 31, 1996
(Unaudited) ....................................... 3
Condensed Consolidated Statements of Income for
the three and six months ended June 30, 1997 and
1996 (Unaudited) .................................. 5
Condensed Consolidated Statements of Changes in
Stockholders' Equity for the year ended December
31, 1996 and the six months ended June 30, 1997
(Unaudited) ....................................... 6
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1997 and 1996
(Unaudited) ....................................... 7
Notes to Condensed Consolidated Financial
Statements (Unaudited) ............................ 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ..... 13
Part II OTHER INFORMATION
Item 1. Legal Proceedings.................................. 20
Item 6. Exhibits and Reports on Form 8-K................... 21
Signature.......................................... 22
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition (Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents ......................................... $ 198,151 $ 158,831
Cash and securities segregated for regulatory purposes or deposited
with clearing organizations .................................... 867,532 836,406
Securities purchased under agreements to resell ................... 25,722,151 20,598,738
Securities borrowed ............................................... 13,770,012 9,355,483
Receivables:
Customers ...................................................... 4,005,399 3,169,293
Brokers, dealers and other ..................................... 5,439,663 4,001,131
Securities owned, at value:
U.S. government and agencies ................................... 7,427,742 6,882,604
Corporate debt ................................................. 5,335,440 4,424,649
Foreign sovereign debt ......................................... 2,373,486 3,116,201
Mortgage whole loans ........................................... 1,543,260 275,510
Equities and other ............................................. 957,337 1,029,094
Long-term corporate development investments ....................... 252,647 204,403
Mortgages, other receivables collateralized by
real estate assets and real estate owned ....................... 497,777 405,221
Property, equipment and leasehold improvements, at cost, (net of
accumulated depreciation and amortization of $185,653 and
$163,004, respectively) ........................................ 323,766 282,513
Other assets and deferred amounts ................................. 1,007,766 763,595
----------- -----------
Total Assets .................................................. $69,722,129 $55,503,672
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition (Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings ......................................................... $ 3,011,911 $ 1,162,896
Securities sold under agreements to repurchase ................................ 36,962,290 29,378,291
Securities loaned ............................................................. 4,413,509 2,724,773
Payables:
Customers ................................................................. 4,950,593 3,897,817
Brokers, dealers and other ................................................ 3,701,643 3,345,424
Securities sold not yet purchased, at value:
U.S. government and agencies .............................................. 8,266,275 6,864,643
Corporate debt ............................................................ 785,617 646,421
Foreign sovereign debt .................................................... 1,007,434 1,265,553
Equities & other .......................................................... 761,784 665,053
Accounts payable and accrued expenses ......................................... 1,536,890 1,721,255
Other liabilities ............................................................. 560,306 442,667
----------- -----------
65,958,252 52,114,793
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Long-term borrowings .......................................................... 1,739,482 1,541,640
----------- -----------
Total liabilities .................................................... 67,697,734 53,656,433
----------- -----------
Company-obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely debentures of the Company .............. 200,000 200,000
----------- -----------
Stockholders' Equity:
Series A Preferred Stock, at liquidation preference ($50.00 liquidation
preference, 4,000,000 shares authorized, issued and outstanding) ....... 200,000 200,000
Common stock ($0.10 par value; 150,000,000 shares
authorized; 55,098,363 and 53,300,000 shares issued
and outstanding, respectively) ......................................... 5,510 5,330
Restricted stock units (5,179,147 units authorized;
3,283,613 and 5,081,793 units issued and outstanding,
respectively) .......................................................... 67,305 104,167
Paid-in capital ........................................................... 411,533 365,989
Retained earnings ......................................................... 1,136,479 969,856
Cumulative translation adjustment ......................................... 3,568 1,897
----------- -----------
Total stockholders' equity ........................................... 1,824,395 1,647,239
----------- -----------
Total Liabilities and Stockholders' Equity .................................... $69,722,129 $55,503,672
=========== ===========
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share data)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Commissions ............................................ $ 158,346 $ 152,513 $ 326,696 $ 299,047
Underwritings .......................................... 164,544 255,536 338,464 390,967
Fees ................................................... 176,695 101,510 322,827 184,743
Interest, net of interest to finance U.S. ..............
government, agency and mortgage-
backed securities of $751,917, $503,903,
$1,365,794 and $991,277, respectively ................ 369,992 251,101 689,720 481,900
Principal transactions-net:
Trading .............................................. 109,886 131,579 266,204 275,040
Investment ........................................... 63,533 85,495 64,380 111,126
Other .................................................. 18,184 13,475 34,292 24,296
---------- ---------- ---------- ----------
Total revenues ...................................... 1,061,180 991,209 2,042,583 1,767,119
---------- ---------- ---------- ----------
Costs and Expenses:
Compensation and benefits .............................. 442,330 464,683 865,779 808,952
Interest ............................................... 247,006 177,504 465,177 352,516
Brokerage, clearing, exchange fees
and other ............................................ 51,305 52,964 109,785 97,693
Occupancy and equipment ................................ 45,335 37,300 85,305 67,912
Communications ......................................... 15,927 13,110 29,771 23,813
Other operating expenses ............................... 92,277 88,348 175,766 150,433
---------- ---------- ---------- ----------
Total costs and expenses ............................ 894,180 833,909 1,731,583 1,501,319
---------- ---------- ---------- ----------
Income before provision for income taxes ................... 167,000 157,300 311,000 265,800
---------- ---------- ---------- ----------
Provision for income taxes ................................. 66,800 60,300 124,400 103,700
---------- ---------- ---------- ----------
Net income ................................................. $ 100,200 $ 97,000 $ 186,600 $ 162,100
========== ========== ========== ==========
Dividends on preferred stock ............................... $ 2,970 $ 4,967 $ 6,204 $ 9,934
========== ========== ========== ==========
Earnings applicable to common shares ....................... $ 97,230 $ 92,033 $ 180,396 $ 152,166
========== ========== ========== ==========
Earnings per share:
Primary ................................................ $ 1.54 $ 1.53 $ 2.89 $ 2.54
Fully diluted .......................................... $ 1.49 $ 1.53 $ 2.79 $ 2.54
========== ========== ========== ==========
Weighted average common shares:
Primary ................................................ 63,096 60,082 62,488 59,839
Fully diluted .......................................... 65,185 60,082 64,739 59,839
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
For the Year Ended December 31, 1996 and the Six Months Ended June 30, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
Series A Restricted Cumulative
Preferred Common Stock Paid-in Retained Translation
Stock Stock Units Capital Earnings Adjustment Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 $ 0 $ 5,330 $ 106,163 $ 363,993 $ 723,859 $ (625) $ 1,198,720
Net income .................. -- -- -- -- 291,300 -- 291,300
Dividends:
Common stock
($0.50 per share) ......... -- -- -- -- (26,650) -- (26,650)
Preferred stock
($8.29 per share) ......... -- -- -- -- (18,653) -- (18,653)
Forfeiture of restricted
stock units ............... -- -- (1,996) 1,996 -- -- --
Issuance of Series A
preferred stock ............ 200,000 -- -- -- -- -- 200,000
Translation adjustment ....... -- -- -- -- -- 2,522 2,522
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1996 200,000 5,330 104,167 365,989 969,856 1,897 1,647,239
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income ................... -- -- -- -- 186,600 -- 186,600
Dividends:
Common stock
($0.25 per share) ......... -- -- -- -- (13,773) -- (13,773)
Preferred stock
($1.55 per share) ......... -- -- -- -- (6,204) -- (6,204)
Forfeiture of restricted
stock units ............... -- -- (106) 106 -- -- --
Conversion of restricted stock
units to common stock...... -- 179 (36,756) 36,577 -- -- --
Income tax benefits attrib-
utable to conversion of
restricted stock units ... -- -- -- 8,643 -- -- 8,643
Exercise of stock options .... -- 1 -- 145 -- -- 146
Income tax benefits
attributable to exercise
of stock options .......... -- -- -- 73 -- -- 73
Translation adjustment ....... -- -- -- -- -- 1,671 1,671
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balances at June 30, 1997 .... $ 200,000 $ 5,510 $ 67,305 $ 411,533 $ 1,136,479 $ 3,568 $ 1,824,395
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
For the Six Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ....................................................... $ 186,600 $ 162,100
----------- -----------
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization .................................... 27,801 16,050
Deferred taxes ................................................... 10,643 (62,472)
(Decrease) increase in unrealized depreciation of long-term
corporate development investments ............................... (23,571) 89,167
Other-net ........................................................ 180 172
----------- -----------
201,653 205,017
(Increase) decrease in operating assets:
Cash and securities segregated for regulatory
purposes or deposited with clearing organizations ............ (31,126) (78,659)
Securities purchased under agreements to resell ................ (4,340,640) (1,904,932)
Securities borrowed ............................................ (4,414,529) (1,141,480)
Receivables from customers ..................................... (836,106) (696,384)
Receivables from brokers, dealers and other .................... (1,438,532) (69,797)
Securities owned, at value ..................................... (1,909,207) (721)
Other assets ................................................... (242,344) (128,856)
Receivables collateralized by real estate assets ............... (94,269) (110,995)
Increase (decrease) in operating liabilities:
Securities sold under agreements to repurchase ................. 4,340,640 1,904,932
Securities loaned .............................................. 1,688,736 386,558
Payables to customers .......................................... 1,052,776 599,096
Payables to brokers, dealers and other ......................... 356,219 1,007,895
Securities sold not yet purchased, at value .................... 1,379,440 217,258
Accounts payable and accrued expenses .......................... (184,365) (51,481)
Other liabilities and deferred amounts ......................... 126,358 183,691
Translation adjustment ......................................... 1,671 (25)
----------- -----------
Net cash (used in) provided by operating activities ............ $(4,343,625) $ 321,117
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
For the Six Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from investing activities:
Net (payments for) proceeds from:
Purchases of long-term corporate development investments .......... $ (78,415) $ (52,131)
Sales of long-term corporate development investments .............. 53,742 21,393
Purchases of property, equipment and leasehold improvements ....... (67,113) (75,569)
Purchases of mortgages, other receivables collateralized by real
estate assets and real estate owned ............................. -- (1,950)
Sales of mortgages, other receivables collateralized by real estate
assets and real estate owned .................................... -- 38,900
Other assets ...................................................... (12,700) (8,326)
----------- -----------
Net cash used in investing activities ................................. (104,486) (77,683)
----------- -----------
Cash flows from financing activities:
Net proceeds from (payments for):
Short-term financings ............................................. 4,309,601 (332,292)
Medium-Term Notes ................................................. 89,805 249,515
Junior subordinated convertible debentures ........................ 21,279 --
Swiss Franc Bonds ................................................. -- (105,513)
Subordinated revolving credit agreement ........................... 118,500 784
Structured notes .................................................. (28,169) --
Dividends ......................................................... (19,977) (23,259)
Other ............................................................. (3,608) --
----------- -----------
Net cash provided by (used in) financing activities ................... 4,487,431 (210,765)
----------- -----------
Increase in cash and cash equivalents ................................. 39,320 32,669
Cash and cash equivalents at beginning of period ...................... 158,831 107,766
----------- -----------
Cash and cash equivalents at end of period ............................ $ 198,151 $ 140,435
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
8
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 1997
1. Basis of Presentation
The condensed consolidated financial statements include Donaldson, Lufkin &
Jenrette, Inc. and its subsidiaries ("DLJ" or the "Company"). All significant
intercompany balances and transactions have been eliminated. The Company is a
majority owned subsidiary of the Equitable Companies Incorporated and its
subsidiaries (together, "Equitable"). The Company's separate financial
statements reflect Equitable's cost basis established at the time of
Equitable's acquisition of the Company in 1985.
Certain financial information that is normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
but is not required for interim reporting purposes has been condensed or
omitted. These condensed consolidated financial statements reflect, in the
opinion of management, all adjustments (consisting of normal, recurring
accruals) necessary for a fair presentation of the condensed consolidated
financial position and results of operations for the interim periods presented.
The results of operations for interim periods are not necessarily indicative of
results for the entire year. These financial statements should be read in
conjunction with the condensed consolidated financial statements and notes
thereto as of and for the year ended December 31, 1996 included on Form 10-K
filed by the Company under the Securities Exchange Act of 1934.
The preparation of condensed consolidated 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 condensed consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Certain reclassifications have been made to prior year financial statements
to conform to the 1997 presentation.
2. Income Taxes
Income taxes for interim period condensed consolidated financial statements
have been accrued using the Company's estimated effective tax rate.
Effective January 1, 1997, Equitable's ownership for tax purposes declined to
under 80% and therefore, the Company will file its own U.S. consolidated
Federal income tax return separate and apart from Equitable. Federal income
taxes paid for the six months ended June 30, 1997 were $45.2 million,
including net federal income tax equivalents paid to Equitable of $7.1 million.
Net Federal income tax equivalents paid to Equitable were $ 72.5 million during
the six months ended June 30, 1996.
3. Borrowings
Long-term borrowings, including current maturities of $121.0 million and $112.0
million at June 31, 1997 and December 31, 1996, respectively, consist of the
following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ----------
(In thousands)
<S> <C> <C>
Senior notes, 6 7/8% due in 2005 ................................. $ 497,322 $ 497,160
Senior subordinated revolving credit agreement due in 2000 ....... 325,000 206,500
Subordinated exchange notes, 9 5/8% due in 2003 .................. 225,000 225,000
Structured notes ................................................. 188,065 216,234
Medium-term notes, 5 5/8% due in 2016 ............................ 249,549 249,537
Medium-term notes, 7.88% due in 1997 ............................. 88,000 88,000
Medium-term notes, 5.8125% due in 2000 ........................... 69,846 --
Junior subordinated convertibles debentures, 6.1875% due in 2001. 36,000 43,500
Junior subordinated convertible debentures, 5% due in 2004 ....... 28,779 --
Other ............................................................ 31,921 15,709
---------- ----------
Total long-term borrowings .................................. $1,739,482 $1,541,640
========== ==========
</TABLE>
9
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
During the first quarter of 1997, the Company borrowed an additional $75.0
million under its senior subordinated revolving credit agreement and extended
its maturity thereon to January 30, 2000. In June 1997, an additional $43.5
million was borrowed under such agreement.
In April 1997, the Company commenced a program for the offering of up to $300
million Medium-Term Notes due nine months or more from the date of issuance.
The Medium-Term Notes are part of a shelf registration statement previously
filed by the Company. The notes may bear interest at fixed or floating rates
and may be issued as indexed notes, dual currency notes, renewable notes,
amortizing notes or original issue discount notes. At June 30, 1997, the
Company had $90.0 million of notes outstanding under this shelf registration
statement with a weighted average rate of 5.947%.
In June 1997, the Company filed a shelf registration statement which enables
the Company to issue from time to time up to $1.0 billion in aggregate
principal amount of senior or subordinated debt securities. There were no
securities outstanding under this shelf registration statement at June 30,
1997.
In March 1997, the Company issued $28,779,000 aggregate principal amount of 5%
Junior Subordinated Convertible Debentures due 2004 (the "Convertible
Debentures") in connection with the acquisition of a London based financial
advisory firm. On July 11, 1997 the Company notified holders of the convertible
debentures that on August 15, 1997, the Company will exercise its option to
redeem all of the outstanding convertible debentures. Holders of such
debentures have the option of receiving 105% of the par value on the date of
redemption or converting the debentures into an aggregate of 685,204 shares of
common stock of the Company at the conversion price of $42 per share. On August
8, 1997 all debentures were converted into shares of the Company's common
stock.
Subordinated exchange notes due in 2003 include $20.0 million due to a
subsidiary of Equitable at June 30, 1997.
Structured notes are customized financing instruments in which the amount of
interest or principal paid on the debt obligation is linked to the return on
specific cash instruments. At June 30, 1997 and December 31, 1996, the weighted
average interest rate of structured notes issued with a stated coupon was 9.50%
and 11.12%, respectively. The notes mature at various dates through 2007.
During the second quarter of 1997, the Company replaced its $1.28 billion
committed credit facilities with a $2.0 billion revolving credit facility, of
which $1.0 billion may be unsecured. There were no borrowings outstanding under
this agreement at June 30, 1997.
Interest paid on all borrowings and financing arrangements amounted to $1.8
billion and $1.3 billion for the six months ended June 30, 1997 and 1996,
respectively.
4. Long-term Corporate Development Investments
Long-term corporate development investments represent the Company's involvement
in private debt and equity investments which generally have no readily
available market or may otherwise be restricted as to resale under the
Securities Act of 1933, as amended. Accordingly, these investments are carried
at estimated fair value as determined by the Finance Committee of the Board of
Directors. The cost of these investments was $ 271.1 million and $246.4 million
at June 30, 1997 and December 31, 1996, respectively. The decrease (increase)
in net unrealized depreciation for the six months ended June 30,
1997 and 1996 amounted to $23.6 million and $(89.2) million, respectively.
Changes in unrealized depreciation arising from changes in fair value or upon
realization are reflected in revenues, principal transactions-net, investment
in the condensed consolidated statements of income.
5. Net Capital
The Company's wholly owned principal subsidiary, Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJSC"), is a registered broker-dealer, a registered
futures commission merchant and member firm of The New York Stock Exchange,
Inc. (the "NYSE") and, accordingly, is subject to the minimum net capital
requirements of the Securities and Exchange Commission, the NYSE
10
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
and the Commodities Futures Trading Commission. As such, it is subject to the
NYSE's net capital rule which conforms to the Uniform Net Capital Rule pursuant
to rule 15c3-1 of the Securities Exchange Act of 1934, as amended. Under the
alternative method permitted by this rule, the required net capital, as
defined, shall not be less than two percent of aggregate debit balances arising
from customer transactions, as defined, or four percent of segregated funds, as
defined, whichever is greater. The NYSE may also require a member firm to
reduce its business if its net capital is less than four percent of aggregate
debit balances and may prohibit a member firm from expanding its business and
declaring cash dividends if its net capital is less than five percent of
aggregate debit balances. At June 30, 1997, DLJSC's net capital of
approximately $695.3 million was 16 percent of aggregate debit balances and in
excess of the minimum requirement by approximately $601.7 million.
Certain U.S. and foreign subsidiaries of the Company are subject to net capital
requirements of their respective regulatory agencies. At June 30, 1997, the
Company and its subsidiaries were in compliance with all applicable regulatory
capital adequacy requirements.
6. Earnings Per Share
Primary and fully diluted earnings per common share are computed by dividing
earnings applicable to common shares (net income less preferred dividends) by
the respective weighted average number of shares of common stock and common
stock equivalents outstanding during each period presented. Common share
equivalents include shares of common stock issuable under the Company's
Restricted Stock Unit Plan and the dilutive effects of options under the
Treasury Stock method. In addition, in calculating fully diluted earnings per
common share, common share equivalents also include the dilutive effect of
convertible debt using the "if - converted" method.
7. Commitments and Contingencies
At June 30, 1997, the Company was contingently liable for unsecured letters of
credit of approximately $181.9 million.
As a securities broker and dealer, risk is an inherent part of the Company's
business activities. The principal types of risks involved in the Company's
activities are market risk, credit or counterparty risk and transaction risk.
The Company has developed an infrastructure to control, monitor and manage each
type of risk. For a further discussion of these matters, refer to Notes 8, 9
and 10 of the Consolidated Financial Statements in the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.
8. Stockholders' Equity
During the first six months of 1997, 1.8 million restricted stock units vested
and were converted into common stock from the Company's authorized and unissued
shares. Approximately 600,000 of such shares were deposited in a grantor trust
pursuant to the Executive Deferred Compensation Plan which was effective
January 1, 1997.
9. Employee Benefits Plans
During the first quarter of 1997, the Management and Compensation Committee of
the Board of Directors authorized the creation of a long-term award pool under
the 1996 Incentive Compensation Plan (the "Plan"). The long-term award pool is
for the performance period from January 1, 1997 to December 31, 1999 and is
based on a percentage of the Company's pre-tax earnings and varies with the
Company's average return on common equity during the performance period. Each
unit granted under the Plan is equal to a percentage interest in the long-term
award pool. The units vest at the rate of 33 1/3% per year during the
performance period. The amount charged to expense for the Plan was $87.2
million for the six months ended June 30, 1997.
10. Derivative Financial Instruments
Substantially all of the Company's activities related to derivatives are, by
their nature, trading activities which are primarily for the purpose of
customer accommodations. The Company enters
11
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
into certain contractual agreements referred to as derivatives or off-balance
sheet financial instruments involving futures, forwards and options. The
Company's derivative activities consist of writing over-the-counter ("OTC")
options to accommodate its customers needs, trading in forward contracts in
U.S. government and agency issued or guaranteed securities and in futures
contracts on equity-based indices, interest rate instruments and currencies and
issuing structured notes. The Company's involvement in swap contracts and
commodity derivative instruments is not significant. Although the Company may
enter into certain derivative instruments to provide an economic hedge against
certain risks, all realized and unrealized gains and losses on these
instruments are recorded currently in the condensed consolidated statement of
income.
Accounting Policies
Changes in unrealized gains or losses as well as realized gains and losses at
settlement on all derivative instruments (options, forward and futures
contracts) are included in the condensed consolidated statements of income in
principal transactions-net, trading. Related offsetting amounts are presented
as receivables or payables from brokers, dealers and other in the condensed
consolidated statement of financial condition. Fair value of the options
includes the unamortized premiums which are deferred and are included in
payables to brokers, dealers and other in the condensed consolidated statement
of financial condition. Such premiums are recognized over the life of the
option contracts on a straight-line basis or are recognized through the change
in the fair value of the option in principal transactions net-trading revenue.
Cash flows from derivative instruments are presented as operating activities in
the condensed consolidated statements of cash flows.
Options contracts are typically written for a duration of less than 13 months.
The notional value of written options contracts outstanding was approximately
$6.5 billion at June 30, 1997. These written option contracts are substantially
covered by various financial instruments that the Company has purchased or sold
as principal.
The notional amounts of forward and futures contracts are treated as
off-balance sheet items. The notional contract and market values of such
contracts at June 30, 1997 and December 31, 1996, were as follows:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
Purchases Sales Purchases Sales
--------- ----- --------- -----
(In millions) (In millions)
<S> <C> <C> <C> <C>
Forward Contracts
(Notional Contract Value) ......... $15,622 $20,572 $14,070 $17,917
======= ======= ======= =======
Futures Contracts and Options
on Futures Contracts
(Notional Market Value) ........... $ 2,669 $ 5,668 $ 1,420 $ 2,774
======= ======= ======= =======
</TABLE>
11. Legal Proceedings
Certain significant legal proceedings and matters have been previously
disclosed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and in the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997. There have been no material developments in such
proceedings and matters, with the exception of Harrah's Jazz Company and
Harrah's Jazz Finance Corp. On February 26, 1997, the parties agreed to a
settlement of these actions, subject to the District Court's approval which was
granted on July 31, 1997. The settlement is also subject to the approval by the
United States Bankruptcy Court for the Eastern District of Louisiana of
proposed modifications to a confirmed plan of reorganization for Harrah's Jazz
Company and Harrah's Jazz Finance Corp., and the satisfaction or waiver of all
conditions to the effectiveness of the plan, as provided in the plan. There can
be no assurance of the Bankruptcy Court's approval of the modifications to the
plan of reorganization, or that the conditions to the effectiveness of the plan
will be satisfied or waived. In the opinion of management, the settlement, if
approved, will not have a material adverse effect on the Company's results of
operations or on its consolidated financial condition.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following analysis of the consolidated results of operations and financial
condition of Donaldson, Lufkin & Jenrette, Inc. and Subsidiaries should be read
in conjunction with the Condensed Consolidated Financial Statements and the
related Notes to Condensed Consolidated Financial Statements included elsewhere
herein, and with the Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's 1996 Annual
Report on Form 10-K.
BUSINESS ENVIRONMENT
The Company's principal business activities, investment and merchant
banking, securities sales and trading and correspondent brokerage services are,
by their nature, highly competitive and subject to general market conditions,
volatile trading markets and fluctuations in the volume of market activity.
Consequently, the Company's net income and revenues have been and are likely to
continue to be, subject to wide fluctuations, reflecting the impact of many
factors beyond the Company's control. These factors include securities market
conditions, the level and volatility of interest rates, competitive conditions
and the size and timing of transactions.
INDUSTRY-WIDE VOLUME OF NEW STOCK AND BOND OFFERINGS UNDERWRITTEN DURING
THE PERIOD, SHARE volume traded on major equity markets and dealer and trading
revenues were strong during the first two months of 1997. However, increases in
interest rates by the Federal Reserve in late March 1997 created significant
volatility in many markets, resulting in slowed underwriting activity. Although
the equity underwriting market rebounded in the latter part of the second
quarter, the volume of deals underwritten decreased significantly from the
prior quarter and the same period a year ago.
RECENT DEVELOPMENTS
In March 1997, the Company acquired a London based financial advisory firm,
Phoenix Group Limited (Phoenix). Phoenix is an international financial advisory
and investment management business with offices in London and Hong Kong. It has
two principal operations, a corporate finance and advisory business and a
private equity fund management business investing in unquoted securities. It
also makes investments as principal.
During the third quarter of 1995, the Company provided $28.8 million for a
potential loss with respect to a bridge loan aggregating $150 million to a
company experiencing financial difficulties. In April 1997, the bridge loan was
repaid in full and the Company realized the amounts previously reserved, plus
interest.
In June 1997, the Company purchased from Equitable the remaining 50%
interest in a corporation formed to originate multi-family and commercial loans
bringing its ownership to 100%.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130 "Reporting Comprehensive Income" which is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for the
reporting and display of comprehensive income and its components. Comprehensive
income is required to be displayed in the equity section of the statement of
financial condition, separate from retained earnings and paid-in capital. In
addition, in June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
which is effective for financial statements for periods beginning after
December 15, 1997. This statement requires a company to report financial and
descriptive information about its reportable operating segments. The Company is
currently evaluating the impact of these standards on its financial statement
presentation and disclosures.
13
<PAGE>
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1997 COMPARED TO QUARTER ENDED JUNE 30, 1996
Total revenues for the quarter ended June 30, 1997 were $1.1 billion, an
increase of $70.0 million or 7.1% over the quarter ended June 30, 1996.
Revenues increased in the second quarter of 1997 due primarily to an increase
in fees and net interest income.
Commission revenues increased by $5.8 million or 3.8% to $158.3 million due
to increased business in all areas and is generally consistent with the overall
growth in listed share volume on major equity exchanges.
Underwriting revenues decreased by $91.0 million or 35.6% to $164.5
million. The Company and the industry experienced decreases in equity
underwriting during the second quarter of 1997.
Fee revenues increased by $75.2 million or 74.1% to $176.7 million.
Overall, merger and acquisition, asset management and other advisory services
activities have increased during the second quarter of 1997.
Interest, net of interest expense to finance U.S. government, agency and
mortgage-backed securities, increased by $118.9 million or 47.3% to $370.0
million. Higher levels of fixed-income securities including the Company's
Emerging Markets business accounted for more than half of the increase. The
remaining increase was due to increased margin balances at Pershing.
Principal transactions-net, trading revenues decreased by $21.7 million or
16.5% to $109.9 million. Most of the decrease took place in foreign fixed
income instruments and was more than offset by increases in interest revenues
net of all interest expense and by improved trading results in domestic fixed
income products.
Principal transactions-net, investment revenues decreased by $22.0 million
or 25.7% to $63.5 million. Realized gains on investments were $36.5 million.
Net unrealized carrying values increased by $27.0 million, which includes the
elimination of net unrealized depreciation of $27.3 million on investments sold
and an increase in net unrealized depreciation of $0.3 million on retained
investments.
Other revenues, consisting primarily of dividends and miscellaneous
transaction revenues, increased by $4.7 million or 34.9% to $18.2 million.
Total costs and expenses for the second quarter of 1997 were $894.2
million, an increase of $60.3 million or 7.2% over the second quarter of 1996.
Compensation and benefits decreased $22.4 million or 4.8% to $442.3
million. Incentive and production-related compensation decreased by 10.6% in
1997 due to lower long-term incentive accruals offset in part by higher
production related compensation due to higher revenues and operating results.
Base compensation, including benefits and all payroll taxes, increased by 17.8%
due to expansion in various business groups. At June 30, 1997, full-time
personnel totaled 6,468 compared to 5,405 at June 30, 1996, an increase of
1,063 or 19.7%.
Interest expense increased $69.5 million or 39.2% to $247.0 million. Most
of this increase was related to expanded levels of inventory of fixed-income
related products including foreign local fixed-income securities as well as
increased business activity at Pershing.
All other expenses, as noted below, increased by $13.1 million or 6.8% to
$204.8 million for the second quarter of 1997.
Brokerage, clearing, exchange fees and other expenses decreased by $1.7
million due to decreased underwriting related expenses. Occupancy and equipment
costs increased by $8.0 million as a result of the expansion of the Company's
principal office in the U.S. and the expansion of the Company's other domestic
and overseas offices. Communications costs increased by $2.8 million due to
expanded facilities and growth in professional staff. All other operating
expenses increased by $3.9 million. Included therein are data processing,
professional fees, travel and entertainment, and printing and stationery which
increased due to an overall increase in the level of business activity.
The Company's income tax provision for the second quarter of 1997 and 1996
was $66.8 million and $60.3 million, respectively, which represented a 40% and
38.3% effective tax rate, respectively.
14
<PAGE>
Net income for the quarter ended June 30, 1997 was $100.2 million, up $3.2
million or 3.3% from the comparable 1996 period. Primary and fully diluted
earnings per common share using the treasury stock method were $1.54 and $1.49,
respectively for the second quarter of 1997 and $1.53 for both primary and
fully diluted earnings per common share for the second quarter of 1996.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Total revenues for the six months ended June 30, 1997 were $2.0 billion, an
increase of $275.5 million or 15.6% over the six months ended June 30, 1996.
Revenues increased primarily due to increases in fees and net interest income
during 1997.
Commission revenues increased by $27.6 million or 9.2% to $326.7 million
due to increased business in all areas and is generally consistent with the
overall growth in listed share volume on major equity exchanges.
Underwriting revenues decreased by $52.5 million or 13.4% to $338.5
million. The Company and the industry experienced decreases in equity
underwriting during the six months ended June 30, 1997.
Fee revenues increased by $138.1 million or 74.7% to $322.8 million.
Overall, merger and acquisition, asset management and other advisory services
activities have increased during the first six months of 1997.
Interest, net of interest expense to finance U.S. government, agency and
mortgage-backed securities, increased by $207.8 million or 43.1% to $689.7
million. Higher levels of foreign fixed-income securities in the Company's
Emerging Markets business accounted for approximately one half of the increase.
The remaining increase was due to higher levels of inventory in the Fixed
Income Division and increased margin balances at Pershing.
Principal transactions-net, trading revenues decreased by $8.8 million or
3.2% to $266.2 million. Most of the decrease took place in foreign fixed income
instruments and was more than offset by increases in interest revenues net of
all interest expense and by improved trading results in domestic fixed income
products.
Principal transactions-net, investment revenues decreased by $46.7 million
or 42.1% to $64.4 million. Realized gains on investments were $40.8 million.
Net unrealized carrying values increased by $23.6 million, which includes the
elimination of net unrealized depreciation of $26.8 million on investments sold
and an increase in net unrealized depreciation of $3.2 million on retained
investments.
Other revenues, consisting primarily of dividends and miscellaneous
transaction revenues, increased by $10.0 million or 41.1% to $34.3 million.
Total costs and expenses for the six months ended June 30, 1997 were $1.7
billion, an increase of $230.3 million or 15.3% over the six months ended 1996.
Compensation and benefits increased $56.8 million or 7.0% to $865.8
million. Incentive and production-related compensation increased by 3.2% in
1997 due to higher revenues and operating results offset in part by lower
long-term incentive accruals. Similarly, base compensation, including benefits
and all payroll taxes, increased by 20.3% due to expansion in various business
groups. At June 30, 1997, full-time personnel totaled 6,468 compared to 5,405
at June 30, 1996, an increase of 1,063 or 19.7%.
Interest expense increased $112.7 million or 32.0% to $465.2 million. Most
of this increase was related to expanded levels of inventory of fixed-income
related products including foreign local fixed-income securities as well as
increased business activity at Pershing.
All other expenses, as noted below, increased by $60.8 million or 17.9% to
$400.6 million for the first six months of 1997.
Brokerage, clearing, exchange fees and other expenses increased by $12.1
million due to increased share volume and transaction fee payments. Occupancy
and equipment costs increased by $17.4 million as a result of the expansion of
the Company's principal office in the U.S. and the expansion of the Company's
other domestic and overseas offices. Communications costs increased by $6.0
million due to expanded facilities and growth in professional staff. All other
operating expenses increased by $25.3 million. Included therein are data
processing, professional fees, travel and entertainment, and printing and
stationery which increased due to an overall increase in the level of business
activity.
15
<PAGE>
The Company's income tax provision for the six months ended June 30, 1997
and 1996 was $124.4 million and $103.7 million, respectively, which represented
a 40% and 39% effective tax rate, respectively.
Net income for the six months ended June 30, 1997 was $186.6 million, up
$24.5 million or 15.1% from the comparable 1996 period. Primary and fully
diluted earnings per common share using the treasury stock method were $2.89
and $2.79, for the six months ended June 30, 1997 and $2.54 for both primary
and fully diluted earnings per common share for the six months ended June 30,
1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets are highly liquid with the majority consisting of
securities inventories and collateralized receivables, both of which fluctuate
depending on the levels of customer business and proprietary trading. Such
collateralized receivables consist primarily of resale agreements and
securities borrowed, both of which are secured by U.S. government and agency
securities and highly marketable corporate debt and equity securities. In
addition, the Company has significant receivables from customers, brokers and
dealers which turn over frequently. As a securities dealer, the Company may
carry significant levels of trading inventories to meet client needs. As such,
the Company's total assets or the individual components of total assets vary
significantly from period to period because of changes relating to customer
needs, economic and market conditions and proprietary trading strategies. A
relatively small percentage of total assets is fixed or held for a period of
longer than one year. The Company's total assets at June 30, 1997 and December
31, 1996 were $69.7 billion and $55.5 billion, respectively.
The majority of the Company's assets are financed through daily operations
by repurchase agreements, securities sold not yet purchased, securities loaned,
bank loans, and through payables to customers and brokers and dealers.
Short-term funding is generally obtained at rates related to Federal funds,
LIBOR and money market rates. Other borrowing costs are negotiated depending
upon prevailing market conditions. The Company monitors overall liquidity by
tracking the extent to which unencumbered marketable assets exceed short-term
unsecured borrowings.
The Company maintains borrowing relationships with a broad range of banks,
financial institutions, counterparties and others including $6.0 billion, at
June 30, 1997, in uncommitted and committed bank credit lines with 50 domestic
and international banks. These include $4.0 billion of uncommitted bank credit
lines, and a $2.0 billion revolving credit facility, of which $1.0 billion may
be unsecured.
Certain of the Company's businesses are capital intensive. In addition to
normal operating requirements, capital is required to cover financing and
regulatory charges on securities inventories, merchant banking investments and
investments in fixed assets. The Company's overall capital needs are
continually reviewed to ensure that its capital base can appropriately support
the anticipated needs of its business units as well as the regulatory capital
requirements of subsidiaries. Based upon these analyses, management believes
that the Company's debt and equity base is adequate for current operating
levels. The Company has been active in raising additional long-term financing,
including extending the maturity of its $325.0 million senior subordinated
revolving credit agreement. As of June 30, 1997, $325.0 million was outstanding
under this facility.
Mortgages, other receivables collateralized by real estate assets and real
estate owned amounting to $497.8 million at June 30, 1997 and $405.2 million at
December 31, 1996, generally represent the Company's interest in mortgages
receivable including certain mortgage-related securities previously
underwritten by the Company which were primarily repurchased in 1994, and are
carried at amounts approximating fair value, determined by, among other things,
the discounted cash flow and/or estimated sales prices of the underlying
properties. In July 1997, the Company announced its intention to sell the
mortgage loans and related assets which were repurchased by the Company in
1994.
DLJSC is subject to the capital requirements of the Securities and Exchange
Commission, the New York Stock Exchange, Inc., the Commodities Futures Trading
Commission and the Chicago Board of Trade, all of which ensure the general
capital adequacy and liquidity of broker-dealers and futures commission
merchants. DLJSC has consistently maintained capital substantially in excess of
the minimum requirements of such capital rules. At June 30, 1997, DLJSC had
aggregate regulatory "net capital," after adjustments required by Rule 15c3-1
under the Securities Exchange Act of 1934, of approximately $695.3 million,
which exceeded minimum net capital requirements by $601.7 million and which
exceeded the net capital required by DLJSC's most restrictive debt covenants by
$372.5 million.
16
<PAGE>
The Company issues structured notes which are customized financing
instruments in which the amount of interest or principal paid on the debt
obligation is linked to the return on specific cash instruments. At June 30,
1997 and December 31, 1996, the Company had issued long-term structured notes
with principal amounts of $188.1 million and $216.2 million outstanding,
respectively. The Company covers its obligations on structured notes primarily
by purchasing and selling the securities to which the value of its structured
notes are linked.
The Company's credit ratings of its long-term debt at June 30, 1997 are as
follows: Duff & Phelps A; Fitch A; IBCA A; Moody's Baal; Standard & Poors A-;
and Thomson BankWatch A+.
As a portion of the total consideration paid in connection with the Phoenix
acquisition, the Company issued $28,779,000 aggregate principal amount of 5%
Junior Subordinated Convertible Debentures due 2004 (the "Convertible
Debentures") to the former shareholders of Phoenix. On July 11, 1997, the
Company notified holders of the convertible debentures that on August 15, 1997,
the Company will exercise its option to redeem all of the outstanding
convertible debentures. Holders of such debentures have the option of receiving
105% of the par value on the date of redemption or converting the debentures
into an aggregate of 685,204 shares of common stock of the Company at the
conversion price of $42 per share. On August 8, 1997 all debentures were
converted into shares of the Company's common stock.
In April 1997, the Company commenced a program for the offering of up to
$300 million Medium-Term Notes due nine months or more from the date of
issuance. The Medium-Term Notes are part of a shelf registration statement
previously filed by the Company. The notes may bear interest at fixed or
floating rates and may be issued as indexed notes, dual currency notes,
renewable notes, amortizing notes or original issue discount notes. At June 30,
1997, the Company had $90.0 million of notes outstanding under this shelf
registration statement with a weighted average rate of 5.947%.
In June 1997, the Company filed a shelf registration statement which
enables the Company to issue from time to time up to $1.0 billion in aggregate
principal amount of senior or subordinated debt securities. There were no
securities outstanding under this shelf registration statement at June 30,
1997.
The Company's overall capital and funding needs are continually reviewed to
ensure that its capital base can support the estimated needs of its business
units.
CASH FLOWS
The Company's condensed consolidated statements of cash flows classify cash
flow into three broad categories: cash flows from operating activities,
investing activities and financing activities. The Company's net cash flows are
principally associated with operating and financing activities, which support
the Company's trading, customer and banking activities.
Six Months Ended June 30, 1997 and 1996
Cash and cash equivalents at June 30, 1997 and 1996, totaled $198.2 million
and $140.4 million, respectively, an increase of $39.3 million and $32.7
million, respectively, for the comparable periods.
Cash (used in) provided by operating activities totaled $(4.3) billion and
$321.1 million for the six months ended 1997 and 1996, respectively, and
reflects primarily an increase in operating assets in 1997 and an increase in
operating liabilities in 1996. In the first six months of 1997, there were
increases in assets including securities borrowed of $4.4 billion, trading
inventories of $1.9 billion, receivables from brokers, dealers and other of
$1.4 billion and receivables from customers of $836.1 million. These increases
were partially offset by increases in liabilities including securities loaned
of $1.7 billion, securities sold not yet purchased of $1.4 billion and payables
to customers of $1.1 billion. In the first six months of 1996, there were
increases in payables to brokers, dealers and other of $1.0 billion, payables
to customers of $599.1 million, securities loaned of $386.6 million and
securities sold not yet purchased of $217.3 million. These increases were
partially offset by increases in assets including securities borrowed of $1.1
billion and receivables from customers of $696.4 million.
For the six months ended June 30, 1997 and 1996, cash of $104.5 million and
$77.7 million, respectively, was used in investing activities. These generally
consist of fixed asset purchases and purchases of long-term corporate
development investments. Additionally, in 1997, cash was used for the purchase
of net assets related to the Phoenix acquisition.
17
<PAGE>
For the first six months of 1997 and 1996, cash of $4.5 billion and
$(210.8) million, respectively, was provided by (used in) short-term funding
(principally repurchase agreements). In 1997, the Company borrowed an
additional $118.5 million under the senior subordinated revolving credit
agreement and $89.8 million was provided by the issuance of Medium-Term Notes.
In 1996, $105.5 million was used to repay Swiss Franc Bonds which matured in
January 1996 and $249.5 million was provided by the issuance of Medium-Term
Notes.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company's derivative activities are not as extensive as many of its
competitors. Instead, the Company has focused its derivative activities on
writing over-the-counter ("OTC") options to accommodate its customers needs,
trading in forward contracts in U.S. government and agency issued or guaranteed
securities and engaging in futures contracts on equity-based indices, interest
rate instruments and currencies, and issuing structured notes. The Company's
involvement in swap contracts is not significant. As a result, the Company's
involvement in derivative products is related primarily to revenue generation
through the provision of products to its clients as opposed to hedges against
the Company's own positions.
Options Contracts:
Options contracts are typically written for a duration of less than 13
months. Revenues from these activities (net of related interest expenses) were
approximately $42.2 million and $31.9 million for the six months ended June 30,
1997 and 1996, respectively. Option writing revenues are primarily from the
amortization of option premiums. The increase in revenues primarily resulted
from higher levels of activity, both in size and number of transactions, by the
Company's institutional customers and favorable market conditions.
The notional value of written options contracts outstanding was
approximately $6.5 billion and $3.5 billion at June 30, 1997 and 1996,
respectively. The overall increase in the notional value of all options was due
primarily to increases in customer activity related to U.S. government
obligations. Such written options contracts are substantially covered by
various financial instruments that the Company has purchased or sold as
principal.
Futures and Forward Contracts:
As part of the Company's trading activities, including trading activities
in the related cash instruments, the Company enters into forward and futures
contracts primarily involving securities, foreign currencies, indices and
forward rate agreements, as well as options on futures contracts. Such forward
and futures contracts are entered into as part of the Company's covering
transactions and generally are not used for speculative purposes.
Net trading losses on forward contracts were $47.7 million and $39.1
million and net trading (losses) gains on futures contracts were $(25.7)
million and $8.5 million for the six months ended June 30, 1997 and 1996,
respectively.
The notional contract and market values of the forward and futures
contracts at June 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
Purchases Sales Purchases Sales
--------- ----- --------- -----
(In millions)
<S> <C> <C> <C> <C>
Forward Contracts
(Notional Contract Value) ............. $15,622 $20,572 $17,102 $18,446
======= ======= ======= =======
Futures Contracts and Options on
Futures Contracts (Market Value) ...... $ 2,669 $ 5,668 $ 803 $ 590
======= ======= ======= =======
</TABLE>
Structured Notes:
Structured notes are customized financing instruments in which the amount
of interest or principal paid on a debt obligation is linked to the return on
specific cash instruments. At June 30, 1997 and December 31, 1996, the Company
had issued long-term structured notes totaling $188.1 million and $216.2
million, respectively. The Company covers its obligations on structured notes
primarily by purchasing or selling the securities to which the value of its
structured notes are linked.
18
<PAGE>
HIGH YIELD TRANSACTIONS
The Company participates in the underwriting, trading and sales of
high-yield non-investment-grade securities. These securities generally involve
greater risk than investment-grade debt securities due to credit
considerations, liquidity of secondary trading markets and vulnerability to
general economic conditions.
The Company accounts for its high-yield inventory positions on a
market basis with unrealized gains and losses being recognized currently in
earnings. At June 30, 1997 and December 31, 1996 the Company had long inventory
of $662.2 million and $502.6 million, respectively, and short inventory of
$441.4 million and $378.5 million, respectively, of high-yield securities which
accounted for less than 3.9% of the Company's overall inventory positions.
19
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Certain significant legal proceedings and matters have been previously
disclosed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and in the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997. There have been no material developments in such
proceedings and matters, with the exception of Harrah's Jazz Company and
Harrah's Jazz Finance Corp. On February 26, 1997, the parties agreed to a
settlement of these actions, subject to the District Court's approval which was
granted on July 31, 1997. The settlement is also subject to the approval by the
United States Bankruptcy Court for the Eastern District of Louisiana of
proposed modifications to a confirmed plan of reorganization for Harrah's Jazz
Company and Harrah's Jazz Finance Corp., and the satisfaction or waiver of all
conditions to the effectiveness of the plan, as provided in the plan. There can
be no assurance of the Bankruptcy Court's approval of the modifications to the
plan of reorganization, or that the conditions to the effectiveness of the plan
will be satisfied or waived. In the opinion of management, the settlement, if
approved, will not have a material adverse effect on the Company's results of
operations or on its consolidated financial condition.
In addition to the significant proceedings and matters referred to
above, the Company has been named as a defendant in a number of actions
relating to its various businesses including various civil actions and
arbitrations arising out of its activities as a broker-dealer in securities, as
an underwriter and as an employer and arising out of alleged employee
misconduct. Some of the actions have been brought on behalf of various classes
of claimants and seek damages of material or indeterminate amounts. The Company
is also involved, from time to time, in proceedings with, and investigations
by, governmental agencies and self regulatory organizations. Although there can
be no assurance that such other actions, proceedings, investigations and
litigation will not have a material adverse effect on the results of operations
of the Company in any future period, depending in part on the results for such
period, in the opinion of management of the Company the ultimate resolution of
any such other actions, proceedings, investigations and litigation against the
Company will not have a material adverse effect on the consolidated financial
condition and/or results of operations of the Company.
20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3.1 Certificate of Incorporation. (Incorporated herein by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1,
File No. 33-96276).
3.2 By-Laws. (Incorporated herein by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1, File No. 33-96276).
10.24 Agreement of sublease between SBC Warburg, Inc. and the Registrant,
tenant, 277 Park Avenue, New York, New York, dated June 13, 1997.
11 Statement re: computation of primary earnings per share.
11.1 Statement re: computation of fully diluted earnings per share.
21.1 Subsidiaries of the Registrant.
27 Financial Data Schedule
21
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DONALDSON, LUFKIN & JENRETTE, INC.
August 14, 1997 /s/ Anthony F. Daddino
-----------------------------------
Anthony F. Daddino
Executive Vice President and Chief
Financial Officer
(On behalf of the Registrant and as
Principal Financial Officer)
22
<PAGE>
EXHIBIT INDEX
3.1 Certificate of Incorporation. (Incorporated herein by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1, File
No. 33-96276).
3.2 By-Laws. (Incorporated herein by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1, File No. 33-96276).
10.24 Agreement of sublease between SBC Warburg, Inc. and the Registrant,
tenant, 277 Park Avenue, New York, New York, dated June 13, 1997.
11 Statement re: computation of primary earnings per share.
11.1 Statement re: computation of fully diluted earnings per share.
21.1 Subsidiaries of the Registrant
27 Financial Data Schedule
23
<PAGE>
SUBLEASE
AGREEMENT OF SUBLEASE ("Sublease") made as of this 13th day of
June, 1997 between SBC Warburg Inc., a New York corporation, having an office
at 277 Park Avenue, New York, New York (hereinafter referred to as "Landlord")
and Donaldson, Lufkin & Jenrette, Inc., a Delaware corporation, having an
office at 277 Park Avenue, New York, New York (hereinafter referred to as
WITNESSETH:
WHEREAS, Landlord is the lessee under that certain Agreement of
Lease, dated June 23, 1994, between Stanley Stahl d/b/a Stahl Park Avenue
Company, predecessor in interest to 277 Park Avenue, LLC, as landlord (the
"Prime Lessor") and S.G. Warburg & Co. Inc. ("Warburg"), as tenant, as amended
by that certain letter agreement (the "Amendment"), dated January 11, 1995,
between Prime Lessor and Warburg, as assigned by Warburg to Landlord pursuant
to that certain Assignment and Assumption Agreement (the "Prior Assignment"),
dated as of June 3, 1996, as amended by that certain letter agreement, dated
June 13, 1997, between Prime Lessor and Landlord (collectively, the "Master
Lease"), which Master Lease demises all of the rentable area of the second and
third floors (the "Prime Leased Premises") in the building known as 277 Park
Avenue, New York, New York (the "Building"); and
WHEREAS, Tenant desires to sublet the portion of the second floor
more particularly shown as cross-hatched on the floor plan attached hereto as
Exhibit A (the "Premises") in the Building and Landlord is willing to sublet
the same on the conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto hereby covenant and agree as
follows:
1. Demise; Term. Landlord hereby subleases to Tenant and Tenant
hereby hires from Landlord the Premises for a term to commence (subject to the
provisions of Paragraphs 15 and 16 hereof) on the Commencement Date (as
hereinafter defined) and to expire on the day immediately preceding the
effective date of that certain Assignment and Assumption of Lease (the
"Assignment"), dated as of the date hereof, between Landlord and Tenant (the
"Expiration Date"). The term "Commencement Date" as used herein shall mean
that date on which vacant possession of the Premises is delivered by Landlord
to Tenant, which date shall, subject to Paragraphs 15 and 16, occur not later
than June 15, 1997 (it being agreed that Landlord shall give Tenant at least 7
days' prior notice of the date on which it anticipates that the
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<PAGE>
Commencement Date will occur, provided that no prior notice shall be required
if the Commencement Date is to occur on June 13, 1997). Subject to Paragraphs
15 and 16 hereof, Landlord shall reasonably cooperate with Tenant to cause the
Commencement Date to occur on June 15, 1997, provided that the same does not,
in Landlord's sole discretion, adversely affect either (a) Landlord's ongoing
business operations, (b) physical and/or data/information security or
integrity or (c) client confidentiality. Promptly after the Commencement Date,
Landlord and Tenant shall enter into an agreement, in form and substance
reasonably satisfactory to both parties, confirming the Commencement Date;
provided, however, the failure to execute and deliver such agreement shall not
affect the validity of the Commencement Date.
2. Fixed Rent. (a) Tenant covenants and agrees to pay to Landlord a
fixed basic rent ("Fixed Rent") of $l,276,275.OO per annum.
(b) Tenant shall pay the Fixed Rent in equal monthly
installments in advance commencing on the Commencement Date and continuing on
the first day of each month thereafter during the term of this Sublease.
Tenant shall make all payments of Fixed Rent and all other sums of money as
shall become due and payable by Tenant to Landlord hereunder ("Additional
Rent") to the office of Landlord or at such other place as Landlord may
designate in writing, without demand (except as expressly provided herein) and
without any abatement, set off or deduction whatsoever (except as expressly
provided herein).
(c) If the Commencement Date or Expiration date occurs on a
day other than the first or last day of a calendar month, respectively, the
Fixed Rent for such partial calendar month shall be prorated.
3. Additional Rent. (a) Tenant shall pay to Landlord, as Additional
Rent hereunder, the following:
(i) Subtenant's Share of all amounts which are payable by
Landlord pursuant to Article 13 and Section 28.8 of the Master
Lease or otherwise on account of electricity and chilled water,
respectively, supplied to the Premises;
(ii) Subtenant's Share of all amounts which are payable by
Landlord pursuant to the service contracts listed on Exhibit B
attached hereto; and
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<PAGE>
(iii) The full amount of any other charge, fee, cost, sum or
expense which Landlord pays or incurs on or after the Commencement
Date (x) for the provision of, or in connection with, any services
or supplies provided to or for the Premises (or any part thereof)
at the request of Tenant and (y) as may be required pursuant to
the terms and provisions of the Master Lease with respect to the
Premises.
The term "Subtenant's Share" as used herein shall mean, from time to time
during the term of this Sublease, the fraction (expressed as a decimal) having
as its numerator the number of rentable square feet comprising the Premises
(which shall be deemed to be 32,725 rentable square feet on the Commencement
Date) and as its denominator the number of rentable square feet then
comprising the Prime Leased Premises (which shall be deemed to be 161,150
rentable square feet on the Commencement Date).
(b) Tenant shall pay any commercial rent or occupancy tax with
regard to the Premises either to the taxing authority, or, if appropriate, to
Landlord, as Additional Rent, at least five (5) business days before the due
date of each and every such tax payment to the taxing authority.
(c) All payments of Additional Rent shall be paid by Tenant to
Landlord within fifteen (15) days after Landlord's request therefor
(accompanied by a bill or statement from Prime Lessor (as hereinafter
defined), if applicable); provided, however, that if the Master Lease requires
the making of payments on account of any item of Additional Rent, Tenant shall
make such payments at least three (3) business days prior to its respective
due date under the Master Lease without the need for request therefor by
Landlord.
4. Use. The Premises shall be used only for general and executive
office use in connection with Tenant's business, and for no other purpose.
5. Incorporation; Master Lease. (a) Except as may be inconsistent
with the terms hereof, all of the terms, covenants and conditions of the
Master Lease are hereby made part hereof with the same force and effect as if
fully set forth at length herein and the term "Landlord" in the Master Lease
shall mean Landlord herein and the term "Tenant" in the Lease shall mean
Tenant herein and the term "Lease" in the Master Lease shall mean this
Sublease. Without limiting the foregoing, the parties agree that the following
provisions of the Master Lease are inconsistent with the terms of this
Sublease and therefor are not incorporated into this Sublease: Articles: 1, 10
(other than Section 10.5), 11, 15 (other than the first sentence thereof), 19,
27, 28, 33, 38, 39, 40 41, 42, 43, 44, 45, 46 and 47; Sections: 2.1, 2.2(B),
3.1(A), second and third
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<PAGE>
sentences of 3.1(c), 3.4 3.5, first sentence of 4.1, 4.3, fourth sentence of
6.1(A) 6.l(B), 7.1, 7.7, 9.3, 12.1, 12.2(C)(2), 12.3, 12.5, 12.7, 12.8, 12.9,
12.10, 13.1(A)(other than the last phrase of the second sentence beginning
with the word "Tenant"); 13.1(B), 13.2 13.3, 14.2, 18.4 and 36.6; the
Amendment; and the Prior Assignment (collectively, the "Excluded Provisions").
In any case where the consent or approval of Prime Lessor under the Master
Lease is required, then Landlord's consent shall also be required hereunder.
(b) Except as otherwise provided herein, the time limits contained
in the Master Lease for the giving of notices, making payments or demands or
performing of any act, condition or covenant on Landlord's part, as tenant
thereunder, are changed for the purposes of incorporation herein by reference
by shortening same in each instance by two (2) business days, so that Tenant
shall have a lesser time to observe or perform hereunder than Landlord has
under the Master Lease. In no event, however, shall Tenant have less than two
(2) business days to so observe or perform. If, because of the time period
specified for performance in the Master Lease, Tenant cannot perform hereunder
within the time periods mentioned in the two previous sentences, Tenant shall
not be in technical default hereunder so long as Tenant fully performs prior
to the date or time required for Landlord's performance under the Prime Lease.
If Landlord or Tenant receives any notice or demand from the Prime Landlord or
Tenant receives any notice or demand from the Prime Lessor under the Master
Lease, said party shall promptly give a copy thereof to the other.
(c) Tenant hereby agrees to comply with all of the terms,
covenants and conditions of the Master Lease on the part of the tenant therein
named to be performed thereunder, other than, subject to the provisions of
Paragraphs 2 and 3 hereof, the payment of base rent and additional rent under
the Master Lease and the Excluded Provisions.
(d) Performance by the Prime Lessor shall be deemed and accepted
by Tenant as performance by Landlord herein and Landlord shall not be
responsible for any breach of the Master Lease by Prime Lessor or any
nonperformance or noncompliance with any provision thereof by Prime Lessor,
including the failure of Prime Lessor to provide any services, utilities
and/or repairs. Landlord makes no representation that Prime Lessor will
provide any or all of the services, utilities and/or repairs referred to in
the Master Lease.
(e) Neither Landlord nor Tenant shall do nor permit anything to be
done which would violate or breach the terms and provisions of the Master
Lease or
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<PAGE>
cause the Master Lease to be terminated or forfeited by reason of any right of
termination or forfeiture reserved or vested in the Prime Lessor under the
Master Lease.
6. Remedies. (a) Subject to any applicable notice and cure periods
expressly provided under the Master Lease, Landlord shall have the same rights
and remedies with respect to a breach of this Sublease by Tenant as the Prime
Lessor has with respect to a breach of the Master Lease, as if the same were
more fully set forth at length herein, and Landlord shall have, with respect
to Tenant, this Sublease and the Premises, all of the rights, powers,
privileges and immunities as are had by the Prime Lessor under the Master
Lease.
(b) Tenant shall use and occupy the Premises only for purposes
permitted under the Master Lease, and for no other purposes.
7.. Termination of Lease. Provided that Tenant is not in default
under this Sublease beyond any applicable notice and cure periods, Landlord
covenants and agrees not to voluntarily surrender, cancel or terminate the
Master Lease or voluntarily amend the Master Lease so as to deprive (except to
a de minimis extent) Tenant of its rights under this Sublease or increase
(except to a de minimis extent) Tenant's obligations, without the prior
consent of Tenant. Notwithstanding anything to the contrary contained herein,
if the Master Lease is terminated for any reason whatsoever, whether by
operation of law or otherwise, except through the default of Landlord, as
tenant thereunder (excluding a default caused by Tenant), or the voluntary
surrender of the Master Lease by Landlord, Landlord shall not be responsible
for such termination or the termination of this Sublease as a result thereof.
Landlord agrees that it shall indemnify and hold harmless Tenant from and
against any and all loss, claim, damage, cost or expense (including, without
limitation, reasonable attorneys' fees and disbursements) which Tenant shall
suffer or incur in connection with a breach by Landlord of its covenants and
obligations under this Paragraph 7.
8. Subordination. This Sublease is subject and subordinate to the
Master Lease and to all other matters and interests to which the Master Lease
is or shall be subordinate. In the event of termination, re-entry or
dispossession by Prime Lessor under the Master Lease, Prime Lessor may, at its
option, take over all of the right, title and interest of Landlord under this
Sublease and Tenant shall, at Prime Lessor's option, attorn to Prime Lessor
pursuant to the then executory provisions of this Sublease. Tenant represents
that it has read and is familiar with the terms of the Master Lease.
9. Assignment and Subleasing. Notwithstanding anything contained
in the Master Lease to the contrary, Tenant shall not, by operation of law or
otherwise,
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<PAGE>
assign, mortgage or encumber this Sublease, or sublet the Premises in whole or
in part or permit the Premises or any part thereof to be used by others.
10. No Services. (a) Notwithstanding anything contained in this
Sublease to the contrary, Landlord shall have no obligation to (i) perform any
services under this Sublease (including, without limitation, the providing of
electrical energy), (ii) make any repairs or restorations, (iii) comply with
any laws or requirements of any governmental authorities, (iv) provide any
insurance with respect to the Building, the Premises or the improvements
therein, (v) remove, encapsulate or otherwise treat any asbestos-containing
materials or other hazardous materials located in the Premises and/or the
Building, or (vi) take any other action that Prime Lessor is obligated to
provide, make, comply with or take, or cause to be done, under the Master
Lease (collectively, "Services") and the only Services or rights to which
Tenant is entitled hereunder, including, without limitation, any right to
repairs, elevator, water, utilities, heating and air conditioning, are those
to which Landlord is entitled as the tenant under the Master Lease, and for
all such services and rights, Tenant will look solely to the Prime Lessor.
Landlord hereunder assumes no liability for any covenants, representations or
warranties made by Prime Lessor under the Master Lease. Landlord agrees to
take all reasonable steps to assist Tenant as Tenant may from time to time
request, at Tenant's sole expense and without liability to Landlord, in
seeking such services and rights from the Prime Lessor, provided Tenant
indemnifies and reimburses Landlord as to any cost or expense incurred with
respect thereto. If following the expiration of any applicable notice and cure
period granted to Prime Lessor under the Master Lease, the Prime Lessor shall
fail to perform its obligations under the Master Lease, then Tenant shall have
the right to bring an action against Prime Lessor in its own name. If any such
action against Prime Lessor in Tenant's name is barred by reason of lack of
privity, non-assignability or otherwise, then Tenant may bring such action in
Landlord's name and Landlord shall execute all documents reasonably required
in connection therewith, provided the same is without cost and expense to
Landlord. In the event that Tenant brings any such action against Prime
Lessor, then Tenant shall indemnify and hold harmless Landlord from and
against any and all loss, claim, damage, cost or expense (including, without
limitation, reasonable attorneys' fees and disbursements) which Landlord shall
incur in connection therewith. Nothing contained herein shall be deemed a
waiver of Landlord's rights to receive Services from Prime Lessor. Landlord
shall in no event be liable to Tenant for any failure to render any of the
Services, nor shall any such failure entitle Tenant to any abatement or
reduction in Fixed Rent or Additional Rent payable hereunder or to any right
to terminate this Sublease.
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<PAGE>
(b) Notwithstanding the foregoing, if, as a result of Prime
Lessor's default in any of its obligations to Landlord with respect to the
Premises, Landlord receives an abatement or an apportionment of rent allocable
to the Premises, Landlord shall pass on to Tenant, Tenant's pro rata share of
such abatement or apportionment, based on the Fixed Rent per square foot
payable by Tenant under this Sublease.
11. Broker. Landlord represents and warrants to Tenant that it has
not been represented by any broker in connection with this transaction other
than Jones Lang Wootton USA ("JLW"). Tenant represents and warrants to
Landlord that it has not been represented by any broker in connection with
this transaction other than DLJ Realty Services, Inc. ("DLJRSI", JLW and
DLJRSI are sometimes collectively referred to herein as "Broker.") Landlord
agrees to indemnify, defend and save harmless Tenant from and against any
liability, expense, suit, damage, action or charge including, without
limitation, reasonable attorneys' fees, that Tenant may suffer or incur by
reason of the claim of JLW or any other broker (other than DLJRSI) which may
be asserted against the Tenant as a result of any dealings between the
Landlord and JLW or any other broker. Tenant agrees to indemnify, defend and
save harmless Landlord from and against any liability, expense, suit, damage,
action or charge including, without limitation, reasonable attorneys' fees,
that Landlord may suffer or incur by reason of the claim of DLJRSI or any
other broker (other than JLW) which may be asserted against the Landlord as a
result of any dealings between Tenant and DLJRSI or any other broker. Landlord
agrees to pay all commissions due Broker pursuant to separate agreements
between Landlord and Broker regarding this transaction.
12. Insurance. Tenant shall, at its sole cost and expense and for
the term of this Sublease maintain all property, liability and other insurance
required by Article 9 of the Master Lease in accordance therewith. On or prior
to the Commencement Date, Tenant shall deliver to Landlord certificates of
insurance naming Landlord, Prime Lessor and such other parties as are required
to be named pursuant to the Master Lease as additional insureds.
13. As Is. (a) Tenant agrees to accept the Premises "as is,"
"broom clean" at the time possession thereof is delivered to Tenant free of
any occupancy and Landlord shall have no obligation to perform any
alterations, work or repairs on behalf of Tenant or contribute any sums toward
same, except that Landlord shall be responsible for the installation of
demising walls substantially in accordance with Exhibit A prior to the
commencement of the Sublease. Tenant hereby expressly acknowledges that,
except as expressly set forth herein, no representations with respect to the
condition, expense or any other matter or thing affecting or related to the
Master Lease or the Premises, or any
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<PAGE>
fixtures, equipment or furnishings therein contained, have been made to it.
Landlord is not liable or bound in any manner by any verbal or written
statements, representations, real estate broker's "setups" or information
pertaining to the Master Lease, Premises or any fixtures, equipment or
furnishings contained in the Premises furnished by any real estate broker
agent, employee or other person, unless the same are specifically set forth
herein. Notwithstanding anything herein contained to the contrary, Landlord
shall remove from the Premises all of its movable equipment, furniture,
furnishings. decorations and other items of movable personal property (other
than the Assigned Items (as defined in the Assignment)) prior to the
Commencement Date and shall have the right, but not the obligation, to remove
from the Premises all of its movable improvements and fixtures (other than the
Assigned Items (as defined in the Assignment) (it being agreed that Landlord
shall be under no obligation whatsoever to remove from the Premises any items
that are affixed to the Premises). Tenant shall not perform any work or
alterations in preparing the Premises for occupancy, or otherwise during the
term of this Sublease, without the prior written approval of both Landlord and
Prime Lessor in accordance with the terms of the Master Lease. If so approved,
all such work and alterations shall be performed in full compliance with the
applicable provisions of the Master Lease. Notwithstanding anything to the
contrary contained herein or in the Master Lease (and supplementing Section
3.1(C) of the Master Lease), Tenant may perform the following types of work
only during Overtime Periods (as defined in the Master Lease): demolition,
shooting track and electrical, sprinkler and HVAC shutdowns.
(b) The parties hereto agree to reasonably cooperate with one
another to ensure that, subsequent to the Commencement Date, certain items of
infrastructure more particularly identified on Exhibit C attached hereto which
cannot be practically or feasibly separated, will be shared or otherwise
managed with respect to access and other matters, in a manner that is
reasonably satisfactory to both Landlord and Tenant and that preserves the
integrity of each party's separate demised premises to the maximum extent
possible.
14. Merger. All prior understandings and agreements between the
parties with respect to the Premises are merged within this Sublease, which
together with the Assignment fully and completely sets forth the understanding
of the parties. This Sublease may not be changed or terminated orally or in
any manner other than by an agreement in writing executed by both parties.
15. Consents. (a) This Sublease is subject to, and shall
become effective only upon, the written consent of the Prime Lessor in
accordance with all
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applicable terms of the Master Lease to both this Sublease and the
Assignment, which consent Landlord and Tenant shall use all reasonable efforts
to obtain. Tenant shall promptly furnish to Landlord such information as may
be reasonably necessary to obtain such consent, and to enter into such
agreements among the Prime Lessor, Landlord and Tenant as the Prime Lessor may
reasonably require pursuant to the Master Lease in connection with giving its
consent to this Sublease and the Assignment including, without limitation, an
agreement to attorn to the Prime Lessor as landlord in the event of a
termination of this Sublease. Any delay in the Prime Lessor's furnishing such
consent shall not postpone or extend the Expiration Date. In the event such
consent to both this Sublease and the Assignment is denied (or in the event
that the consent of Landlord to the Assignment is denied), this Sublease shall
thereupon terminate and be of no further force or effect. In the event such
consent to both this Sublease and the Assignment is not obtained on or prior
to the 60th day following the date hereof, then either party shall have the
right to give written notice canceling this Sublease.
(b) In the event that this Sublease shall terminate or be
cancelled pursuant to the foregoing Paragraph 15(a), then Tenant shall, within
10 days after demand therefor, reimburse Landlord for all of its direct,
third party out-of-pocket costs (collectively, the "Delivery Costs") actually
incurred to (i) deliver the Premises within the timeframe herein contemplated
plus (ii) at Landlord's sole option and discretion, restore the Premises to
its existing condition as of April 17, 1997. As used herein, Delivery Costs
shall be broadly interpreted to include all reasonable out-of-pocket costs
actually incurred both at the Building and at other locations of Landlord, if
any, affected as a direct consequence of Landlord's efforts to deliver the
Premises to Tenant. Landlord shall provide Tenant with sufficient
documentation to reasonably substantiate the Delivery Costs, which shall not
exceed the aggregate amount of $800,000.
16. Delivery of Possession. (a) Notwithstanding anything herein
contained to the contrary, if Landlord is unable to deliver to Tenant
possession of the Premises, or any part thereof, on June 15, 1997, except as a
result of Unavoidable Delays (as defined in the Master Lease) at the Building,
because of a fire or casualty therein or for any other reason whatsoever, (i)
except as hereinafter set forth, Landlord shall have no liability to Tenant
therefor, (ii) the validity of this Sublease shall not be impaired by reason
thereof, (iii) the same shall not be construed in any way to extend the term
of this Sublease and (iv) the term of this Sublease shall commence on, and the
Commencement Date shall be, the date on which Landlord delivers possession of
the Premises to Tenant. Notwithstanding the foregoing, if, except as a result
of Unavoidable Delays (as defined in the Master Lease) at the Building,
Landlord does not deliver to Tenant possession of the Premises on or before
the date (the "Outside Date")
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that is the later to occur of (x) the date that is 7 days after the date on
which the required consent of Prime Lessor to this Sublease is received and
(y) June 22, 1997, then, as Tenant's sole and exclusive remedy therefor,
Tenant shall receive an abatement of Fixed Rent equal to the sum of (x)
$1,748.32 for each of the first 30 days occurring after the Outside Date and
prior to the date on which possession of the Premises is delivered to Tenant
plus (y) $3,496.64 for each day, if any, occurring after July 22, 1997 and
prior to the date on which possession of the Premises is delivered to Tenant.
(b) The provisions of this Paragraph are intended to constitute
"an express provision to the contrary" within the meaning of Section 223-a of
the New York Real Property Law and any other law of like import now or
hereafter in effect.
17. Damage by Fire or Other Cause: Condemnation. Notwithstanding
any contrary provision of the Master Lease incorporated herein by reference,
Tenant shall have no right to (a) terminate this Sublease as to all or any
part of the Premises by reason of a casualty on condemnation or (b) an
abatement of Fixed Rent or Additional Rent by reason of a casualty or
condemnation, unless Landlord is entitled to a corresponding abatement with
respect to its corresponding obligation under the Master Lease. The provisions
of this Section 17 shall be deemed an express agreement governing any case of
damage or destruction of the Subleased Premises by fire or other casualty, and
Section 227 of the Real Property Law of the State of New York, providing for
such a contingency in the absence of an express agreement, and any other law
of like import, now or hereafter in force, shall have no application in such
case.
18. Freight Elevator Access. In addition to Landlord's rights
under Section 14.1(A) of the Master Lease, Landlord shall have the right to
enter the Premises upon reasonable prior notice (except in the case of an
emergency in which case such access may be without notice) to access the
freight elevator lobby and freight elevators serving the 2nd floor of the
Building provided that in so doing Landlord shall employ appropriate measures
to protect the Premises from damage caused by the movement of freight and
shall use reasonable efforts to not interfere with Tenant's business
operations.
19. Authority. Each party hereby represents, warrants and
covenants to the other that (i) it is a duly formed and validly existing
corporation with full power and authority to enter into this Sublease and to
perform its obligations hereunder in accordance with its terms and (ii) this
Sublease has been duly authorized, executed and delivered by it and
constitutes the legal, valid and binding obligation of such party.
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<PAGE>
20. Successors. The covenants and agreements herein contained shall
inure to the benefit of and be binding upon the parties and their respective
successors and, in the case of Landlord only, assigns.
21. Governing Law. This Sublease shall be governed by the laws of
the State of New York.
22. Ouiet Enjoyment. Landlord covenants that as long as Tenant
shall pay the rental due hereunder and shall duly perform all the terms,
covenants and conditions of this Sublease on its part to be performed and
observed, Subtenant shall peaceably and quietly have, hold and enjoy the
Premises during the term hereof without molestation or hindrance by Landlord,
subject to the terms, provisions and conditions of the Master Lease and this
Sublease.
23; Liability. Notwithstanding any other provision contained in
this Sublease to the contrary, each party shall look only to the assets of the
other party for the satisfaction of any liability of the other party under
this Sublease, it being expressly understood and agreed that any partner,
officer, director, employee or agent of Landlord or Tenant as an individual
shall not be held personally liable for such obligations and neither party
shall pursue satisfaction of any judgment against the other against assets of
any individual partner, officer, director, employee or agent of such other
party.
24. Trial by Jury. It is agreed by Landlord and Tenant that they
shall and hereby do waive trial by jury in any action, proceeding or
counterclaim brought by either of them against the other on any matter
whatsoever arising out of or in any way connected with this Sublease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the
Premises, and any emergency statutory or any other statutory remedy.
25. Counterparts. This Sublease may be executed in several
counterparts, each of which shall be deemed an original. Such counterparts
constitute but one and the same instrument, which may be sufficiently evidenced
by one counterpart.
26. Invalidity. The invalidity or unenforceability of any term or
provision of this Sublease or the non-application of such term or provision to
any person or circumstance shall not impair or affect the remainder of this
Sublease, and its application to other persons and circumstances and the
remaining terms and provisions hereof shall not be invalidated but shall
remain in full force and effect.
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<PAGE>
27. Notices. Any notice or demand which may be required or may be
desired to be given pursuant to this Sublease shall be in writing and given in
accordance with Paragraph 18 of the Assignment.
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<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Sublease as of
the day and year first above written.
SBC WARBURG INC.
By: /s/ Robert C. Errico
-------------------------------
Name: Robert C. Errico
Title: Executive Director
By: /s/ Curt Snyder
-------------------------------
Name: Curt Snyder
Title: Executive Director
DONALDSON, LUFKIN & JENRETTE, INC.
By: /s/ Anthony F. Daddino
-------------------------------
Name: Anthony F. Daddino
Title: Executive Vice President
& Chief Financial Officer
<PAGE>
PREMISES
This floor plan is annexed to and made a part of this Sublease solely to
indicate the Premises by outlining and diagonal cross-hatching. All areas,
conditions, dimensions and locations are approximate.
SBC-WARBURG
277 PARK AVENUE
NEW YORK, NY
LEASE EXHIBIT "A"
FLOOR 2
SPM-2-277
26-MAR-97
NEW/0 SPM2
[FLOOR MAP]
<PAGE>
EXHIBIT "B"
SHARED SERVICES CONTRACTS
<TABLE>
<CAPTION>
ITEM VENDOR DESCRIPTION
------------------ --------------- ----------------------------------------------------------
<S> <C> <C>
Cleaning Stahl Additional cleaning services:
---------------------------------- -----------------------------------------------------------
Caccamo Day-time bathroom clean-up
---------------------------------- -----------------------------------------------------------
Sterling Interior Glass
---------------------------------- -----------------------------------------------------------
Metal Maintenance (Elevator Lobby)
---------------------------------- -----------------------------------------------------------
Stone maintenance and repairs
---------------------------------- -----------------------------------------------------------
Arch. Woodwork maintenance and repairs
---------------------------------- -----------------------------------------------------------
HVAC CM Air On-site Maintenance including FCU and Generator
---------------------------------- -----------------------------------------------------------
Lighting Forest Light maintenance
---------------------------------- -----------------------------------------------------------
Management SPM Facilities Management and coordination services
---------------------------------- -----------------------------------------------------------
Plumbing Breslaw Plumbing service contract--on-call service
---------------------------------- -----------------------------------------------------------
Pre Action Lund Pre-action systems in Telcom rooms
---------------------------------- -----------------------------------------------------------
Rubbish Removal BFI/Stahl
---------------------------------- -----------------------------------------------------------
Security 1st Security Security for 2nd and 3rd fl.
---------------------------------- -----------------------------------------------------------
Security System Kastle Maintenance and monitoring charges for security system
---------------------------------- -----------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT "C"
SHARED INFRASTRUCTURE
- -----------------------------------------------------------------------------
HVAC:
o The HVAC system integrity will be maintained and monitor by SBCW's BMS
equipment. Any modifications to the system cannot be made until prior
consent is received from SBCW/SPM.
INFORMATION TECHNOLOGY:
o IDF 2A, located on the NWC, will be divided and shared. Supplemental AC
will not be provided. Access will be as follows:
o IDF 2A will have (1) separate and lockable entrance for each
occupant. Each tenant provide own hardware.
o DLJ will not have access to any other Telecommunication closet other
than 2C and 2A.
SECURITY SYSTEM:
o Security system infrastructure will remain in-place and the integrity
must be maintained.
<PAGE>
ASSIGNMENT AND ASSUMPTION OF LEASE
("Assignment")
SBC WARBURG INC., a New York corporation having an office at 277
Park Avenue, New York, New York ("Assignor"), in consideration of the mutual
covenants and undertakings set forth herein and certain other valuable
consideration to it in hand paid by DONALDSON, LUFKIN & JENRETTE, INC., a
Delaware corporation having an office at 277 Park Avenue, New York, New York
("Assignee"), hereby assigns to Assignee all of Assignor's right, title and
interest in and to that certain Agreement of Lease, dated as of June 23, 1994,
between Stanley Stahl D/B/A Stahl Park Avenue Company, predecessor in interest
to 277 Park Avenue, LLC, as landlord ("Landlord") and S.G. Warburg & Co. Inc.
("Warburg"), as tenant, as amended by that certain letter agreement, dated
January 11, 1995, between Landlord and Warburg, as assigned by Warburg to
Assignor pursuant to that certain Assignment and Assumption Agreement (the
"Prior Assignment"), dated as of June 3, 1996, as amended by that certain
letter agreement, dated June 13, 1997, between Landlord and Assignor (herein
collectively called the "Master Lease") covering all of the rentable area of
the second and third floors (the "Premises") of the building known as 277 Park
Avenue, New York, New York (the "Building"), provided that such assignment
shall not be effective until February 1, 1998 (the "Effective Date"). The
terms of such assignment are, and Assignor and Assignee agree, as follows:
1. (a) Assignee shall have and hold the Master Lease from and
after the Effective Date for all of the remainder of the initial term of the
Master Lease (i.e. through January 31, 2008) only, subject to all of the
terms, covenants, conditions and agreements thereof. Notwithstanding anything
herein contained to the contrary, Assignor's rights under Articles 38 and 39
of the Master Lease are excluded from this Assignment and Assignee shall have
no claim whatsoever to such rights; provided, however, if Assignor is
unconditionally and fully relieved by Landlord of all of Assignor's
obligations under the Master Lease from and after the Effective Date, then in
such event (but only in such event) Assignor's rights under said Articles 38
and 39 of the Master Lease shall be deemed to have been assigned to Assignee
hereby.
(b) Notwithstanding anything herein contained to the contrary,
Assignor hereby expressly reserves unto itself all rights, claims and remedies
(including, without limitation, all rights of contest and refund) under the
Master Lease that accrue prior, or are otherwise applicable, to the period
prior to the Effective Date.
<PAGE>
(c) Notwithstanding anything herein contained to the
contrary, if Assignor shall be unable to deliver to Assignee possession of the
Premises, or any part thereof, on the Effective Date for any reason
whatsoever, (i) Assignor shall have no liability to Assignee therefor, (ii)
the validity of this Assignment shall not be impaired by reason thereof and
(iii) the Effective Date of this Assignment shall be adjusted to the date on
which Assignor delivers possession of the Premises to Assignee; provided,
however, in the event that Assignor fails to deliver the Premises to Assignee
on or before December 31, 1998 (time being of the essence), Assignee shall
have the right, as its sole and exclusive remedy (unless Assignor willfully
and in bad faith retains possession of the Premises), to terminate this
Assignment upon written notice to Assignor. This Section 1 shall be an express
provision to the contrary for purposes of Section 223-a of the New York Real
Property Law and any other law of like import now or hereafter in effect.
Notwithstanding the foregoing, Assignor agrees to use reasonable efforts to
deliver possession of the Premises to Assignee on the Effective Date.
2. Assignee hereby accepts the within assignment subject to all
the terms, covenants, conditions, provisions and agreements contained in the
Master Lease, and, assumes and agrees with Assignor and with Landlord to
perform and comply with and to be bound by all of the terms, covenants,
agreements, provisions and conditions of the Master Lease on the part of the
tenant thereunder to be performed from and after the Effective Date, in the
same manner and with the same force and effect as if Assignee had originally
executed the Master Lease as the tenant thereunder. Assignee shall indemnify,
defend and save harmless Assignor, its officers, agents, servants and
employees from and against any liability, expense, suit, damage, action or
charge including, without limitation, reasonable attorneys' fees, suffered or
incurred by Assignor by reason of (a) the failure of Assignee or those
claiming through or under Assignee to pay the Rental (as defined in the Master
Lease) from and after the Effective Date, (b) the breach by Assignee or those
claiming through or under Assignee of any of the other terms, covenants and
conditions of the Master Lease from and after the Effective Date or, (c)
death, personal injury or property damage (other than to the property of
Assignee) at the Building occurring on or after the Effective Date or (d) the
payment of the New York State and New York City Sales and Use Tax (including
any late fees, interest or penalties thereon), if any, imposed in connection
with this Assignment.
3. (a) On the Effective Date (and as a condition precedent
thereto) Assignee shall (i) pay Assignor $37,000 (the "Special Payment") in
immediately available funds, (ii) execute and deliver a promissory note (the
"Note") substantially in the form of Exhibit A annexed hereto and (iii) if the
Effective Date is the first day of a month, make the payment required to be
made thereunder. The parties acknowledge that the principal amount of the Note
and the Schedule (as defined in the Note) are based
-2-
<PAGE>
upon an Effective Date of February 1, 1998. If for any reason (other than the
acts or omissions of Assignee) the effective Date occurs after February 1,
1998 the principal amount of the Note shall be reduced (and the Schedule
appropriately adjusted) by the total Payment Amount (as shown on the Schedule)
attributable to the period between February 1, 1998 through and including the
day preceding the Closing Date, with an appropriate per diem adjustment if the
Effective Date is not the first day of a month.
(b) If at any time during the term of the Note, Assignor
receives an unsolicited or solicited proposal (an "Offer") from an
unaffiliated third party (an "Offeror") to purchase the Note and Assignor
desires to accept such Offer, Assignor shall deliver to Assignee a
certification (a "First Refusal Notice") executed by Assignor setting forth
the purchase price for the Note (or methodology for determining the purchase
price for the Note) set forth in the Offer. Assignee shall have the right of
first refusal (the "Refusal Option"), exercisable by notice (an "Acceptance
Notice") given to Assignor on or before the date which is 10 calendar days
after the date on which Assignee receives the First Refusal Notice to purchase
the Note on the terms and conditions set forth in the First Refusal Notice.
If Assignee fails to give an Acceptance Notice within the
10-day period described above, then Assignor may proceed to transfer the Note
for the price or in accordance with the methodology set forth in the First
Refusal Notice (subject to immaterial changes thereto), provided that if
Assignor fails to close the transfer contemplated by the First Refusal Notice
on terms no less favorable to Assignor than those set forth therein (subject
to immaterial changes) within 90 days from the last date on which Assignee was
permitted to deliver an Acceptance Notice hereunder with respect to such First
Refusal Notice (the "First Refusal Period"), then Assignor shall, if it
desires to sell the Note to an Offeror, again be required to offer Assignee
the right of first refusal in accordance with this Section and provided
further that if during any First Refusal Period, Assignor desires to make any
material changes to the applicable First Refusal Notice which would have the
effect of reducing the price payable to Assignor, Assignor shall submit a
revised First Refusal Notice to Assignee and Assignee shall have the right to
exercise its Refusal Option with respect to such revised First Refusal Notice
within ten (10) days following Assignee's receipt thereof. If Assignee timely
gives an Acceptance Notice, then within ten calendar days thereafter, Assignor
shall endorse the Note to Assignee without recourse, representation or
warranty against payment in immediately available funds of the purchase price
set forth (or determined in accordance with) the First Refusal Notice;
provided, however, that Assignor shall represent and warrant that it has not
encumbered, pledged, assigned or otherwise transferred, or suffered to be
-3 -
<PAGE>
encumbered, pledged, assigned or otherwise transferred, all or any portion of
its interest in, to or under the Note.
Notwithstanding anything to the contrary contained herein,
Assignee shall not have a Refusal Option with respect to any sale or transfer
of the Note if the transferee is an Affiliate (as defined herein) or
subsidiary of Assignor, (but such a transferee shall be bound by the terms
hereof to the extent the same would be applicable to Assignor). "Affiliate"
shall mean any natural person or persons, a partnership, a corporation and any
other form of business or legal association or entity (collectively "Person"),
which shall Control, be under the Control of, or be under common Control with
the Person in question. "Control" shall mean ownership of more than fifty
(50%) of the outstanding voting stock of a corporation or other majority
equity and control interest if not a corporation and the possession of power
to direct or cause the direction of the management and policy of such
corporation or other entity, whether through the ownership of voting
securities, by statute or according to the provisions of a contract.
Notwithstanding anything to the contrary contained herein, if Assignee fails
to timely exercise the Refusal Option and the Note is transferred to an
Offeror, the Refusal Option shall terminate forever and shall not apply to the
transferee or any subsequent owner or holder of the Note.
4. Assignor represents and warrants to Assignee that Assignor has
not (a) previously assigned the Master Lease other than pursuant to the Prior
Assignment or (b) sublet all or any portion of the Premises other than
pursuant to that certain Sublease (the "Sublease"), dated as of the date
hereof, between Assignor and Assignee. Prior to the Effective Date, Assignor
shall not (i) voluntarily surrender, cancel or terminate the Master Lease or
(ii) voluntarily amend the Master Lease or exercise any option under the
Master Lease, in each case, without the prior consent of Assignee.
Notwithstanding anything to the contrary contained herein, if the Master Lease
is terminated for any reason whatsoever, whether by operation of law or
otherwise, except through the default of Assignor, as tenant thereunder
(excluding a default caused by Assignee) or by reason of a breach by Assignor
of the foregoing covenant, Assignor shall not be responsible for such
termination.
5. Assignor will be responsible for the cure of any monetary and
material non-monetary defaults on the part of Assignor under the Master Lease
existing as of the Effective Date. Assignor shall indemnify, defend and save
harmless Assignee, its officers, agents, servants and employees from and
against any liability, expense, suit, damage, action or charge including,
without limitation, reasonable attorneys' fees, suffered or incurred by
Assignee by reason of (a) the failure of Assignor to pay the Rental prior to
the Effective Date (except to the extent that such failure relates to the
failure of Assignee to pay the corresponding rental under the Sublease), (b)
the breach by Assignor
-4-
<PAGE>
of any of the other monetary and material non-monetary terms, covenants and
conditions of the Master Lease prior to the Effective Date (except to the
extent that such breach relates to the breach of Assignee in performing the
corresponding obligation under the Sublease), (c) death, personal injury or
property damage (other than to the property of Assignor) at the Building
(other than within the premises demised to Assignee under the Sublease)
occurring prior to the Effective Date, (d) the payment of the City Transfer
Tax and the State Transfer Tax (as hereinafter defined) (including any late
fees, interest or penalties thereon) imposed in connection with this
Assignment or (e) the breach by Assignor of the covenants set forth in the
second sentence of Paragraph 4 hereof.
6. On the Effective Date, Assignor shall pay the amount of the
Real Property Transfer Tax imposed by Chapter 21 of Title 11 of the
Administrative Code of the City of New York (the "City Transfer Tax") and the
Real Estate Transfer Tax imposed by Article 31 of the New York State Tax Law
(the "State Transfer Tax") in connection with this transaction by delivery to
the Commissioner of Finance and the New York State Department of Taxation and
Finance, respectively, of a certified check payable to the order of the
Commissioner of Finance in the amount of the City Transfer Tax and a certified
check payable to the order of the New York State Department of Taxation and
Finance in the amount of the State Transfer Tax, together with all returns
required by said statutes and the regulations issued pursuant to the authority
thereof, which shall be prepared by Assignor in form and substance reasonably
acceptable to Assignee, and shall be duly executed and acknowledged by both
Assignor and Assignee, as may be required. Assignor and Assignee hereby agree
that for purposes of computing the City Transfer Tax, the State Transfer Tax
and for all other purposes, consideration in the principal amount of the
Special Payment plus the principal amount of the Note shall be allocated to
the assignment of the Master Lease and that such amount is attributable solely
to the period ending on the Fixed Expiration Date (as defined in the Master
Lease) and to no other period thereunder.
7. Except as expressly set forth herein, Assignor has not made and
does not make any representation as to the condition, expense or any other
matter or thing affecting or related to the Master Lease or the Premises or
the Assigned Items (as hereinafter defined) or any fixtures, equipment or
furnishings contained in the Premises and Assignee hereby expressly
acknowledges that no such representations have been made. Assignee agrees to
take the Premises on the Effective Date in its then "as is" condition and
Assignor shall have no obligation to perform any alterations, work or repairs
on behalf of Assignee or contribute any sums toward same, provided that the
Premises shall be delivered to Assignee vacant (other than any occupancy by
Assignee) and broom clean. Assignor is not liable or bound in any manner by
any verbal or written statements, representations, real estate broker's
"setups" or information pertaining to the
- 5 -
<PAGE>
Master Lease, Premises, the Assigned Items or any fixtures, equipment or
furnishings contained in the Premises furnished by any real estate broker,
agent, employee or other person, unless the same are specifically set forth
herein. Assignor hereby represents and warrants that the Master Lease is true
and complete and that there are no other written agreements between Assignor
and Landlord with respect to the Premises (other than that certain letter,
dated September 6, 1996, from Landlord to Assignor (a true and complete copy
of which has been delivered to Assignee)) that would be binding on Assignee.
Nothing contained in this Paragraph 7 is intended to impair the obligations of
Assignor under Paragraph 5 hereof.
8. The following items (the "Assigned Items") of Assignor will
remain in place on an "as is" "where is" basis or otherwise in the condition
such items are in as of the date hereof (normal wear and tear and, subject to
the last sentence of this section, damage by reason of fire or other casualty
excepted):
a. Private elevators serving the 3rd floor and ground floor lobby;
b. 225 KVA emergency generator (EPS);
c. 250 KVA UPS system plus seven power distribution units (PDU's);
d. Supplemental air conditioning equipment (210 tons) (which
equipment is to be delivered in good working order);
e. Raised flooring and carpeting;
f. Dropped ceilings, lighting and built-in partitions;
g. Window treatments;
h. Custom millwork installations;
1. Security system equipment;
j. Fully equipped food service/lunch area;
k. Built-in audio visual equipment;
1. Category 5 cabling serving the Premises;
m. Approximately 210 trading desks inclusive of wiring but
exclusive of equipment;
- 6 -
<PAGE>
n. High density filing systems; and
o. Two secure redundant points of entry in the Building (as
permitted under the Master Lease) providing proprietary
direct fiber optic service runs in conduit to the Premises
without spliced connections.
in the event of a fire or casualty prior to the Effective Date, Assignor shall
use all reasonable efforts to cause Landlord to comply with his obligations
under the Master Lease to restore "Alterations" (as defined in the Master
Lease); and with respect to any of the Assigned Items that Landlord is not so
required to restore Assignor will, at its option either (i) restore the same
or (ii) assign its insurance proceeds therefor and, if necessary, pay any
additional monies to restore the same to Assignee. Notwithstanding anything
herein contained to the contrary, Assignor shall remove from the Premises all
of its movable equipment, furniture, furnishings, decorations and other items
of movable personal property (other than the Assigned Items) prior to the
Effective Date and shall have the right, but not the obligation, to remove
from the Premises all of its movable improvements and fixtures (other than the
Assigned Items) prior to the Effective Date (it being agreed that Assignor
shall be under no obligation whatsoever to remove from the Premises any items
that are affixed to the Premises).
9. If the difference between (a) the sum of (i) Tenant's Tax Share
(as defined in the Master Lease) of Taxes (as defined in the Master Lease) for
the Tax Year commencing July 1, 1997 and ending June 30, 1998 (as finally
determined) plus (ii) Tenant's Operating Share (as defined in the Master
Lease) of Operating Expenses (as defined in the Master Lease) for the
Operating Year (as defined in the Master Lease) commencing January 1, 1998 and
ending December 31, 1998 (as finally determined) and (b) the sum of (i)
Tenant's Tax Share of Base Taxes (as defined in the Master Lease) (as finally
determined) plus (ii) Tenant's Operating Share of Base Operating Expenses (as
defined in the Master Lease) (as finally determined) is (x) greater than
$282,012.50, then Assignor shall owe to Assignee an amount equal to the
product of (1) such difference multiplied by (2) the number of years
(appropriately pro-rated in the case of any partial year) occurring during the
period (the "Payment Period") commencing on the Effective Date and ending on
the Fixed Expiration Date (as defined in the Master Lease) or (y) is less than
$282,012.50, then Assignee shall owe to Assignor an amount equal to the
product of (1) such difference multiplied by (2) the number of years
(appropriately prorated in the case of any partial year) occurring during the
Payment Period. The amount (the "Owed Amount") owed by a party pursuant to
this Paragraph 9 shall be paid to the other party in equal monthly
installments without interest on the first day of each month occurring during
the Payment Period and shall be evidenced by a promissory note substantially
in the form attached as Exhibit A hereto, with the exception that there shall
-7-
<PAGE>
be no interest other than Default Interest (as defined in the Note) and there
shall be appropriate adjustments for the principal amount, the note provisions,
the obligor and the obligee. Such promissory note shall be executed and
delivered within 15 days after the Owed Amount has been finally determined;
provided, however, that the portion of the Owed Amount that would have been
payable pursuant to this sentence during the period commencing on the
Effective Date and ending on (and inclusive of) the first day of the month in
which such promissory note is so delivered shall be paid within 15 days after
the Owed Amount is finally determined. Assignor and Assignee agree to
reasonably cooperate with one another in good faith in making the
determinations required to be made pursuant to this Paragraph 9 and in dealing
with Prime Lessor in connection therewith.
10. Assignor and Assignee each represent and warrant to the other
that it has not dealt or communicated with any broker in connection with this
transaction other than Jones Lang Wootton USA ("JLW") on behalf of Assignor
and DLJ Realty Services, Inc. ("DLJRSI", JLW and DLJRSI and sometimes
collectively referred to herein as "Broker") on behalf of Assignee. Assignor
agrees to indemnify, defend and save harmless Assignee from and against any
liability, expense, suit, damage, action or charge including, without
limitation, reasonable attorneys' fees, that Assignee may suffer or incur by
reason of the claim of JLW or any other broker (other than DLJRSI) which may
be asserted against the Assignee as a result of any dealings between Assignor
and JLW or any other broker. Assignee agrees to indemnify, defend and save
harmless Assignor from and against any liability, expense, suit, damage,
action or charge including, without limitation, reasonable attorneys' fees,
that Assignor may suffer or incur by reason of the claim of DLJRSI or any
other broker (other than JLW) which may be asserted against the Assignor as a
result of any dealings between the Assignee and DLJRSI or any other broker.
Assignor agrees to pay all commissions due Broker pursuant to separate
agreements between Assignor and Broker regarding this transaction.
11. This Assignment is subject to, and shall become effective only
upon, the written consent of Landlord in accordance with all of the terms of
the Master Lease, in form and substance reasonably acceptable to Assignor and
Assignee, which consent Assignor and Assignee shall use all reasonable efforts
to obtain. In addition, Assignor and Assignee shall use all reasonable efforts
to obtain an estoppel certificate from Landlord in accordance with all of the
terms of the Master Lease, in form and substance reasonably acceptable to
Assignor and Assignee. Assignee shall promptly furnish to Landlord such
information as may be reasonably necessary to obtain such consent (including,
without limitation, all financial information regarding Assignee as is
required by Landlord to unconditionally and fully relieve Assignor of all of
Assignor's obligations under the Master Lease) and estoppel certificate and to
enter into such agreements among Landlord,
-8-
<PAGE>
Assignor and Assignee as Landlord may reasonably require pursuant to the
Master Lease in connection with giving its consent to this Assignment and such
estoppel certificate. in the event such consent is denied, this Assignment
shall thereupon terminate and be of no further force or effect. In the event
such consent is not obtained on or prior to the 60th day following the date
hereof, then either party shall have the right to give written notice to the
other canceling this Assignment. Notwithstanding anything herein contained to
the contrary, in the event such estoppel certificate is not delivered by
Landlord or is not delivered in an acceptable form, then the same shall have
no affect whatsoever on the validity or effectiveness of this Assignment and
neither party shall have any liability to the other therefor.
12. Each party hereby represents, warrants and covenants to the
other that (a) it is a duly formed and validly existing corporation with full
power and authority to enter into this Assignment and to perform its
obligations hereunder in accordance with its terms and (b) this Assignment has
been duly authorized, executed and delivered by it and constitutes the legal,
valid and binding obligation of such party.
13. All prior understandings and agreements between the parties
with respect to the Master Lease and the Premises are merged within this
Assignment, which together with the Sublease fully and completely sets forth
the understanding of the parties.
14. This Assignment may not be changed or terminated orally or in
any manner other than by an agreement in writing executed by both parties.
15. This Assignment shall be governed by the laws of the State of
New York.
16. The covenants and agreements herein contained shall inure to
the benefit of and be binding upon the parties and their respective successors
and permitted assigns.
17. This Assignment may be executed in several counterparts, each
of which shall be deemed an original. Such counterparts constitute but one and
the same instrument, which may be sufficiently evidenced by one counterpart.
18. Any notice or demand which may be required or may be desired
to be given pursuant to this Assignment shall be in writing and given in
accordance with Article 26 of the Master Lease, addressed as follows:
If to Assignor:
- 9 -
<PAGE>
SBC Warburg
222 Broadway
New York, NY 10038
Attn: Michael Lagana
with copies to: Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Attn: Joshua Mermelstein, Esq.
If to Assignee:
Donaldson, Lufkin & Jenrette, Inc.
277 Park Avenue
New York, NY 10172
Attn: Raj Vakharia
with copies to: Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, N.Y. 10022
Attn: Wallace L. Schwartz, Esq.
Either party may, by notice in writing, direct that future notices or demands
be sent to a different address.
- 10 -
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have duly executed this
Assignment as of the 15 day of June, 1997.
SBC WARBURG INC.
By: /s/ Curt J. Snyder
-----------------
Name: Curt J. Snyder
Title: Executive Director
By: /s/ Robert C. Errico
-------------------------
Name: Robert C. Errico
Title: Executive Director
DONALDSON, LUFKIN & JENRETTE, INC.
By: /s/ Anthony F. Daddino
--------------------------
Name: Anthony F. Daddino
Title: Executive Vice President &
Chief Financial Officer
<PAGE>
State of New York )
: ss.:
County of New York )
On this 13th day of June 1997, before me personally came Curtis L. Snyder,
to me known, who, being by me duly sworn, did depose and say that he resides
at Chappaqua, NY; that he is the E. D. of SBC Warburg Inc., the corporation
described in and which executed the foregoing instrument; and that he signed
his name thereto by order of the Board of Directors of said corporation.
NICHOLAS T. GANZ
/s/ Nicholas T. Ganz Notary Public, State of New York
- ---------------------- No. 24-4966243
Notary Public Qualified in Westchester Cty
Commission Expires September 9,
1997
State of New York )
: ss.:
County of New York )
On this 13th day of June 1997, before me personally came Robert C. Errico,
to me known, who, being by me duly sworn, did depose and say that he resides
at Short Hills, NJ; that he is the E. D. of SBC Warburg Inc., the corporation
described in and which executed the foregoing instrument; and that he signed
his name thereto by order of the Board of Directors of said corporation.
NICHOLAS T. GANZ
/s/ Nicholas T. Ganz Notary Public, State of New York
- --------------------- No. 24-4966243
Notary Public Qualified in Westchester Cty
Commission Expires September 9,
1997
State of New York )
: ss.:
County of New York )
On this 13th day of June 1997, before me personally came Anthony F.
Daddino, to me known, who, being by me duly sworn, did depose and say that he
resides at Greenwich, CT; that he is the E. V. P. of
12
<PAGE>
Donaldson, Lufkin & Jenrette, Inc., the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
NICHOLAS T. GANZ
/s/ Nicholas T. Ganz Notary Public, State of New York
- --------------------- No. 24-4966243
Notary Public Qualified in Westchester Cty
Commission Expires September 9,
1997
13
<PAGE>
EXHIBIT A
DRAFT 6/13/97
PROMISSORY NOTE
$10,082,034.56 February __ 1998
New York, New York
FOR VALUE RECEIVED, the undersigned, DONALDSON, LUFKIN & JENRETTE,
INC., a Delaware corporation, having an office at 277 Park Avenue, New York,
New York ("Obligor") promises to pay to the order of SBC WARBURG INC., a New
York corporation, having an office at 677 Washington Boulevard, Stamford,
Connecticut ("Obligee"), without set-off, counterclaim or deduction, the
principal sum of TEN MILLION EIGHTY-TWO THOUSAND THIRTY-FOUR AND 56/100
DOLLARS ($10,082,034.56) (the "Original Principal Amount"), together with
interest accruing from the date hereof on the unpaid principal balance from
time to time outstanding at the rate hereinafter provided.
I.
DEFINITIONS
Obligor agrees that, for the purposes of this Promissory Note (the
"Note"), the following terms shall have the following respective meanings
ascribed thereto.
1.1 "Base Rate" shall mean the highest rate of interest published
on the date of default by The Wall Street Journal, or its successor, as the
"prime rate" announced by banks and other lending institutions (or such other
term as may be used, from time to time, for the rate presently referred to as
the "prime rate").
1.2 "Business Day" shall mean any day other than a Saturday,
Sunday, statutory holiday or other day on which banks in New York are required
by law to close.
1.3 "Default Interest" shall have the meaning set forth in Section
2.2 hereof.
1.4 "Default Rate" shall mean the lesser of (x) three (3)
percentage points above the then current Base Rate, and (y) the maximum rate
permitted by applicable law.
1.5 "Dollars" shall mean dollars in lawful currency of The United
States of America.
- 1 -
<PAGE>
1.6 "Event of Default" shall have the meaning set forth in Section
3.1 hereof.
1.7 "Excess Interest" shall have the meaning set forth in Section
4.5 hereof.
1.8 "Maturity Date" shall mean January 1, 2008, or such earlier
date the entire Outstanding Principal Balance is due and payable by reason of
the acceleration of the maturity of this Note.
1.9 "Note" shall mean this Promissory Note as the same may
hereafter be amended or modified.
1.10 "Obligated Parties" shall have the meaning set forth in
Section 4.4 hereof.
1.11 "Obligee" shall mean SBC Warburg Inc., a New York
corporation, having an office at 677 Washington Boulevard, Stamford,
Connecticut.
1.12 "Obligor" shall mean Donaldson, Lufkin & Jenrette, Inc., a
Delaware corporation, having an office at 277 Park Avenue, New York, New York.
1.13 "Original Principal Amount" shall mean $10,082,034.56.
1.14 "Outstanding Principal Balance" shall mean at any time the
portion of the Original Principal Amount not then repaid.
1.15 "Payment Date" shall mean the first day of February, 1998 and
the first day of each month thereafter through and including the Maturity
Date.
1.16 "Schedule" shall mean the payment schedule attached hereto as
Exhibit A.
II.
PAYMENT OF INTEREST AND PRINCIPAL
2.1 Scheduled Payments of Interest and Principal. Subject to
Section 2.2 below, nine percent (9%) interest shall accrue on the Outstanding
Principal Balance. On each Payment Date the Obligor shall make principal and
interest payments in the amount set forth opposite such Payment Date on the
Schedule. Interest on the Outstanding Principal Balance shall be calculated
on the basis of twelve 30-day months, provided, however, that for portions of
the Outstanding Principal Balance or other amounts past due which are
outstanding for less than a full calendar month, interest on such amounts
shall be calculated on the basis of a 365-day year and the actual number of
days elapsed in any portion of a month for which interest may be due on such
portion of the Outstanding
-2-
<PAGE>
Principal Balance. The Outstanding Principal Balance together with all accrued
and unpaid interest thereon shall be payable in full on the Maturity Date. All
payments in respect of this Note shall be paid by Obligor by wire transfer of
immediately available funds to such account as Obligee shall give notice of to
Obligor.
2.2 Default Interest. If any payment of principal, interest or
other sum payable hereunder is not paid when due, such principal amount,
interest or other sum shall bear interest at the Default Rate from the date
due through and including the date such amount is properly paid. Without
limiting the foregoing, upon the occurrence of and during the continuance of
an Event of Default, the Outstanding Principal Balance and accrued and unpaid
interest shall bear interest at the Default Rate. Default Interest shall be
payable, from time to time, immediately upon demand.
2.3 Principal and Interest at Maturity. The entire Outstanding
Principal Balance, any accrued and unpaid interest and any and all other sums
which are due and payable pursuant to the terms and provisions of the Note
shall be due and payable on the Maturity Date.
2.4 Calculation of Default Interest. Default Interest on this Note
shall be calculated on the basis of twelve 30-day months, provided, however,
that for portions of the Outstanding Principal Balance or other amounts past
due which are outstanding for less than a full calendar month, Default
Interest on such amounts shall be calculated on the basis of a 365-day year
and the actual number of days elapsed in any portion of a month for which
Default Interest may be due on such portion of the Outstanding Principal
Balance or any accrued and unpaid interest.
2.5 Place of Payment; Business Days. Payments to be made under this
Note are to be made at the office of Obligee first specified above or at such
other place as Obligee may from time to time in writing specify. If any
payment in respect of this Note becomes due and payable on any date which is
not a Business Day, such payment shall be payable on the next succeeding
Business Day.
2.6 Order of Payments. Prior to an Event of Default, payments
received under this Note shall be applied first to the payment of amounts
other than principal and interest due hereunder; next to the payment of any
Default Interest due hereunder, next to the payment of any non-Default Interest
hereunder and last to the Outstanding Principal Balance. After an Event of
Default, payments made hereunder shall be applied in such manner as Obligee
may elect.
2.7 No Prepayments. This Note is not prepayable. Obligor
acknowledges and agrees that if this Note is prepaid prior to the Maturity
Date for any reason, including, but not limited to, acceleration of the
Maturity Date by reason of any Event of Default, any subsequent tender of
payment of this Note made by Obligor or by
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<PAGE>
anyone on behalf of Obligor or otherwise, including, without limitation
during, or pursuant to, any federal or state bankruptcy, insolvency or similar
proceedings, shall constitute an evasion on the prohibition on prepayment set
forth herein, and accordingly, Obligor shall pay on the Prepayment Date
(hereinafter defined) in addition to the Outstanding Principal Balance and
accrued and unpaid interest thereon through to the Prepayment Date, a
Prepayment Premium (defined below). As used herein, "Prepayment Premium" shall
mean an amount, not less than zero, equal to the excess, if any of:
(x) the present value on the date of prepayment or acceleration
(the "Prepayment Date") of (A) all future monthly installments
of principal and interest which Obligor would otherwise be
required to pay under this Note through but excluding the
Maturity Date absent such prepayment or acceleration and (B) the
Outstanding Principal Balance and all interest thereon which
would otherwise be due upon the Maturity Date absent such
prepayment or acceleration, with such present value being
determined by the use of a discount rate equal to the yield to
maturity (on a "bond equivalent basis"), on the date which is 5
Business Days prior to the Prepayment Date (the "Testing Date"),
of the United States Treasury security (the "Comparison Treasury
Security") with a maturity date closest to (before, on or after)
the date which follows the Testing Date by a period equal to the
then Remaining Weighted Average Life (as hereinafter defined),
over
(y) the Outstanding Principal Balance being prepaid (or otherwise
becoming due) on the Prepayment Date.
In the event that the sum described in clause (x) of this Section
2.7 shall be equal to or less than the sum described in clause (v) of this
Section 2.7, the Prepayment Premium shall be equal to Zero Dollars ($0.00).
"Remaining Weighted Average Lift" shall mean, with respect to any
Testing Date, a period of years (and/or fractions thereof) equal to the sum of
the monthly payments of principal (i.e., the amortizing portions of the
monthly installment payments of interest and principal) to be paid during the
remainder of the term of the Note (including any principal amount due at the
Maturity Date) which are allocable to the Outstanding Principal Balance then
being prepaid or accelerated, after such monthly payments of principal have
each been multiplied by a fraction, the numerator of which is the number of
years and fractions thereof from such Testing Date to the scheduled due date
for the payment of such monthly payments of principal and the denominator of
which is the Outstanding Principal Balance being prepaid or accelerated as of
such Testing Date. If there is more than one United States Treasury security
having a maturity date that is closest to (before, on or after) the then
Remaining Weighted Average Life, the selection of the Comparison Treasury
Security shall be at the sole option of Obligee. Nothing herein shall be
deemed to require Obligee to accept any prepayment.
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<PAGE>
III.
DEFAULTS AND REMEDIES
3.1 Occurrence of an Event of Default: Acceleration of Maturity
Date.
Each of the following constitute an "Event of Default:"
(a) default in the payment of principal or other payment
hereunder when due and, with respect to any such
payment due other than on the Maturity Date,
continuance of such default for a period of ten (10)
days after notice of such default is given to Obligor,
or
(b) default in the performance or observance of any other
covenant or agreement of Obligor contained herein and
continuance of such default for a period of thirty
(30) days after notice of such default is given to
Obligor,
(c) (1) if Obligor shall commence or institute any case,
proceeding or other action (A) seeking relief on its
behalf as debtor, or to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its
debts under any existing or future law of any
jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief or
debtors, or (B) seeking appointment of a receiver,
trustee, custodian or other similar official for it or
for all or any substantial part of its property; or
(2) if any case, proceeding or other action shall be
commenced against Obligor (A) seeking to have an order
for relief entered against it as debtor or to
adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief
with respect to it or its debts under any existing or
future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or
relief of debtors, or (B) seeking appointment of a
receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its
property, which in either of such cases (i) results in
any such entry of an order for relief, adjudication or
bankruptcy or insolvency or such appointment or the
issuance or
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<PAGE>
entry of any other order having a similar effect or
(ii) remains undismissed for a period of sixty (60)
days.
Upon the occurrence of an Event of Default, and at any time thereafter, the
Obligee may cause, without additional notice to Obligor, the Outstanding
Principal Balance together with all accrued and unpaid interest to become at
once due and payable at the place of payment as aforesaid, and Obligee may
proceed to exercise any rights and remedies available to Obligee hereunder or
which Obligee may have at law, in equity or otherwise.
3.2 Nature of Remedies. The remedies of Obligee as provided herein
shall be cumulative and concurrent, and may be pursued singularly,
successively or together, at the sole discretion of Obligee, and may be
exercised as often as occasion there for shall arise. No acceptance of a past
due installment or indulgence granted from time-to-time shall be construed to
be a waiver of the right to insist upon prompt payment thereafter or to
collect Default Interest retroactively or prospectively. Failure of Obligee,
for any period of time or on more than one occasion, to exercise its option to
accelerate the Maturity Date of this Note shall not constitute a waiver of the
right to exercise the same at any time thereafter or in the event of any
subsequent Event of Default. No act of omission or commission of Obligee,
including specifically any failure to exercise any right, remedy or recourse,
shall be deemed to be a waiver or release of the same; any such waiver or
release is to be effected only through a written document executed by Obligee
and then only to the extent specifically recited therein. A waiver or release
in connection with any one event shall not be construed as a waiver or release
of any subsequent event or as a bar to any subsequent exercise of Obligee's
rights or remedies hereunder or at law or in equity. Notice of the exercise of
any right or remedy granted to Obligee by this Note is not required to be
given.
3.3 Payment of Attorneys' Fees and Costs. If: (i) this Note is
placed in the hands of an attorney for collection or enforcement, whether or
not any suit is brought on this Note or other proceeding is brought, or is
collected or enforced through any legal proceeding; (ii) an attorney is
retained to represent Obligee in any bankruptcy, reorganization, receivership,
or other proceedings affecting creditors' rights and involving a claim under
this Note; or (iii) an attorney is retained to represent Obligee in any other
proceedings whatsoever brought by third parties in connection with this Note,
then Obligor shall pay to Obligee on demand all reasonable attorneys' fees,
costs and expenses incurred in connection therewith, in addition to all other
amounts due hereunder.
IV.
OTHER GENERAL AGREEMENTS
4.1 Notices. All notices, demands, instructions and other
communications required or permitted to be given to or made upon either party
hereto or any other person shall be in writing and shall be personally
delivered, or sent by Federal
-6 -
<PAGE>
Express, Express Mail or other nationally recognized overnight courier service
which provides for notice of receipt upon delivery, or sent by registered or
certified mail, postage prepaid, return receipt requested, and shall be deemed
to be given for purpose of this Note upon receipt. Unless otherwise specified
in a notice sent or delivered in accordance with the foregoing provisions of
this paragraph, notices, demands, instructions and other communications in
writing shall be given to or made upon the following persons at their
respective addresses indicated below:
If to Obligee:
SBC Warburg Inc.
Swiss Bank Corporate Center I
677 Washington Boulevard
Stamford, Connecticut 06901-3793
Attn: General Counsel
with copies to: Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Attn: Joshua Mermelstein, Esq.
If to Obligor:
Donaldson, Lufkin & Jenrette, Inc.
277 Park Avenue
New York, NY 10172
Attn: Raj Vakharia
Charles Hendrickson, Treasurer
with copies to: Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, N.Y. 10022
Attn: Wallace L. Schwartz, Esq.
Either party may, by notice in writing, direct that future notices or demands
be sent to a different address. Rejection or refusal to accept or inability to
deliver because of changed address of which no notice was given shall be
deemed a receipt of such notice. Notice for either party may be given by its
respective counsel. Except as otherwise specifically required herein, notice
of the exercise of any right or option granted to Obligee by this Note is not
required to be given.
-7 -
<PAGE>
4.2 Governing Law and Other Agreements. Obligor agrees that: (i)
this instrument and the rights and obligations of the parties hereunder shall
be governed by the laws of the State of New York, without reference to the
conflict of law principles of such State; and (ii) upon the Maturity Date,
Obligee shall not have any obligation to refinance the indebtedness evidenced
by this Note or to extend further credit to Obligor.
4.3 Interpretation. The headings of sections and paragraphs in
this Note are for convenience only and shall not be construed in any way to
limit or define the content, scope, or intent of the provisions hereof. As
used in this Note, the singular shall include the plural, and masculine,
feminine, and neuter pronouns shall be fully interchangeable, where the
context so requires. The parties hereto intend and believe that each provision
in this Note comports with all applicable law. However, if any provision in
this Note is found by a court of law to be in violation of any applicable law,
and if such court should declare such provision of this Note to be unlawful,
void or unenforceable as written, then it is the intent of all parties to the
fullest possible extent that it is legal, valid and enforceable, that the
remainder of this Note shall be construed as if such unlawful, void or
unenforceable provision were not contained therein, and that the rights,
obligations and interests of Obligor and Obligee under the remainder of this
Note shall continue in full force and effect; provided, however, that if any
provision of this Note which is found to be in violation of any applicable law
concerning the imposition of interest hereunder, the rights, obligations and
interests of Obligor and Obligee with respect to the imposition of interest
hereunder shall be governed and controlled by the provisions of Paragraph 4.5
hereof. Time is of the essence of this Note.
4.4 Waiver. Obligor and any and all others who are now or may
become liable for all or part of the obligations of Obligor under this Note,
including any guarantor of this Note or any of Obligor's obligations
hereunder, (collectively the "Obligated Parties") agree to be jointly and
severally bound hereby and jointly and severally, to the extent permitted by
law: (i) waive and renounce any and all redemption and exemption rights and
the benefit of all valuation and appraisement privileges against the
indebtedness evidenced by this Note or by any extension or renewal hereof;
(ii) waive presentment and demand for payment, notices of nonpayment and of
dishonor, protest of dishonor, and notice of protest; (iii) waive all notices
in connection with the delivery and acceptance hereof and all other notices in
connection with the performance, default, or enforcement of the payment hereof
or hereunder other than notices required as a condition to an Event of Default
occurring; (iv) waive any and all lack of diligence and delays in the
enforcement of the payment hereof; (v) agree that the liability of each of
Obligated Parties shall be unconditional and without regard to the liability
of any other person or entity for the payment hereof, and shall not in any
manner be affected by any indulgence or forbearance granted or consented to by
Obligee to any of them with respect hereto; (vi) consent to any and all
extensions of time, renewals, waivers or modifications that may be granted by
Obligee with respect to the payment or other provisions hereof
-8 -
<PAGE>
and to the release of any security at any time given for the payment hereof,
or any part thereof, with or without substitution, and to the release of any
person or entity liable for the payment hereof; and (vii) consent to the
addition of any and all other makers, endorsers, guarantors, and other obligors
for the payment hereof, and to the acceptance of any and all other security
for the payment hereof, and agree that the addition of any such obligors or
security or the taking of any of the other acts described above, shall not
affect the liability of any of the Obligated Parties for the payment hereof.
4.5 Excess Interest. It is agreed that, notwithstanding any
provision to the contrary in this Note, no such provision shall require the
payment or permit the collection of any amount in excess of the maximum amount
of interest permitted by law ("Excess Interest") to be charged for the use or
detention, or the forbearance in the collection, of all or any portion of the
indebtedness evidenced by this Note. If any Excess Interest is provided for,
or is adjudicated to be provided for, in this Note, or in any other
instrument, then in such event:
(a) the provisions of this paragraph shall govern and control;
(b) neither Obligor nor any of the other Obligated Parties shall be
obligated to pay any Excess Interest;
(c) any Excess Interest that Obligee may have received hereunder
shall, at the option of Obligee, be (i) applied as a credit
against the then Outstanding Principal Balance due under this
Note, accrued and unpaid interest thereon not to exceed the
maximum amount permitted by law, or both, (ii) refunded to
the payor thereof, or (iii) any combination of the foregoing;
(d) the applicable interest rate or rates shall be automatically
subject to reduction to the maximum lawful rate and this Note
shall be deemed to have been, and shall be, reformed and
modified to reflect such reduction in such interest rate or
rates; and
(e) neither Obligor nor any of the other Obligated Parties shall
have any action or remedy against Obligee for any damages
whatsoever or any defense to enforcement of the Note arising
out of the payment or collection of any Excess Interest.
4.6 Successors, Obligees and Assigns. Upon any endorsement,
assignment or other transfer of this Note by Obligee or by operation of law,
the term "Ob1igee," as used herein, shall mean such endorsee, assignee, or
other transferee or successor to Obligee then becoming the holder of this
Note. This Note shall inure to the benefit of Obligee and its successors and
assigns and shall be binding upon the
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<PAGE>
undersigned and its successors and assigns. The terms "Obligor" and "Obligated
Parties," as used herein, shall include the respective successors, assigns,
legal and personal representatives, executors, administrators, devisees,
legatees and heirs of Obligor and any other Obligated Parties.
4.7 Miscellaneous. This Note may not be modified, amended,
changed, discharged or terminated except by an instrument in writing signed by
the party against whom enforcement of any such modification, amendment,
change, discharge or termination is sought. This Note shall be construed
without regard to any presumption or other rule requiring construction against
the party causing this Note to be drafted.
4.8 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY LAW,
OBLIGOR HEREBY EXPRESSLY WAIVES ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION,
COUNTERCLAIM OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF
THIS PARAGRAPH 4.8.
4.9 Jurisdiction, Venue, Service of Process. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS NOTE MAY BE BROUGHT IN THE COURTS OF THE STATE
OF NEW YORK, IN NEW YORK COUNTY OR OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK. OBLIGOR HEREBY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS. OBLIGOR IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION
OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO OBLIGOR AT ITS ADDRESS FOR NOTICES PURSUANT TO
PARAGRAPH 4.1 HEREOF. OBLIGOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID
ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS NOTE BROUGHT
IN THE COURTS REFERRED TO ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF OBLIGEE TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS
OR OTHERWISE PROCEED AGAINST OBLIGOR IN ANY OTHER JURISDICTION.
4.10 Successors. This Note shall be binding upon and shall inure
to the benefit of each of the parties hereto and their respective successors
and assigns.
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<PAGE>
4.11 No Modifications. The terms of this Note may not be modified,
amended, changed or terminated orally, but only by an agreement in writing
signed by the parties against whom enforcement of such modification,
amendment, change or termination is sought.
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<PAGE>
IN WITNESS WHEREOF, Obligor has through its duly authorized officer,
executed and delivered this Note as of the day and year first above written.
DONALDSON, LUFKIN & JENRETTE, INC.
a Delaware Corporation
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
12
<PAGE>
EXHIBIT A
Schedule of Payments
<TABLE>
<CAPTION>
OUTSTANDING
PAYMENT PAYMENT PAYMENT APPLIED TO APPLIED TO PRINCIPAL
NUMBER DATE AMOUNT ($) INTEREST ($) PRINCIPAL ($) BALANCE ($)
- --------- --------- ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
1 2/1/98 172,564.79 -- 172,564.79 9,909,469.76
2 3/1/98 172,564.79 74,321.02 98,243.77 9,811,226.00
3 4/1/98 172,564.79 73,584.19 98,980.60 9,712,245.40
4 5/1/98 172,564.79 72,841.84 99,722.95 9,612,522.45
5 6/1/98 172,564.79 72,093.92 100,470.87 9,512,051.57
6 7/1/98 172,564.79 71,340.39 101,224.40 9,410,827.17
7 8/1/98 172,564.79 70,581.20 101,983.59 9,308,843.58
8 9/1/98 172,564.79 69,816.33 102,748.46 9,206,095.12
9 10/1/98 172,564.79 69,045.71 103,519.08 9,102,576.04
10 11/1/98 172,564.79 68,269.32 104,295.47 8,998,280.57
11 12/1/98 172,564.79 67,487.10 105,077.69 8,893,202.88
12 1/1/99 172,564.79 66,699.02 105,865.77 8,787,337.11
13 2/1/99 172,564.79 65,905.03 106,659.76 8,680,677.35
14 3/1/99 172,564.79 65,105.08 107,459.71 8,573,217.63
15 4/1/99 172,564.79 64,299.13 108,265.66 8,464,951.98
16 5/1/99 172,564.79 63,487.14 109,077.65 8,355,874.32
17 6/1/99 132,277.29 62,669.06 69,608.22 8,286,266.09
18 7/1/99 132,277.29 62,147.00 70,130.30 8,216,135.79
19 8/1/99 132,277.29 61,621.02 70,656.27 8,145,479.52
20 9/1/99 132,277.29 61,091.10 71,186.20 8,074,293.32
21 10/1/99 132,277.29 60,557.20 71,720.09 8,002,573.23
22 11/1/99 132,277.29 60,019.30 72,257.99 7,930,315.24
23 12/1/99 132,277.29 59,477.36 72,799.93 7,857,515.31
24 1/1/00 132,277.29 58,931.36 73,345.93 7,784,169.39
25 2/1/00 132,277.29 58,381.27 73,896.02 7,710,273.36
26 3/1/00 132,277.29 57,827.05 74,450.24 7,635,823.12
27 4/1/00 132,277.29 57,268.67 75,008.62 7,560,814.51
28 5/1/00 132,277.29 56,706.11 75,571.18 7,485,243.32
29 6/1/00 132,277.29 56,139.32 76,137.97 7,409,105.36
30 7/1/00 132,277.29 55,568.29 76,709.00 7,332,396.35
31 8/1/00 132,277.29 54,992.97 77,284.32 7,255,112.04
32 9/1/00 132,277.29 54,413.34 77,863.95 7,177,248.08
33 10/1/00 132,277.29 53,829.36 78,447.93 7,098,800.15
34 11/1/00 132,277.29 53,241.00 79,036.29 6,019,763.86
35 12/1/00 132,277.29 52,648.23 79,629.06 6,940,134.80
36 1/1/01 132,277.29 52,051.01 80,226.28 6,859,908.52
37 2/1/01 132,277.29 51,449.31 80,827.98 6,779,080.54
38 3/1/01 132,277.29 50,843.10 81,434.19 6,697,646.35
39 4/1/01 132,277.29 50,232.35 82,044.94 6,615,601.41
40 5/1/01 132,277.29 49,617.01 82,660.28 6,532,941.13
41 6/1/01 132,277.29 48,997.06 83,280.23 6,449,660.90
42 7/1/01 132,277.29 48,372.46 83,904.83 6,365,756.06
43 8/1/01 132,277.29 47,743.17 84,534.12 6,281,221.94
44 9/1/01 132,277.29 47,109.16 85,168.13 6,196,053.81
45 10/1/01 132,277.29 46,470.40 85,806.89 6,110,246.92
46 11/1/01 132,277.29 45,826.85 86,450.44 6,023,796.48
47 12/1/01 132,277.29 45,178.47 87,098.82 5,936,697.67
48 1/1/02 132,277.29 44,525.23 87,752.06 5,848,945.61
49 2/1/02 132,277.29 43,867.09 88,410.20 5,760,535.41
50 3/1/02 132,277.29 43,204.02 89,073.28 5,671,462.13
51 4/1/02 132,277.29 42,535.97 89,741.33 5,581,720.81
52 5/1/02 132,277.29 41,862.91 90,414.39 5,491,306.42
53 6/1/02 132,277.29 41,184.80 91,092.49 5,400,213.93
54 7/1/02 132,277.29 40,501.60 91,775.69 5,308,438.24
55 8/1/02 132,277.29 39,813.29 92,464.00 5,215,974.23
56 9/1/02 132,277.29 39,119.81 93,157.48 5,122,816.75
57 10/1/02 132,277.29 38,421.13 93,856.17 5,028,960.58
58 11/1/02 132,277.29 37,717.20 94,560.09 4,934,400.50
59 12/1/02 132,277.29 37,008.00 95,269.29 4,839,131.21
60 1/1/03 132,277.29 36,293.48 95,983.81 4,743,147.40
<PAGE>
OUTSTANDING
PAYMENT PAYMENT PAYMENT APPLIED TO APPLIED TO PRINCIPAL
NUMBER DATE AMOUNT ($) INTEREST ($) PRINCIPAL ($) BALANCE ($)
- --------- --------- ------------ ------------ ------------- --------------
61 2/1/03 132,277.29 35,573.61 96,703.69 4,646.443.7
62 3/1/03 132,277.29 34,848.33 97,428.96 4,549,014.7
63 4/1/03 132,277.29 34,117.61 98,159.68 4,450,855.0
64 5/1/03 132,277.29 33,381.41 98,895.88 4,351,959.1
65 6/1/03 132,277.29 32,639.69 99,637.60 4,252,321.5
66 7/1/03 132,277.29 31,892.41 100,384.88 4,151,936.7
67 8/1/03 132,277.29 31,139.53 101,137.77 4,050,798.9
68 9/1/03 132,277.29 30,380.99 101,896.30 3,948,902.6
69 10/1/0 91,989.79 29,616.77 62,373.02 3,886,529.6
70 11/1/03 91,989.79 29,148.97 62,840.82 3,823,688.8
71 12/1/03 91,989.79 28,677.67 63,312.13 3,760,376.6
72 1/1/04 91,989.79 28,202.83 63,786.97 3,696,589.7
73 2/1/04 91,989.79 27,724.42 64,265.37 3,632,324.3
74 3/1/04 91,989.79 27,242.43 64,747.36 3,467,576.9
75 4/1/04 91,989.79 26,756.83 65,232.96 3,502,344.0
76 5/1/04 91,989.79 26,267.58 65,722.21 3,436,621.8
77 6/1/04 91,989.79 25,774.66 66,215.13 3,370,406.6
78 7/1/04 91,989.79 25,278.05 66,711.74 3,803,694.9
79 8/1/04 91,989.79 24,777.71 67,212.08 3,236,482.8
80 9/1/04 91,989.79 24,273.62 76,716.17 3,168,766.6
81 10/1/04 91,989.79 23,765.75 68,224.04 3,100,542.6
82 11/1/04 91,989.79 23,254.07 68,735.72 3,031,806.9
83 12/1/04 91,989.79 22,738.55 69,251.24 2,962,555.6
84 1/1/05 91,989.79 22,219.17 69,770.62 2,892,785.0
85 2/1/05 91,989.79 21,695.89 70,293.90 2,822,491.1
86 3/1/05 91,989.79 21,168.68 70,821.11 2,751,670.0
87 4/1/05 91,989.79 20,637.53 71,352.27 2,680,317.7
88 5/1/05 91,989.79 20,102.38 71,887.41 2,608,430.3
89 6/1/05 91,989.79 19,563.23 72,426.56 2,536,003.2
90 7/1/05 91,989.79 19,020.03 72,969.76 2,463,034.0
91 8/1/05 91,989.79 18,472.76 73,517.04 2,389,517.0
92 9/1/05 91,989.79 17,921.38 74,068.41 2,015,448.6
93 10/1/05 91,989.79 17,365.86 74,623.93 2,240,824.6
94 11/1/05 91,989.79 16,806.29 75,183.61 2,165,641.0
95 12/1/05 91,989.79 16,242.31 75,747.48 2,089,893.5
96 1/1/06 91,989.79 15,674.20 76,315.59 2,013,577.3
97 2/1/06 91,989.79 15,101.83 76,887.96 1,936,690.2
98 3/1/06 91,989.79 14,525.18 77,464.62 1,859,225.0
99 4/1/06 91,989.79 13,944.19 78,045.60 1,781,179.0
100 5/1/06 91,989.79 13,358.85 78,630.94 1,702,548.0
101 6/1/06 91,989.79 12,769.12 79,220.68 1,623,328.2
102 7/1/06 91,989.79 12,174.96 79,814.83 1,543,513.2
103 8/1/06 91,989.79 11,576.35 80,413.44 1,463,099.9
104 9/1/06 91,989.79 10,973.25 81,016.54 1,382,083.0
105 10/1/06 91,989.79 10,365.63 81,624.17 1,300,459.2
106 11/1/06 91,989.79 9,753.44 82,236.35 1,218,222.3
107 12/1/06 91,989.79 9,136.67 82,853.12 1,135,369.0
108 1/1/07 91,989.79 8,515.27 83,474.52 1,051,895.2
109 2/1/07 91,989.79 7,889.21 84,100.58 967,794.0
110 3/1/07 91,989.79 7,258.46 84,731.33 883,063.0
111 4/1/07 91,989.79 6,622.97 85,366.82 797,696.0
112 5/1/07 91,989.79 5,982.72 86,007.07 711,689.0
113 6/1/07 91,989.79 5,337.67 86,652.12 625,037.0
114 7/1/07 91,989.79 4,687.78 87,302.01 537,735.0
115 8/1/07 91,989.79 4,033.01 87,956.78 449,778.0
116 9/1/07 91,989.79 3,373.34 88,616.45 361,162.0
117 10/1/07 91,989.79 2,708.72 89,281.08 271,881.0
118 11/1/07 91,989.79 2,039.11 89,950.68 181,930.0
119 12/1/07 91,989.79 1,364.48 90,625.31 91,305.0
120 1/1/08 91,989.79 684.79 91,305.00 0.0
</TABLE>
13
<PAGE>
EXHIBIT 11
DONALDSON, LUFKIN & JENRETTE, INC. & SUBSIDIARIES
Computation of Primary Earnings Per Share
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted Average Common Shares:
Average Common Shares
Outstanding 55,081 53,300 54,569 53,300
Average Restricted Stock Units
Outstanding 3,297 5,161 3,810 5,170
Average Common Shares Issuable Under
Employee Benefit Plans 4,718 1,621 4,109 1,369
-------- -------- -------- --------
Weighted Average Common Shares
Outstanding 63,096 60,082 62,488 59,839
======== ======== ======== ========
Earnings:
Net Income $100,200 $ 97,000 $186,600 $162,100
Less: Preferred Stock Dividend
Requirement 2,970 4,967 6,204 9,934
-------- -------- -------- --------
Earnings Applicable to Common Shares $ 97,230 $ 92,033 $180,396 $152,166
======== ======== ======== ========
Primary earnings Per Common Share $ 1.54 $ 1.53 $ 2.89 $ 2.54
======== ======== ======== ========
</TABLE>
24
<PAGE>
EXHIBIT 11-1
DONALDSON, LUFKIN & JENRETTE, INC. & SUBSIDIARIES
Computation of Fully Diluted Earnings Per Share
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted Average Common Shares:
Average Common Shares
Outstanding 55,081 53,300 54,569 53,300
Average Restricted Stock Units
Outstanding 3,297 5,161 3,810 5,170
Average Common Shares Issuable Under
Employee Benefit Plans 6,122 1,621 6,016 1,369
Average Common Shares Issuable
Upon Conversion of Convertible Debt 685 -- 344 --
-------- -------- -------- --------
Weighted Average Common Shares
Outstanding 65,185 60,082 64,739 59,839
======== ======== ======== ========
Earnings:
Net Income $100,200 $ 97,000 $186,600 $162,100
Less: Preferred Stock Dividend
Requirement 2,970 4,967 6,204 9,934
-------- -------- -------- --------
Earnings Applicable to Common Shares $ 97,230 $ 92,033 $180,396 $152,166
======== ======== ======== ========
Fully Diluted earnings Per Common Share $ 1.49 $ 1.53 $ 2.79 $ 2.54
======== ======== ======== ========
</TABLE>
25
<PAGE>
SUBSIDIARIES OF DONALDSON, LUFKIN & JENRETTE, INC.
JUNE 30, 1997
EXHIBIT 21.1
JURISDICTION OF
SUBSIDIARY INCORPORATION
- -------------------------------------------------------------------------------
AML Futures International, Inc. Delaware
AML Futures, Inc. Delaware
AML Futures, S.A. (In Switzerland
Dissolution)
AML Holdings, Inc. (Formerly Delaware
DLJ Commodities,
Incorporated)
Autranet International Limited United Kingdom
(In Dissolution)
Autranet, Inc. Delaware
Bond Investment Partners, LLC Delaware
Bond Investment Partners, LLC Delaware
Brewster Property Holding Corp. New York
BSI Acquisitions Corp. Delaware
Cadogan Nominees Limited United Kingdom
Calmco Trustee Services, Inc. Delaware
Calmco, Inc. Delaware
CBJC, Inc. Delaware
CEC Energy Co., Inc. Delaware
CF Realty, Inc. Delaware
CG Funding, Inc. Delaware
Column Financial, Inc. Delaware
Coram Funding, Inc. Delaware
DLJ Acceptance Corporation Delaware
DLJ Asset Management, Inc. Delaware
DLJ Bermuda Partners, Inc. Delaware
DLJ Bridge Finance, Inc. Delaware
DLJ Capital Associates (VI), Inc. Delaware
DLJ Capital Associates VII, Inc. Delaware
DLJ Capital Corporation Delaware
<PAGE>
SUBSIDIARIES OF DONALDSON, LUFKIN & JENRETTE, INC.
JUNE 30, 1997
JURISDICTION OF
SUBSIDIARY INCORPORATION
- -------------------------------------------------------------------------------
DLJ Capital Funding, Inc. Delaware
DLJ Capital Investors, Inc. Delaware
DLJ Capital Management Delaware
Corporation
DLJ Capital Trust I Delaware
DLJ Cayman Acquisition Cayman Islands
Limited
DLJ Cayman Islands LDC Cayman Islands
DLJ Cayman Islands LDC Cayman Islands
DLJ Century, Inc. Delaware
DLJ City Line, Inc. New York
DLJ Clearing Corporation Delaware
DLJ Commercial Mortgage Delaware
Corp.
DLJ Diversified Partners, Inc. Delaware
DLJ Emerging Markets LDC Cayman Islands
DLJ Emerging Markets LDC Cayman Islands
DLJ Europe, Inc. Delaware
DLJ First ESC, LLC Delaware
DLJ Growth Associates (II), Inc. Delaware
DLJ Harbor (Boston) Corp. Massachusetts
DLJ Hoffman, Inc. Delaware
DLJ Holdings, Inc. Delaware
DLJ International Services Cayman Islands
DLJ International, Inc. Delaware
DLJ Investment Funding, Inc. Delaware
DLJ Investment Management Delaware
Corp.
DLJ Investment Partners, Inc. Delaware
DLJ Investment, Inc. Delaware
DLJ Kansas City Capital, Inc. Delaware
DLJ LBO Plans Management Delaware
Corporation
DLJ Leasing Company, Inc. Delaware
DLJ Long Term Investment Delaware
Corporation
<PAGE>
SUBSIDIARIES OF DONALDSON, LUFKIN & JENRETTE, INC.
JUNE 30, 1997
JURISDICTION OF
SUBSIDIARY INCORPORATION
- -------------------------------------------------------------------------------
DLJ Long Term Investment Delaware
Corporation
DLJ MB Funding II, Inc. Delaware
DLJ Merchant Banking Funding, Delaware
Inc.
DLJ Merchant Banking II, Inc. Delaware
DLJ Merchant Banking, Inc. Delaware
DLJ Mortgage Acceptance Corp. Delaware
DLJ Mortgage Capital, Inc. Delaware
DLJ Offshore Management, N.V. Netherlands
Antilles
DLJ Options International Bermuda
Limited
DLJ Phoenix Group Limited United Kingdom
DLJ Puerto Rico Realty Corp. Delaware
DLJ Real Estate Capital Funding, Delaware
Inc.
DLJ Real Estate Capital Partners, Delaware
Inc.
DLJ Real Estate Capital Inc. Delaware
DLJ Real Estate Mezzanine Delaware
Capital, Inc.
DLJ Real Estate, Inc. Delaware
DLJ Realty Services, Inc. Delaware
DLJ Secureco Holdings, Inc. Delaware
DLJ Senior Debt Finance, Inc. Delaware
DLJ Senior Officers Investment Delaware
Corporation
DLJ Services, Inc. Delaware
DLJ South Africa, Inc. Delaware
DLJ/Conn Acquisition Corp. Delaware
Donaldson Funding Corporation Delaware
Donaldson Leasing Corp. Delaware
Donaldson Lufkin & Jenrette Hong Kong
Asia Limited
<PAGE>
SUBSIDIARIES OF DONALDSON, LUFKIN & JENRETTE, INC.
JUNE 30, 1997
JURISDICTION OF
SUBSIDIARY INCORPORATION
- -------------------------------------------------------------------------------
Donaldson Lufkin & Jenrette Hong Kong
Asia Limited
Donaldson, Lufkin & Jenrette Brazil
(Brasil) Ltda.
Donaldson, Lufkin & Jenrette Brazil
(Brasil) Ltda.
Donaldson, Lufkin & Jenrette United Kingdom
International
Donaldson, Lufkin & Jenrette United Kingdom
International
Donaldson, Lufkin & Jenrette Delaware
Securities Corporation
Doskocil Funding, Inc. Delaware
Equine Technology and Delaware
Analysis, Inc.
Gateway Management, Inc. Delaware
Global Retail Partners Funding, Delaware
Inc.
Global Retail Partners, Inc. Delaware
Headway GP, Inc. Delaware
Headway RECP, Inc. Delaware
Headway SBS, Inc. Delaware
Hoboken RECP, Inc. Delaware
Hoboken SBS, Inc. Delaware
iNautix Technologies, Inc. Delaware
July Acquisitions, Inc. Delaware
MIH Funding, Inc. Delaware
NeTpower Funding, Inc. Delaware
Orlando GP, Inc. Delaware
Orlando RECP, Inc. Delaware
Orlando SBS, Inc. Delaware
PC Financial Network Holdings, Delaware
Inc.
PC Financial Network, Inc. Delaware
Pershing & Co., Inc. Delaware
Pershing ICS Nominees Limited United Kingdom
Pershing Keen Nominees Ltd. United Kingdom
<PAGE>
SUBSIDIARIES OF DONALDSON, LUFKIN & JENRETTE, INC.
JUNE 30, 1997
JURISDICTION OF
SUBSIDIARY INCORPORATION
- -------------------------------------------------------------------------------
Pershing Limited United Kingdom
Pershing Nominees Ltd. United Kingdom
Pershing Securities Limited United Kingdom
Pershing Trading Company, L.P. Delaware
Pershing Trading Company, L.P. Delaware
Property Group, Inc. Delaware
PSP Capital Funding, Inc. Delaware
PSP Realty, Inc. Delaware
Puerto Rico Hotel HOLDCO Delaware
Corp.
Puerto Rico Hotel OPCO Corp. Delaware
Puerto Rico Hotel SBS Corp. Delaware
REFG Investor Eight, Inc. Delaware
REFG Investor Eleven, Inc. Delaware
REFG Investor Fifteen, Inc. Delaware
REFG Investor Five, Inc. Delaware
REFG Investor Four, Inc. Delaware
REFG Investor Fourteen, Inc. Delaware
REFG Investor Nine, Inc. Delaware
REFG Investor One, Inc. Delaware
REFG Investor Seven, Inc. Delaware
REFG Investor Six, Inc. Delaware
REFG Investor Ten, Inc. Delaware
REFG Investor Thirteen, Inc. Delaware
REFG Investor Trust Delaware
REFG Investor Trust Delaware
REFG Investor Twelve, Inc. Delaware
REFG Investor Two, Inc. Delaware
REFG Investors Three, Inc. Delaware
REOltor Services, Inc. Texas
Seaport General Corporation New York
Secureco Chateau, Inc. Delaware
Secureco Deerfield, Inc. Delaware
Secureco Grand Park, Inc. Delaware
Secureco Greenbriar, Inc. Delaware
<PAGE>
SUBSIDIARIES OF DONALDSON, LUFKIN & JENRETTE, INC.
JUNE 30, 1997
JURISDICTION OF
SUBSIDIARY INCORPORATION
- -------------------------------------------------------------------------------
Secureco Lodge, Inc. Delaware
Secureco Marina, Inc. Delaware
Secureco Merit Candlewick, Inc. Delaware
Secureco Merit Fund I, Inc. Delaware
Secureco Merit Fund II, Inc. Delaware
Secureco Merit Fund III, Inc. Delaware
Secureco Merit Fund IV, Inc. Delaware
Secureco Merit Fund IX, Inc. Delaware
Secureco Merit Fund VI, Inc. Delaware
Secureco Merit Fund VIII, Inc. Delaware
Secureco Merit Washington Delaware
Manor, Inc.
Secureco Riverside, Inc. Delaware
Secureco Rolling Hills, Inc. Delaware
Secureco Tan Crest, Inc. Delaware
Secureco Westchester Square Delaware
Inc.
Secureco Worthington, Inc. Delaware
Snoga, Inc. Delaware
Trinity Group Hearthstone, Inc. Illinois
Trinity Holding, Inc. Delaware
UK Investment Plan 1997, Inc. Delaware
Winthrop Trust Company New York
Wood, Struthers & Winthrop Delaware
Management Corp.
WSW Capital, Inc. Delaware
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
The schedule contains summary financial information extracted from the
condensed consolidated financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,065,683
<RECEIVABLES> 9,445,062
<SECURITIES-RESALE> 25,722,151
<SECURITIES-BORROWED> 13,770,012
<INSTRUMENTS-OWNED> 17,889,912
<PP&E> 323,766
<TOTAL-ASSETS> 69,722,129
<SHORT-TERM> 3,011,911
<PAYABLES> 8,652,236
<REPOS-SOLD> 36,962,290
<SECURITIES-LOANED> 4,413,509
<INSTRUMENTS-SOLD> 10,821,110
<LONG-TERM> 1,739,482
200,000
200,000
<COMMON> 5,510
<OTHER-SE> 1,618,885
<TOTAL-LIABILITY-AND-EQUITY> 69,722,129
<TRADING-REVENUE> 266,204
<INTEREST-DIVIDENDS> 721,119
<COMMISSIONS> 326,696
<INVESTMENT-BANKING-REVENUES> 569,514
<FEE-REVENUE> 21,697
<INTEREST-EXPENSE> 465,177
<COMPENSATION> 865,779
<INCOME-PRETAX> 311,000
<INCOME-PRE-EXTRAORDINARY> 311,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 186,600
<EPS-PRIMARY> 2.89
<EPS-DILUTED> 2.79
</TABLE>
