<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-8526
McDONALD & COMPANY INVESTMENTS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 34-1391950
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
800 Superior Avenue, Cleveland, Ohio 44114
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 443-2300
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
<S> <C>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $1.00 per share New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
----
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 that 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes No X
--- ---
As of June 9, 1995 8,944,840 shares of Common Stock, par value $1.00
per share, were outstanding, and the aggregate market value of the shares of
Common Stock of the Registrant held by non-affiliates (based upon the closing
price of the Registrant's shares on the New York Stock Exchange on June 9,
1995, which was $15.875 per share) was $116,143,183. For purposes of this
information, the outstanding shares of Common Stock which were owned by all
Directors and executive officers of the Registrant, were deemed to be the
shares of Common Stock held by affiliates.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement to be used in
connection with its Annual Meeting of Stockholders to be held on August 2, 1995
are incorporated by reference into Part III of this Report.
Except as otherwise stated, the information contained in this Report on
Form 10-K is as of March 31, 1995.
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PART I
ITEM 1. BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS
McDonald & Company Investments, Inc. is a holding company which was
incorporated under the laws of the State of Delaware on May 20, 1983. McDonald
& Company Investments, Inc. conducts substantially all of its business through
its principal subsidiary, McDonald & Company Securities, Inc. ("McDonald
Securities"), which operates a regional investment banking, investment advisory
and brokerage business. As used in this Report, the "Company" refers, unless
the context requires otherwise, to McDonald & Company Investments, Inc. and its
subsidiaries.
On July 24, 1991, the Company entered into an agreement of Merger (the
"Merger Agreement") with Gradison & Company Incorporated, ("Gradison")
providing for the merger of Gradison with and into McDonald Securities. The
Merger Agreement was amended on September 11, 1991 and was approved by the
Stockholders of the Company and Gradison on October 4, 1991. Pursuant to the
Merger Agreement, stockholders of Gradison received a total of $22,723,000
consisting of 1,871,242 shares of Common Stock of the Company valued at
approximately $14,203,000, and cash of $8,520,000. The difference between the
cost and the fair value of the net assets acquired, plus expenses related to
the merger, was $14,233,000 and is being amortized on the straight-line basis
over a period of 25 years. The merger was accounted for as a purchase, and
therefore, the results of operations of Gradison were included in the financial
statements of the Company subsequent to October 4, 1991.
Gradison operated as a full-service regional brokerage and investment
advisory firm headquartered in Cincinnati, Ohio with a primary market of
southwestern Ohio and northern Kentucky. Subsequent to the merger, Gradison
operates as a division of McDonald Securities. The merger allowed the Company
to increase the size of its retail sales force and its customer base and gave
the Company a strong presence in southwestern Ohio. Gradison also added
significant asset management capabilities to the Company.
The Company's executive offices are located at McDonald Investment
Center, 800 Superior Avenue, Cleveland, Ohio 44114-2603 and its telephone
number is (216) 443-2300. The Company has 21 other offices in Ohio (including
the Gradison Division in Cincinnati, Ohio and the S. J. Wolfe Division in
Dayton, Ohio) and 18 additional offices in 10 other states.
(b) INDUSTRY SEGMENT DATA
The Company is engaged in one line of business, that of a securities
broker-dealer, which is comprised of several classes of products or services
including underwriting and investment banking, principal and agency
transactions, and investment advisory services.
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(c) NARRATIVE DESCRIPTION OF BUSINESS
GENERAL
The Company, through its principal subsidiary, McDonald Securities,
operates a regional investment banking and brokerage business. The Company's
activities include the origination, underwriting, distribution, trading and
brokerage of fixed income and equity securities, investment advisory services,
and investment research and other related services. On July 20, 1983, the
Company succeeded to the business of the Partnership, which was established in
1927. The Company has expanded to its present size primarily through internal
growth rather than by acquisition, except for the merger with Gradison.
The Company serves institutional customers which are located throughout
the United States and in Canada, Europe, and the Far East. The Company's
retail (individual) customers are primarily located in the tri-state region of
Ohio, Michigan and Indiana. For the fiscal year ended March 31, 1995,
approximately 55% of total revenues were derived from retail customers, 22%
from institutional customers, 12% from non-customer related principal
transactions, investment banking fees and other activities and 11% from
interest and dividend income.
The Company has formulated a comprehensive strategic plan, which is
periodically reviewed and revised as business conditions dictate. The plan
emphasizes the Company's historical roots as a regional brokerage and
investment banking firm. The Company has focused on the Ohio, Michigan and
Indiana area by increasing the number of investment brokers covering individual
investors, as well as increasing investment banking activities in the region.
The merger with Gradison has enabled the Company to expand its retail sales
force and its customer base in southwestern Ohio and northern Kentucky, and has
added significantly to the Company's asset management capabilities.
McDonald Securities is a member of the New York Stock Exchange, Inc.
(the "NYSE"), the American Stock Exchange, Inc. (Associate), the Midwest Stock
Exchange, Inc., the Philadelphia Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. (the "NASD"). The Company is also a
member of the Securities Investor Protection Corporation ("SIPC").
The Company has a total of 40 offices in 11 states, all of which
offices are leased. The Company has approximately 1,100 employees, of whom 354
are full-time investment brokers.
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ITEM 1. BUSINESS--Continued
REVENUES BY SOURCE
The following table sets forth the revenues of the Company on a
comparative basis for the three most recent fiscal years.
<TABLE>
<CAPTION>
McDonald & Company Investments, Inc.
--------------------------------------------------------------------
Fiscal Year Ended
--------------------------------------------------------------------
March 31, 1995 March 25, 1994 March 26, 1993
-------------- -------------- ----------------
(Dollar amounts in thousands)
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Underwriting and
investment banking:
Corporate $ 30,045 17% $ 50,791 25% $ 28,174 16%
Municipal 7,906 4 10,981 5 13,270 8
Direct participation
investments 4,000 2 2,236 1 1,287 1
-------- --- -------- --- -------- ---
41,951 23 64,008 31 42,731 25
Principal transactions:
Unlisted stocks 16,340 9 17,920 9 11,823 7
Corporate bonds
and preferred stocks 11,073 7 11,656 6 16,870 9
Mortgage-backed
securities 5,479 3 8,431 4 14,757 8
Government bonds 5,768 3 9,091 4 7,478 4
Government bond arbitrage (17) (3,718) (2) 1,125 1
Municipal bonds 7,346 4 7,831 4 6,209 4
Other (106) (1) 558 1 1,322 1
-------- --- -------- --- -------- ---
45,883 25 51,769 26 59,584 34
Commissions:
Listed stocks 26,388 15 27,903 14 21,952 13
Mutual funds and money
market funds 13,914 8 15,449 7 11,041 6
Unlisted stocks 4,867 2 5,245 2 3,753 2
Annuities 3,963 2 3,718 2 2,608 1
Options 922 1 990 1 830 1
-------- --- -------- --- -------- ---
50,054 29 53,305 26 40,184 23
Investment management fees:
Mutual funds and
money market funds 9,026 5 8,782 4 8,026 5
Investment advisory fees 6,935 4 5,760 3 4,294 2
-------- --- -------- --- -------- ---
15,961 9 14,542 7 12,320 7
Interest and dividends 19,197 11 15,330 7 13,850 8
Other 4,680 3 5,726 3 5,148 3
-------- --- -------- --- -------- ---
Total revenues $177,726 100% $204,680 100% $173,817 100%
======== === ======== === ======== ===
</TABLE>
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ITEM 1. BUSINESS--Continued
UNDERWRITING AND INVESTMENT BANKING
McDonald Securities participates in municipal and corporate securities
distributions as a manager or co-manager of an underwriting syndicate or as a
member thereof, or as a member of a selling group. Municipal securities are
obligations issued by state and local governments, hospitals, public utility
systems and industrial development authorities.
Revenues from underwriting and investment banking activities are highly
dependent on general market conditions for such business activities. Market
conditions for underwriting and investment banking services can be affected by
political and economic events both in the United States and abroad. To the
extent future events are unpredictable, uncertainty will be a factor in the
level of McDonald's business activity. Also, competitive pressure from other
investment bankers has an effect on the success of McDonald Securities in
obtaining such business and on the prices which can be charged for investment
banking and underwriting services. The management of McDonald Securities
believes it can compete effectively in this segment of its business activities.
Participation in an underwriting syndicate or selling group involves
both economic and regulatory risks. An underwriter or selling group member may
incur losses if it is forced to resell the securities it is committed to
purchase at less than the agreed purchase price. In addition, under the
federal securities laws, other statutes and court decisions with respect to
underwriters' liabilities and limitations on indemnification of underwriters by
issuers, an underwriter is subject to substantial potential liability for
material misstatements or omissions in prospectuses and other communications
with respect to underwritten offerings. Further, underwriting or selling
commitments constitute a charge against net capital, and the Company's
underwriting or selling commitments may be limited by the requirement that it
must at all times be in compliance with the net capital rule. See "Net Capital
Requirements."
In addition to its underwriting and selling group activities, McDonald
Securities engages in structuring, managing and marketing private offerings of
corporate and municipal securities, and assists in arranging mergers,
acquisitions, divestitures, lease financing and venture capital financing. The
Company provides valuation and financial consulting services for gift and
estate tax purposes, employee stock ownership trusts, mergers, acquisitions,
stock purchase agreements, and other corporate purposes, as well as valuations
for public companies in the process of going private.
McDonald Securities also markets investments in real estate, oil and
gas drilling and similar ventures. These investments generally are in the form
of limited partnership interests, although McDonald Securities also offers
interests in direct participation programs and similar investment vehicles. In
most cases McDonald Securities originates such programs, and in certain cases
other subsidiaries of the Company may act as a general partner.
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<PAGE> 7
ITEM 1. BUSINESS--Continued
PRINCIPAL TRANSACTIONS
McDonald Securities actively engages in trading as principal in various
phases of the over-the-counter securities business. To facilitate trading by
its customers, McDonald Securities buys, sells and maintains inventories of
municipal bonds, corporate bonds, government bonds, mortgage-backed securities,
common stocks and preferred stocks in order to "make markets" in those
securities. Revenues from principal transactions depend upon the general trend
of prices and level of activity in the securities market, the skill of
employees in market-making areas and the size of the inventories. Activities
in trading as a principal require the commitment of capital and create an
opportunity for profit and risk of loss due to market fluctuations. As of
March 31, 1995, McDonald Securities made markets in the common stock or other
equity securities of approximately 240 NASDAQ-quoted corporations, as well as
other corporations with less actively traded securities. McDonald Securities
has acted as a managing underwriter for and provides research coverage of
certain of these corporations.
In executing customers' orders to buy or sell in the over-the-counter
market in a security in which it makes a market, McDonald Securities sells to
or purchases from its customers at a price which is approximately equal to the
current inter-dealer market price, plus or minus a markup or markdown.
Alternatively, McDonald Securities may act as agent and execute a customer's
purchase or sale order with another broker-dealer which acts as a market-maker
at the best inter-dealer market price available and charge a commission.
The Company's securities positions are subject to fluctuations in
market value and liquidity. The Company seeks to minimize the risks associated
with owning securities by monitoring its security positions on an ongoing
basis. The Company marks its securities to market daily. In addition, each
trading department adheres to a risk limit and a capital commitment limit
determined by senior management. Senior management regularly reviews the
Company's securities positions to ensure that these limits are not exceeded.
Prior to March 26, 1994, the Company engaged in government bond
arbitrage ("fixed income arbitrage") activities for its own account. The fixed
income arbitrage activities consisted primarily of proprietary positions in
United States government and Eurodollar securities and related derivative
securities. Profits or losses were recognized due to the market fluctuations
in these interest-rate sensitive securities. For the fiscal year ended March
25, 1994, the fixed income arbitrage area recognized a loss of $3,718,000, or
approximately 2% of total revenues for the fiscal year. The loss for the
fiscal year ended March 25, 1994 was due to a trading loss of $5,600,000
experienced in the months of February and March, 1994. This loss was due to
the rapid deterioration of the fixed income markets during those months. For
the fiscal year ended March 26, 1993 revenues from fixed income arbitrage were
$1,125,000, or approximately 1% of total revenues. Subsequent to March 25,
1994, the Company eliminated fixed income arbitrage activities.
COMMISSIONS
In executing customers' orders to buy or sell listed securities and
unlisted stocks and bonds in which it does not make a market, McDonald
Securities generally acts as an agent and charges a commission which is
competitive within the industry.
INVESTMENT MANAGEMENT FEES
Revenues from investment management fees include advisory fees from
the Company's mutual funds and money market funds and investment advisory fees
earned related to individual managed accounts.
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<PAGE> 8
ITEM 1. BUSINESS--Continued
INVESTMENT MANAGEMENT FEES (cont.)
As of March 31, 1995, McDonald Securities is the investment advisor to
and the distributor of the following mutual funds: Gradison-McDonald U.S.
Government Reserves ("GMU", a money market fund investing in U.S. Government
Securities), Gradison-McDonald Government Income Fund ("GIF", a U.S. Government
Securities income fund), Gradison-McDonald Municipal Custodian Trust, which is
composed of two portfolios, Gradison-McDonald Ohio Tax-Free Income Fund ("GMO",
a double tax-free income fund for Ohio investors), and Gradison-McDonald
Intermediate Municipal Income Fund ("IMI", an intermediate term municipal
income fund), Gradison Growth Trust, which is composed of three portfolios,
Gradison-McDonald Established Value Fund ("EST", a common stock fund investing
in large, established companies), Gradison-McDonald Opportunity Value Fund
("OPP", a common stock fund investing in small companies) and Gradison McDonald
Growth & Income Fund ("GRI", a common stock fund seeking long-term growth of
capital, current income and growth of income). All of these funds are
diversified, open-end management investment companies.
The following summarizes the number of accounts and the size of each of
the Funds as of March 31, 1995 and March 25, 1994:
<TABLE>
<CAPTION>
March 31, 1995 March 25, 1994
----------------------- ---------------------------
Funds Accounts $ Accounts $
- ----- -------- --------- -------- ---------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Gradison-McDonald U.S. Government
Reserves 79,496 1,069,178 72,690 1,014,376
Gradison-McDonald Municipal Custodian Trust:
Ohio Tax-Free Income Fund 1,739 71,352 1,954 80,057
Intermediate Municipal Income Fund 296 14,091 0 0
Gradison Growth Trust:
Established Value Fund 13,182 274,218 12,892 258,062
Opportunity Value Fund 6,301 83,176 6,378 84,947
Growth & Income Fund 148 692 0 0
Gradison-McDonald Government
Income Fund 5,926 184,219 6,885 260,396
------- --------- ------- ---------
Total 107,088 1,696,926 100,799 1,697,838
======= ========= ======= =========
</TABLE>
The investment advisory fees received from these funds are directly
related to the amounts invested in the funds. Accordingly, McDonald
Securities' investment advisory fees from the investment companies would be
reduced in the future if the amounts invested in the funds decrease.
McDonald Securities also receives reimbursements from the Gradison Funds
for providing such funds with data processing, shareholder services and other
miscellaneous services.
Under asset management programs, the Company provides investment advisory
services to individual, corporate and employee benefit plan clients.
Investment advisory fees for the fiscal year ended March 31, 1995 from
individual managed accounts represented approximately 43% of total revenues
from investment management fees.
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<PAGE> 9
ITEM 1. BUSINESS--Continued
INTEREST AND DIVIDENDS
Approximately 56% of the Company's interest and dividend income is
generated from securities owned. Approximately 41% of interest and dividend
income is represented by interest charged to customers on the amount borrowed
to finance margin transactions. The rate of interest charged to customers is
based on the broker's call money rate (the interest rate on bank loans to
brokers secured by firm and customers' margin account securities) to which an
additional amount, up to 2.5%, is added depending on the size of the debit
balance. The amount of interest and dividend income is directly impacted by
the level of securities owned and customer margin account balances, and by
general fluctuations in interest rates.
OTHER
During the fiscal year ended March 31, 1995, approximately 37% of other
income represents service fees, IRA administration fees, and other
retail-related revenues compared to 30% and 29%, respectively, for the fiscal
years ended in March 1994 and 1993. Approximately 49% of other income
represents transfer agent fees and other fees derived from the Company's money
market and mutual funds compared to 29% and 22%, respectively, for the fiscal
1994 and 1993 years. Miscellaneous income represented 12%, 8% and 9% of other
income, respectively, in the fiscal years ended March 1995, 1994 and 1993.
For the fiscal year ended March 31 1995, 2% of other income represented
revenues related to certain venture capital investments, compared to 33% in
fiscal 1994 and 40% in fiscal 1993. The Company periodically invests in
venture capital and other investments in the form of limited partnerships,
general partnerships and equity positions.
RETAIL BUSINESS
During the fiscal year ended March 31, 1995, approximately 71% of the
Company's total revenues from customers were from individuals. During the
fiscal year ended March 31, 1995, approximately 26% of the revenues from
individual accounts were derived from principal transactions, 27% from agency
transactions, 9% from investment banking, and 38% from other retail products.
Other sources of retail revenues include revenues from the sale of the
Company's money market and mutual funds, other mutual funds, annuities, and
investment advisory services. Individual commission rates on agency
transactions are based upon a schedule which is competitive within the
securities industry. Discounts from the schedule may be granted to retail
customers on large trades.
INSTITUTIONAL BUSINESS
During the fiscal year ended March 31, 1995, approximately 29% of the
Company's total revenues from customers were from institutions. Institutional
customers include banks, insurance companies, thrift institutions, pension
funds, mutual funds and money managers. During the fiscal year ended March 31,
1995, approximately 59% of the revenues from institutional accounts were
derived from principal transactions, 15% from agency transactions, and 26% from
investment banking. Commissions charged on agency transactions on behalf of
institutional customers are on a negotiated basis and represent a significant
discount from the Company's retail commission schedule.
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ITEM 1. BUSINESS--Continued
MARGIN ACCOUNTS
Customers' transactions in securities are effected on either a cash or
margin basis. In a margin account, the customer pays a portion of the cost of
securities purchased and the broker-dealer makes a loan for the balance,
secured by the securities purchased or other securities owned by the investor.
The amount of the loan is subject to the margin regulations (Regulation T) of
the Board of Governors of the Federal Reserve System, NYSE margin requirements
and McDonald Securities' internal policies, which in some instances are more
stringent than Regulation T or NYSE margin requirements. Currently, in most
transactions Regulation T limits the amount loaned to a customer for the
purchase of a particular security to 50% of the purchase price. In the event
of a decline in the market value of the securities in a customer's margin
account, a member firm, under NYSE rules, is required to have the customer
deposit cash or additional securities so that the loan to the customer is no
greater than 75% of the value of collateral securities in the account. In
permitting customers to purchase securities on margin, McDonald Securities is
subject to the risk of a market decline which could reduce the value of its
collateral below the customers' indebtedness.
RESEARCH SERVICES
McDonald Securities maintains a research staff which concentrates its
efforts on regional equity research and services both retail and institutional
customers. McDonald Securities employs 18 analysts who cover approximately 210
companies, a majority of which maintain their headquarters in the Midwest.
Eight of the 18 analysts are Chartered Financial Analysts (CFAs), including one
who has a doctorate in economics and serves on an exclusive consulting basis as
the Company's economist and investment strategist.
Research services are made available generally without charge to
customers. Research services include the review and analysis of the economy,
general market conditions, industries and specific companies; recommendation of
specific action with regard to industries and specific companies; review of
customer portfolios; the furnishing of information to retail and institutional
customers; and responses to inquiries from customers and investment brokers.
McDonald Securities also provides a computerized portfolio analysis service for
individual accounts upon request. In addition, McDonald Securities purchases
several outside research services which provide its customers with research
more national in scope.
Management believes that a significant portion of its institutional equity
business is attributable to research services. McDonald Securities provides
services to a nationwide institutional base as well as to institutional clients
in Canada, England, Scotland, Germany, Switzerland and the Far East.
COMPETITIVE FACTORS
Considerable consolidation has occurred in the securities industry as
numerous securities firms have either ceased operation or been acquired by
other securities firms, in many cases resulting in firms with greater financial
resources than firms such as McDonald Securities. In addition, a number of
substantial companies not previously engaged in the securities business have
made investments in and acquired securities firms. These developments have
resulted in significant additional competition for McDonald Securities.
Increasing competitive pressures in the securities industry are requiring
regional firms such as McDonald Securities to offer to their customers many of
the financial services which are provided by much larger securities firms that
have substantially greater resources and may have greater operating
efficiencies than McDonald Securities.
Fixed minimum commissions for securities transactions were eliminated in
1975. This resulted in substantial discounts of commissions earned from
institutional customers and in the establishment of an increasing number of
firms, including affiliates of banks and thrift institutions, which offer
discount brokerage services to retail customers. These firms generally effect
transactions at lower commission rates on an "execution only" basis, without
offering other services such as investment advice and research which are
provided by "full-service" brokerage firms such as McDonald Securities. In
addition, some discount brokerage firms have increased the range of services
which they offer. The existence of and anticipated continued increase in the
number of discount brokerage firms and services provided by such firms may
adversely affect the Company.
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<PAGE> 11
ITEM 1. BUSINESS--Continued
COMPETITIVE FACTORS (cont.)
Certain institutions, notably commercial banks and thrift institutions,
have become a competitive factor by offering certain investment banking and
corporate and individual financial services traditionally provided only by
securities firms. Also, major corporations such as Equitable Life Assurance
Society, and Travelers Corporation, have acquired large securities firms.
Additionally, certain bank holding companies, such as J. P. Morgan and
Citicorp, have affiliates which are authorized to engage in the investment
banking business, including corporate underwritings. While it is presently not
possible to predict the type and extent of competitive services which banks and
other institutions ultimately may offer or the extent to which administrative
or legislative barriers will be repealed or modified, to the extent that such
services are offered on a large scale, securities firms such as McDonald
Securities may be adversely affected.
EMPLOYEES
The Company has 1,112 employees, of whom 17 have senior managerial
responsibilities, 354 are full-time investment brokers, 209 are engaged in
other production areas, including trading, research, investment banking, and
investment advisory, and 532 are employed in processing securities
transactions, accounting, management information systems, mutual fund services,
personnel and other administrative services.
The Company recognizes the importance of hiring, training and retaining
investment brokers. The Company trains new investment brokers who are required
to take examinations given by the NYSE, the NASD and various states in order to
be registered and qualified. The Company also provides ongoing training
programs for investment brokers. There is intense competition among securities
firms for investment brokers with good sales production records and other key
personnel. The Company has experienced a relatively low rate of turnover of
investment brokers. From time to time, however, the Company experiences the
loss of valuable personnel.
The Company considers its employee relations to be good and believes that
its compensation and employee benefits, which include medical, life and
disability insurance, and a 401(k) defined contribution and profit-sharing
plan, are competitive with those offered by other securities firms. None of
the Company's employees is covered by a collective bargaining agreement.
REGULATION
The securities industry in the United States is subject to extensive
regulation under federal and state laws. The Securities and Exchange
Commission (the "Commission") is the federal agency charged with administration
of the federal securities laws. Much of the regulation of broker-dealers,
however, has been delegated to self-regulatory organizations, principally the
NASD and the national securities exchanges. These self-regulatory
organizations adopt rules (which are subject to approval by the Commission)
which govern the industry and conduct periodic examinations of member
broker-dealers. Securities firms are also subject to examination by state
securities commissions in the states in which they are registered. McDonald
Securities is currently registered as a broker-dealer in all states. In
addition, McDonald Securities is registered as a broker-dealer with the
Commission.
The regulations to which broker-dealers are subject cover all aspects of
the securities business, including sales methods, trade practices among
broker-dealers, capital structure of securities firms, record-keeping and the
conduct of directors, officers and employees. Additional legislation, changes
in rules promulgated by the Commission and by self-regulatory organizations, or
changes in the interpretation or enforcement of existing laws and rules often
directly affect the method of operation and profitability of broker-dealers.
The Commission and the self-regulatory organizations may conduct administrative
proceedings which can result in censure, fine, suspension or expulsion of a
broker-dealer, its officers or employees. The principal purpose of regulation
and discipline of broker-dealers is the protection of customers and the
securities market rather than protection of creditors and stockholders of
broker-dealers.
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<PAGE> 12
ITEM 1. BUSINESS--Continued
REGULATION (cont.)
The Company anticipates regulation of the securities industry to increase
and for compliance with regulations to become more difficult. At present the
Company is unable to predict the extent of changes that may be enacted, or the
effect on the Company's business.
McDonald Securities' Compliance Committee has the responsibility of
performing reviews to provide reasonable assurance that the officers,
directors, and employees comply with the regulatory requirements of the
Commission, self-regulatory agencies, and McDonald Securities' internal
requirements.
McDonald Securities is required by federal law to belong to the SIPC.
When the SIPC fund falls below a certain minimum amount, members are required
to pay annual assessments, currently .073%, of their adjusted gross revenues
(as defined) to restore the fund. The SIPC fund provides protection for
securities held in customer accounts up to $500,000 per customer, with a
limitation of $100,000 on claims for cash balances.
NET CAPITAL REQUIREMENTS
As a broker-dealer and member of the NYSE, McDonald Securities is subject
to the Uniform Net Capital Rule promulgated by the Commission (Rule 15c3-1)
which provides that a broker-dealer doing business with the public shall not
permit its aggregate indebtedness (as defined) to exceed 15 times its net
capital (as defined) or, alternatively, that its net capital shall not be less
than 2% of aggregate debit balances (primarily receivables from customers)
computed in accordance with Rule 15c3-3. The Rule is designed to measure the
general financial integrity and liquidity of a broker-dealer and the minimum
net capital deemed necessary to meet the broker-dealer's continuing commitments
to its customers. Management believes that the alternative method is more
directly related to the level of customer business, therefore McDonald
Securities computes its net capital under the alternative method.
A broker-dealer may be required to reduce its business if its net capital
is less than 4% of aggregate debit balances and may be prohibited from
expanding its business or declaring cash dividends if its net capital is less
than 5% of aggregate debit balances. In addition, a broker-dealer may be
subject to disciplinary action by the Commission and self-regulatory agencies,
such as the NYSE, including fines, censure, suspension or expulsion.
Under Rule 15c3-1 a broker-dealer is required to provide advance written
notice to the Commission of any loan, unsecured advance, or withdrawal of
equity capital which exceeds, in any 30 day period, 30% of excess net capital.
Additionally, written notice must be given to the Commission of any loan,
unsecured advance, or withdrawal of equity capital which exceeds, in any 30 day
period, 20% of excess net capital, within two business days subsequent to the
transaction.
In computing net capital, various adjustments are made to net worth with a
view to excluding assets which are not readily convertible into cash and to a
conservative statement of the other assets such as a firm's position in
securities. Compliance with the Uniform Net Capital Rule may limit those
operations of a firm which require the use of its capital for purposes of
maintaining the inventory required for trading in securities, underwriting
securities and financing customer margin account balances. A significant
operating loss or an extraordinary charge against net capital could adversely
affect the ability of a broker-dealer to expand or even maintain its present
level of business. Net capital and aggregate debit balances change from day to
day. At March 31, 1995, McDonald Securities' net capital was $72,352,000 which
was 51% of its aggregate debit balances and $69,504,000 in excess of the
minimum required net capital.
- 12 -
<PAGE> 13
ITEM 1. BUSINESS--Continued
NET CAPITAL REQUIREMENTS (cont.)
McDonald Securities has outstanding $25,000,000 in aggregate principal
amount of 8.24% Subordinated Notes due January 15, 2002. McDonald Securities
is required to prepay principal amounts of $5,000,000 on January 15 in each
year beginning in 1998. The notes are subordinated in right of payment to all
senior indebtedness and general creditors of McDonald Securities. The
principal amount of the notes has been approved by the New York Stock Exchange
Inc. for inclusion in the regulatory capital of McDonald Securities.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
Not Applicable.
- 13 -
<PAGE> 14
ITEM 2. PROPERTIES.
The Company has a total of 40 offices in 11 states, all of which are
leased under lease agreements expiring from 1995 to 2009. Certain of these
leases have renewal options. The table below sets forth the location of each
of the Company's offices and the number of full-time investment brokers in each
office:
<TABLE>
<S> <C> <C>
HEADQUARTERS Mansfield (3) KENTUCKY
- ------------ Pepper Pike (23) Crestview Hills (4)
Cleveland (60) Rocky River (17)
Strongsville (5) MASSACHUSETTS
DIVISIONS Toledo (4) Boston (3)
- --------- Willoughby Hills (9)
Gradison Division Youngstown (5) MICHIGAN
Cincinnati, Ohio Ann Arbor (5)
S. J. Wolfe Division Battle Creek (2)
Dayton, Ohio Birmingham (15)
CALIFORNIA East Lansing (8)
BRANCHES Los Angeles (3) Grand Rapids (16)
- -------- Grosse Pointe Woods (3)
OHIO
Akron (10) FLORIDA NEW JERSEY
Canfield (1) Naples (5) Jersey City (9)
Canton (5)
Chillicothe (1) GEORGIA TEXAS
Cincinnati (47) Atlanta (6) Dallas (5)
Columbus (6)
Dayton (14) ILLINOIS
Dublin (4) Chicago (4)
Elyria (6)
Findlay (5) INDIANA
Hudson (4) Elkhart (4)
Kenwood (10) Fort Wayne (5)
Lancaster (3) Indianapolis (8)
Lima (3) Indianapolis North (4)
</TABLE>
The Company's executive office and largest sales office is located in
Cleveland, Ohio. The Company's order entry, trading, investment banking,
research, operations and accounting activities are primarily centralized in the
Cleveland office. The office, which occupies approximately 154,000 square feet
of space, is operated under a lease expiring in 2009. The Gradison Division of
McDonald Securities is located in Cincinnati, Ohio. The Gradison Division
office, which occupies approximately 43,000 square feet of space, is operating
under a lease expiring in 1998. Personnel at the Gradison Division are
primarily involved in the mutual fund and investment advisory operations,
retail sales, management, and also certain accounting and administrative
functions. The S. J. Wolfe Division was opened in December, 1990 when the
Company acquired certain assets and the business of S. J. Wolfe & Co., a stock
brokerage firm. The S. J. Wolfe Division has an over-the-counter trading
operation.
The Company believes that at the present time its administrative and
sales office space is adequate and is suitably utilized.
ITEM 3. LEGAL PROCEEDINGS.
As is the case with many firms in the securities industry, McDonald
Securities is a defendant or co-defendant in a number of lawsuits alleging
damages, which are ordinary and routine litigation, incidental to the
securities and investment banking business. The Company is contesting the
allegations of the complaints in these cases and believes that there are
meritorious defenses in each of these lawsuits. Some of the proceedings relate
to public underwritings of securities in which McDonald Securities participated
as a member of the underwriting syndicate. The Company is also aware of
litigation against certain underwriters of offerings in which McDonald
Securities was a participant, but where McDonald Securities is not now a
defendant. In these latter cases, it is possible that McDonald Securities may
be called upon to contribute to settlements or judgments.
- 14 -
<PAGE> 15
In view of the number and diversity of claims against the Company and
the inherent difficulty of predicting the outcome of litigation and other
claims, the Company cannot state with certainty what the eventual outcome of
pending litigation or other claims will be. The Company provides for costs
relating to these matters when a loss is probable and the amount is reasonably
estimable. The effect of the outcome of these matters on the Company's future
results of operations cannot be predicted because any such effect depends on
future results of operations and the amount and timing of the resolution of
such matters. While it is not possible to predict with certainty, management
believes that the ultimate resolution of such matters will not have a material
adverse effect on the consolidated financial position or liquidity of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT.
(Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K)
The following table sets forth the executive officers of the Company who are
not also Directors of the Company and certain other information with respect to
each individual, including the years certain individuals were partners in the
Partnership, the predecessor to the Company's business. Except for Mr. Weston,
each of the executive officers listed below is a Director of McDonald
Securities.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
---- --- ------------------------------------------------
<S> <C> <C>
Thomas M. O'Donnell 59 Director of the Company since June 7, 1983; Chairman of the Company and McDonald
Securities since April 1, 1989; Chief Executive Officer of the Company from April 1, 1989
to January 1, 1994; President of the Company and McDonald Securities from July 23, 1984
to April 1, 1989; Secretary of the Company from June 7, 1983 to July 23, 1984; Managing
Director (Corporate Finance and Special Products) and Secretary of McDonald Securities
from June 7, 1983 to July 23, 1984; Partner from 1968 to 1990 and Managing Partner from
1989 to 1990.
William B. Summers, Jr. 45 Director of the Company since June 7, 1983; Chief Executive Officer of the Company since
January 1, 1994; President of the Company and McDonald Securities since April 1, 1989;
Executive Vice President of the Company and McDonald Securities from November 1, 1988 to
April 1, 1989; Managing Director (Fixed Income Institutional Sales) of McDonald
Securities from June 7, 1983 to November 1, 1988; Partner from 1975 to 1990.
Daniel F. Austin 43 Senior Managing Director (Corporate and Public Finance) of McDonald Securities since June
1, 1992; Managing Director from January 4, 1991 to May 31, 1992; Senior Vice President
from May 1, 1986 to January 3, 1991; First Vice President from May 1, 1985 to April 30,
1986.
Jack N. Aydin 54 Managing Director (Resident Manager - Jersey City, New Jersey) of McDonald Securities
since May 1, 1988; Senior Vice President from May 1, 1986 to April 30, 1988; First Vice
President from June 7, 1983 to April 30, 1986; Partner from 1977 to 1990.
Eugene H. Bosart III 52 Managing Director (Regional Sales Manager - Michigan) of McDonald Securities since May 1,
1987; Senior Vice President from June 7, 1983 to April 30, 1987; Partner from 1972 to
1990.
</TABLE>
- 15 -
<PAGE> 16
EXECUTIVE OFFICERS OF THE REGISTRANT (cont.)
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
---- --- ------------------------------------------------
<S> <C> <C>
Thomas G. Clevidence 45 Managing Director (Human Resources) since July 1, 1992; Vice President - Corporate
Employment, Society Corporation/Ameritrust Corporation, from October 1989 to June 30,
1992; Senior Manager, Ernst & Young, from 1982 to October 1989.
Robert T. Clutterbuck 44 Treasurer of the Company and Executive Managing Director and Chief Financial Officer of
McDonald Securities since January 1, 1994; Senior Managing Director (Municipal Bond
Trading and Underwriting) from June 1, 1992 to December 31, 1993; Managing Director from
May 1, 1987 to May 31, 1992; Senior Vice President from May 1, 1984 to April 30, 1987;
First Vice President from June 7, 1983 to April 30, 1984; Partner from 1978 to 1990.
Dennis J. Donnelly 45 Senior Managing Director (Operations) since June 1, 1992; Managing Director from May 1,
1987 to May 31, 1992; Senior Vice President from May 1, 1984 to April 30, 1987; First
Vice President from June 7, 1983 to April 30, 1984; Partner from 1980 to 1990.
David W. Ellis, III 39 Senior Vice President, (Fixed Income Asset Management) Gradison Division, since October
4, 1991; Director of Gradison & Company Incorporated from January 1, 1987 to October 3,
1991; Senior Vice President, Gradison & Company Incorporated from September 1, 1988 to
October 3, 1991; Vice President from September 1, 1980 to August 31, 1988.
David W. Knall 50 Managing Director (Resident Manager - Indianapolis, Indiana) of McDonald Securities since
June 7, 1983; Partner from 1973 to 1990.
Thomas M. McDonald 48 Managing Director (Private Client Group) of McDonald Securities since June 1, 1993;
Senior Vice President from September 27, 1991 to May 31, 1993; Senior Vice President of
Prescott Ball & Turben, a division of Kemper Securities Group, Inc. from February 1988 to
September 26, 1991.
Lawrence T. Oakar 60 Senior Vice President (Retail Sales) of McDonald Securities since May 1, 1986; First Vice
President from July 20, 1983 to April 30, 1986; Partner from 1979 to 1990.
John F. O'Brien 58 Senior Managing Director (Private Client Group) of McDonald Securities since June 1,
1992; Managing Director from June 17, 1983 to May 31, 1992; Partner from 1971 to 1990.
Gordon A. Price 47 Managing Director, Secretary and Treasurer of McDonald Securities since January 1, 1994;
Treasurer of the Company from July 28, 1988 to January 1, 1994; Chief Financial Officer
of McDonald Securities from July 1, l987 to December 31, 1993; Senior Managing Director
(Financial Administration) of McDonald Securities from June 1, 1992 to December 31, 1993;
Managing Director from May 1, 1987 to May 31, 1992; Senior Vice President from May 1,
1984 to April 30, 1987; First Vice President from June 7, 1983 to April 30, 1984; Partner
from 1980 to 1990.
</TABLE>
- 16 -
<PAGE> 17
EXECUTIVE OFFICERS OF THE REGISTRANT (cont.)
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
---- --- ------------------------------------------------
<S> <C> <C>
James C. Redinger 58 Senior Managing Director (Equity Institutional Sales and Trading) of McDonald Securities
since June 1, 1992; Managing Director from May 1, 1987 to May 31, 1992; Senior Vice
President from May 1, 1984 to April 30, 1987; First Vice President from June 7, 1983 to
April 30, 1984; Partner from 1980 to 1990.
David D. Sutcliffe 34 Senior Vice President (Fixed Income Sales) of McDonald Securities since May 1, 1989;
First Vice President (Fixed Income Sales) from May 1, 1987 to April 30, 1989; Vice
President (Fixed Income Sales) from 1984 to April 30, 1987.
Francis S. Tobias 46 Managing Director (Fixed Income Sales and Trading) of McDonald Securities since January
1, 1994; Senior Managing Director (Fixed Income Sales and Trading) from June 1, 1992 to
January 1, 1994; Managing Director from July 1, 1990 to May 31, 1992; Manager of Fixed
Income Sales and Trading, Prescott Ball & Turben, a division of Kemper Securities Group,
Inc. from 1985 to June 30, 1990.
Donald E. Weston 60 Director of the Company since October 4, 1991; Chairman and Chief Executive Officer of
the Gradison Division of McDonald Securities since October 4, 1991; Chairman of the Board
and Chief Executive Officer of Gradison & Company Incorporated from January, 1982 to
October 4, 1991; Trustee and Chairman of the Board of the Gradison-McDonald U.S.
Government Trust since January, 1982; of the Gradison Growth Trust since August, 1983, of
the Gradison-McDonald Government Income Fund since September, 1987 and of the Gradison-
McDonald Municipal Custodian Trust since September, 1992.
</TABLE>
- 17 -
<PAGE> 18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The information required by this item is included herein at Exhibit
99(a) to this Form 10-K Annual Report set forth under the caption
"Supplementary Financial Data - Quarterly Data (Unaudited)".
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is included herein at Exhibit
99(b) to this Form 10-K Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required by this item is included herein at Exhibit
99(c) to this Form 10-K Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is included herein at Exhibit
99(d) to this Form 10-K Annual Report.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL DISCLOSURE.
None.
- 18 -
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding Directors appearing under the caption of
"Election of Directors" in the registrant's definitive Proxy Statement to be
used in connection with Annual Meeting of Stockholders to be held on August 2,
1995 (the "1995 Proxy Statement") is incorporated herein by reference.
Information regarding executive officers of the registrant is set forth in Part
I of this Form 10-K Annual Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated herein by
reference to "Executive Compensation" in the 1995 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference to
"Stock Ownership of Principal Holders and Management" in the 1995 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated herein by
reference to "Certain Transactions" in the 1995 Proxy Statement.
- 19 -
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) DOCUMENT LIST
1. Financial Statements
The following financial statements and other information are filed
as part of this Form 10-K Annual Report herein at Exhibit 99(d).
McDonald & Company Investments, Inc. and Subsidiaries:
(i) Consolidated Statements of Income--fiscal years ended
March 31, 1995, March 25, 1994 and March 26, 1993
(ii) Consolidated Statements of Financial Condition--March 31,
1995 and March 25, 1994
(iii) Consolidated Statements of Changes in Stockholders'
Equity-- fiscal years ended March 31, 1995, March 25,
1994 and March 26, 1993
(iv) Consolidated Statements of Cash Flows--fiscal years ended
March 31, 1995, March 25, 1994 and March 26, 1993
(v) Notes to Consolidated Financial Statements--March 31, 1995
(vi) Report of Independent Auditors
2. Supplementary Data and Financial Statement Schedules
(i) Supplementary data entitled "Supplementary Financial
Data- Quarterly Data (Unaudited)" is filed as part of
this Form 10-K Annual Report herein at Exhibit 99(a).
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
- 20 -
<PAGE> 21
ITEM 14(a) DOCUMENT LIST -- Continued
3. Exhibits Required by Securities and Exchange Commission
Regulation S-K
(a) The following exhibits are filed as part of this Report:
<TABLE>
<CAPTION>
Exhibit Sequential Page
------- ---------------
<S> <C> <C>
10(k) Lease Agreement dated July 21, 1994 for the Company's
Executive offices, which became effective April 1, 1994 . . . . . . . . . 26
11 Statement Re: Computation of Per Share Earnings . . . . . . . . . . . . . . 98
21 Subsidiaries of the Registrant . . . . . . . . . . . . . . . . . . . . . . . 99
23 Consent of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . 101
27 Financial Data Schedule BD
99(a) Supplementary Financial Data - Quarterly Data
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
99(b) Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
99(c) Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . . . . . . . . . . 104
99(d) Consolidated Financial Statements of the Company and Independent Auditors'
Report thereon listed under Item 14(a)(1) . . . . . . . . . . . . . . . . . 113
</TABLE>
(b) The following exhibits are incorporated herein by reference:
2(a): Agreement and Plan of Reorganization dated as of July 24, 1991 by
and among the Registrant, McDonald & Company Securities, Inc. and
Gradison & Company Incorporated (incorporated by reference to Exhibit
2.1 to the Company's Amendment No. 1 to Form S-4 Registration Statement
(Reg. No. 33-42566) which became effective on September 13, 1991)
2(b): Form of First Amendment to the Agreement and Plan of
Reorganization by and among the Registrant, McDonald & Company
Securities, Inc. and Gradison & Company Incorporated (Incorporated by
reference to Exhibit 2.2 to the Company's Amendment No. 1 to Form S-4
Registration Statement (Reg. No. 33-42566) which became effective on
September 13, 1991)
2(c) Form of Agreement of Merger by and among the Registrant, McDonald
& Company Securities, Inc. and Gradison & Company Incorporated
(incorporated by reference to Exhibit 2.3 to the Company's Amendment
No. 1 to Form S-4 Registration Statement (Reg. No. 33-42566) which
became effective on September 13, 1991)
3(a): Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 4(a) to the Company's Form S-8 Registration
Statement (Reg. No. 33-11335), which became effective on February 2,
1987)
3(b): By-Laws of the Company (incorporated by reference to Exhibit 4(b)
to the Company's Form S-8 Registration Statement (Reg. No. 33-11335),
which became effective on February 2, 1987)
3(c): Certificate of Amendment to the Company's Certificate of
Incorporation (incorporated by reference to Exhibit 3(c) to the
Company's Form 10-K for the fiscal year ended March 26, 1993)
4(a): Specimen Stock Certificate (incorporated by reference to Exhibit
4 to the Company's Form S-1 Registration Statement (Reg. No. 2-84300),
which became effective on July 20, 1983)
- 21 -
<PAGE> 22
ITEM 14(a) DOCUMENT LIST -- Continued
10(a): Stock Option Plan (incorporated by reference to Exhibit 4(b) to
the Company's Form S-8 Registration Statement (Reg. No. 33-11335),
which became effective on February 2, 1987)*
10(b): 1990 Stock Option Plan for Outside Directors (incorporated by
reference to Exhibit 4.4 to the Company's Form S-8 Registration
Statement (Reg. No. 33-37603), which became effective on November 5,
1990)*
10(c): Documents reflecting lines of credit with First National Bank of
Chicago ($25,000,000), and the Bank of Tokyo ($45,000,000),
(incorporated by reference to Exhibit 10(p) to the Company's Form 10-K
for the fiscal year ended March 27, 1992)
10(d): Documents reflecting line of credit with The Northern Trust
Company ($10,000,000) (incorporated by reference to Exhibit 10(p) to
the Company's Form 10-K for the fiscal year ended March 29, 1991)
10(e): Documents reflecting lines of credit with Bankers Trust Company
($50,000,000), State Street Bank and Trust Company ($28,000,000) and
Huntington National Bank ($25,000,000), (incorporated by reference to
Exhibit 10(p) to the Company's Form 10-K for the fiscal year ended
March 26, 1993)
10(f): Documents reflecting lines of credit with National City Bank
($25,000,000) and Star Bank ($20,000,000), (incorporated by reference
to Exhibit 10(m) to the Company's Form 10-Q for the fiscal quarter
ended September 24, 1993)
10(g): 1993 Restricted Stock Bonus Plan (incorporated herein by
reference to the Company's Definitive Proxy Statement for its Annual
Meeting held on July 27, 1993)*
10(h): Form of Note Purchase Agreement between McDonald & Company
Securities, Inc. and the Purchasers listed therein, dated as of January
15, 1993, relating to $25,000,000 principal amount of 8.24%
Subordinated Notes (incorporated by reference to Exhibit 10 of the
Company's Form 8-K filed with the Securities and Exchange Commission on
February 5, 1993)
10(i): McDonald & Company Securities, Inc. Retirement Savings Trust and
Plan, (incorporated by reference to Exhibit 10(n) to the Company's Form
10-Q for the fiscal quarter ended September 24, 1993)*
10(j): Documents reflecting lines of credit with Bank of New York
($90,000,000), (Incorporated by reference to Exhibit 10(m) to the
Company's Form 10-K for the fiscal year ended March 25, 1994)
* Management contract or compensatory plan or arrangement identified pursuant
to Item 14(c) of this Form 10-K
- 22 -
<PAGE> 23
ITEM 14(b). REPORTS ON FORM 8-K.
The Company did not file a current Report on Form 8-K during the fiscal
quarter ended March 31, 1995.
OTHER
On July 27, 1993, the Company announced the continuation of an open
market repurchase program originally instituted in July 1987. The current
program, which expires July 31, 1996, allows the Company to purchase up to
1,000,000 shares of its Common Stock at an aggregate price not to exceed
$20,000,000. Treasury shares may be used to satisfy options exercised under
the Company's stock option plans and shares awarded under the Company's 1993
Stock Bonus Plan.
During the fiscal year ended March 31, 1995 the Company purchased
674,377 shares of the Company's Common Stock at an average price of $12.43 per
share. During the fiscal year ended March 31, 1995, the Company sold 107,980
shares of the Company's Common Stock held in treasury to satisfy options
exercised under the Company's stock option plans.
- 23 -
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 at Cleveland, Ohio
on this 20th day of June, 1995.
McDONALD AND COMPANY INVESTMENTS, INC.
By: /s/ William B. Summers, Jr.
--------------------------------------
William B. Summers, Jr., President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on June 20, 1995.
<TABLE>
<CAPTION>
Signature Title:
- --------- -----
<S> <C>
/s/ William B. Summers, Jr. President and Director
- --------------------------- (Principal Executive Officer)
William B. Summers, Jr.
/s/ Robert T. Clutterbuck Treasurer (Principal Financial
- --------------------------- and Accounting Officer)
Robert T. Clutterbuck
/s/ Thomas M. O'Donnell Chairman and Director
- ---------------------------
Thomas M. O'Donnell
/s/ Bennett E. Bidwell Director
- ---------------------------
Bennett E. Bidwell
/s/ Rena J. Blumberg Director
- ---------------------------
Rena J. Blumberg
/s/ Willard E. Carmel Director
- ---------------------------
Willard E. Carmel
/s/ James A. Karman Director
- ---------------------------
James A. Karman
/s/ Frederick R. Nance Director
- ---------------------------
Frederick R. Nance
/s/ Donald E. Weston Director
- ---------------------------
Donald E. Weston
</TABLE>
- 24 -
<PAGE> 25
McDonald & Company Investments, Inc.
Report on FORM 10-K for the Fiscal Year ended March 31, 1995
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Sequential Page
- ----------- ----------- ---------------
<S> <C> <C>
10(k) Lease Agreement dated July 21, 1994 for the Company's
Executive offices, which became effective April 1, 1994 . . . . . . . 26
11 Statement Re: Computation of
Per Share Earnings . . . . . . . . . . . . . . . . . . . . . . . . . 98
21 Subsidiaries of the Registrant . . . . . . . . . . . . . . . . . . . 99
23 Consent of Independent
Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
27 Financial Data Schedule BD
99(a) Supplementary Financial Data
Quarterly Data (Unaudited) . . . . . . . . . . . . . . . . . . . . 102
99(b) Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . 103
99(c) Management's Discussion and
Analysis of Results of Operations
and Financial Condition . . . . . . . . . . . . . . . . . . . . . . 104
99(d) Consolidated Financial Statements of the Company and Independent
Auditors' Report thereon listed under Item 14(a)(1) . . . . . . . . 113
</TABLE>
- 25 -
<PAGE> 1
Exhibit 10(k)
OFFICE LEASE
BETWEEN
NINTH STREET - SUPERIOR LIMITED PARTNERSHIP
LANDLORD
AND
McDONALD & COMPANY SECURITIES, INC.
TENANT
McDonald Investment Center
800 Superior Avenue, N.E.
Cleveland, Ohio 44114
- 26 -
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE I INTRODUCTORY PROVISIONS ............................ 1
1.1 Basic Lease Provisions..................................... 1
1.2 Exhibits and Riders ....................................... 2
1.3 General Definitions ....................................... 2
ARTICLE II DEMISE AND ADJUSTMENTS TO PREMISES................... 4
2.1 Demise .................................................... 4
2.2 Additions of Space to Premises ........................... 4
2.3 Termination of Lease as to the 15th Floor Space ........... 5
ARTICLE III TERM ................................................ 6
3.1 Term....................................................... 6
3.2 Commencement Date ........................................ 6
3.3 Lease Year ................................................ 6
3.4 Renewal Options ........................................... 6
ARTICLE IV RENT ............................................... 9
4.1 Rent Payable............................................... 9
4.2 Base Rent.................................................. 9
4.3 Payment of Rent ...........................................10
4.4 Rent Abatement During Buildout.............................10
ARTICLE V OPERATING EXPENSES AND REAL ESTATE TAXES ........... 11
5.1 "Operating Expenses" Defined .............................11
5.2 Exclusions from Operating Expenses .......................12
5.3 Tenant's Allocable Share of Operating Expenses ...........13
5.4 "Real Estate Tax Expense" Defined .........................13
5.5 Exclusions from Real Estate Tax Expense ..................14
5.6 Tenant's Allocable Share of Real Estate Tax Expense ......14
5.7 Annual Computation ........................................16
5.8 Payment of Tenant's Allocable Share of Operating
Expenses and Real Estate Tax Expense ......................18
ARTICLE VI USE OF PREMISES ....................................19
6.1 Permitted Use .............................................19
6.2 Applicable Legal Requirements .............................20
6.3 Landlord's Rules and Regulations ..........................20
</TABLE>
- 27 -
<PAGE> 3
<TABLE>
<S> <C>
6.4 Continuing Occupancy ................................... 20
6.5 Alterations............................................. 20
6.6 Floor Load ............................................ 21
6.7 Office Equipment ...................................... 22
6.8 Moving Heavy Equipment ................................. 22
6.9 Name of Building, Signs and Directory................... 22
6.10 Common Areas ........................................... 24
6.11 Hazardous Materials .................................... 24
ARTICLE VII INITIAL CONSTRUCTION.............................. 25
7.1 Responsibilities of Landlord and Tenant ............... 25
7.2 Landlord's Work ........................................ 25
7.3 Tenant's Work........................................... 26
7.4 Allowance for Tenant Improvements ...................... 29
7.5 Approvals Not to Be Unreasonably Withheld,
Conditioned or Delayed.................................. 31
ARTICLE VIII REPAIRS........................................... 31
8.1 Landlord's Repairs...................................... 31
8.2 Tenant's Repairs ....................................... 31
8.3 Performance of Repairs.................................. 31
ARTICLE IX BUILDING SERVICES ................................ 32
9.1 Services Provided by Landlord .......................... 32
9.2 Utilities and After-Hours HVAC ......................... 32
9.3 Additional Tenant Services ............................ 33
9.4 Suspension of Services ................................. 34
9.5 Security Services ..................................... 34
9.6 Utility Services for the Premises;
Termination of Service.................................. 34
9.7 Parking ................................................ 35
9.8 Access to the Premises.................................. 35
9.9 Storage Space .......................................... 35
9.10 Fitness Center.......................................... 36
9.11 Loss of Essential Building Services..................... 36
ARTICLE X INSURANCE......................................... 36
10.1 Tenant's Insurance...................................... 36
10.2 Landlord's Insurance ................................... 37
10.3 Mutual Waiver of Subrogation ........................... 38
10.4 Tenant's Waiver Against Other Tenants .................. 38
</TABLE>
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<TABLE>
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ARTICLE XI MUTUAL INDEMNIFICATION ............................... 39
11.1 Indemnification By Tenant.................................. 39
11.2 Indemnification By Landlord ............................... 39
ARTICLE XII LIMITATION OF LIABILITY OF LANDLORD ................. 40
ARTICLE XIII DAMAGE AND DESTRUCTION .............................. 40
13.1 Damage Repairable Within .................................. 40
13.2 Other Damages.............................................. 41
13.3 Timing of Landlord's Determination......................... 41
13.4 General Provisions......................................... 42
ARTICLE XIV EMINENT DOMAIN....................................... 42
14.1 Total Taking .............................................. 42
14.2 Partial Taking ............................................ 42
14.3 Proceeds .................................................. 43
14.4 Temporary Taking .......................................... 43
ARTICLE XV DEFAULT ............................................... 44
15.1 "Event of Default" Defined................................. 44
15.2 Remedies .................................................. 45
15.3 Damages upon Termination................................... 46
15.4 Reletting of Premises...................................... 46
ARTICLE XVI TERMINATION ......................................... 47
16.1 Possession and Removal of Property ........................ 47
16.2 Surrender of Premises ..................................... 47
16.3 Survival of Tenant's Obligations .......................... 48
16.4 Holdover................................................... 48
ARTICLE XVII RIGHTS RESERVED BY LANDLORD .......................... 48
17.1 Access to Premises......................................... 48
17.2 Installation and Use of Utilities ......................... 49
17.3 Right of Landlord to Change Public Portions of Project .... 49
ARTICLE XVIII ASSIGNMENT AND SUBLETTING ............................ 49
18.1 Landlord's Consent Required ............................... 49
18.2 Transfer of Corporate Shares .............................. 50
18.3 Permitted Subletting ...................................... 50
18.4 Tenant's Request to Assign ................................ 50
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<TABLE>
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18.5 Excess Rent.................................................. 51
18.6 Landlord's Right to Assign................................... 51
ARTICLE XIX SUBORDINATION AND ATTORNMENT .......................... 51
19.1 Subordination, Nondisturbance, and Attornment................ 51
19.2 Mortgagee's Unilateral Subordination......................... 52
19.3 "Mortgage" and "Mortgagee" Defined .......................... 52
ARTICLE XX MISCELLANEOUS ......................................... 53
20.1 Liens and Encumbrances ...................................... 53
20.2 Force Majeure................................................ 53
20.3 Covenant of Quiet Enjoyment ................................. 53
20.4 Waiver by Tenant ............................................ 53
20.5 Rights and Remedies Cumulative............................... 53
20.6 Waiver ...................................................... 54
20.7 Estoppel Certificates ....................................... 54
20.8 Mortgagee's Approvals, Consents and Requirements............. 55
20.9 Modifications to Lease....................................... 55
20.10 Successors and Assigns...................................... 56
20.11 Third-Party Rights ......................................... 56
20.12 Time of the Essence ........................................ 56
20.13 Memorandum of Lease ........................................ 56
20.14 Brokers..................................................... 56
20.15 Notices .................................................... 56
20.16 Limited Liability of Landlord............................... 57
20.17 Liability of Executing Agent................................ 57
20.18 Severability ............................................... 57
20.19 Entire Agreement; No Oral Modification ..................... 58
20.20 Applicable Law ............................................. 58
20.21 Execution .................................................. 58
20.22 Captions ................................................... 58
20.23 Additional Provisions....................................... 58
20.24 No Option................................................... 58
20.25 Construction ............................................... 58
20.26 Gender and Number .......................................... 58
20.27 Termination of Existing Lease .............................. 58
ARTICLE XXI RIGHT OF FIRST OFFER AND RIGHT OF FIRST
REFUSAL ............................................... 59
21.1 Right of First Offer ........................................ 59
21.2 Right of First Refusal ...................................... 61
21.3 Right of First Refusal to 16th Floor Space................... 63
</TABLE>
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<PAGE> 6
LIST OF EXHIBITS AND RIDERS
EXHIBIT A: Floor Plan
EXHIBIT B: Legal Description
EXHIBIT C: Rules and Regulations
EXHIBIT D: Commitment Agreement
RIDER 1: Cleaning Services for the Premises
RIDER 2: Signage Program
RIDER 3: Specifications for Landlord's Work
RIDER 4: Specifications for Tenant's Work
RIDER 5: Minimum Standards and Procedures for Tenant Improvements
RIDER 6: Security Program
RIDER 7: Fitness Center
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<PAGE> 7
OFFICE LEASE
THIS OFFICE LEASE ("Lease"), made and entered into at Cleveland, Ohio, as
of this 21st day of July, 1994, by and between NINTH STREET - SUPERIOR LIMITED
PARTNERSHIP, a Delaware limited partnership, hereinafter referred to as
"Landlord," and McDONALD & COMPANY SECURITIES, INC., a Delaware corporation,
hereinafter referred to as "Tenant."
W I T N E S S E T H
IN CONSIDERATION of the mutual agreements herein contained and intending to
be legally bound, the parties to this Lease hereby agree as follows:
ARTICLE I
INTRODUCTORY PROVISIONS
1.1 BASIC LEASE PROVISIONS. The following Basic Lease Provisions are an
integral part of this Lease, are referred to in other Sections hereof,
including, without limitation, the Sections identified below and are presented
in this Section for the convenience of the parties. Each reference in this
Lease to a Basic Lease Provision shall be construed to incorporate all of the
terms herein provided with respect to such provision.
(a) Building (Section 1.3(b)): McDonald Investment Center
800 Superior Avenue, N.E.
Cleveland, Ohio 44114
(b) Suite Number: Suite 2100
(c) Initial Floor Area of Premises (Section 1.3(i)): 22,553 square feet
of Rentable Area on the 2nd floor of the Building; 112,272 square feet of
Rentable Area on the 17th through 21st floors of the Building; 10,804 square
feet of Rentable Area on the 15th floor of the Building; 3,166 square feet
of Usable Area on the concourse level of the Building; and 4,925 square
feet of Usable Area on the Garage roof. This Lease contains provisions for
the addition of space to the Premises (Article XXI), for the deletion of
space from the Premises (Section 2.3) and for the temporary occupancy of
space during the construction of Landlord's Work and Tenant's Work (Section
2.2).
(d) Initial Term of Lease (Section 3.1): 15 Lease Years and 0 months
unless sooner terminated or extended in accordance with the terms of this
Lease.
(e) Base Rent (Section 4.2): As set forth in Section 4.2.
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(f) Permitted Use (Section 6.1): For the headquarters executive offices
of Tenant, and for the operation of an investment banking and brokerage
business and related support functions and for such other lawful business
purposes permitted by Section 6.1 of this Lease, but subject to the
limitations of Section 6.1.
(g) Number of Garage Parking Spaces (Section 9.7): 130.
(h) Broker (Section 20.14): Weber Wood Medinger, Inc.
(i) Commencement Date (Section 3.2): April 1, 1994.
1.2 EXHIBITS AND RIDERS. The following Exhibits and Riders are attached
to and are part of this Lease:
EXHIBIT A - A plan of the floor(s) of the Building on which the Premises
are or will be located, showing the approximate location of the Premises.
EXHIBIT B - A legal description of the Land upon which the Building and the
Garage are situated.
EXHIBIT C - The Rules and Regulations for the Building.
EXHIBIT D - Commitment Agreement
RIDER 1 - Cleaning services for the Premises.
RIDER 2 - Signage Program.
RIDER 3 - Specifications for Landlord's Work.
RIDER 4 - Specifications for Tenant's Work.
RIDER 5 - Minimum Standards and Procedures for Tenant Improvements.
RIDER 6 - Security Program
RIDER 7 - Fitness Center
1.3 GENERAL DEFINITIONS. The following terms, whenever used in this
Lease, are hereby defined as follows:
(a) "Applicable Legal Requirements" means all laws, rules, regulations,
orders, permits, judgments, directives and other requirements imposed by
federal, state, local, and other authorities having competent jurisdiction
over the subject matter thereof.
(b) "Building" means the office building described in Section 1.1(a)
above and all other improvements on the Land with the exception of the
Garage.
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<PAGE> 9
(c) "Garage" means the parking garage located on the Land.
(d) "Index" has the meaning set forth in Section 5.3(d).
(e) "Land" means the land described in Exhibit B attached hereto, as the
same may be changed from time to time by addition thereto or subtraction
therefrom.
(f) "Managing Agent" means St. Clair Management Co. or any other firm or
firms employed by Landlord from time to time during the Term to perform building
management services for the Project.
(g) "Occupancy," "Occupied" and any derivative thereof shall mean use of
the Premises by Tenant in and during the course of conducting its day-to-day
business operations.
(h) "Office Space" means all portions of the Premises other than the Print
Shop Space, the 16th Floor Temporary Space and the Storage Space.
(i) "Premises" means the following:
(i) The entire 2nd floor in the Building containing 22,553 square
feet of Rentable Area, as generally located on Exhibit A attached hereto;
(ii) The entire 17th through 21st floors in the Building containing
112,272 square feet of Rentable Area, as generally located on Exhibit A
attached hereto;
(iii) Suite C10 on the concourse level of the Building containing 3,166
square feet of Usable Area (the "Print Shop Space"), as generally
located on Exhibit A attached hereto;
(iv) Storage space located on the roof of the Garage containing 4,925
square feet of Usable Area (the "Storage Space"), as generally located
on Exhibit A attached hereto;
(v) 10,804 square feet of Rentable Area currently occupied by Tenant
on the 15th floor of the Building (the "15th Floor Space"), as generally
located on Exhibit A, and the 16th Floor Temporary Space which Tenant
elects to occupy on a temporary basis in accordance with Section 2.2
(the 15th Floor Space and 16th Floor Temporary Space are hereinafter
sometimes collectively referred to as the "Temporary Space");
(vi) If space is added to the Premises in accordance with the terms of
Article XXI, space shall become part of the Premises from and after the
date such space is added to the Premises in accordance with the terms of
Article XXI of the Lease.
(j) "Project" means the Building, the Garage and the Land.
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(k) "Ready for Occupancy" means the Premises, or applicable portion
thereof, is at a stage of construction that a certificate of occupancy or
temporary certificate of occupancy is available to permit Tenant to Occupy
the Premises or applicable portion thereof.
(l) "Rentable Area" means the area determined as follows:
(i) For any area of the Premises located on a floor entirely leased
by Tenant, the Rentable Area shall be equal to the product of the
rentable area of such area as determined by the ANSI Standard (as
defined in Section 1.3(n)) multiplied by a factor of 1.10.
(ii) For any area of the Premises located on a multitenant floor,
the Rentable Area shall be equal to the product of the Usable Area of
such area multiplied by a factor of 1.22.
(m) "Tenant's Allocable Share" means a fraction, the numerator of which
is the number of square feet of Rentable Area of the Premises which is
Office Space, and the denominator of which is the number of square feet of
Rentable Area of the Building. For the purpose of determining Tenant's
Allocable Share, Landlord and Tenant agree that the Rentable Area of the
Building as of the date hereof is 463,834 square feet. Such Rentable Area of
the Building for purposes of calculating Tenant's Allocable Share shall not
be changed without Tenant's prior written consent.
(n) "Usable Area" means the area determined as follows:
(i) For any area of the Premises located on a floor entirely
leased by Tenant, the Usable Area shall be the usable area of such
area as determined in accordance with the Standard Method for
Measuring Floor Area in Office Buildings published by the American
National Standard Institute as ANSI Z65.1-1980 (Reaffirmed 1989) (the
"ANSI Standard").
(ii) For any area of the Premises located on a multitenant floor,
the Usable Area shall be equal to the usable area of such floor as
determined in accordance with the ANSI Standard.
ARTICLE II
DEMISE AND ADJUSTMENTS TO PREMISES
2.1 DEMISE. Landlord hereby leases to Tenant and Tenant hereby hires and
rents from Landlord, upon the terms and conditions hereinafter contained, the
Premises.
2.2 ADDITIONS OF SPACE TO PREMISES. Landlord hereby grants to Tenant the
right and option (the "Temporary Office Space Option") to lease as much of the
Rentable Area on the 16th floor of the Building as Tenant may require for
temporary occupancy during the build out of the Office Space in accordance with
Article VII hereof (the "16th Floor Temporary Space").
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Tenant may exercise the Temporary Office Space Option by written notice given
to Landlord on or before the date specified in the Delivery Schedule (as
defined in Section 7.2) and the 16th Floor Temporary Space shall be added to
the Premises effective on the date of delivery of such notice but the following
special terms and conditions shall apply to such space:
(i) Tenant's right to occupy the 16th Floor Temporary Space shall
commence on the date CHG vacates all of such space.
(ii) The Lease as to the 16th Floor Temporary Space shall expire on
the earlier of (A) the vacation of such space by Tenant, (B) One
Hundred Eighty (180) days after the last floor of Office Space is
delivered to Tenant in "Shell Condition," as defined in Section 7.2
hereof, or (C) such date as is specified in the Delivery Schedule (the
"Temporary Space Expiration Date").
(iii) No Base Rent shall be payable by Tenant with respect to the
16th Floor Temporary Space unless Tenant fails to vacate the 16th
Floor Temporary Space on or prior to the Temporary Space Expiration
Date in which event Tenant, effective on the Temporary Space
Expiration Date, shall become a tenant at will of Landlord with
respect to that space only and Base Rent of Fifteen Dollars ($15)
per square foot per annum of Rentable Area in the 16th Floor
Temporary Space shall be payable monthly in advance by Tenant for the
16th Floor Temporary Space until the date the 16th Floor Temporary
Space is vacated by Tenant.
(iv) The Temporary Space shall be returned to Landlord in as-is
condition.
(v) All of Tenant's personal property shall be removed by Tenant
from the 16th Floor Temporary Space on the Temporary Space Expiration
Date and if not removed, may be removed or disposed of by Landlord
within ten (10) days after written notice to Tenant, in which event
the cost incurred by Landlord in the removal and disposal of Tenant's
property shall be paid to Landlord by Tenant within ten (10) days
after written demand from Landlord.
2.3 TERMINATION OF LEASE AS TO THE 15TH FLOOR SPACE.
(a) The Lease as to the 15th Floor Space shall expire (the "15th Floor
Expiration Date") on the earlier of (i) the vacation of such space by Tenant
or (ii) ninety (90) days after the last floor of Office Space is delivered
to Tenant in Shell Condition.
(b) The 15th Floor Space shall be returned to Landlord in accordance
with the terms of Article XVI hereof on the 15th Floor Expiration Date.
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ARTICLE III
TERM
3.1 TERM. TO HAVE AND TO HOLD the Premises unto Tenant upon the covenants
and agreements herein set forth for a term commencing on the Commencement Date
and continuing until the expiration of the period specified in Section 1.1(d)
(the "Initial Term"), unless sooner terminated or extended in accordance with
the terms of this Lease. The "Term" means the Initial Term and any Renewal
Term (as defined in Section 3.4).
3.2 COMMENCEMENT DATE. The "Commencement Date" shall be April 1, 1994.
3.3 LEASE YEAR. A "Lease Year" means each period of twelve (12)
consecutive calendar months during the Term with the first Lease Year
commencing on April 1, 1994, and with successive Lease Years commencing on
successive anniversaries of the first day of the first Lease Year. "Lease
Years" means more than one Lease Year. If the Term expires or otherwise
terminates on a day other than the last day of a Lease Year, then any period
from the expiration of the last Lease Year to the expiration of the Term shall
be a Partial Lease Year.
3.4 RENEWAL OPTIONS.
(a) Landlord hereby grants to Tenant the right and option to renew the
Term for three (3) successive renewal terms of five (5) years each
(individually, a "Renewal Term"); provided that there does not then exist
an Event of Default with respect to the payment of Base Rent, Tenant's
Allocable Share of Operating Expenses, Tenant's Allocable Share of Real
Estate Tax Expense or utility services payable by Tenant to Landlord. Each
Renewal Term, if exercised, shall be upon the same terms, provisions, and
conditions as are applicable during the Initial Term, except that the Base
Rent for each Renewal Term shall be adjusted as hereinafter provided.
Tenant shall be entitled to exercise each of Tenant's options to renew
(individually, a "Renewal Option") by written notice given by Tenant to
Landlord not less than twenty-two (22) months prior to the expiration date
of the Initial Term or the then current Renewal Term, as the case may be.
(b) The Base Rent for each Lease Year during a Renewal Term shall be
equal to ninety-five percent (95%) of Market Rent as of the first day of
that Renewal Term.
(c) "Market Rent" means the then current effective market rent per annum
for comparable Office Space, Storage Space and Print Shop Space, as the case
may be, for a comparable term. "Market Rent" shall:
(i) Be stated in terms of Base Rent;
(ii) Take into consideration Tenant's obligation to pay Tenant's
Allocable Share of Operating Expenses and Real Estate Tax Expense
using a new Base Year for Operating Expenses and Real Estate Tax
Expense determined in accordance with Section 3.4(g);
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(iii) Assume a lease having a term of five (5) years;
(iv) Take into consideration the value, if any, to a new tenant of the
improvements which are in the Premises, the naming and signage rights, if
applicable, under Section 6.9 and the other benefits given to Tenant
under this Lease; and
(v) Take into account any free rent, tenant improvement allowance and
other concessions or expenses paid by the owner on tenant's behalf as are
being given in the market to major anchor tenants comparable to Tenant
for leases of comparable office space in Downtown Cleveland, provided,
however, if Market Rent is being determined for purposes of Article XXI
of this Lease and leases for comparable space in the Building have been
entered into by Landlord with tenants unaffiliated with Landlord in the
twelve month period immediately preceding Tenant's exercise of its first
offer rights, such leases (and not leases in other buildings) shall be
considered in determining Market Rent.
(d) In the event Tenant exercises a Renewal Option, Landlord, within thirty
(30) days after receipt of notice from Tenant exercising a Renewal Option,
shall notify Tenant of Landlord's determination of Market Rent for the Premises
as of the first day of the next Renewal Term (a "Landlord's Market Rent
Proposal").
If Tenant fails to notify Landlord in writing within fifteen (15) days
after Landlord's Market Rent Proposal is given to Tenant that Tenant accepts
Landlord's Market Rent Proposal, then it shall be deemed rejected by Tenant and
within the ten (10) day period after expiration of said fifteen (15) day
period, the parties shall confer and attempt to reach agreement as to Market
Rent during the next Renewal Term. If the parties are unable to agree upon
Market Rent within the ten (10) day conference period, then within ten (10)
days after expiration of the ten (10) day conference period, each party shall,
at its sole expense (except as otherwise provided in subsection (f) hereof),
select and retain an appraiser, with the qualifications set forth below, and
shall notify the other party of its selection. Each appraiser shall be
certified as an MAI appraiser or as an ASA appraiser and shall have had at
least three (3) years' experience within the previous ten (10) years as a real
estate appraiser working in the Downtown Cleveland area, with knowledge of
rental rates and practices. For purposes of this Lease, an "MAI" appraiser
means an individual who holds the MAI designation conferred by, and is an
independent member of, the American Institute of Real Estate Appraisers (or its
successor organization or, in the event there is no successor organization, the
organization and designation most similar), and "ASA" appraiser means an
individual who holds the Senior Member designation conferred by, and is an
independent member of, the American Society of Appraisers (or its successor
organization or, in the event there is no successor organization, the
organization and designation most similar).
(e) Within forty-five (45) days after Landlord's Market Rent Proposal is
rejected by Tenant, the two (2) appraisers shall meet and agree on the Market
Rent as of the first day of the next Renewal Term and shall notify both parties
of the determination. If the two (2) appraisers cannot agree, both appraisers
shall notify both parties of their respective determination of Market Rent
within sixty (60) days after Landlord's Market Rent Proposal
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is rejected by Tenant, and if the higher appraisal is less than or equal to
one hundred ten percent (110%) of the lower appraisal, the average of the two
(2) appraisals shall be deemed to be the new proposed Market Rent during the
next Renewal Term. In the event that only one (1) party notifies the other of
its selection of its appraiser within the required ten (10) day period, the new
proposed Market Rent shall be determined by the one (1) appraiser so selected.
If neither party notifies the other of its selection within the required ten
(10) day period, the Landlord's Market Rent Proposal shall be the new proposed
Market Rent for the Renewal Term in question.
(f) If the higher appraisal is greater than one hundred ten percent (110%) of
the lower appraisal, then, within fifteen (15) days after both appraisers
notify both parties of their respective determination of Market Rent, each
party will cause the appraiser selected by it to supply the name of one (1)
appraiser having the qualifications set forth above, and an employee of Tenant,
with an employee of Landlord present, shall randomly draw one (1) name (the
"Third Appraiser") of the two (2) provided.
Within thirty (30) days from the date of his selection, the Third
Appraiser shall make his determination of Market Rent as of the first day of
the next Renewal Term. If the Third Appraiser's appraisal is equal to one (1)
of the appraisals of the first two (2) appraisers or is greater than the lower
of the two (2) appraisals but less than the higher of the two (2) appraisals,
the Third Appraiser's appraisal shall be deemed to be the Market Rent during
the next Renewal Term. If the Third Appraiser's appraisal is greater than the
higher of the two (2) appraisals or less than the lower of the two (2)
appraisals, the appraisal of the Third Appraiser shall be disregarded and the
average of the remaining two (2) appraisals shall be deemed to be the Market
Rent during the Renewal Term in question. The cost of the third appraisal shall
be shared equally by Landlord and Tenant.
(g) For and during the first, second, and third Renewal Terms, the Base
Year for Operating Expenses and Real Estate Tax Expense shall be the last full
calendar year of (i) the Initial Term, (ii) the first Renewal Term, and (iii)
the second Renewal Term, respectively. The provisions of Section 5.3(c) shall
not apply to any Renewal Term.
(h) For the purposes of this Lease, the term "Downtown Cleveland" means the
area bounded by Lake Erie on the north, West 9th Street on the west, Carnegie
Avenue on the south and East 18th Street on the east.
(i) Notwithstanding any provision in this Section 3.4 to the contrary, if
within ten (10) days after Tenant receives written notice of the first two
appraisers' determinations of Market Rent under Section 3.4(e) (or of the
single appraiser's determination if only one (1) appraiser is selected under
Section 3.4(e)) Tenant notifies Landlord in writing that it is withdrawing its
exercise of the Renewal Option, the Lease shall terminate at the expiration
of the Initial Term or Renewal Term then in effect and Tenant shall have no
rights to renew or extend the Term of this Lease. If Tenant exercises its
right under this subsection (i) to withdraw the exercise of its Renewal Option,
Tenant shall reimburse Landlord for the cost of Landlord's appraiser within
fifteen (15) days after submission by Landlord to Tenant of its appraiser's
invoice.
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ARTICLE IV
RENT
4.1 RENT PAYABLE. Tenant shall pay to Landlord as rent ("Rent") for
the Premises the following items:
(a) the Base Rent (as defined in Section 4.2), and
(b) all additional sums, charges and amounts of whatever nature to be paid
by Tenant to Landlord in accordance with the terms and provisions of this
Lease, whether or not such sums, charges, or amounts are referred to as
additional rent, including, without limitation, Tenant's Allocable Share of
Operating Expenses and Tenant's Allocable Share of Real Estate Tax Expense.
4.2 BASE RENT.
(a) Base Rent for each Lease Year of the Initial Term of the Lease shall
be as follows:
(i) For the first through the fifth Lease Years, Base Rent for
each Lease Year shall be the sum of the following:
(A) The product of Fifteen Dollars ($15) and the Rentable
Area of Office Space.
(B) The product of Ten Dollars ($10) and the Usable Area of
Print Shop Space, which is Thirty-One Thousand Six Hundred
Sixty Dollars ($31,660).
(C) The product of Six Dollars ($6) and the Usable Area of
Storage Space, which is Twenty-Nine Thousand Five Hundred
Fifty Dollars ($29,550).
(ii) For the sixth through the tenth Lease Years, Base Rent for
each Lease Year shall be the sum of the following:
(A) The product of Eighteen Dollars ($18) and the Rentable
Area of Office Space.
(B) The product of Eleven Dollars ($11) and the Usable Area
of Print Shop Space, which is Thirty-Four Thousand Eight
Hundred Twenty-Six Dollars ($34,826).
(C) The product of Seven Dollars ($7) and the Usable Area
of Storage Space, which is Thirty-Four Thousand Four Hundred
Seventy-Five Dollars ($34,475).
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<PAGE> 16
(iii) For the eleventh through fifteenth Lease Years, Base Rent for
each Lease Year shall be the sum of the following:
(A) The product of Twenty-Three Dollars ($23) and the
Rentable Area of Office Space.
(B) The product of Thirteen Dollars ($13) and the Usable
Area of Print Shop Space, which is Forty-One Thousand One
Hundred Fifty-Eight Dollars ($41,158).
(C) The product of Eight Dollars and Fifty Cents ($8.50) and
the Usable Area of Storage Space, which is Forty-One Thousand
Eight Hundred Sixty-Two Dollars ($41,862.50).
(b) The Base Rent for any partial calendar month during the Term shall be
an amount equal to the aforesaid monthly installment prorated on a per diem
basis.
(c) If area is added to or deleted from the Premises is accordance with
the terms of this Lease, the Base Rent for the Premises shall be adjusted
as of the date such space is added to or deleted from the Premises using the
applicable per-square foot rental rate for such space in making the
adjustment.
(d) If area, other than the 16th Floor Temporary Space, is added to or
deleted from the Premises in accordance with the terms of this Lease,
Landlord and Tenant shall enter into an amendment to this Lease specifying
the area of the Premises after such addition or reduction and setting forth
the correct amount of Base Rent and Tenant's Allocable Share.
4.3 PAYMENT OF RENT. Tenant shall pay the Base Rent to Landlord in equal
monthly installments in advance of the first day of each calendar month during
the Term commencing with the Commencement Date. All Rent other than Base Rent
shall be due and payable as provided in this Lease, and in the absence of an
express provision with respect thereto, shall be due and payable on the first
day of the month next following the month in which the obligation therefor has
accrued. All Rent, including without limitation Base Rent, shall be payable,
without demand (except as expressly provided), deduction or setoff in lawful
money of the United States of America at the address of Landlord specified for
notices to Landlord pursuant to Section 20.15 or to such other person and/or
address as Landlord may specify from time to time by written notice to Tenant.
Except as otherwise expressly provided in this Lease, the covenant and
obligation of Tenant to pay Rent hereunder and each component, increment and
installment thereof shall be unconditional and independent of any other
covenant or condition imposed on either Landlord or Tenant whether under this
Lease, at law, or in equity, and shall survive the expiration or other
termination of this Lease.
4.4 RENT ABATEMENT DURING BUILDOUT. In accordance with the provisions of
Article VII, the Delivery Schedule (as defined in Article VII) will establish a
schedule for the completion of Landlord's Work and Tenant's Work and the
temporary vacation of Office Space by Tenant on a floor-by-floor basis to allow
for the completion of such work. Base Rent and Tenant's obligation to pay for
electrical, water and sewer services under Article IX of this Lease for
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floors of Office Space which are either vacated by Tenant during the build-out
or, with respect to space not currently Occupied by Tenant, are unoccupied
during the build-out, shall be abated in accordance with the following terms
and conditions:
(a) Base Rent for Office Space on floors 19, 20 and 21 shall be abated
on a floor-by-floor basis for a period as to each separate floor commencing
on the date Tenant vacates such floor in accordance with the terms of the
Delivery Schedule and ending on the date which is eight (8) months after
the earlier of (i) the date such floor is Ready for Occupancy or (ii) one
hundred eighty (180) days after such floor has been delivered to Tenant by
Landlord in Shell Condition (as defined in Article VII).
(b) Base Rent for Office Space on floors 2, 17 and 18 shall be abated on
a floor-by-floor basis for a period as to each separate floor from the
Commencement Date until the date which is eight (8) months after the
earlier of (i) the date such floor is Ready for Occupancy by Tenant or
(ii) one hundred eighty (180) days after such floor has been delivered to
Tenant by Landlord in Shell Condition. Notwithstanding the foregoing, if
the 2nd floor is in Shell Condition but for the completion of renovation
and remodeling of the bathrooms, the 2nd floor, for the purposes of this
Lease, shall be deemed to be in Shell Condition and Landlord covenants and
agrees to complete the renovation and remodeling of the bathrooms on the
2nd floor by October 31, 1994.
(c) Notwithstanding the provisions of subsection (b) hereof, Base Rent
for 4,000 square feet of Rentable Area on the 2nd floor shall be abated for
an additional period commencing upon the expiration of the eight (8) month
abatement period applicable to the entire 2nd floor space under subsection
(b) and expiring on the earlier of (i) six (6) months following the
expiration of said eight (8) month abatement period or (ii) the date Tenant
Occupies such space.
(d) Tenant's obligation to pay for electrical, water and sewer services
(but not after hours HVAC service which shall be Tenant's obligation
beginning on the date such space is delivered to Tenant in Shell Condition)
shall abate as to a floor or applicable portion thereof commencing on the
date in which the Base Rent as to such floor or portion thereof is abated
under this Section 4.4 and expiring on the earlier of (i) the date Tenant
Occupies such space or (ii) the date of the expiration of the abatement of
Base Rent with respect to such space.
(e) During any period of buildout, Tenant's Allocable Share applicable
to such period shall be adjusted based upon the ratio of Rentable Area of
Office Space Occupied during such period by Tenant to the Rentable Area of
the Building.
ARTICLE V
OPERATING EXPENSES AND REAL ESTATE TAXES
5.1 "OPERATING EXPENSES" DEFINED. "Operating Expenses" shall mean all
costs and expenses as are paid, incurred or accrued with respect to or in
connection with the operation,
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management, maintenance, replacement, servicing, repair and/or improvement of
the Project and all parts thereof, plus those costs and expenses which in
Landlord's judgment would have been paid, incurred or accrued had the Building
been one hundred percent (100%) occupied and had each tenant availed itself of
all the services generally provided by Landlord, all as determined in
accordance with generally accepted accounting principles consistently applied
(on an accrual basis) in the operation and maintenance of first-class office
building projects, except those costs and expenses described in Section 5.2.
With respect to any year other than the Base Year, Landlord shall have the
right at any time and from time to time to exclude from Operating Expenses any
item or items that otherwise are includable as Operating Expenses but the
amount excluded shall not be included in Operating Expenses of any other year.
The right on the part of Landlord to include within the Operating Expenses the
cost of any product or service shall not be construed as creating an obligation
on the part of Landlord to provide such product or service.
5.2 EXCLUSIONS FROM OPERATING EXPENSES. Without limiting the generality
of Section 5.1 above, Operating Expenses shall not include costs or expenses
incurred for the following:
(a) Leasing or procuring new tenants, including leasing commissions paid
to agents of Landlord or other brokers;
(b) Renovating space for the occupancy or exclusive use of any tenant or
renovating space vacated by any tenant;
(c) Utilities and other services of the type described in Section 9.2
which are charged, sold or provided to individual tenants;
(d) Altering the Premises for Tenant;
(e) Demolishing, constructing, rehabilitating, renovating, painting or
decorating the premises of other tenants;
(f) Depreciation of the Project;
(g) Any capital improvement to the Project commenced after the
Commencement Date unless such capital improvement is (i) required by
Applicable Legal Requirements, or (ii) constitutes a labor- or cost-saving
device or operation, in which event the cost of the capital improvement
shall be amortized over its useful life and the amortized portion thereof
(not exceeding, in the case of items covered by subsection (g)(ii) hereof,
the amount of such savings in the applicable year) included in Operating
Expenses of the Project;
(h) Any cost or expense of any nature whatsoever which Landlord shall
incur in connection with the operation of the Project which either: (i)
specifically is reimbursed to Landlord or charged directly to the tenant on
whose behalf it is incurred (whether or not the same shall finally be paid)
or (ii) relates to a service, product or utility provided to or for any
particular tenant or tenants which is not made available to the tenants of
the Building generally;
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(i) Any Real Estate Tax Expense (as defined in Section 5.4) and those
costs and expenses described in Section 5.5; and
(j) Any cost or expense incurred by reason of the operation of the
Garage.
5.3 TENANT'S ALLOCABLE SHARE OF OPERATING EXPENSES.
(a) In addition to the Base Rent, Tenant shall pay to Landlord with
respect to each calendar year during the Term a sum equal to Tenant's
Allocable Share of Operating Expenses for such calendar in excess of the
Operating Expenses for the Base Year (as defined in Section 5.3(b).
(b) For the Initial Term, the Base Year shall be the calendar year 1994.
(c) For the purpose of determining Tenant's Allocable Share of
Operaring Expenses for the calendar years 1995 through 1998, annual
increases in Operating Expenses for each such calendar year shall not
exceed four percent (4%) of the Operating Expenses for the immediately
preceding calendar year. For the purpose of determining Tenant's Allocable
Share of Operating Expenses for the calendar years 1999 through 2009,
annual increases in Operating Expenses for each such calendar year shall
not exceed the greater of (i) four percent (4%) of the Operating Expenses
for the immediately preceding calendar year, or (ii) the percentage
increase in the Index (as hereinafter defined) from the Index for the month
of January of the calendar year preceding the applicable calendar year to
the Index for the month of January of the calendar year.
(d) For the purpose of this Lease, the Index shall mean the Consumer
Price Index-Cities-All Urban Consumers (1982-84 = 100), Cleveland, Ohio,
as published by the Bureau of Labor Statistics of the United States
Department of Labor. In the event that the Index is no longer in effect,
the parties, in good faith, shall substitute a mutually acceptable
comparable index.
5.4 "REAL ESTATE TAX EXPENSE" DEFINED. "Real Estate Tax Expense"
shall mean all costs and expenses as are paid, incurred or accrued with respect
to real and personal property taxes and assessments as finally determined by
the governmental or judicial authority having competent jurisdiction, all as
determined in accordance with generally accepted accounting principles
consistently applied (on an accrual basis) including, without limitation:
(a) General and special real and personal property taxes and
assessments, both ordinary and extraordinary, unforeseen as well as
foreseen, whether ad valorem, specific or otherwise, levied upon or with
respect to the Building or the Land or any interest therein and any
furniture, fixtures, supplies, tools, materials and equipment used in the
management, operation, maintenance and repair thereof, and any tax or
excise in addition thereto or substitution thereof levied by any
governmental authority upon, in respect to or by reason of ownership,
leasing, operation or occupancy of the Building or the Land, including
taxes on rents collected; and
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(b) Any interest or penalties incurred with respect to any component
of Real Estate Tax Expense which Landlord, in a good faith effort to
minimize Real Estate Tax Expense, elects to contest. Landlord shall
endeavor to advise Tenant if Landlord elects to pay real estate taxes based
on an estimated bill pending resolution of any such contest.
(c) To the extent that any special assessments may be amortized and
paid in installments without incurring penalties or interest (other than
interest initially computed as a part of the amortization of the
assessment), Landlord shall elect to amortize and pay such installments
over the longest available amortization period.
5.5 EXCLUSIONS FROM REAL ESTATE TAX EXPENSE. Without limiting the
generality of Section 5.4, Real Estate Tax Expense shall not include expenses
incurred solely and directly due to income taxes, excess profits taxes (whether
federal, state or local), intangible, franchise, capital stock, estate or
inheritance taxes nor any cost or expense included in Operating Expenses under
Section 5.1 nor any such tax or assessment attributable to the Garage.
5.6 TENANT'S ALLOCABLE SHARE OF REAL ESTATE TAX EXPENSE.
(a) In addition to the Base Rent, Tenant shall pay to Landlord with
respect to each calendar year during the Term an amount equal to Tenant's
Allocable Share of Real Estate Tax Expense paid, incurred or accrued during
each such calendar year in excess of the Real Estate Tax Expense paid,
incurred or accrued for the Base Year (the Real Estate Tax Expense for the
Base Year is referred to herein as the "Base Year Real Estate Tax
Expense").
(b) Notwithstanding the provisions of Section 5.6(a), if the market
value of the Building and the Land used for computing assessed value for
real estate tax purposes for the Base Year as finally determined by the
governmental or judicial authority having competent jurisdiction is less
than the "Agreed Amount," as hereinafter defined, then that portion of
Tenant's Allocable Share of Real Estate Tax Expense which is attributable
to increases in market valuation over the market valuation for the Base
Year shall be reduced (but not below zero) by Tenant's Allocable Share of
the amount determined by subtracting the market valuation for the Base Year
from the Agreed Amount, converting the difference to assessed value, and
computing real estate taxes on the resulting assessed value figure using
the Base Year tax rate, credits and adjustments. For the purposes of this
Section 5.6, the Agreed Amount shall be the greater of the following:
(i) Thirty-Seven Million Five Hundred Thousand Dollars
($37,500,000).
(ii) Seven Million Dollars ($7,000,000) plus the market value of
the Building and Land used for computing assessed value for real
estate tax purposes for the Building and Land for the Base Year as
finally determined by the governmental or judicial authority having
competent jurisdiction.
(c) Notwithstanding the provisions of Section 5.6(a), if Landlord sells
the Building for an amount greater than the then fair market value of the
Building (as hereinafter determined) and, as a result of such sale, the
market value of the Building used for computing assessed
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value for real estate tax purposes is increased to an amount in excess
of the fair market value of the Building, then that portion of Tenant's
Allocable Share of Real Estate Tax Expense which is attributable to the excess
of the market value of the Building used for real estate tax purposes over the
fair market value of the Building shall be excluded from Tenant's Allocable
Share.
If Tenant believes that the provisions of this Section 5.6(c) are
applicable to any tax year during the Term, Tenant, at its costs, may engage
an appraiser meeting the qualifications described in Section 3.4(d) and shall
deliver the appraisal of such appraiser evidencing that the market value used
for computing assessed value for real estate tax purposes for that tax year
exceeds the fair market value of the Building as of January 1 of the tax year
in question. If Tenant does not deliver such appraisal to Landlord within two
(2) years of the tax lien date of the tax year in question, Tenant shall have
waived its rights under this Section 5.6(c) with respect to such tax year. If
Landlord does not deliver written notice to Tenant within thirty (30) days
after it receives Tenant's appraisal that it disputes the appraisal, the value
determined by Tenant's appraiser shall be the fair market value of the Building
for the tax year in question. If Landlord disputes Tenant's appraisal and so
notifies Tenant in writing within said thirty (30) day period, Landlord shall
select an appraiser meeting the qualifications described in Section 3.4(d) and
Landlord's appraiser and Tenant's appraiser shall meet and agree on the fair
market value of the Building within thirty (30) days after Landlord notifies
Tenant that it disputes Tenant's appraisal. If the two (2) appraisers cannot
agree, both appraisers shall notify both parties of their respective
determination of fair market value within sixty (60) days after Landlord
notifies Tenant that it disputes Tenant's appraisal. Within ten (10) days after
both appraisers notify both parties of their respective determination of fair
market value, each party will cause the appraiser selected by it to supply the
name of one (1) appraiser having the qualifications set forth in Section
3.4(d), and an employee of Tenant, with an employee of Landlord present, shall
randomly draw one (1) name (the "Third Appraiser") of the two (2) provided.
Within thirty (30) days from the date of his selection, the Third
Appraiser shall make his determination of fair market value. If the Third
Appraiser's appraisal is equal to one (1) of the appraisals of the first two
(2) appraisers or is greater than the lower of the two (2) appraisals but less
than the higher of the two (2) appraisals, the Third Appraiser's appraisal
shall be deemed to be the fair market value. If the Third Appraiser's appraisal
is greater than the higher of the two (2) appraisals or less than the lower of
the two (2) appraisals, the appraisal of the Third Appraiser shall be
disregarded and the average of the remaining two (2) appraisals shall be deemed
to be the fair market value. The cost of the third appraisal shall be shared
equally by Landlord and Tenant.
For the purpose of this Section 5.6(c), fair market value shall mean
the most probable price which the Building should bring in a competitive
and open market under all conditions requisite to a fair sale, the buyer and
seller each acting prudently and knowledgeably and assuming price is not
affected by undue stimulus. This definition also assumes the consummation of a
sale under conditions where buyer and seller are typically motivated, both
parties are well informed or well advised and acting in their best interest, a
reasonable time is allowed for exposure in the open market, payment is in
cash in U.S. dollars or on comparable financial terms and the price represents
normal consideration for
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the property unaffected by creative financing or sales concessions granted
by anyone associated with the sale.
The fair market value determined according to the procedures of the
preceding three paragraphs shall apply to the tax year in question and
subsequent tax years until the next triennial or sexennial assessment. If
after review of the triennial or sexennial assessment Tenant believes that the
market value of the Building for assessment purposes, as a result of the recent
sale, still exceeds the then fair market value of the Building, Tenant may
again resort to the procedures set forth in the preceding three paragraphs to
determine if the provisions of Section 5.6(c) are applicable to the new
triennial.
(d) In calculating Tenant's Allocable Share of Real Estate Tax Expense
and exclusions therefrom, if the real estate tax bill received by Landlord
does not separate the value of the Garage from the Building and the Land,
the real estate tax expense attributable to the Garage (including the
portion of the Land underneath the Garage) shall be deemed to be five and
ninety-one-hundredths percent (5.91)% of the amount of the real estate tax
bill.
5.7 ANNUAL COMPUTATION.
(a) Within one hundred eighty (180) days following the expiration of
each calendar year, Landlord shall deliver to Tenant a statement setting
forth the Operating Expenses and Real Estate Tax Expense for such calendar
year and Tenant's Allocable Share of the Operating Expenses and Tenant's
Allocable share of Real Estate Tax Expense computed in accordance with
Section 5.3 and Section 5.6, respectively (the "Annual Reconciliation").
(b) The computations set forth in Section 5.3 and Section 5.6 shall be
made on a calendar-year basis except that if the Term commences on a day
other than the first day of a calendar year or terminates on a day other
than the last day of a calendar year, then Tenant's Allocable Share as
provided in Section 5.3 and Section 5.6 for such calendar year shall be
prorated on the basis of the proportion that the number of days of the Term
within such calendar year bears to the total number of days within such
calendar year. For the purpose of this paragraph, days of Building
operation shall be deemed to include all days, including, without
limitation, all holidays and other nonbusiness days.
(c) Tenant shall be barred from making any objection, asserting any
claim or filing any cause of action against Landlord with respect to an
Annual Reconciliation unless Tenant shall notify Landlord, within one
hundred eighty (180) days after receipt by Tenant of the Annual
Reconciliation, of Tenant's intention to dispute or audit the Annual
Reconciliation. If Tenant notifies Landlord of its intention to audit,
Tenant shall have ninety (90) days after delivering such notice to Landlord
to audit the Operating Expenses and Real Estate Tax Expense for the
applicable year and to notify Landlord in writing prior to the expiration
of the ninety (90) day period if it disputes the Annual Reconciliation. If
Tenant fails to notify Landlord that it disputes the Annual Reconciliation
by the expiration of said ninety (90) day period or fails to request
arbitration within the fifteen (15) day period provided in Section 5.7(d)
(if Landlord and Tenant cannot reconcile the disputed item(s)), Tenant
shall be deemed to have approved the Annual Reconciliation. Landlord shall
provide Tenant (and
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its accountants, attorneys and other professional consultants) such access to
its books and records as is reasonably required to verify any Operating
Expenses or Real Estate Expenses; provided that such parties agree in a writing
reasonably acceptable to Landlord to keep all such information confidential.
Tenant's right of access shall apply both prior to and after Tenant delivers
its notice of intention to dispute or audit.
(d) If, within fifteen (15) days following Tenant's notice under Section
5.7(c) that it disputes the Annual Reconciliation, Landlord and Tenant fail to
agree as to the amount or as to the appropriateness of the item(s) in the
Annual Reconciliation at issue and Tenant delivers written notice to
Landlord within said fifteen (15) day period that it desires a third party to
resolve the issue(s), then Tenant may require that the dispute be resolved by
binding arbitration in accordance with the following procedures:
(i) Within ten (10) days after Tenant notifies Landlord in writing of
its election to arbitrate the disputed items, Landlord and Tenant
jointly shall request from the American Arbitration Association a list
of five arbitrators, each of whom shall be a certified public
accountant who (A) is currently licensed under the laws of the state
of Ohio and has been so licensed for a period of ten (10) consecutive
years, and (B) is familiar with accounting practices in first-class
office properties in the Cleveland, Ohio, metropolitan area, and (C)
shall not have acted individually, or be or have been associated with
a firm that has acted in any capacity, for either Landlord or Tenant
within the past ten (10) consecutive years. If any of the arbitrators
furnished by the American Arbitration Association fails to meet these
requirements, additional names shall be requested from the American
Arbitration Association until a list of five (5) qualified arbitrators
is obtained.
(ii) Within ten (10) days of receiving a list of five (5) qualified
arbitrators, the parties shall select by the strikeoff method a
single arbitrator to resolve the disputed items. Tenant shall be
entitled to strike the first and third proposed arbitrators from the
list and Landlord shall be entitled to strike the second and fourth
proposed arbitrators from the list. The arbitrator remaining on the
list after completion of the strikeoff method shall arbitrate the
disputed items.
(iii) The rules of evidence and civil procedure of the Common Pleas
Court of Cuyahoga County, Ohio with respect to depositions and
requests for production of documents shall apply to the proceedings in
arbitration. The arbitration hearing shall be held not more than ninety
(90) days after the selection of the arbitrator. Each party shall
file with the arbitrator and with each other seven (7) days in advance
of the hearing a pre-hearing memorandum of its position. Each party
shall have a period of seven (7) days after the hearing to file with
the arbitrator and each other a post-hearing brief. A decision of the
arbitrator shall be made within thirty (30) days after the hearing.
Except as modified by subsection (ii) and this subsection (iii), the
rules of the American Arbitration Association shall govern.
(e) In the event that the arbitrator determines that Landlord has
overcharged Tenant for Operating Expenses and/or Real Estate Tax Expense
for the calendar year in question, and the amount by which Tenant has
been overcharged (the "Expense
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Overcharge") exceeds the Operating Expenses and/or Real Estate Tax
Expense properly chargeable to Tenant under this Lease for such period
by ten percent (10%) or more, Landlord shall pay to Tenant (or the
appropriate party) within fifteen (15) days of Tenant's demand an
amount equal to Tenant's auditing costs incurred in connection with
the review and audit of Operating Expenses and Real Estate Tax Expense
and the arbitrator's fees and expenses and interest on the amount of
the Expense Overcharge from the date of overpayment by Tenant to the
date repaid by Landlord at the Interest Rate (as defined in Section
15.2(a)).
5.8 PAYMENT OF TENANT'S ALLOCABLE SHARE OF OPERATING EXPENSES AND REAL
ESTATE TAX EXPENSE.
(a) At any time and from time to time prior to or during any calendar
year a portion or all of which is within the Term of this Lease, Landlord
may deliver to Tenant a bona fide estimate (including a revision of a
previously delivered bona fide estimate) of the Operating Expenses and Real
Estate Tax Expense with respect to such calendar year and Tenant's
Allocable Share thereof (an "Expense Estimate"). On the first day of each
month during a calendar year following delivery of an Expense Estimate with
respect thereto, Tenant shall pay to Landlord, together with the monthly
installment of Base Rent, an amount equal to one-twelfth (1/12) of Tenant's
Allocable Share of the estimated Operating Expenses and Real Estate Tax
Expense for such calendar year as indicated on the Expense Estimate. In the
event Tenant's monthly payments of estimated Operating Expenses and Real
Estate Tax Expense in a calendar year aggregate an amount that is less than
Tenant's actual Allocable Share as indicated on the Annual Reconciliation,
Tenant shall pay the difference to Landlord within thirty (30) days
following delivery of the Annual Reconciliation. In the event Tenant's
monthly payments of estimated Operating Expenses and Real Estate Tax
Expense in a calendar year aggregate an amount that is more than Tenant's
actual Allocable Share as indicated on the Annual Reconciliation, and if
Tenant otherwise is current in all obligations under this Lease, Tenant
shall receive a credit against Tenant's Allocable Share of Operating
Expenses and Real Estate Tax Expense in the amount of such excess (such
credit to be applied against the monthly payment first coming due
subsequent to the date the amount of the credit is determined and, to the
extent necessary, immediately following monthly payments) except if such
excess is in the last calendar year of the Term; in which case Tenant shall
receive a reimbursement.
(b) For such period of any calendar year during the Term that Landlord
has not delivered to Tenant an Expense Estimate, Tenant shall make
monthly payments of estimated Operating Expenses and Real Estate Tax
Expense in accordance with the most recent Expense Estimate delivered for
the immediately preceding calendar year. In no event shall Landlord's
failure to deliver or delay in delivering an Expense Estimate or Annual
Reconciliation have any effect on the obligation of Tenant to pay its
Allocable Share of Operating Expenses or Real Estate Tax Expense.
(c) If, as of the date in any calendar year that Landlord delivers to
Tenant the Annual Reconciliation for the immediately preceding calendar
year, Tenant's monthly payments of estimated Operating Expenses or Real
Estate Tax Expense aggregate an amount that is less than one-twelfth (1/12)
of Tenant's actual Allocable Share of such expenses for said
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preceding calendar year multiplied by the number of full or partial months
in the current calendar year that have then elapsed, Tenant immediately
shall pay such difference to Landlord as an additional payment of
estimated Operating Expenses and Real Estate Tax Expense.
(d) Except as hereinafter provided in this subsection (d), no dispute
by Tenant of Tenant's Allocable Share of Operating Expenses or Real Estate
Tax Expense in any year shall permit Tenant to withhold or postpone the
payment of such share when and as due under this Lease. In the event that
Tenant notifies Landlord in writing within thirty (30) days after
Landlord's delivery of the Annual Reconciliation that Tenant disputes the
amount or appropriateness of any particular item(s) in the Annual
Reconciliation, then Tenant, during the period in which Tenant is
contesting the item(s) in accordance with Section 5.7, may withhold from
the Annual Reconciliation payment, if any, due Landlord from Tenant
pursuant to such Annual Reconciliation, the amount(s) of these disputed
item(s). If it is determined that Tenant is obligated to pay any such
disputed item(s), Tenant shall pay such item(s) together with interest on
the amount withheld from the original date due to the date paid by Tenant
at the Interest Rate (as defined in Section 15.2). Payment of the withheld
item(s) and interest shall be made within ten (10) days after the dispute
as to such item(s) are resolved in accordance with Section 5.7 of this
Lease.
(e) In the event Tenant shall dispute in good faith any Expense
Estimate delivered by Landlord pursuant hereto, such dispute shall be
resolved by the procedure set forth in Section 5.7(c) through 5.7(d).
Pending the resolution of such dispute, Tenant shall pay its Allocable
Share of Operating Expenses and Real Estate Tax Expense based on that
Expense Estimate. If Tenant is due any reimbursement or credit upon
resolution of this dispute Tenant shall receive a credit against the first
monthly payment of Operating Expenses and Taxes which is due after the
amount of the credit is determined and, to the extent necessary, any
subsequent monthly payments of estimated Operating Expenses and Taxes. If
Tenant is due any reimbursement or credit, Tenant shall also receive
interest on the amount overpaid by Tenant at the Interest Rate (as defined
in Section 15.2(a)) for the period from the date the overpayment was made
until the date reimbursed or credited by Landlord.
ARTICLE VI
USE OF PREMISES
6.1 PERMITTED USE. Tenant shall use and occupy the Premises solely
and exclusively for the use specified in Article I, Section 1.1(f) and, subject
to any other limitations under this Lease and the prior written consent of
Landlord which shall not be unreasonably withheld, such other lawful business
uses in which Tenant is from time to time lawfully engaged and for no other use
whatsoever. Notwithstanding the foregoing, Tenant shall not use, occupy or
permit the Premises or any portion thereof to be used or occupied for any
illegal purpose or for any business, use or purpose deemed by Landlord to be
inconsistent with the operation of a first-class office building complex.
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6.2 APPLICABLE LEGAL REQUIREMENTS. Tenant, in its use and occupancy
of the Premises, shall comply at its sole expense with all Applicable Legal
Requirements, with the requirements of all policies of insurance of whatsoever
nature which Landlord or Tenant is required or permitted to maintain pursuant
to this Lease (provided such policies are of the type customarily carried by
first class office buildings comparable to the Building) and with the
certificate of occupancy for the Buiiding.
6.3 LANDLORD'S RULES AND REGULATIONS. In its use and occupancy of
the Premises and use of the Project, Tenant, its agents, employees,
representatives, visitors and guests, shall observe faithfully and comply
strictly with the rules and regulations promulgated by Landlord with respect to
the Project as such rules and regulations, in Landlord's reasonable business
judgment, may be amended from time to time hereafter; provided that, except to
the extent required by Applicable Legal Requirements, no such amendment having
a material adverse effect upon Tenant's use of the Premises shall be made
without Tenant's prior written consent. Such rules and regulations as they
exist on the date of execution of this Lease by Landlord are set forth on
Exhibit "C" attached hereto and hereby made a part hereof. Landlord and Tenant
mutually acknowledge and agree that the rules and regulations of the Project
are for the benefit of Landlord, Tenant and the other tenants of the Project.
Landlord agrees to use all reasonable efforts, in good faith, to apply and
enforce such rules and regulations uniformly in the operation of the Project.
6.4 CONTINUING OCCUPANCY. Tenant's continuous occupancy of the
Premises as Tenant's headquarters and the regular conduct of Tenant's
business therein are of the utmost importance to Landlord in the maintenance of
the character and quality of the Building, in the renewal of other leases of
portions of the Building, and in the renting of vacant space in the Building to
other tenants. Therefore, Tenant, and only Tenant, shall physically occupy not
less than twenty-five percent (25%) of the Office Space (excluding Office
Space which is sublet under Section 18.3) during the entire Term of this Lease,
subject only to the requirements of the phasing and completion of Landlord's
Work and Tenant's Work in accordance with Article VII and the temporary
vacation of space in accordance with the provisions of Article XIII. Nothing
herein shall be construed to permit Tenant to sublet or assign any portions of
the Premises which are not occupied (or required to be occupied) by Tenant
under this Section 6.4 other than in accordance with Article XVIII.
6.5 ALTERATIONS. In addition to the Tenant's Work contemplated by
Article VII hereof, Tenant shall have the right, at its sole expense, to make
from time to time nonstructural interior alterations, additions, improvements
and replacements in and to the Premises; provided, however, that Tenant shall
have first obtained the written consent of Landlord to each thereof, to the
plans and specifications therefor, and to the proposed contractors to perform
such work; provided, however, that Tenant shall not be required to obtain
Landlord's consent to tenant finish work such as painting, carpeting and
wallcovering ("Finishing Work") or to minor improvements or minor alterations
which do not affect base building systems, health or safety systems or
procedures, structural elements, or walls and the cost of which does not exceed
$10,000 ("Minor Alterations"). With respect to Minor Alterations, Tenant shall
not commence work until five (5) days after Tenant provides Landlord with
written notice of Tenant's intention to do Minor Alterations work together with
a reasonable description of the nature of the work and Tenant has not received
written notice from Landlord with such five (5) day period
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objecting to such work. If Landlord objects to such work, Landlord and Tenant
shall meet to mutually agree to reasonable modifications requested by Landlord
to such work and/or reasonable procedures with respect to the construction or
installation of such work. Tenant shall comply with all terms and conditions of
each Landlord's consent on such work for which Landlord's consent is required.
Tenant shall perform or cause to be performed any permitted work in such a
manner so as not to interfere with or impair the use and enjoyment of any other
portion of the Building by Landlord and/or other tenants and, if required by
Landlord, in its reasonable discretion, Tenant shall do or cause such work to
be done at times other than Normal Business Hours, as defined in Section
9.1(a). All alterations, additions, improvements and replacements shall become
a part of the Premises when made and shall remain upon and be surrendered with
the Premises at the end of the Term; provided, however, that if prior to the
termination of this Lease by lapse of time or otherwise, or within fifteen (15)
days thereafter, Landlord so directs by written notice to Tenant, Tenant shall
promptly remove the alterations, additions, improvements, or replacements which
were placed in the Premises by Tenant if the installation thereof required the
consent of Landlord and such consent was expressly conditioned upon Tenant's
agreement to so remove such alternations, improvements, additions or
replacement. Tenant shall repair any damage occasioned by such removal and, in
default thereof, Landlord may effect said removals and repairs at Tenant's
expense. Tenant agrees to hold Landlord harmless for and defend Landlord
against any and all claims and liabilities of every kind and description which
may arise out of or be connected in any way with said alterations, additions,
improvements and replacements. Tenant shall pay the cost of all decorating and
redecorating of the Premises and the Building occasioned by such alterations,
additions, improvements and replacements. Tenant hereby covenants and agrees
not to place or permit to be placed any lien or liens on or against the
Premises or the Project. Further, Tenant does hereby waive, relinquish and
disclaim any right or power to cause any lien to be attached to Landlord's
interest in the Premises or the Project and Tenant does hereby agree to hold
harmless, indemnify and defend Landlord from and against any such lien or
liens. Tenant agrees to cause any mechanic's, materialmen's or other lien
against the Project or any part thereof or Landlord's interest therein in
respect to any labor, services, materials, supplies or equipment furnished or
alleged to have been furnished to Tenant in or about the Premises or the
Project to be discharged or bonded in accordance with the applicable
provisions of Ohio Revised Code Chapter 1311 thirty (30) days of Tenant's
receipt of written notice of the filing thereof. Upon completing such
alterations, additions, improvements or replacements, Tenant shall furnish
Landlord with contractors' affidavits and full and final waivers of lien and
receipted bills covering all labor and materials expended and used. All such
alterations, additions, improvements and replacements shall comply with all
insurance requirements, all Applicable Legal Requirements, and the minimum
standards and procedures for tenant improvements to the Building as set forth
in Rider 5 attached hereto and shall be constructed in good and workmanlike
manner. Tenant shall have no right to make any structural alterations,
additions, improvements or replacements in or to the Premises or (except as
otherwise provided in this Lease) to make any alterations, additions,
improvements or replacements which affect utility services or distribution
systems, mechanical systems or plumbing, electrical or sprinkler lines.
6.6 FLOOR LOAD. Tenant shall not place or permit to be placed upon
any floor of the Premises any item of any nature, or items in the aggregate,
the weight of which shall exceed such floor's rated floor live load limit of
eighty (80) pounds per square foot.
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6.7 OFFICE EQUIPMENT.
(a) Business machines and mechanical equipment used by Tenant which cause
noise and/or vibration that may be transmitted to the structure of the
Building or to any leased space to such a degree as to be objectionable to
Landlord or to any tenants of the Building shall be placed and maintained
by Tenant in settings of cork, rubber, springs or other materials designed
to reduce or eliminate such noise and/or vibration in such a manner as to
be sufficient to eliminate such noise and/or vibration or to reduce the
same to a degree which is not objectionable.
(b) Tenant may install, operate, maintain, repair, upgrade, remove
and replace from time to time such computers and other machinery and
equipment as may reasonably be required by Tenant in connection with its
operation of its headquarters executive offices and an investment banking
and brokerage business and related support functions, and its conduct of
such other business as may be conducted by Tenant at the Premises in
accordance with this Lease; provided, however, that any such computer,
equipment and machinery installed in the Premises after the date of this
Lease which was not located and operated by Tenant in the Building as of
the date of this Lease shall be subject to Landlord's prior written
consent, which shall not be unreasonably withheld or delayed, except for
any such equipment which is installed in connection with Tenant's Work or
in substitution for existing equipment and which does not materially
increase the floor load or heat produced in the Premises. Landlord agrees
not to unreasonably withhold or delay its consent to the installation of
any computers, equipment or machinery which do not exceed floor load
limitations in the applicable portion of the Premises or require
modifications or supplements to the Building standard electrical or HVAC
systems or services. Tenant shall pay to Landlord as additional Rent
hereunder the full amount of any additional HVAC energy costs as reasonably
determined by Landlord which are attributable to the installation of any of
the foregoing. Such computers and other machinery and equipment shall at
all times be the property of Tenant.
6.8 MOVING HEAVY EQUIPMENT. If Tenant should desire to move any heavy
or bulky equipment, the movement of which is regulated by any Applicable Legal
Requirement or which requires special arrangements to be made by Landlord to
accommodate such movement, then Tenant shall submit to Landlord notice of the
terms and manner in which Tenant proposes to move such equipment and Landlord,
with reasonable dispatch shall make appropriate arrangements to accommodate
Tenant's intentions and facilitate such movement of equipment all at the
expense and for the account of Tenant.
6.9 NAME OF BUILDING, SIGNS AND DIRECTORY.
(a) Promptly after the execution of this Lease, Landlord will rename
the Building "McDonald Investment Center." Landlord shall not change the
name of the Building without the prior written consent of Tenant unless
Tenant fails to continuously occupy during the entire Term of this Lease
(except for periods of temporary vacancy due to the completion of
Landlord's Work and Tenant's Work under Article VII or repairs after
casualty in accordance with Article XIII) a minimum of seventy-five percent
(75%) of the Office Space (excluding any Office Space which is sublet in
accordance with Section 18.3), in
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which event Tenant's naming rights for the Building shall terminate for the
remainder of the Term and Tenant shall reimburse Landlord for the cost of
removing the sign at the top of the Building and any other Building signs which
identify the name of the Building and include Tenant's name or logo.
(b) Attached as Rider 2 is the exterior and Building lobby signage program
for the Building. Landlord and Tenant shall jointly seek all necessary
governmental approvals for the exterior Building signage. Within fifteen (15)
days after Landlord receives all information from Tenant necessary to prepare
and file all applications which must be filed with applicable governmental
authorities to obtain permits and approvals for the exterior Building signage
shown on Rider 2, Landlord will file and thereafter diligently pursue the
applications. Landlord shall be responsible for designing, fabricating and
installing all exterior and interior Building signage as shown on Rider 2. The
signage shall be installed by Landlord not later than one hundred twenty (120)
days after all permits and approvals from all applicable governmental
authorities have been obtained for such signage and Tenant has notified
Landlord in writing that it approves the signage as approved by the
governmental authorities. Landlord shall pay the cost of designing,
fabricating and installing signage (other than the signage at the top of the
Building) up to a maximum aggregate cost of One Hundred Twenty-Five Thousand
Dollars ($125,000) (the "Maximum Amount") with Tenant being responsible for all
costs of designing, fabricating and installing the signage at the top of the
Building and any costs of designing, fabricating and installing the exterior
and interior Building signage in excess of the Maximum Amount ("Tenant's
Signage Costs"). Tenant shall reimburse Landlord for Tenant's Signage Costs
within sixty (60) days after Landlord delivers to Tenant paid receipts or other
documents evidencing the amount of Tenant's Signage Costs. If Tenant's Signage
Costs are not paid within said sixty (60) day period, Landlord may deduct
Tenant's Signage Costs from the Allowance for Tenant Improvements under Section
7.4.
(c) Except in accordance with the signage program under Section 6.9(b) or as
permitted by Section 6.9(d), Tenant shall not place, install or affix or
permit the placement, installation or fixation of any sign of any nature on the
exterior of the Building or in the windows or lobbies or other public areas.
(d) Tenant may install an identification sign within or adjacent to the
entrance of the Premises and within the elevator lobby of any full floor
occupied by Tenant; provided such signs have the prior approval of Landlord,
which shall not be unreasonably withheld or delayed. All approved signs
installed pursuant to this Section 6.9(d) shall be installed and maintained by
Tenant in compliance with Applicable Legal Requirements and Tenant shall pay
all expenses and all licenses and permit fees relating to the installation and
maintenance of authorized signs, and shall pay all expenses of removal and
costs of repairs resulting therefrom.
(e) Landlord agrees, at its expense, to maintain, at a suitable place on the
ground floor level of the Building, a building directory which shall include
the name of Tenant and any other name(s) reasonably requested by Tenant. Space
on the lobby directory shall be allocated to Tenant in proportion to the ratio
that the Rentable Area of Office Space bears to the Rentable Area of the
Building. The reasonable cost of any changes, modifications or
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additions to any such name(s) in the directory requested by Tenant shall be the
responsibility of and charged directly to Tenant.
(f) Landlord, at its expense, shall identify Tenant on the elevator lobby
directory of any multitenant floor on which any portion of the Premises is
located.
6.10 COMMON AREAS. Tenant and Tenant's agents, employees, licensees and
invitees shall have the right to use, in common with Landlord and Landlord's
tenants and the agents, employees, licensees and invitees of each, such public
sidewalks, entrances, lobbies, vestibules, stairways, corridors, passenger and
freight elevators, public toilets and other public areas as are from time to
time maintained in the Project; subject, however, to applicable rules and
regulations referred to in Section 6.3, and the rights of Landlord under
Section 17.3. Tenant and Tenant's agents, employees, licensees and invitees
shall not obstruct or litter, or use for storage (temporary or otherwise) or
for the display of merchandise or services or for any purpose other than the
intended and normal purpose, any of said public sidewalks, entrances, lobbies,
vestibules, stairways, corridors, passenger and freight elevators, public
toilets and other public areas of the Project.
6.11 HAZARDOUS MATERIALS.
(a) Tenant shall not cause or permit any hazardous or toxic substance,
material or waste which is or becomes regulated by any local, state or
federal government ("Hazardous Material") to be brought, kept or used in,
on or under the Project by Tenant, its agents, employees, contractors, or
invitees in quantities which violate any Applicable Legal Requirements.
Without limiting the generality of any other term or provision of this
Lease requiring the indemnification of Landlord by Tenant, Tenant shall
indemnify Landlord from and against any breach of the above-stated
obligation, and shall defend (by counsel acceptable to Landlord) and hold
Landlord harmless from and against any and all claims, judgments, damages,
penalties, fines, costs, liabilities, or losses (including, without
limitation, diminution in value of the Project, the loss or restriction on
use of space or of any amenity in the Project, and sums paid in settlement
of claims, reasonable attorneys' fees, reasonable consultant fees, and
reasonable expert fees) which arise during or after the Term as a result of
such breach. This indemnification includes, without limitation, costs
incurred in connection with any investigation of site conditions or any
cleanup, remedial removal, or restoration work required by any governmental
agency or political subdivision because of Hazardous Material present in,
on or under the Project as a result of Tenant's breach of its obligations
under this Section 6.11. Without limiting the foregoing, if the presence of
any Hazardous Material in the Premises or the Project, as caused or
permitted by Tenant, results in any contamination of the Project, Tenant
shall promptly take all actions, at Tenant's sole expense and in
conformance with all Applicable Legal Requirements, as are necessary or
advisable in the use or operation of a first class office building to return
the Project to the condition existing prior to the contamination; provided
that Landlord's approval of such actions and the contractors to be used by
Tenant first shall be obtained.
(b) Landlord shall not cause or permit any Hazardous Materials to be
brought, kept or used in, on or under the Project by Landlord, its agents,
employees, contractors or invitees in quantities which violate any
Applicable Legal Requirements. Landlord agrees to comply
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with Applicable Legal Requirements in connection with Landlord's Work,
including, without limitation, the abatement of asbestos-containing
materials at the Premises in accordance with Landlord's Work (as defined in
Section 7.2). Landlord shall indemnify Tenant from and against any breach
of the above-stated obligations, and shall defend, by counsel acceptable to
Tenant and hold Tenant harmless from and against any and all claims,
judgments, damages, penalties, fines, costs, liabilities, or losses
including, without limitation, the loss or restriction in use of the
Premises or any amenity in the Project and sums paid in settlement of
claims, reasonable attorneys' fees, reasonable consultant's fees and
reasonable experts fees which arise during or after the Term as a result of
such breach. This indemnification includes, without limitation, costs
incurred in connection with any investigation of site conditions or any
cleanup, remediation, removal, or restoration work required by any
governmental agency or political subdivision because of Hazardous Material
present in, on or under the Project as a result of Landlord's breach of its
obligations under this Section 6.11(b). Without limiting the foregoing, if
the presence of any Hazardous Material in the Project as caused or
permitted by Landlord results in any contamination of the Project, Landlord
shall promptly take all action, at Landlord's sole expense and in
conformance with all Applicable Legal Requirements, as are necessary or
advisable in the use or operation of a first class office building
to comply with Applicable Legal Requirements.
(c) Notwithstanding, the provision of Section 6.11(b), Landlord's
obligations under said Section 6.11(b) shall not arise with respect any
Hazardous Material brought, kept or used in, on or under the Project by any
tenant of the Project or any tenant's agents, employees, contractors or
invitees. Landlord agrees to insert in all tenant leases for the Project
provisions comparable to Section 6.11(a) and to take all reasonable actions
to enforce such provisions.
ARTICLE VII
INITIAL CONSTRUCTION
7.1 RESPONSIBILITIES OF LANDLORD AND TENANT. The Premises shall be
designed and constructed in accordance with this Article VII, with the
responsibilities of Landlord set forth herein referred to as "Landlord's Work"
and the responsibilities of Tenant set forth herein referred to as "Tenant's
Work."
7.2 LANDLORD'S WORK.
(a) Landlord shall be obligated to complete at its sole cost and
expense in a good workmanlike manner and in compliance with all Applicable
Legal Requirements (including without limitation, the Americans with
Disabilities Act) the demolition of the Office Space, the abatement of
asbestos-containing materials, the fireproofing of the Office Space, the
renovation and remodeling of restrooms and certain other work necessary to
put the Office Space in Shell Condition for delivery to Tenant for
construction of Tenant's Work. Attached hereto as Rider 3 are the
specifications for the work to be completed by Landlord in accordance with
this Section 7.2 ("Landlord's Work"). The term "Shell Condition" shall
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mean the condition of the Premises or portions thereof upon substantial
completion of Landlord's Work. Landlord's Work shall not include any work
to that portion of the 19th floor presently used by Tenant as its computer
room as designated on Exhibit A.
(b) Landlord and Tenant shall in good faith mutually establish a schedule
(the "Delivery Schedule") for the phasing and completion of Landlord's
Work and Tenant's Work on a floor-by-floor basis as well as the vacation of
floors in the Building and the occupancy of each floor of the Premises by
Tenant. The Delivery Schedule shall (i) minimize the disruption of Tenant's
continuing business operations at the Premises, (ii) permit the completion
of Landlord's Work and Tenant's Work in a cost-efficient manner, and (iii)
take into account the schedule of CHG for vacating the 16th, 17th, and 18th
floors of the Building.
(c) Landlord agrees to upgrade the Building passenger elevators by
installing an Otis Electronics 411 computerized traffic control system to
improve elevator response to actual traffic demands. Landlord represents
that, subject to the provisions of Section 20.2 hereof, the elevator
upgrade work shall be completed by September 1, 1994.
(d) Except as specifically set forth in this Lease, no representations or
warranties have been made by or on behalf of Landlord with respect to
the Premises or their suitability for the conduct of Tenant's business.
Tenant's taking of possession of the Premises or portions of the Premises
after completion of Landlord's Work shall conclusively establish that the
Premises and the Building were at that time in satisfactory condition,
order, and repair except for punch list items identified by Tenant to
Landlord in writing within thirty (30) days after a floor of the Premises
is delivered to Tenant. Landlord shall be solely responsible for ensuring
that at the time the Premises (or portions thereof) are delivered to
Tenant, Landlord's Work complies with Applicable Legal Requirements.
Landlord shall indemnify, and hold Tenant harmless from any claim, action,
cause of action, damage, liability or expense which arises out of
Landlord's Work.
7.3 TENANT'S WORK. Tenant shall construct or cause the construction
of all Tenant improvement work to the Premises (the "Tenant's Work") in
accordance with Tenant's Plans (as defined below). Tenant's Work (and any
alterations undertaken by Tenant pursuant to Section 6.5, any work done by
Tenant to build out or improve any space added to the Premises under Article
XXI, or any repair, or restoration of the Premises following damage or
destruction thereof under Article XIII or XIV of this Lease and improvements
which do not require Landlord's consent under Section 6.5) shall be undertaken
by Tenant in accordance with the following requirements:
(a) Tenant's Work shall be performed in accordance with plans and
specifications prepared for Tenant by an architect selected by Tenant
and approved by Landlord ("Tenant's Architect"), in such detail as
Landlord shall require, which plans and specifications shall be approved by
Landlord prior to the commencement of Tenant's Work ("Tenant's Plans"),
which approvals Landlord agrees not to unreasonably withhold or delay.
Tenant's Plans shall have and contain the information and minimum detail
set forth on Rider 4 attached hereto and shall provide for improvements:
(i) that comply in all respects with Applicable Legal Requirements, (ii)
that conform to at least the minimum construction
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standards and procedures for Tenant improvements as set forth on Rider
5 attached hereto, and (iii) that incorporate good quality materials.
Landlord shall have fifteen (15) days following its receipt of Tenant's
Plans to approve or reject such plans. If Landlord rejects Tenant's Plans,
Landlord shall provide written notice of such rejection to Tenant, which
notice shall specify those elements of Tenant's Plans to which Landlord
objects. Tenant shall have twenty (20) additional days from notice of such
rejection to cure the matters objected to by Landlord, and to submit its
revised plans. The acceptance by Landlord of Tenant's Plans shall not
constitute the assumption of any liability on the part of Landlord for
their accuracy or their conformity with building code requirements, and
Tenant shall be solely responsible for Tenant's Plans and Tenant's Work and
shall defend and indemnify Landlord in respect to any claim, action, cause
of action, damage, liability or expense which arises out of Tenant's Work
or Tenant's Plans. Tenant's Work as performed in accordance with Tenant's
Plans is intended to enhance the Building and, in consideration thereof,
Landlord is contributing to the cost of Tenant's Work (including the
preparation of Tenant's Plans) as set forth in Section 7.4 hereof. A
complete set of Tenant's Plans that fully comply with the foregoing
requirements (reflecting the as-built condition of the Premises) shall be
delivered to Landlord within sixty (60) days following the substantial
completion of Tenant's Work.
(b) Tenant's Work shall be designed, engineered, performed and
supervised by a general contractor, subcontractors, architects, engineers
and other design professionals approved by Landlord prior to the
commencement of the work, which approvals shall not be unreasonably
withheld nor delayed. Landlord shall also have the right to review and
approve Tenant's contracts with its general contractor, architect and any
other design professional, which approvals shall not be unreasonably
withheld or delayed.
(c) Prior to the commencement of Tenant's Work, Tenant shall cause
Tenant's general contractor to provide for the benefit of Landlord a
performance bond guaranteeing completion of Tenant's Work and a labor and
material payment bond covering Tenant's Work, naming Landlord as an
additional beneficiary and/or dual obligee in a form and issued by a surety
company reasonably satisfactory to Landlord.
(d) Tenant shall cause Tenant's Work to be performed under the
supervision of Tenant's Architect.
(e) Tenant's Work shall not be commenced prior to Tenant having
obtained all permits, approvals, and authorizations therefor required by
any federal, state, and local governmental entities or agencies thereof
having jurisdiction over Tenant's Work to be performed, and Tenant's
delivery of copies of such permits, approvals, and authorizations to
Landlord. Landlord agrees to cooperate with Tenant, at Tenant's sole cost
and expense, to the extent necessary to procuring all applicable permits,
approvals, and authorizations.
(f) Tenant's Work shall not be commenced until Tenant has provided
Landlord with certificates evidencing that public liability and property
insurance of the type and with the limits set forth in this Lease is in
effect, further endorsed to afford builder's risk and other coverage, as
appropriate, for the work to be performed by or on behalf of Tenant.
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(g) Tenant's Work shall be performed in a good and workmanlike
manner, in accordance with all Applicable Legal Requirements, as well as
all requirements of any national or local board of fire underwriters
applicable to the Building.
(h) At all times during the construction of Tenant's Work, Tenant and
Tenant's contractors shall have and maintain workers' compensation
insurance as appropriate, covering any persons employed in connection with
Tenant's Work.
(i) All materials and equipment required in connection with Tenant's
Work shall be stored only upon the Premises and shall be delivered to
the Premises only through the service elevators at times reserved by Tenant
and approved by Landlord.
(j) Tenant's Work shall be performed so as not to unreasonably or
materially interfere with the access, enjoyment or business of
Landlord or other tenants and occupants of the Building.
(k) Tenant's Work shall be undertaken and completed on a floor-by-floor
basis in accordance with the Delivery Schedule. Substantial completion,
the issuance of occupancy permits, and the funding of the Construction
Allowance shall be accomplished on a floor-by-floor basis.
(l) Upon substantial completion of each floor of Tenant's Work, Tenant
shall deliver a standard AIA Certificate of Substantial Completion
signed by Tenant's Architect stating that Tenant's Work on such floor has
been substantially completed in accordance with Tenant's Plans.
(m) Tenant agrees to timely pay all sums of money in respect of any
labor, services, materials, supplies or equipment furnished to Tenant in
or about the Premises, which may be secured by any mechanic's,
materialmen's or other lien or any part thereof or Landlord's interest
therein and will cause each such lien to be discharged or bonded in
accordance with Ohio Revised Code Chapter 1311 within thirty (30) days
after Tenant's receipt of notice of the filing thereof. Tenant agrees to
include in any contract for improvements on the Premises a statement to the
effect that Tenant is not an agent of Landlord, and that there is no agency
or other relationship between it and Landlord which shall in any way give
rise to a presumption that a lien may be placed against Landlord's interest
in and to the Premises. Upon completion of Tenant's Work for each floor,
Tenant shall furnish Landlord with contractors' affidavits and full and
final waivers of lien and receipted bills covering all labor and materials
expended and used for such floor.
(n) Tenant shall prepare, record and post such notices of commencement
as may be required to comply with Ohio Revised Code Section 1311.04 and
otherwise take such action as may be required to comply with Chapter 1311
of the Ohio Revised Code with respect to Tenant's work.
(o) Tenant hereby agrees to indemnify Landlord and to hold Landlord
harmless from and against any and all loss, cost, damage, claim,
liability or expense, for or in connection
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with any damage to the Project or any portion thereof caused by or
arising out of Tenant's Work.
7.4 ALLOWANCE FOR TENANT IMPROVEMENTS.
(a) Landlord agrees to provide an allowance of up to, but not in excess
of Six Million Four Hundred Ninety Six Thousand One Hundred Four
Dollars ($6,496,104), (the "Construction Allowance"), toward the actual
cost of designing and constructing Tenant's Work (the "Construction Costs")
payable periodically (as provided below) during the progress of Tenant's
Work. Tenant shall be solely responsible for any costs in excess of the
Construction Allowance.
Prior to approval of Tenant's general contractor, Tenant shall submit
to Landlord a certified copy of (i) the construction bid of the general
contractor proposed by Tenant to perform Tenant's Work (the "Construction
Bid"), which bid shall be itemized into generally accepted cost categories,
and (ii) Tenant's contracts with the architect and other design
professionals engaged by Tenant to design and engineer Tenant's Work.
Landlord's Pro Rata Share of Construction Costs shall be equal to the
lesser of (i) one hundred percent (100%) of such costs, or (ii) the
percentage obtained by dividing the Construction Allowance by the sum of
the Construction Bid plus the architect's and design professionals' fees
hereunder (the "Architect's Fees"). Tenant's Pro Rata Share of
Construction Costs shall be equal to the amount of one hundred percent
(100%) of such costs less Landlord's Pro Rata Share of Construction Costs.
Tenant shall submit to Landlord a certified copy of the construction
contract between Tenant and Tenant's approved general contractor for
performance of Tenant's Work promptly following execution thereof.
Tenant shall also submit to Landlord a certified copy of any change orders
to the original construction contract promptly following approval of
Tenant. Landlord reserves the right to adjust the calculation of Tenant's
Pro Rata Share of Construction Costs to reflect any adjustments in the cost
of Tenant's Work.
(b) The Construction Allowance shall be paid by Landlord to Tenant (or,
if requested by Tenant, directly to the general contractor) every sixty
(60) days as the performance of Tenant's Work proceeds, in proportion to
the progress of such work less Tenant's Pro Rata Share of Construction
Costs and less the retainage amount provided for in Tenant's construction
contract (the "Retainage Amount") which in no event shall be less than ten
cents (10cts) for each One Dollar ($1) of actual work completed and for
which payment is sought until Tenant's Work reaches fifty percent (50%)
completion as evidenced by certification by Tenant's Architect, subject,
however, to Landlord timely receipt of invoices, draws and appropriate
documentation, as hereinafter required. Promptly following approval by
Landlord of Tenant's Plans, and provided that Tenant has furnished Landlord
with invoices from Tenant's architect and other design professionals
detailing the Architect's Fees, Landlord shall pay to or reimburse Tenant
for costs incurred by or billed to Tenant prior to the commencement of such
construction or during the performance thereof, for Architect's Fees or
other costs properly attributable to Tenant's Work but payable without
reference to the progress of construction work. Tenant may thereafter
submit a request or requests for payment from time to time and shall
provide Landlord with appropriate
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documentation of construction progress and requested draws against the
Construction Allowance including AIA Form 706 Requests for Payment with
appropriate substantiation (including invoices from contractors, suppliers,
and materialmen, and current affidavits and waivers of lien by all of
Tenant's contractors, subcontractors, suppliers, and materialmen, in favor
of Landlord and its designees). Landlord shall make periodic progress
payments every sixty (60) calendar days, with the first such payment to be
made not sooner than thirty (30) days following the date on which Tenant's
Plans have been approved by Landlord. Each such payment shall include
reimbursement for costs specified in any request(s) for payment which have
been received by Landlord at least thirty (30) days prior to such payment
being made, and shall be subject to the Retainage Amount set forth above.
(c) At such time as all of Tenant's Work is substantially completed
(which, for the purpose of this Lease, shall be deemed to occur at such
time as Tenant's Work shall have been completed substantially in accordance
with Tenant's Plans, a certificate of occupancy has been or will imminently
be issued therefor, Tenant's Architect shall have issued its AIA
Certificate of Substantial Completion with respect to all of such work, and
Tenant shall be able to use and occupy the entire Premises for purposes
permitted by this Lease without unreasonable interference from the
completion or correction of Tenant's Work), Tenant shall arrange for an
inspection of the entire Premises by Landlord, for the purpose of verifying
that Tenant's Work is substantially complete. Upon verification by
Landlord that Tenant's Work is substantially complete and receipt of final
waivers of lien, Landlord will promptly pay to or as directed by Tenant,
the Retainage Amount.
(d) Landlord shall have a period of two hundred seventy (270) days after
the substantial completion of Tenant's Work to audit the Construction
Costs. If Landlord notifies Tenant of its intention to audit, Landlord
shall have sixty (60) days after delivering such notice to Tenant to audit
the Construction Costs and to notify Tenant in writing prior to the
expiration of the sixty (60) day period if it disputes the Construction
Costs. Tenant shall make available to Landlord or its designees at the
Premises copies of all construction records, invoices and evidence of
payment as Landlord may reasonably require to audit the Construction Costs.
If, within fifteen (15) days following Landlord's notice that it
disputes the Construction Costs, Landlord and Tenant fail to agree as to
the amount or as to the appropriateness of the item(s) in the Construction
Costs at issue and Landlord delivers written notice to Tenant within said
fifteen (15) day period that it wants a third party to resolve the
issue(s), then Landlord may require that the dispute be resolved by binding
arbitration in accordance with the procedures set forth in Section 5.7(d).
(e) If Landlord fails to pay the Construction Allowance in accordance
with the provisions of Section 7.4, Tenant shall have the right to set off
against Base Rent as it comes due under the Lease the amount of any unpaid
Construction Allowance together with interest on the unpaid Construction
Allowance at the Interest Rate (as defined in Section 15.2(a)) for the
period from the date the applicable Construction Allowance payment was due
until it is paid or set off against Base Rent.
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7.5 APPROVALS NOT TO BE UNREASONABLY WITHHELD, CONDITIONED OR
DELAYED. Landlord and Tenant agree that, with respect to any approvals to be
given by either party or its respective agents in connection with construction
obligations under Article VII of this Lease, no such approval shall be
withheld, conditioned or delayed unreasonably. The parties agree to promptly
render any decisions or approvals which are permitted or required in connection
with this Lease. Landlord further agrees that Landlord shall not charge Tenant
a fee for reviewing Tenant's Plans and contracts or coordinating Tenant's Work
with other activities in the Building.
ARTICLE VIII
REPAIRS
8.1 LANDLORD'S REPAIRS. Except as provided in Section 8.2 below,
Landlord shall make all repairs and replacements necessary to maintain in good
order and repair and in a condition comparable to other Downtown Cleveland
office buildings of similar age and class, the base Building systems, including
heating, ventilating and air-conditioning ("HVAC") systems, the plumbing,
mechanical and electrical systems, outer windows, roof, foundation, exterior
walls and structural members and floors (excluding floor coverings), but
specifically not including items which are Tenant's responsibility under
Section 8.2.
8.2 TENANT'S REPAIRS. Tenant shall be responsible, at its sole
expense, for maintaining in good order and repair all nonstructural portions of
the Premises (including replacing any glass, inside windows and doors and any
frames and hardware thereof), building systems in the Premises from the point
Tenant's Work ties into the existing building systems, and the fixtures,
appurtenances and equipment in the Premises, including, without limitation,
Tenant's Work, Tenant's trade fixtures, personal property and installations
such as, by way of example and not limitation, supplemental HVAC and electrical
systems. In the event repair or maintenance of the Premises or any part
thereof is required or otherwise undertaken, such work shall be performed only
by Landlord and at a cost to Tenant that is competitive with the cost that
would be charged by an unrelated contractor with construction experience and
standards at least equal to that of Landlord. Except as otherwise provided in
Section 10.3 of this Lease, Tenant shall be liable to Landlord for all damage
to the Premises, the Project and any fixtures, appurtenances and equipment
therein, caused by Tenant or any of Tenant's agents, employees,
representatives, invitees or licensees. Notwithstanding the provisions of this
Section 8.2, Landlord shall make such alterations or replacements to the
restrooms located in the Premises which are required to comply with all
Applicable Legal Requirements.
8.3 PERFORMANCE OF REPAIRS. Landlord shall make any repairs of the
type specified in Section 8.1 or 8.2 within a reasonable period of time after
written notice that such repairs are needed is received by Landlord from
Tenant. Landlord shall be permitted to perform any repairs, alterations,
additions or improvements to the Premises, the Project, or any fixtures,
appurtenances or equipment therein during Normal Business Hours and shall use
reasonable efforts to minimize interference with Tenant's use of the Premises
in the performance of such work. Landlord shall not be liable or responsible
for any injury or inconvenience to, or interference with, Tenant's business
arising from the making of any repairs, alterations,
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additions or improvements in or to the Premises or the Project or to any
fixtures, appurtenances or equipment therein, and except as otherwise provided
in Section 9.11, there shall be no abatement of Rent by virtue of any such
repairs, alterations, additions or improvements.
ARTICLE IX
BUILDING SERVICES
9.1 SERVICES PROVIDED BY LANDLORD. Landlord shall perform and provide
services and facilities as follows (the costs of which are included as
Operating Expenses):
(a) Air-conditioning, ventilation and heating through the Building's
HVAC system during the hours of 8:00 A.M. to 6:00 P.M. Monday through
Friday and 8:00 A.M. to 1:00 P.M. Saturday, exclusive of those holidays
from time to time designated by Landlord ("Normal Business Hours");
(b) Passenger elevator service at all times and freight elevator service
during weekday Normal Business Hours and at such other times as may be
reasonably requested by Tenant subject to Landlord's scheduling
requirements and Tenant's obligation to reimburse Landlord for additional
Building security or other personnel as needed to provide freight elevator
service during other than Normal Business Hours;
(c) Hot and cold water and sanitary sewer service for lavatory, drinking
and other domestic purposes;
(d) Electric current to the public areas of the Project, except for the
illumination of any exterior signage of Tenant other than signs located
immediately above the north Building entrance and East Ninth Street plaza
entrance;
(e) Maintenance and cleaning services (i) for public areas of the
Building, including, without limitation, removal of snow, ice and
debris but excepting any exterior signage installed on the top of the
Building, and (ii) for the Premises in accordance with Rider 1 attached
hereto and made a part hereof; and
(f) Security service for the public areas of the Project in accordance
with the Security Program attached hereto as Rider 6.
9.2 UTILITIES AND AFTER-HOURS HVAC.
(a) Tenant shall purchase all electricity required for the Premises and
for the sign at the top of the Building from Landlord. Tenant shall pay to
Landlord for such service an amount based upon Tenant's consumption of
electricity, as measured by meters furnished and installed by Landlord at
Tenant's expense, at rates, including any minimum demand charges and/or
minimum service charges, which would be applicable if Tenant were obtaining
electric service directly from the same local utility providing electricity
to the Building and by aggregating Tenant's usage as if it were reported on
one meter. Landlord
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shall cause the meter(s) monitoring Tenant's consumption to be read on a
regular basis, and shall invoice Tenant on a monthly basis for electrical
service. All such invoice amounts shall be deemed additional rent due and
payable on or before the date set forth for payment on each such invoice.
(b) Should Tenant require water and/or sewer service in excess of those
provided under Section 9.1, Tenant shall purchase such excess water
and/or sewer services from Landlord, and shall pay to Landlord an amount
based upon Tenant's metered consumption, as measured by meters to be
approved by Landlord and installed by Tenant at Tenant's expense. Landlord
shall invoice Tenant for such excess services on a regular basis in an
amount determined by applying to Tenant's consumption the rates, including
any minimum charges, which would be applicable if Tenant were obtaining
such services directly from the same local utility companies serving the
Building and by aggregating Tenant's usage as if it were reported on one
meter.
(c) If Tenant shall require HVAC service to the Premises at times other
than Normal Business Hours, Tenant shall so notify Landlord's building
manager at least twenty-four (24) hours prior to the time such service is
required, and Landlord shall provide HVAC service during the period of time
for which such service is requested. Landlord shall invoice Tenant for such
after-hours HVAC service at a rate of One Hundred Twenty-Five Dollars ($125)
per hour for each floor of the Premises for which such after-hours HVAC is
provided, which rate may be adjusted from time to time by Landlord to
reflect changes in the cost of providing such service, and Tenant shall pay
the amount of such invoice within the payment period provided thereon.
(d) Landlord shall provide to providers of telecommunications services
access to the Building and the other portions of the Project as
reasonably necessary to permit the upgrade, from time to time, of
telecommunications services and systems provided to the Project and made
available for Tenant and other tenants in the Building. Landlord shall also
make available to Tenant roof access at reasonable rates (taking into
account the rates charged for similar roof access rights for other
buildings in Downtown Cleveland) for the installation of satellite dishes
and other communications devices and equipment at a location designated by
Landlord. Tenant's installation of the foregoing equipment shall be subject
to Landlord's prior review and approval of plans and specifications for
installation and work scheduling.
9.3 ADDITIONAL TENANT SERVICES. Should Tenant require other services of
the type set forth in Sections 9.1 and 9.2 above for periods other than or in
quantities greater than described in said Sections, Landlord shall use
reasonable effort to provide such additional services subject to:
(a) Landlord's receiving notice of Tenant's service request;
(b) The capacity of the Building and the systems therein;
(c) Tenant's agreement to pay such charge as Landlord shall set for the
additional service; and
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(d) Tenant's being in compliance with each and every term and
condition of the Lease.
9.4 SUSPENSION OF SERVICES. Subject to the limitations of Section
9.11, Landlord reserves the right, without abatement of or diminution in Rent
and without any liability to Tenant or any third party as a result thereof, to
suspend, delay or discontinue furnishing any of the services to be provided by
Landlord under this Lease whenever necessary by reason of an event of force
majeure (as defined in Section 20.2) or at the request of Tenant. Subject to
the limitations of Section 9.11, Landlord also reserves the right to
temporarily suspend, delay or discontinue furnishing any of such services,
without abatement of or diminution in Rent and without any liability to Tenant
or any third party as a result thereof, in connection with such inspections,
cleaning, repairs, replacements, alterations or improvements as, in Landlord's
judgment, may be desirable or necessary to be made to the Premises or the
Project from time to time; provided, however, that such services shall not, to
the extent reasonably feasible, be suspended, delayed or discontinued for such
purposes during Normal Business Hours. Landlord does not warrant that any
service hereinabove described or otherwise supplied by Landlord shall be free
from interruption, and no such interruption shall be deemed an eviction or a
disturbance of Tenant's use and possession of the Premises.
9.5 SECURITY SERVICES. Tenant acknowledges that the security
services provided by Landlord with respect to the public areas of the Building
and other portions of the Project are intended to be deterrent in nature, and
Landlord does not undertake to insure and specifically does not insure that
damage to person or property will thereby be prevented upon the Project and all
portions thereof. Tenant hereby releases Landlord, its partners, agents,
employees and contractors from any and all liability arising out of the
provision of security services (including, without limitation, liability
arising from the negligence of Landlord and/or its agents) unless the same
shall result from the willful or wanton misconduct of Landlord, its officers,
employees, agents or contractors. Except as otherwise provided in Rider 6, no
security services shall be provided to Tenant by Landlord with respect to the
interior of the Premises or any other areas of the Project other than public
areas of the Building.
9.6 UTILITY SERVICES FOR THE PREMISES; TERMINATION OF SERVICE.
(a) Tenant shall purchase from Landlord or directly from the serving
utility all utility services for the Premises in accordance with Section
9.2.
(b) In the event Landlord provides any utility services as set forth in
Section 9.2, Landlord may discontinue furnishing such services upon five
(5) business days' written notice if the charges therefor are not paid as
provided in Section 9.2, and no resulting discontinuation shall be deemed
an eviction or render Landlord liable to Tenant for damages or relieve
Tenant from its obligations under this Lease. Except as provided in
Section 9.11, Landlord shall not be liable to Tenant, in damages or
otherwise, if the furnishing of any utility services to the Premises shall
be interrupted or curtailed because of repairs or improvements to
Landlord's system, damage to or destruction of any of Landlord's equipment,
or disruption or curtailment of primary sources of supply. Except as
provided in Section 9.11, no interruption or termination of such services
shall release Tenant from the performance of its obligations under this
Lease, nor shall it constitute a constructive eviction or permit any
abatement or diminution of Rent. Landlord shall have
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the right at any time to cease to furnish utility services as set forth in
Section 9.2 without any responsibility to Tenant except to connect such
service facilities with such other sources of supply as may be available.
If Landlord shall elect to discontinue any one or more of such utility
services, Tenant shall thereafter pay charges for such service directly to
the serving utility.
9.7 PARKING. Landlord hereby grants to Tenant a license to use
parking spaces in the Garage in the number set forth in Article I, Section
1.1(g) above. Such parking spaces shall be non-reserved; provided, however,
that (1) Landlord agrees to designate a group of five (5) such spaces together
on one of the first through fourth floors of the Garage for use by Tenant's
customers and these five (5) spaces shall be reserved spaces and (2) Landlord
agrees to maintain at least seventy-five (75) of the total spaces on the third
through seventh floors of the Garage as non-reserved spaces. Tenant shall pay
to Landlord a monthly fee for the use of such parking space(s) at the following
rates which payment shall accompany the monthly payment of Base Rent:
(a) The parking rate on the reserved spaces shall be at the rate charged
from time to time by Landlord for reserved spaces in the Garage. Effective
April 1, 1994, the parking rate for the non-reserved spaces shall be
Ninety Dollars ($90) per month per space.
(b) The parking rate per month per non-reserved space shall not
exceed the Maximum Parking Fee, as hereinafter defined.
(c) The Maximum Parking Fee during the Initial Term shall be Ninety
Dollars ($90.00) increased by the lesser of (i) the percentage increase in
the Index for the month of April 1994 to the month in which the parking fee
is payable or (ii) three percent (3%) per annum from April 1, 1994 to the
month in which the parking fee is payable, provided that once tenants in
the Building occupy seventy five percent (75%) or more of the Rentable Area
in the Building the Maximum Parking Fee for the Initial Term shall be
increased to One Hundred Ten Dollars ($110.00) and thereafter increased by
the lesser of (i) the percentage increase in the Index for the month in
which Building Occupancy reaches seventy five percent (75%) (the "75%
Month") to the month in which the parking fee is payable or (ii) three
percent (3%) per annum from the 75% Month to the month in which the parking
fee is payable.
(d) During any Renewal Term, the Maximum Parking Fee shall be ninety
percent (90%) of the parking rate per month charged from time to time by
Landlord to the general public for a non-reserved monthly space.
9.8 ACCESS TO THE PREMISES. Tenant shall have access to each floor of the
Premises on a twenty-four-hours-per-day, seven-days-per-week basis subject to
reasonable security procedures established by Landlord for such access.
9.9 STORAGE SPACE. If Landlord shall maintain storage space in the
Building for use by tenants, such space shall be made available to tenants
on a first-come, first-served basis at a location determined by Landlord and at
a rental rate for such space as may be established by Landlord from time to
time; provided, however, that the rental rate chargeable to Tenant for
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such space shall not exceed the rental rate payable for the Print Shop Space
for the same period of time. Tenant may terminate its lease as to any
storage space (including the Storage Space) on sixty (60) days' prior written
notice to Landlord.
9.10 FITNESS CENTER. Landlord agrees to design, construct, equip and
open by January 1, 1995 a fitness center (with showers) at a location in the
Building selected by Landlord. The fitness center shall be available to Tenant
and its employees and may be made available, in Landlord's sole discretion, to
all Building tenants and their employees. The use and availability of the
fitness center shall be subject to such terms and conditions as Landlord may
prescribe, including, without limitation, the requirement that all users of the
fitness center execute waivers of claims against Landlord, the Managing Agent
and other parties designated by Landlord arising out of the use or operation of
the fitness center. The fitness center shall contain approximately 3,000 square
feet of Usable Area. Landlord shall not be required to staff the fitness
center. Landlord agrees to consult with Tenant with respect to the initial
design and proposed operation of the fitness center, a preliminary plan for
which is attached as Rider 7. Landlord shall maintain the fitness center in
good condition and repair and the equipment and facilities in the fitness
center shall be updated, repaired, maintained and replaced from time to time.
9.11 LOSS OF ESSENTIAL BUILDING SERVICES. If as a result of the failure
of equipment or facilities of Landlord in the Building or on the Land
(excluding any equipment of facilities which are part of Tenant's Work or
alterations or improvements made by Tenant to the Premises) which provide HVAC
service or utility service to the Premises, the Premises is untenantable as a
result of the lack of elevator access, air-conditioning, electricity, water or
heat to the Premises for more than five (5) consecutive business days after
receipt of written notice from Tenant that such service is unavailable, the
Base Rent for the Premises will abate for the period commencing five (5)
business days after Tenant gives such written notice to Landlord that such
service is unavailable to the Premises and ending when such service is
restored. The amount of such abatement shall be proportionate to the percentage
of the Premises which is untenantable as a result of the circumstances
described in this Section 9.11. Landlord shall have no liability under this
Section 9.11 for disruption in service caused by the utilities supplying such
services, or the failure of lines or equipment which are not the responsibility
of Landlord to maintain or repair, or if the loss or disruption in service is
due to the act or omission of Tenant or its officers, employees, agents,
invitees or contractors.
ARTICLE X
INSURANCE
10.1 TENANT'S INSURANCE. At all times during the Term, Tenant, at its sole
expense, shall obtain and keep in full force and effect (i) commercial general
liability insurance against claims for personal injury, bodily injury and
property damage occurring on, in or about the Premises in form reasonably
acceptable to Landlord, with a combined single limit (CSL) of Three Million
Dollars ($3,000,000) per occurrence and in the aggregate for bodily injury and
property damage, or in such greater amounts as hereinafter required, and (ii)
property damage insurance covering all risks, with endorsements as Landlord may
from time to time reasonably require, covering, to
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the extent of their full replacement value, all trade fixtures, furniture,
fixtures and equipment and other contents of the Premises, including inventory
and all leasehold improvements, and business interruption and extra expense
insurance. No deductible in any policy required hereunder to be maintained by
Tenant shall exceed Ten Thousand Dollars ($10,000) per occurrence. Landlord,
the Managing Agent, and the Mortgagee of the Project (as well as such other
parties as Landlord may reasonably designate from time to time hereunder)
shall be named as additional insureds on the policy required in Subsection
10.1(i) above with the same limits of coverage and shall be furnished with a
certificate thereof. Landlord, Managing Agent, and the Mortgagee of the Project
(as well as such other parties as Landlord shall reasonably designate from time
to time hereunder) shall be named as certificate holders (but not additional
insureds) on the policy required in Subsection 10.1(ii) above. Each such policy
of insurance, to the extent obtainable, shall provide:
(a) That any claim shall be payable notwithstanding any act, whether of
commission or omission, negligent or otherwise, of Landlord, of Tenant, of
any other tenant in the Building or Project or of any agent, employee,
representative, visitor or guest of any of them, which act might otherwise
result in the forfeiture of the insurance afforded by such policy; and
(b) That Tenant shall not be liable to the insurer by reason of any
payment by the insurer to Landlord or any such other tenant.
All of Tenant's insurance policies shall be carried with companies
licensed to do business in the State of Ohio, with a rating of "A VIII" or
better as set forth in the most current issue of Best's Insurance Reports.
Tenant shall deposit with Landlord a copy of all such policies showing such
insurance to be in force prior to the Commencement Date, and thereafter at
least thirty (30) days prior to the expiration of any such policy. All policies
shall contain an undertaking by the insurers to notify Landlord and Tenant in
writing, by registered or certified mail, not less than thirty (30) days prior
to any material change, cancellation or other termination of such insurance.
The amount of commercial general liability insurance required to be
carried by Tenant under this Section 10.1 shall be increased every five (5)
years during the Term by the percentage increase in the Index from the month
of April, 1994 to the month immediately preceding the first month of the year
in which the increase is required.
10.2 LANDLORD'S INSURANCE. At all times during the Term, Landlord, at its
sole expense, shall obtain and keep in full force and effect the following:
(a) Commercial general liability insurance, including blanket contractual
liability, personal injury, death and property damage insurance, upon the
common areas of the Project. Such insurance shall be issued by a
responsible insurance company or companies authorized to do business in the
State of Ohio, with deductible amounts not in excess of the usual and
customary deductible for insurance policies covering similar risks carried
by landlords in comparable first-class office buildings in Downtown
Cleveland and in the amount of no less than One Million Dollars
($1,000,000) for injury to or death of one (1) person and a combined single
limit of Three Million Dollars ($3,000,000) per occurrence and in the
aggregate for bodily injury or death or property damage, with an excess or
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umbrella policy or policies with additional aggregate limits of not
less than Ten Million Dollars ($10,000,000).
(b) A policy or policies of Replacement Cost Insurance (with Agreed
Amount Endorsement), with deductible amounts not in excess of the
usual and customary deductible for insurance policies covering similar
risks carried by Landlords in comparable first-class office buildings in
Downtown Cleveland and in amounts which, in any event, are sufficient to
cover the full replacement value of the Project and to prevent Landlord
from being a co-insurer of any loss under such policy or policies, insuring
against loss or damage by fire, the elements, vandalism, malicious mischief,
flood (to the extent available at reasonable rates), earthquake (to the
extent available at reasonable rates) and such other perils as are now
comprehended in the term "extended coverage." The foregoing policy or
policies shall include rent loss insurance with respect to rent and other
income from the Project in such amounts and for such periods of not less
than one (1) year as Landlord may reasonably require.
(c) Landlord shall deposit with Tenant a copy of all such policies or
certificates showing such insurance to be in force prior to the
Commencement Date, and thereafter at least thirty (30) days prior to the
expiration of any such policy. All policies shall contain an undertaking
by the insurers to notify Landlord and Tenant in writing, by registered or
certified mail, not less than thirty (30) days prior to any material
change, cancellation or termination of such insurance.
10.3 MUTUAL WAIVER OF SUBROGATION. Neither party hereto nor its
representatives, agents or employees shall be liable to the other party or to
anyone claiming through the other party or to any insurance company (by way of
subrogation or otherwise) insuring the other party for any business
interruption or for any loss or damage to any building, structure or other
tangible property, in any manner growing out of or connected with either
party's use or occupation of the Premises, or the use or occupation of the
Premises by Tenant's agents, employees, representatives, visitors, or guests
even though such business interruption, loss or damage might have been
occasioned by the negligence of such party, its agents or employees, (i) to the
extent that such business interruption, loss or damage is or could be covered
by a fire and extended coverage insurance policy (with vandalism and malicious
mischief endorsement attached), by a contents insurance policy or by a
sprinkler leakage or water damage policy in Ohio, regardless of whether such
insurance policies are actually carried, or (ii) to the extent of recovery
under any other insurance carried covering such business interruption, loss or
damage. Each insurance policy carried by the parties hereto shall contain a
clause to the effect that the foregoing waiver shall not affect the right of
the insured party to recover under such policy.
10.4 TENANT'S WAIVER AGAINST OTHER TENANTS. Tenant hereby waives all claims
against all other tenants and occupants in the Project, and releases all such
other tenants from all liability for any injury, damage or loss of any
nature whatsoever to persons or property (whether of Tenant or any other
person) occurring in, on or about the Project from the negligence of any other
tenant, its agents, employees, representatives, visitors and guests, and from
any risks included in policies of insurance for such injury, damage or loss,
including, without limitation, fire and extended coverage insurance as the same
generally may be carried from time to time by tenants of first-class office
building complexes in Ohio. Landlord agrees to use reasonable
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efforts to include a provision corresponding to this Section 10.4 in each
tenant's lease in the Building and Tenant's waiver against other tenants as
contained herein shall apply only to tenants with a corresponding provision in
their respective lease.
ARTICLE XI
MUTUAL INDEMNIFICATION
11.1 INDEMNIFICATION BV TENANT. Tenant shall indemnify, defend (by
counsel acceptable to Landlord) and save Landlord, and Landlord's Mortgagee,
Managing Agent, their respective successors and assigns and the partners,
employees, officers, agents, affiliates, contractors and assigns of any of the
foregoing harmless from and against any and all claims, demands, actions,
suits, losses, damages, costs, expenses and liabilities whenever arising on or
after the date hereof, that may be asserted or alleged to be based upon injury,
damage or loss of any nature whatsoever to persons or property (whether of
Landlord or any other person) arising out of or due to, or asserted or alleged
to arise out of or be due to any act (whether of commission or omission) of
Tenant or any of its agents, employees, representatives, visitors or guests
with respect to the Premises or in the exercise of Tenant's rights or the
performance of Tenant's covenants and obligations under this Lease or in the
use or occupancy of the Premises or the Project by Tenant or any of its agents,
employees, representatives, visitors or guests, whether or not any such claim,
demand, action, suit, loss, damage, cost, expense or liability is asserted by
any agent, employee or representative of Tenant, or by any visitor, guest or
other third party, and whether or not any such claim, demand, action, suit,
loss, damage, cost, expense or liability is based upon or asserted or alleged
to be based upon negligence. The indemnification herein set forth shall not
apply to the gross negligence or willful or wanton misconduct of Landlord, its
partners, employees, agents or contractors and shall be subject to the
limitations of Section 10.3 of this Lease.
11.2 INDEMNIFICATION BY LANDLORD. Landlord shall indemnify, defend (by
counsel acceptable to Tenant) and save Tenant and the partners, employees,
officers, agents, affiliates, contractors and assigns of Tenant harmless from
and against any and all claims, demands, actions, suits, losses, damages,
costs, expenses and liabilities whenever arising on or after the date hereof,
that may be asserted or alleged to be based upon injury, damage or loss of any
nature whatsoever to persons or property (whether of Tenant or any other
person) arising out of or due to, or asserted or alleged to arise out of or be
due to any act (whether of commission or omission) of Landlord or any of its
agents, employees, representatives, visitors or guests with respect to the
Premises, the Project or in the exercise of Landlord's rights or the
performance of Landlord's covenants and obligations under this Lease, whether
or not any such claim, demand, action, suit, loss, damage, cost, expense or
liability is asserted by any agent, employee or representative of Landlord, or
by any visitor, guest or other third party. The indemnification herein set
forth shall be subject to the limitations of Section 10.3 of this Lease.
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ARTICLE XII
LIMITATION OF LIABILITY OF LANDLORD
Except as otherwise provided in Section 9.11 or Article XI, neither
Landlord nor any of its agents, employees or representatives shall be liable
for any injury, damage or loss of any nature whatsoever to person or property
(whether of Tenant or any other person or party) occurring in, upon or about
the Project (including, without limitation, the Premises), even if such injury,
damage or loss arises out of or is due to, or is asserted or alleged to arise
out of or be due to, any act (whether of commission or omission) or negligence
of Landlord or any of its agents, employees or representatives. Landlord, its
agents, employees and representatives shall have no responsibility for the care
or safety of any goods, equipment or property of any kind, type or nature kept
on the Premises by Tenant, or for the criminal acts of third parties, and
Landlord, its agents, employees and representatives shall not be liable for any
theft, damage or injury occasioned by failure to keep the Premises heated,
cooled, or in repair, or for any bodily injury or property damage done or
occasioned by or from structural failure or collapse of any building,
improvement or structure or leakage from any pipe, or lines, or the bursting,
leaking or running of any water or sewage from any pipe or outlet, container or
fixture, in, above, upon or about the Project or the Premises, or for any
injury or damage occasioned by wind, snow or ice being upon or coming through
the roof, skylight, windows, doors, parking, road or sidewalk areas, or
otherwise, or for any injury or damage arising from the omission of any of the
utilities or services supplied or due to be supplied by Landlord hereunder, or
from acts of negligence or willfulness of co-tenants or other occupants or
users of the Project.
ARTICLE XIII
DAMAGE AND DESTRUCTION
13.1 DAMAGE REPAIRABLE WITHIN TWO HUNDRED SEVENTY (270) DAYS. If the
Premises or the Building shall be damaged or destroyed by fire or other
casualty, act of God or other cause which is an insurable peril and could be
restored or repaired within two hundred seventy (270) days after the date of
such casualty, as reasonably determined by Landlord; then this Lease shall
remain in full force and effect and the damage to the Premises and the
Building, excluding the portions of Tenant's Work and any other trade fixtures,
installations, additions or improvements made by Tenant to the Premises prior
to or after the date of this Lease which are and remain Tenant's property
("Tenant's Property"), shall be repaired by Landlord, at Landlord's expense,
and the damage to Tenant's Property shall be repaired by Tenant at Tenant's
expense. Landlord and Tenant shall prosecute such respective repairs
diligently so that the same shall be accomplished as soon as reasonably
possible but not later than two hundred seventy (270) days after the date of
such casualty. Until Landlord's repairs to the Premises are complete and the
Premises are delivered to Tenant, Rent shall be abated on a per diem basis
proportionate to the extent that the Premises are untenantable or incapable of
reasonable and safe access and use for the purposes contemplated by this Lease
and for the period from the date of the casualty to the date the Premises are
delivered to Tenant. Neither Landlord nor Tenant shall incur any liability on
account of any delay incurred in good faith in
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the making and/or completion of such repairs which may arise by reason of
adjustment of insurance or an event of force majeure described in Section 20.2.
13.2 OTHER DAMAGES. (a) If all or substantially all of the Building
and/or the Premises are damaged so as to render the Premises untenantable or
incapable of reasonable and safe access, by fire or other casualty, act of God
or other cause and the Building and Premises could not be restored or repaired
within two hundred seventy (270) days after the date of such casualty, as
reasonably determined by Landlord, then Tenant and Landlord each shall have the
right to terminate this Lease, as of the date when the Premises were rendered
untenantable, by notice to the other not later than ninety (90) days from the
date of such casualty provided, however, if Landlord's Notice of Determination
(as defined in Section 13.3) is not given to Tenant on or prior to sixty (60)
days after the date of such casualty, Tenant shall have thirty (30) days from
receipt of the Notice of Determination to terminate this Lease. Either party
shall exercise its right to terminate this Lease under this Section 13.2(a) by
written notice to the other party within the applicable period described in the
preceding sentence, and any such termination of this Lease shall be effective
as of the date when the Premises were rendered untenantable. In the event
neither Landlord nor Tenant elects to terminate this Lease, Landlord shall
proceed to diligently repair, restore or rehabilitate the Premises and the
Building, as provided in Section 13.1 excluding Tenant's Property, at
Landlord's expense, as soon as reasonably possible after Landlord is able to
take possession of the damaged Premises and undertake reconstruction or
repairs, and Tenant shall at its expense diligently repair, restore or
rehabilitate Tenant's Property, so that same shall be accomplished as soon as
reasonably possible. In such event, Rent shall be abated on a per diem basis
proportionate to the extent that the Premises are unfit for occupancy, or
incapable of reasonable and safe access and use for the purposes contemplated
by this Lease, and for the period from the date of the casualty to the date the
Premises are delivered to Tenant. Neither Landlord nor Tenant shall incur any
liability on account of any delay incurred in good faith in the making and/or
completion of such repairs which may arise by reason of adjustment of insurance
or an event of force majeure described in Section 20.2.
(b) In the event of termination of this Lease pursuant to this Section
13.2, Rent shall be apportioned on a per diem basis up to the effective date of
such termination.
13.3 TIMING OF LANDLORD'S DETERMINATION. Landlord shall notify Tenant
promptly after an event of damage or destruction to which Section 13.1 or 13.2
applies. Landlord shall have sixty (60) days after the date of casualty
(the "Period for Determination") to determine whether the Premises and the
Building can be restored within two hundred seventy (270) days of such casualty
and, if Landlord determines that restoration or repair cannot be accomplished
within said two hundred seventy (270) day period, to exercise its right to
terminate this Lease; provided, however, if using reasonable efforts Landlord
is unable to make such determination within said sixty (60) day period the
Period for Determination may be extended by an additional thirty (30) days if
Landlord notifies Tenant in writing of such extension by the expiration of the
sixty (60) day period. Landlord shall give Tenant written notice of its
determination (the "Notice of Determination") within the Period for
Determination and, if Landlord determines that the Premises and the Building
cannot be restored within two hundred seventy (270) days of such casualty,
include with its Notice of Determination notice of Landlord's intention to
terminate the Lease if it so elects under Section 13.2.
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13.4 GENERAL PROVISIONS.
(a) Any obligation to repair or restore established under this Article
XIII shall be deemed satisfied when the improvement being repaired
is restored to a condition comparable to the condition immediately prior to
the event of damage.
(b) Notwithstanding any provision herein to the contrary, in the event
this Lease is terminated pursuant to Section 13.2, neither party
shall have a right to any insurance proceeds received by the other party by
reason of the damage or destruction of the Project or the Premises.
ARTICLE XIV
EMINENT DOMAIN
14.1 TOTAL TAKING. If the possession of, title to or ownership of all of
the Premises shall be permanently taken by any person or entity as a result of
or in lieu of condemnation or eminent domain, then this Lease shall terminate
upon the transfer of title to such authority or entity.
14.2 PARTIAL TAKING. If the possession of, title to or ownership of any
portion but less than all of either the Project or the Premises shall be
taken by any person or entity as a result of or in lieu of condemnation or
eminent domain, or if the grade of any street or alley adjacent to the Land is
changed so that, as a result of such event, structural alterations or
reconstruction of a portion of the Project is necessary or desirable in
Landlord's judgment, then Landlord may elect to terminate this Lease by giving
Tenant not less than ninety (90) days' notice of termination prior to a
termination date specified in such notice, and any prepaid Rent attributable to
periods after such termination date specified in such notice shall be refunded
to Tenant. In addition, if as a result of or in lieu of condemnation or eminent
domain, (1) possession of more than twenty-five thousand (25,000) square feet
of Rentable Area in the Premises is taken for a period in excess of two hundred
seventy (270) consecutive days and not replaced by Landlord with equivalent
square footage in the Building reasonably satisfactory to Tenant, or (2) such
portion or portions of the common areas of the Project which would prevent
Landlord from providing services to Tenant substantially equivalent to those
required under this Lease are taken and the same cannot be replaced by Landlord
with common areas sufficient to provide such services commencing not later than
two hundred seventy (270) days after the loss of such common areas, then Tenant
may elect to terminate this Lease by giving Landlord not less than ninety (90)
days notice of termination prior to a termination date specified in such
notice. If neither Landlord nor Tenant so elects to terminate this Lease (to
the extent permitted in this Article 14), then this Lease shall remain in full
force and effect for the balance of the Term except that Rent shall be
proportionately abated to the extent of that portion of the Premises, if any,
so taken. If, as a result of any of such events or as a result of the
possession of, title to or ownership of all or any portion of the Project being
temporarily so taken, the portion of the Project so taken (together with the
period for which the same is so taken if a temporary taking) is such that the
area of either the Project or the Premises
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remaining after such taking (together with the period remaining after such
taking if a temporary taking) is such as to render continued operation of the
Project or the Premises, as the case may be, by Landlord economically
unfeasible, as determined by Landlord in its sole discretion, then Landlord
may, at its sole option, terminate this Lease by notice given to Tenant within
thirty (30) days after the later of the following:
(a) the date upon which the proposed taking by such person or entity as a
result of or in lieu of condemnation or eminent domain becomes final; or
(b) the date upon which title to or possession of such portion of the
Project or Premises transfers to such person or entity.
14.3 PROCEEDS. Landlord shall be entitled to receive the entirety of any and
all proceeds, awards, damages or other compensation received in connection with
such taking or such grade change, and Tenant shall have no right to share in
any such proceeds, awards, damages or other compensation. Tenant hereby
forever assigns to Landlord all right, title and interest which Tenant may now
or hereafter have in any such proceeds, awards, changes, or other compensation
whatsoever; provided, however, that nothing in this Section 14.3 shall preclude
Tenant from separately claiming or receiving from any such person or entity, if
legally payable, compensation for the taking of Tenant's tangible property and
for Tenant's removal and relocation costs to the extent that the same are
specifically and separately awarded.
14.4 TEMPORARY TAKING. If the possession of, tiile to or ownership of all or
any portion of either the Project or the Premises shall be temporarily taken
by any person or entity as a result of or in lieu of condemnation or eminent
domain and this Lease is not terminated by Landlord or Tenant as a result
thereof pursuant to Section 14.2, then this Lease shall be and remain in full
force and effect for the balance of the Term without any abatement of or
diminution in Rent, and Tenant shall have the right to appear, claim, prove and
receive so much of the proceeds, awards, damages or other compensation legally
payable in connection with such taking as properly represents compensation for
Tenant's relocation costs, loss of or damage to any of Tenant's tangible
personal property which it is entitled to remove from the Premises at the
expiration of this Lease, and for the use and occupancy of the Premises or that
portion thereof so taken from the date upon which the possession thereof shall
be surrendered to such person or entity to whichever of the following dates
first occurs:
(a) The date of expiration of the Term; or
(b) The date upon which possession of the Premises or the portion
thereof so taken by such person or entity is restored to Tenant.
Tenant hereby assigns to Landlord all right, title and interest which Tenant
may now or hereafter have in any such proceeds, awards, damages or other
compensation (other than proceeds, awards damages and other compensation
attributable to items to which Tenant is specifically entitled under this
Article XIV), all of which shall be credited by Landlord against the Rent
otherwise due under this Lease. In no event shall Tenant be entitled to
receive more than the Rent payable by Tenant hereunder during the time of such
temporary taking.
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Landlord shall be entitled to appear, claim, prove and receive the entire
balance of any such proceeds, awards, damages or other compensation whatsoever.
ARTICLE XV
DEFAULT
15.1 "EVENT OF DEFAULT" DEFINED. Any one or more of the following events
shall constitute an "Event or Default" unless cured in accordance with the
provisions of this Section 15.1 or waived in writing by Landlord:
(a) The taking, sale or transfer of Tenant's interest in the Premises
under attachment, execution or other process of law or equity.
(b) The filing of a petition under the Bankruptcy Code by or against
Tenant whereby Tenant seeks financial relief from any monetary
obligations or based upon or by reason of the failure or inability of
Tenant to pay its debts as they become due, or the reorganization of Tenant
or an arrangement by Tenant with its creditors, whether pursuant to the
Bankruptcy Code or any similar federal or state proceedings, unless such
petition is filed by a party other than Tenant and is withdrawn or
dismissed within sixty (60) days after the date of its filing. Without in
any way limiting Landlord's rights with respect to an occurrence of an
Event of Default, immediately upon the filing of any such petition by
Tenant and on the thirty-first (3lst) day after the filing of any such
petition by a party other than Tenant (unless such petition filed by a
party other than Tenant is dismissed within sixty (60) days after the date
of its filing) Landlord shall automatically be deemed to have requested
that Tenant or Tenant's successor in interest (including, without
limitation, Tenant as debtor-in-possession and Tenant's trustee in
bankruptcy) assume or reject this Lease. Following any assumption of this
Lease by Tenant as debtor-in-possession or by Tenant's trustee in
bankruptcy, all Rent and other sums of money payable under this Lease shall
be, and shall be deemed to be, administrative expenses allowable under
Section 503(b)(1)(A) and having the priority established by Section
507(a)(1) of the U.S. Bankruptcy Code, as the same may from time to time be
amended, renumbered or replaced.
(c) The appointment of a receiver, nonbankruptcy trustee or custodian for
the business or property of Tenant, or the appointment of Tenant as a
debtor-in-possession for its business or property, unless such appointment
shall be vacated within sixty (60) days after its entry.
(d) The making by Tenant of an assignment for the benefit of its
creditors.
(e) The fallure of Tenant or Tenant's successor in interest to pay any
Rent or other sum of money under this Lease within five (5) business days
after written notice that the same is due. Notwithstanding anything to the
contrary in this Lease, if Landlord notifies Tenant in writing more than
three (3) times within any period of twelve (12) consecutive months that
Tenant is overdue in the payment of any Rent or other sum under this Lease,
then with respect to the fourth (4th) and any subsequent payment that is
not paid by Tenant when due
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within said twelve (12) month period, Tenant shall pay to Landlord as an
administrative fee for the time and expense of processing such late
payments a sum equal to ten percent (10%) of the amount of the fourth (4th)
and any subsequent payment that is not paid when due by Tenant during such
twelve (12) month period. The administrative fee shall be in addition to
any other rights or remedies Landlord may have under this Lease with
respect to any such late payment(s).
(f) The failure of Tenant to cease using the Premises for a purpose other
than one permitted in Section 6.1 within thirty (30) days after written
notice from Landlord specifying the nonpermitted use.
(g) Default by Tenant in the performance or observance of any term,
condition or covenant of this Lease (other than a default involving the
payment of money), which default is not cured within thirty (30) days
after the giving of notice thereof by Landlord, unless such default is of
such nature that it cannot be cured within such thirty (30) day period, in
which case no Event of Default shall occur so long as Tenant shall commence
the curing of the default within such thirty (30) day period and shall
thereafter diligently and continuously prosecute the curing of same and
shall completely cure such default as promptly as possible.
15.2 REMEDIES. Upon the occurrence of an Event of Default, Landlord,
without notice to Tenant in any instance (except where expressly provided for
below), in addition to and not in lieu of any other rights or remedies
available to Landlord at law or in equity, may exercise any one or more of the
following rights:
(a) Landlord may perform, on behalf and at the sole cost and expense of
Tenant, any obligation of Tenant under this Lease which Tenant has failed
to perform and of which Landlord shall have given Tenant notice, the cost
of which performance by Landlord, together with interest thereon from the
date of such expenditure at a rate equal to the base lending rate then
charged by Society National Bank, Cleveland, Ohio, or any other nationally
chartered bank with offices in Cleveland, Ohio, selected by Landlord (the
"Base Rate"), plus three percent (3%) (the "Interest Rate"), shall be
payable by Tenant to Landlord. In addition, Tenant shall pay a monthly late
charge equal to the greater of (i) Fifty Dollars ($50) or (ii) one percent
(1%) of the delinquent payment if Tenant fails to timely pay any Base Rent
or other sum of money under this Lease. All such sums shall be deemed
additional Rent and shall be payable by Tenant to Landlord upon demand.
(b) Landlord may (i) terminate this Lease and the tenancy created hereby
by giving notice of such election to Tenant, and (ii) reenter the Premises,
by summary proceedings or otherwise, remove Tenant and all other persons
and property from the Premises and store such property in a public
warehouse or elsewhere at the sole cost and expense of and for the account
of Tenant without resorting to legal process and without Landlord being
deemed guilty of trespass or becoming liable for any loss or damage
occasioned thereby.
(c) Landlord may reenter and take possession of the Premises, without
terminating this Lease and without relieving Tenant of its obligations
under this Lease, and divide or subdivide the Premises in any manner
Landlord may desire and lease or let the Premises or portions thereof,
along or together with other premises, for such term or terms (which may
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be greater or less than the balance of the Term remaining) and on such
terms and conditions (which may include concessions of free rent and
alterations of the Premises) as Landlord, in its sole discretion, may
determine. If Landlord takes possession of the Premises, Landlord shall
have the right to rent any other available space in the Building before
reletting or attempting to relet the Premises.
(d) If Landlord furnishes electric current, gas, water, or HVAC service to
the Premises, then Landlord may cease furnishing such electric current,
gas, water or HVAC services.
Notwithstanding the provisions of subsection (a) above and regardless of
whether an Event of Default shall have occurred, Landlord may exercise the
remedy described in subsection (a) without any notice to Tenant if: (i)
Landlord believes, in good faith, that Landlord could be injured by failure to
take rapid action, (ii) the unperformed obligation of Tenant constitutes an
emergency, or (iii) any other provisions of this Lease permit Landlord to take
such action without notice.
15.3 DAMAGES UPON TERMINATION. If this Lease is terminated by Landlord
pursuant to Section 15.2, then Tenant nevertheless shall remain liable for all
Rent and damages which may be due or sustained prior to such termination, and
for all costs, fees and expenses reasonably incurred by Landlord in pursuit of
its remedies hereunder, including reasonable attorneys' fees, brokers' fees
(including the amount of any commission necessary to obtain a replacement
tenant) and other professional fees reasonably incurred by Landlord (all such
Rent, damages, costs, fees and expenses being referred to herein collectively
as "Termination Damages") plus additional damages (the "Liquidated Damages")
equal to a cash amount equal to the Rent which, but for termination of this
Lease, would have become due during the remainder of the Term less the fair
market rental value of the Premises over the balance of the remainder of the
Term discounted to present value using a discount rate equal to the Base Rate
(as defined in Article XV). Termination Damages and Liquidated Damages shall be
due and payable immediately upon demand by Landlord following any termination
of this Lease pursuant to Section 15.2.
15.4 RELETTING OF PREMISES. If Landlord reenters and takes possession of
the Premises pursuant to Section 15.2 without terminating this Lease, and
relets the Premises or any part thereof, then the net rentals from such letting
shall be applied first to the costs, fees and expenses incurred by Landlord in
pursuit of its remedies hereunder, including reasonable attorneys' fees,
brokers' fees (including the amount of any commission necessary to obtain a
replacement tenant) and other professional fees reasonably incurred by Landlord
in renting the Premises or parts thereof to others from time to time. The
balance, if any, shall be applied by Landlord from time to time on account of
the Rent and other payments due by Tenant hereunder, with the right reserved to
Landlord to bring such actions or proceedings for the recovery of any deficits
remaining unpaid as Landlord may deem appropriate from time to time, without
being obligated to await the end of the Term for the final determination of
Tenant's account. Any balance remaining, however, after full payment and
liquidation of Tenant's account as aforesaid shall be paid to Tenant with the
right reserved to Landlord at any time to give notice in writing to Tenant of
Landlord's election to cancel and terminate this Lease and the giving of such
notice and the simultaneous payment by Landlord to Tenant of any credit balance
in Tenant's favor that may at the time be owing to Tenant shall constitute a
final and
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effective cancellation and termination of this Lease and the obligations
hereunder on the part of either party to the other. Provided Landlord
reasonably attempts to relet the Premises, Landlord shall neither be liable
for, nor shall Tenant's obligations be diminished by reason of, any failure by
Landlord to relet the Premises or any failure of Landlord to collect any rent
due upon such reletting.
ARTICLE XVI
TERMINATION
16.1 POSSESSION AND REMOVAL OF PROPERTY. All of Landlord's Work and
Tenant's Work and all alterations, additions, improvements and replacements
made by Tenant in and to the Premises pursuant to the terms of this Lease
(other than Tenant's furniture, machinery, equipment, other personal property
and trade fixtures) shall become the property of Landlord automatically upon
the construction or installation thereof in the Premises, and Landlord shall
have no obligation (whether before, on or after the expiration or termination
of this Lease) to make any payment to Tenant in respect thereof. Tenant shall
immediately advise Landlord in writing of all alterations, additions,
improvements and replacements made or installed by Tenant in and to the
Premises (other than Tenant's furniture, machinery, equipment, other personal
property and trade fixtures) and of the cost thereof. On or before the
termination or expiration of this Lease, Tenant shall have the right to remove
all of its trade fixtures, furniture, machinery, equipment and other personal
property located in or on the Premises; provided, however, that Tenant, at its
sole expense, shall repair all damage caused by the original installation or by
the removal of such items.
16.2 SURRENDER OF PREMISES. Upon the expiration or termination of this
Lease (by lapse of time or otherwise) Tenant shall deliver up and surrender the
Premises to Landlord, together with additions, alterations, improvements and
replacements thereto (except as provided in Section 16.1 above), in broom-clean
condition and in good order and repair, normal wear and tear and other repairs
and replacements which Tenant is not obligated to make under this Lease,
excepted; failing which Landlord may restore the Premises to such condition,
order and repair at Tenant's sole expense, payable by Tenant to Landlord within
ten (10) days after the date upon which Tenant receives an invoice from
Landlord therefor. In connection with such delivery and surrender of the
Premises, Tenant, subject to Section 16.1, shall remove all personal property
located in or upon the Premises, whether belonging to Tenant or any person
claiming under or through Tenant. Any such personal property not so removed by
Tenant upon the termination of this Lease or, in the case of any termination of
this Lease by Landlord other than by lapse of time, within ten (10) business
days after notice of such termination, shall be considered abandoned by Tenant
and Landlord may dispose of the same as it deems expedient without any
liability therefor to Tenant or any third party, at Tenant's sole expense. Any
expense incurred by Landlord to store or dispose of Tenant's property shall be
repaid to Landlord by Tenant within ten (10) days after the date upon which
Tenant receives an invoice from Landlord therefor. Tenant shall deliver-up and
surrender the Premises to Landlord at the end of the Term of this Lease without
notice of any kind.
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16.3 SURVIVAL OF TENANT'S OBLIGATIONS. Tenant's covenants and obligations
pursuant to this Article XVI or otherwise set forth in this Lease shall survive
the termination of this Lease.
16.4 HOLDOVER.
(a) If, at the expiration of the Term, Tenant continues to occupy the
Premises with the written consent of Landlord, then Tenant shall be a
tenant from month to month subject to all of the terms and conditions of
this Lease except that (i) the monthly Base Rent for the first sixty (60)
days after holdover shall be one hundred ten percent (110%) of the monthly
Base Rent in effect for the last month of the Term prior to holdover, (ii)
the monthly Base Rent for the next sixty (60) days after holdover shall be
one hundred fifteen percent (115%) of the monthly Base Rent in effect for
the last month of the Term prior to holdover, and (iii) the monthly Base
Rent thereafter shall be one hundred fifty percent (150%) of the monthly
Base Rent in effect for the last month of the Term prior to holdover.
(b) If, at the expiration of the Term or other termination of this
Lease, Tenant continues to occupy the Premises without the written
consent of Landlord, or if no new agreement shall have been entered into by
the parties hereto, then Tenant shall be a tenant-at-will only, and
Tenant's continued occupancy shall not defeat Landlord's right to
possession of the Premises at any time, with or without notice. In such
event, Tenant shall pay to Landlord rent, on a per day basis, (i) for the
first sixty (60) days after the expiration of the Term based on a monthly
rental equal to one hundred fifty percent (150%) of the monthly Base Rent
in effect for the last month of the Term and (ii) thereafter based on a
monthly rental equal to two hundred percent (200%) of the monthly Base Rent
in effect for the last month of the Term.
(c) Any holding over of possession of the Premises by Tenant shall not
constitute a renewal or extension of this Lease, but shall constitute the
tenancy specified in subsections (a) or (b) above, as the case may be.
ARTICLE XVII
RIGHTS RESERVED BY LANDLORD
17.1 ACCESS TO PREMISES. Landlord, any Mortgagee of the Project or any
portion thereof, and their respective agents, employees and representatives
shall have the right to enter the Premises at all reasonable times (including,
without limitation, during Normal Business Hours) upon reasonable notice
(except in the case of emergency) for the purpose of examining and inspecting
the Premises for any purpose whatsoever related to the safety, protection and
preservation of the Premises or the Project; for the purpose of exhibiting the
same to any prospective purchaser or mortgagee or tenant during the last twenty
two months of the Term or then current Renewal Term if Tenant has not exercised
(or has withdrawn its exercise of) the applicable renewal option under Section
3.4; for the purpose of making such repairs, replacements, alterations or
improvements to the Premises or the Project as Landlord may deem necessary or
desirable (including, without limitation, the right to bring into or upon the
Premises any and all supplies, tools, materials and equipment, in any and all
quantities, that
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may be deemed necessary or desirable by Landlord, in connection with any such
repairs, replacements, alterations or improvements); and for the purpose
of performing or carrying out any of Landlord's rights and obligations pursuant
to this Lease.
17.2 INSTALLATION AND USE OF UTILITIES. Landlord shall have the right
to erect, use and maintain plumbing and electrical pipes, conduits and wires
and heating, ventilating and air-conditioning ducts as Landlord shall deem
necessary or desirable in and through the Premises, provided that the same are
installed and concealed behind the walls or ceilings of the Premises and that
installation is accomplished at such times and by such methods as will not
unreasonably interfere with Tenant's use of the Premises or damage the
appearance of the Premises.
17.3 RIGHT OF LANDLORD TO CHANGE PUBLIC PORTIONS OF PROJECT. Landlord
shall have the right to change the arrangement or location of such of the
following items as are contained within the Project or any portion thereof:
entrances, signs, directories, passageways, doors and doorways, corridors,
stairs, lavatories and other like public service portions of the Building;
provided, however, that unless Tenant's naming rights have expired in
accordance with Section 6.9(a), no change in the exterior and Building lobby
signage shall be made without the consent of Tenant, which shall not be
unreasonably withheld, and in no event shall Landlord diminish any service,
materially change the arrangement or location of the elevators serving the
Premises, make any change which shall unreasonably interfere with the access to
the Premises from and through the Building, or change the character of the
Building from that of a first-class office building. Landlord agrees to consult
with Tenant prior to making material alterations to the lobby in the Building;
provided, however, that Tenant shall have no right to consent to or approve any
such alteration.
ARTICLE XVIII
ASSIGNMENT AND SUBLETTING
18.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not: (i) assign or in
any manner transfer this Lease or any estate or interest therein, (ii) permit
any assignment of this Lease or any estate or interest therein, whether by
operation of law or otherwise, (iii) except as provided in Section 18.3, sublet
the Premises or any part thereof, or (iv) grant any license, concession,
franchise or other right of occupancy in the Premises or any part thereof
without the prior written consent of Landlord, which consent may be given or
withheld in Landlord's sole discretion. Waiver by Landlord as to any assignment
or subletting shall not operate as a waiver of the prohibition contained herein
or of Landlord's rights as to any subsequent assignment or subletting.
Notwithstanding any assignment or subletting, Tenant shall at all times remain
fully responsible and liable for the performance of all Tenant's covenants and
obligations under this Lease. If any Event of Default of this Lease should
occur while the Premises or any part thereof are then assigned or sublet,
Landlord, in addition to any other rights and remedies which Landlord may have
whether hereunder, at law or in equity, may at its option collect directly from
such assignee or sublessee all rents becoming due to Tenant under such
assignment or sublease and apply such rent against any sums due to Landlord by
Tenant hereunder, and Tenant hereby authorizes and directs any such assignee or
sublessee to make
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such payments of rent directly to Landlord upon receipt of notice from
Landlord. No direct collection by Landlord from any such assignee or
sublessee shall be construed to constitute a novation or a release of Tenant
from the performance of its covenants and obligations hereunder. Tenant shall
not mortgage, pledge or otherwise encumber its interest or estate in this Lease
or in the Premises. Notwithstanding anything herein to the contrary if Tenant
requests Landlord's consent to any assignment or sublease, Tenant shall pay
Landlord's reasonable administrative, legal, and other costs and expenses
incurred in processing Tenant's request. Neither Tenant's payment nor
Landlord's acceptance of Tenant's payment of the foregoing costs or expenses
shall be construed to impose any obligation whatsoever upon Landlord to consent
to Tenant's request. The consent of Landlord to any assignment, subletting or
transfer shall not constitute a waiver by Landlord of Landlord's right to
consent to any subsequent assignment, subletting or transfer.
18.2 TRANSFER OF CORPORATE SHARES. Tenant shall have the right without
obtaining Landlord's consent, and without penalty, to assign this Lease,
whether by voluntary act or by operation of law to (a) another corporation
succeeding to all or substantially all of the assets of Tenant as a result of
sale, acquisition, consolidation or merger; (b) a corporation to which all or
substantially all of the assets of Tenant have been sold; or (c) a parent,
subsidiary or affiliate corporation of Tenant provided, however, that with
respect to an assignment under Section 18.2(a) or 18.2(b) hereof the net worth
of such successor is greater than or equal to the net worth of Tenant
immediately prior to the assignment, and further provided, that no such
assignment shall release Tenant from the liabilities or obligations under this
Lease.
18.3 PERMITTED SUBLETTING. Notwithstanding the provisions of Section
18.1, Landlord will not unreasonably withhold, condition or delay consent to a
request by Tenant to sublet up to a maximum of 22,553 square feet of Rentable
Area on a single floor of the Building provided Tenant gives Landlord at least
thirty (30) days' prior written notice of any such sublease together with a
copy of the sublease and reasonable information regarding the proposed use by
the subtenant and subtenant's financial condition. Landlord may reject any
subtenant if the subtenant or its intended use is inconsistent with the type or
quality of tenants or uses in a first-class office building, or violates any
exclusive use provision in any lease in the Building or any limitations of any
Mortgage. No subtenant shall have the right to sub-sublease or to assign its
rights under the sublease.
18.4 TENANT'S REQUEST TO ASSIGN. Tenant may request Landlord's consent
to an assignment of this Lease or a subletting of all or any part of the
Premises, and in such event Tenant shall submit to Landlord, in writing, the
name of the proposed assignee or subtenant and the nature and character of the
business of the proposed assignee or subtenant, the term, use, rental rate and
other terms of the proposed assignment or subletting, including, without
limitation, evidence satisfactory to Landlord that the proposed assignee or
subtenant is financially responsible and will immediately occupy and thereafter
use the Premises or any portion thereof for the remainder of the Term, or for
the entire term of the sublease, whichever is shorter. Landlord shall have the
option (in addition to Landlord's rights under Section 18.1) for thirty (30)
days after submission of Tenant's written request, to cancel this Lease (or the
applicable portion thereof) as of the proposed commencement date of the
proposed assignment or subletting; provided, however, that if Tenant, upon
notice of Landlord's election to terminate, agrees not to so assign or sublet
the Premises, then this Lease shall not terminate
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and the proposed assignment or subletting shall be of no force or effect. If
Landlord cancels this Lease or such applicable portion thereof as stated
pursuant to the preceding sentence, then the Term and the occupancy of
the Premises or such applicable portion thereof by Tenant shall terminate with
respect thereto as if the cancellation date were the original termination date
of this Lease and Tenant shall pay to Landlord all costs or expenses which are
the responsibility of Tenant hereunder with respect to the Premises or such
portion thereof. Thereafter Landlord may lease the Premises to the prospective
assignee or subtenant without liability to Tenant. Tenant shall pay and shall
indemnify, defend and save harmless Landlord from and against any obligation of
Landlord or Tenant for any broker's or agent's fee or finder's or originator's
commission or any other compensation due any person with respect to such
assignment or subletting unless Landlord exercises its recapture rights under
this Section 18.4, in which event if Landlord subsequently leases the Premises
to the prospective assignee or subtenant Landlord shall be fully responsible
for and shall indemnify, defend and hold harmless Tenant from and against any
obligations of Landlord or Tenant for any such commission. At Landlord's
option, Tenant shall assign to Landlord all Tenant's rights with respect to any
and all payments to be received pursuant to any assignment or subletting.
18.5 EXCESS RENT. If Landlord consents to any assignment or subletting by
Tenant as provided in Sections 18.3 or 18.4, and subsequently the aggregate of
all rents and additional consideration received by Tenant thereunder
(whether prior to or after such consent) less reasonable out-of-pocket expenses
paid by Tenant for sublease improvements, brokerage commissions paid with
respect to the sublease, and reasonable fees paid to outside legal counsel for
preparation of sublease documentation are in excess of the Rent payable by
Tenant under this Lease, then Tenant shall pay to Landlord as additional rent
under this Lease fifty percent (50%) of such excess rents and additional
consideration monthly as payable to Tenant by subtenant.
18.6 LANDLORD'S RIGHT TO ASSIGN. Landlord shall have the right to transfer,
assign or convey, in whole or in part, the Project and any or all of its
rights under this Lease and, in any such event, Landlord shall thereby be
released from the further performance of all covenants and obligations of
Landlord under this Lease, and Tenant agrees that after the effective date of
such transfer, assignment or conveyance Tenant shall look solely to Landlord's
successor in interest for performance of Landlord's covenants and obligations.
ARTICLE XIX
SUBORDINATION AND ATTORNMENT
19.1 SUBORDINATION, NONDISTURBANCE, AND ATTORNMENT.
(a) It is a condition of Tenant's obligations under this Lease that
Landlord shall procure from the current Mortgagee of the Project within
thirty (30) days after the execution and delivery of this Lease an
agreement, in writing, which shall be delivered to Tenant, in form and
substance reasonably acceptable to Tenant, providing in substance that, so
long as an Event of Default have not occurred under this Lease Tenant's
tenancy will not be disturbed
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and Tenant's rights under this Lease will not be affected by any default
under such mortgage or by the foreclosure or transfer of the Project in
lieu of foreclosure.
(b) Subject to Landlord furnishing Tenant nondisturbance agreements
reasonably satisfactory in form and substance to Tenant, this Lease and
all rights of Tenant hereunder are and shall be subject and subordinate to
all Mortgages which may now or hereafter affect or encumber the Project or
any part thereof (whether or not such Mortgages shall also cover other
lands, buildings or leases). Subject to Landlord furnishing Tenant the
required nondisturbance agreements as hereinafter provided, this Section
19.1 shall be self-operative and no further instrument of subordination
shall be required; provided that, in confirmation of such subordination,
Tenant shall promptly execute, acknowledge, and deliver any instrument that
Landlord or the holder of any Mortgage (or their respective successors-in-
interest) may reasonably request in order to evidence such subordination.
Notwithstanding anything to the contrary contained in this Section 19.1,
with respect to any Mortgage to which this Lease is subordinate, such
subordination shall be contingent upon Landlord's securing the agreement or
acknowledgment of the Mortgagee (which shall be obtained pursuant to a
separate written agreement with Tenant) that, provided an Event of Default
has not occurred, this Lease, Tenant's rights hereunder, and Tenant's right
to continue occupancy of the Premises shall not be affected or disturbed in
the event of a default by Landlord (or any successor) under the Mortgage in
question and consequent foreclosure or eviction and that Mortgagee or any
other person acquiring title to the Project through foreclosure, deed in
lieu of foreclosure or otherwise shall recognize this Lease. Such
agreements of non-disturbance may be conditional upon the securing of
Tenant's written agreement in favor of the Mortgagee to attorn to and
perform under this Lease. If any Mortgagee shall succeed to the rights of
Landlord hereunder, whether through possession or foreclosure action or
delivery of a new lease or deed, or otherwise, then, at the request of such
party (hereinafter referred to as "Successor Landlord"), Tenant shall
attorn to, and recognize, each Successor Landlord as Tenant's landlord
under this Lease and shall execute and deliver any reasonable instrument
such Successor Landlord may request to further evidence such attornment;
provided, however, that Tenant's attornment shall be subject to the
condition that the Successor Landlord agrees to recognize Tenant as the
owner of the leasehold estate to the Premises and the possessory rights
thereto, on and subject to all of the terms, conditions, obligations, and
benefits of this Lease.
19.2 MORTGAGEE'S UNILATERAL SUBORDINATION. If a Mortgagee shall so elect by
notice to Tenant or by the recording to a unilateral declaration of
subordination, then this Lease and Tenant's rights hereunder shall be superior
and prior in right to the Mortgage of which such Mortgagee has the benefit,
with the same force and effect as if this Lease had been executed, delivered
and recorded prior to the execution, delivery, and recording of such Mortgage.
19.3 "MORTGAGE" AND "MORTGAGEE" DEFINED. "Mortgage" means (i) any lease of
land only or of land and buildings in a sale-leaseback transaction involving
all or any portion of the Project, or (ii) any mortgage, deed of trust or other
security instrument constituting a lien upon all or any portion of the Project,
whether the same shall be in existence as of the date hereof or created
hereafter. "Mortgagee" means a party having the benefit of a Mortgage, whether
as lessor, mortgagee, trustee or noteholder.
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ARTICLE XX
MISCELLANEOUS
20.1 LIENS AND ENCUMBRANCES. Tenant shall not suffer or permit any lien
or encumbrance whatsoever to exist upon the Premises, the Project, any portion
of them or any of Tenant's right, title or interest in this Lease by reason of
any act (whether of commission or omission) of Tenant or any of its agents,
employees or representatives. If any such lien or encumbrance suffered or
permitted by Tenant shall at any time exist, then Tenant shall, at Tenant's
sole cost and expense, defend Landlord against any action, suit, or proceeding
which may be brought thereon for the enforcement of the same, and shall
indemnify, defend and save Landlord, the Premises, the Project and every part
of them harmless from and against any and all claims, demands, actions, suits,
losses, damages, costs, expenses, liabilities, judgments, liens or charges
arising by reason of or in connection with any such action, suit or proceeding.
Tenant shall cause any such lien or encumbrance suffered or permitted by Tenant
to be removed by bonding or otherwise discharged within thirty (30) days after
notice from Landlord to do so. Tenant agrees to include in any contract for
improvements on the Premises a statement to the effect that Tenant is not an
agent of Landlord, and that there is no agency or other relationship between it
and Landlord which shall in any way give rise to a presumption that a lien may
be placed against Landlord's interest in and to the Premises.
20.2 FORCE MAJEURE. If either party shall be delayed or hindered in, or
prevented from, the performance of any covenant or obligation, other than one
for the payment or expenditure, of money as a result of strikes, lockouts,
shortages of labor, fuel or materials, acts of God, causes associated with
weather, any Applicable Legal Requirements, enemy act, civil commotion, fire
or other casualty, or any other cause or circumstance beyond the reasonable
control of such party, then the performance of such covenant or obligation
shall be excused for the period of such delay, hindrance or prevention and the
period for the performance of such covenant or obligation shall be extended
by the number of days equivalent to the number of days of such delay, hindrance
or prevention. In no event shall any such delay or hindrance in or prevention
from the performance of any such covenant or obligation constitute a
termination of this Lease or the eviction of Tenant from the Premises.
20.3 COVENANT OF QUIET ENJOYMENT. Landlord, for itself and its
successors and assigns, does hereby covenant with Tenant that, upon performing
the covenants and obligations on Tenant's part to be kept and performed under
this Lease, Tenant shall and may peaceably and quietly have, hold and enjoy the
Premises during the Term without any hindrance of any person whomsoever
lawfully claiming under or through Landlord; subject, however, to all the terms
and provisions of this Lease.
20.4 WAIVER BY TENANT. Tenant waives the right to trial by jury in any
summary proceeding that may hereafter be instituted against it for possession
of the Premises.
20.5 RIGHTS AND REMEDIES CUMULATIVE. Except as limited by Section
20.16, no right or remedy specified herein or otherwise conferred upon or
reserved to Landlord or Tenant, as the case may be, shall be considered
exclusive of any other right or remedy, but the same shall be cumulative and
shall be in addition to every other right and remedy whether hereunder, at law
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or in equity, and every such right and remedy may be exercised by Landlord or
Tenant, as the case may be, from time to time and as often as occasion may
arise or as may be deemed expedient.
20.6 WAIVER. No consent or waiver, express or implied, by either party
hereto with respect to any breach or default by the other party in the
performance of any of the covenants or obligations of such other party under
this Lease shall be deemed or construed to be a consent to or waiver of any
other such breach or default. Failure or delay on the part of either party to
complain of any act (whether of commission or omission) of the other party or
to declare a breach of or default under this Lease, irrespective of how long
such failure or delay continues, shall not constitute a waiver by such party of
its rights hereunder. No waiver by either party of any default or breach by
the other party in the performance of any of the covenants or obligations of
such other party under this Lease shall be deemed to have been made by such
party unless contained in a writing executed by such party. No acceptance by
Landlord of any payment of Rent or other amount due or owing under this Lease
shall be deemed a waiver of any default or breach by Tenant in the performance
of any of Tenant's covenants or obligations under this Lease. The receipt by
Landlord of less than the full Rent due under this Lease shall not be construed
to be other than a payment on account of Rent then due under this Lease. Any
statement on Tenant's check or any letter accompanying Tenant's check shall
not be deemed an accord and satisfaction with respect to any such Rent, and
Landlord may accept such payment without prejudice to Landlord's right to
recover the balance of the Rent due or to pursue any other rights and remedies
provided in this Lease. No act (whether of commission or omission) of Landlord
or Landlord's agents, employees or representatives during the Term of this
Lease shall be deemed an acceptance of the surrender of the Premises, and no
agreement to accept such a surrender shall be valid unless in writing and
signed by Landlord.
20.7 ESTOPPEL CERTIFICATES. Whenever requested by either party, the other
party or its duly authorized representative will deliver to the requesting
party within ten (10) days after such request a statement in writing
certifying:
(a) That this Lease is unmodified and in full force and effect (or
if there have been modifications, a description of such modifications and
that the Lease as modified is in full force and effect);
(b) That the Term has commenced and full Rent is accruing thereunder
(or, a statement describing when the Term will commence and full Rent
will accrue);
(c) That any improvements or work required to be made or performed under
the Lease by the requesting party have been completed to the satisfaction
of such party (or if not, a statement as to what improvements or work have
not been made or performed);
(d) The dates to which Rent has been paid;
(e) That to the best of the knowledge of such party, the requesting
party is not in default under any provision of this Lease or, if in
default, the nature thereof in detail; and
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(f) To the best of the knowledge of such party, whether such party has
any claim against the other party under the Lease and, if so, the nature
thereof and the dollar amount of such claim, it being intended that any
such statement may be relied upon by any prospective sublessee or lender to
Tenant, any Mortgagee or prospective Mortgagee of the Building or the Land,
or any prospective assignee of any Mortgagee thereof, or any prospective or
subsequent purchaser or transferee of all or a part of Landlord's interest
in the Building or the Land, including, without limitation, any ground
lessor or prospective ground lessor.
20.8 MORTGAGEE'S APPROVALS, CONSENTS AND REQUIREMENTS. This Lease, and all
of the terms and provisions hereof, shall be subject to the approval of the
current Mortgagee. Such approval(s), or the refusal of such approval(s), shall
be obtained by Landlord within thirty (30) days of the date hereof. Any
approval or consent of Landlord required by any provision of this Lease shall
not be deemed to have been unreasonably withheld if any Mortgagee shall refuse
or withhold its approval or consent thereto. Any requirement of Landlord
pursuant to this Lease which is imposed pursuant to the direction of any
Mortgagee shall be deemed to have been reasonably imposed by Landlord if made
in good faith.
20.9 MODIFICATIONS TO LEASE.
(a) If, in connection with Landlord's obtaining financing or refinancing
for the Project or any portion thereof, a banking, insurance or other
institutional lender shall request reasonable modifications to this Lease
as a condition to such financing or refinancing, Tenant will not
unreasonably withhold, delay or defer its consent thereto, provided that
such modifications do not materially adversely affect Tenant's interest in
this Lease or materially increase the obligations of Tenant hereunder
(except to the extent that Tenant may be required to give notice of any
breach or default by Landlord to such lender and/or permit the curing of
such breach or default by such lender together with the granting of such
additional time for such curing as may be required for such lender to get
possession of the Project or any portion thereof which serves as security
for such financing or refinancing). In no event shall a requirement that
the consent of any such lender be given for any modification of this Lease
or for any assignment or sublease be deemed to materially adversely affect
the leasehold interest of Tenant hereby created.
(b) Landlord and Tenant acknowledge that Landlord is negotiating with
CHG, on the terms of a new lease for office space in the Building. If the
new lease (the "CHG Lease") between Landlord and CHG (but not any
amendments to such lease) contains provisions more favorable to CHG than
the corresponding provisions set forth in this Lease dealing with the
Specified Subjects (as hereinafter defined), Tenant shall have the benefit
of CHG's more favorable provisions. The Specified Subjects are (i) the
rates to be charged for after-hours HVAC service and extraordinary sewer
and water usage; (ii) any adjustments to real estate taxes for the purpose
of determining Tenant's Allocable Share of Real Estate Tax Expense; and
(iii) the sharing of "profits" and "losses" resulting from subletting of
Office Space. If the CHG Lease contains provisions more favorable to CHG
than the corresponding provisions set forth in this Lease pertaining to
subjects not addressed in the Commitment Agreement dated February 14, 1994,
between Landlord and Tenant attached hereto as Exhibit D (the "Commitment
Agreement"), or if exhibits or riders to the CHG Lease which correspond to
Exhibit C, Rider 1, Rider 4, Rider 5 or Rider 6 to this
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Lease are more favorable to CHG, Landlord and Tenant agree to enter into an
amendment to this Lease to provide Tenant with provisions comparable to
those contained in the CHG Lease on such subjects or to amend the
referenced exhibits or riders to correspond with those exhibits or riders
of the CHG Lease.
20.10 SUCCESSORS AND ASSIGNS. This Lease shall be binding upon and shall
inure to the benefit of Landlord and Tenant and their respective heirs,
administrators, executors, successors and assigns, but subject to the
limitations of Article XVIII.
20.11 THIRD-PARTY RIGHTS. Nothing herein expressed or implied is intended
to or shall be construed to confer upon or give to any person or entity, other
than the parties hereto, any right or remedy under or by reason of this Lease.
20.12 TIME OF THE ESSENCE. Time is of the essence of this Lease and each
and every term and condition hereof.
20.13 MEMORANDUM OF LEASE. Each of the parties hereto agrees that it shall
not record this Lease. Each of the parties agrees to execute and deliver, at the
request of the other party hereto, a memorandum of this Lease in recordable
form and substance reasonably satisfactory to each party hereto ("Memorandum of
Lease"), which may be publicly recorded by either party hereto.
20.14 BROKERS. Tenant represents and warrants to Landlord that it has
negotiated this Lease solely and directly with the real estate broker or
brokers indicated in Article I, Section 1.1(i) ("Tenant's Broker"), and that no
other person or entity assisted in or brought about on Tenant's behalf the
negotiation of this Lease in the capacity of broker, agent, finder or
originator. Tenant shall be responsible for the payment of any fee or
commission to Tenant's Broker and Tenant agrees to indemnify, defend and hold
harmless Landlord from any claims, demands, actions, suits, losses, damages,
costs, expense and liabilities that may be based upon or may be asserted or
alleged to be based upon Tenant's Broker's fee or commission or any broker's or
agent's fee or finder's or originator's commission or any other compensation to
any person or entity in respect of the transaction contemplated by this Lease
where such claims, demands, actions, suits, losses, damages, costs, expenses or
liabilities arise out of or are due to, or are asserted or alleged to arise out
of or be due to, any act (whether of commission or omission) of Tenant.
20.15 NOTICES.
(a) All notices and other communications required or permitted hereunder
to be given by either party hereto to the other party shall be in writing
and shall be deemed to have been given when delivered personally to a
general partner, corporate officer or managing agent of such other party,
or three (3) days after being mailed by certified or registered mail,
postage prepaid, return receipt requested, and addressed to such other
party at the address set forth below or to such other address or
representative as may be designated from time to time by such other party
hereto by notice given in the manner provided in this Section:
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To Tenant: McDonald & Company Securities, Inc.
800 Superior Avenue
Cleveland, Ohio 44114
Attention: Robert W. Green, Senior Vice President
with a copy to: Calfee, Halter & Griswold
800 Superior Avenue
Cleveland, Ohio 44114
Attention: John D. Wheeler, Esq.
To Landlord: Ninth Street-Superior Limited Partnership
c/o The Richard E. Jacobs Group, Inc.
25425 Center Ridge Road
Cleveland, Ohio 44145-4122
Attention: President
with a copy to: The Richard E. Jacobs Group, Inc.
25425 Center Ridge Road
Cleveland, Ohio 44145-4122
Attention: General Counsel
(b) If the Premises or any part thereof are now or at any time
hereafter during the Term subject to a Mortgage, and provided that Tenant
has been notified in writing of the name and address of the holder thereof,
then Tenant, so long as said Mortgage shall encumber the Premises,
simultaneously with the giving of any notice to Landlord, shall give a copy
of said notice to the holder of said Mortgage.
20.16 LIMITED LIABILITY OF LANDLORD. Tenant shall look solely to Landlord's
interest in the Building as the same may be encumbered from time to time for
the satisfaction of any claim, liability or judgment obtained against Landlord
and arising out of or relating to this Lease, and neither Landlord nor any
partner of Landlord, whether general or limited, shall have any personal
liability or responsibility hereunder whatsoever including, without limitation,
for any deficiency judgment.
20.17 LIABILITY OF EXECUTING AGENT. This Lease is executed by St. Clair
Management Co. ("SCM") not personally, but as agent for Landlord in the
exercise of the power and authority conferred on it by Landlord. It is
expressly understood and agreed that nothing in this Lease will be construed as
creating any liability whatsoever against SCM, its shareholders, officers,
directors or employees and, in particular, without limiting the generality of
the foregoing, there shall be no personal liability to pay any indebtedness
accruing hereunder or to perform any covenant, either express or implied,
herein contained.
20.18 SEVERABILITY. If any term or condition of this Lease or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Lease and the application of
such term or condition to any other persons or circumstances shall not be
affected thereby and shall be enforced to the fullest extent permitted by law.
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20.19 ENTIRE AGREEMENT; NO ORAL MODIFICATION. As between Landlord and
Tenant there are no terms, conditions, covenants, obligations, representations
or warranties, express or implied, collateral or otherwise, forming part of or
in any way affecting or relating to this Lease except as expressly set forth
herein, and this Lease constitutes the entire agreement between them. Except to
the extent required under Section 20.09, the Commitment Agreement shall be
deemed terminated upon the execution of this Lease and neither party shall have
any further rights, duties or obligations thereunder. This Lease may not be
modified, amended or supplemented except by a subsequent agreement in writing
executed by both Landlord and Tenant, and approved by any Mortgagee, if
applicable.
20.20 APPLICABLE LAW. This Lease has been prepared in the State of Ohio
and shall be governed in all respects by the laws of the State of Ohio.
20.21 EXECUTION. Any officer or representative executing this Lease in
a representative capacity warrants his authority to do so.
20.22 CAPTIONS. The section and subsection headings contained in this
Lease are for convenience of reference only and are not intended and shall not
be deemed or construed to limit, enlarge or affect the scope or meaning of this
Lease or any term or condition hereof.
20.23 ADDITIONAL PROVISIONS. Additional provisions forming a part of
this Lease may be attached hereto and made a part hereof with the written
agreement of Landlord and Tenant.
20.24 NO OPTION. The submission of this Lease for examination does not
constitute a reservation or option for the Premises or any other space within
the Project and shall vest no right in either party. This Lease will become
effective as a lease only upon execution and delivery thereof by the parties
hereto.
20.25 CONSTRUCTION. The rule of strict construction shall not apply to
this Lease. This Lease has been prepared by Landlord and its professional
advisors and reviewed and modified by Tenant and its professional advisors.
Landlord, Tenant, and their separate advisors believe that this Lease is the
product of all of their efforts, that it expresses their agreement, and that it
should not be interpreted in favor of or against either Landlord or Tenant
merely because of their efforts in preparing it.
20.26 GENDER AND NUMBER. Unless the context clearly requires otherwise,
the singular includes the plural, and vice versa, and the masculine, feminine,
and neuter adjectives include one another.
20.27 TERMINATION OF EXISTING LEASE. The parties acknowledge and agree
that the existing lease between them dated as of August 23, 1968 (as amended or
modified to date) with respect to space in the Building shall be terminated
effective as of 11:59 P.M. on March 31, 1994.
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ARTICLE XXI
RIGHT OF FIRST OFFER AND RIGHT OF FIRST REFUSAL
21.1. RIGHT OF FIRST OFFER. Landlord hereby grants to Tenant during the
Initial Term of this Lease, a right of first offer to lease (the "First
Offer") all or any portion of floors 3 through 16 of the Building
(the "Additional Space") when such space is "Available for Rent," as
hereinafter defined. The term "Available For Rent" shall mean (i) as to any
portion of floors 11 through 15 of the Building, when the CHG Lease with
respect to such space shall terminate and CHG shall have vacated the space;
(ii) as to any portion of floors 3 through 10 or floor 16 of the Building, if
as of January 1, April 1, July 1 or October 1 of each of the first two (2)
years of this Lease Landlord does not have a signed lease for such space or
portion thereof or a proposal to lease outstanding with respect to such space
or portion thereof; and (iii) as to any portion of floors 3 through 10 or floor
16 of the Building after the first two (2) years of this Lease, when the lease
for such space (the "Initial Lease") shall terminate and the tenant under such
lease shall have vacated the space demised under such Initial Lease. The
following provisions shall apply to Tenant's First Offer:
(a) With respect to any portion of floors 3 through 10 or floor 16,
Landlord shall deliver to Tenant on or about January 1, April 1, July
1 and October 1 of each of the first two (2) years of this Lease a notice
specifying the floors or portions of floors which are Available For Rent.
With respect to any portion of floors 11 through 15, Landlord shall deliver
to Tenant written notice that the CHG Lease has terminated (or will
terminate) and the date CHG has vacated (or will vacate) such space. After
the first two (2) years of this Lease with respect to any portion of floors
3 through 10 or floor 16 of the Building, Landlord shall deliver to Tenant
written notice that the Initial Lease for such space has terminated (or
will terminate) and the date the tenant under such Initial Lease shall have
vacated (or will vacate) the space demised under such Initial Lease.
Landlord's notice under this subsection (a) shall constitute "Landlord's
Notice of Available Space."
(b) Landlord's Notice of Additional Space shall identify and describe:
(i) the location of the portion of Additional Space which is Available For
Rent, (ii) the Rentable Area of such Additional Space, (iii) Landlord's
proposed Base Rent for such space (determined in accordance with Section
21.1(e), (iv) the date such space is Available For Rent, and (v) the date
when such Additional Space will be delivered to Tenant by Landlord.
(c) Tenant's First Offer for the Additional Space described in
Landlord's notice (the "First Offer Space"') shall be exercisable by
written notice to Landlord given within the ten (10) day period after
Landlord gives Tenant Landlord's Notice of Additional Space. If Tenant does
exercise the First Offer, Tenant's notice of exercise shall state whether
Tenant objects to Landlord's proposed Base Rent for such space. In the
event Tenant does not give such notice within the ten (10) day period,
Tenant shall be deemed to have conclusively waived its First Offer for the
Additional Space described in Landlord's Notice of Additional Space;
provided, however, that such waiver on any given occasion or occasions
shall not affect Tenant's First Offer to lease other Additional Space which
was not described in Landlord's Notice of Additional Space and provided,
further, that such waiver shall not apply to space on floors 3 through 10
or floor 16 to the extent that such space is Available
- 90 -
<PAGE> 66
for Rent on a later date as specified in Subsection (ii) or Subsection
(iii) of the first paragraph of this Section 21.1.
(d) The terms, provisions and conditions of this Lease shall apply to any
Additional Space added to this Lease by this Section 21.1, except as
expressly modified in this Section 21.1.
(e) As to each First Offer Space, the Base Rent shall be equal to the
Market Rent for the First Offer Space. In the event that Tenant does
not object to Landlord's proposed Base Rent for the First Offer Space
within the ten (10) day period set forth in Section 21.1(c), Landlord's
proposed Base Rent for such space shall be the Market Rent. In the event
Tenant does notify Landlord that Tenant objects to Landlord's proposed Base
Rent for First Offer Space ("Tenant's Objection Notice") within the ten
(10) day period, the Market Rent shall be determined in accordance with the
provisions of Section 3.4(c) and Section 3.4(d) of this Lease except that:
(i) The term Market Rent shall assume a lease term coterminous with
the Initial Term of this Lease, shall use the calendar year in
which Landlord's Notice of Additional Space is given as the Base Year
for Tenant's Allocable Share of Operating Expenses and Tenant's
Allocable Share of Real Estate Tax Expense, and shall take into
consideration the allowance for tenant improvements described in
Section 21.1(h); and
(ii) Landlord's Notice of Additional Space shall constitute Landlord's
Market Rent Proposal under the procedures of Section 3.4(d).
(f) The commencement date of the Term with respect to First Office Space
shall be the date such space is delivered to Tenant by Landlord. Any lease
of First Offer Space shall have the same termination date as the Initial
Term. Rent with respect to such space shall commence on the earlier of (i)
the date Tenant first occupies such space or (ii) one hundred eighty (180)
days after such space is delivered to Tenant.
(g) Landlord shall deliver possession of the First Offer Space to Tenant
in "as is" condition.
(h) Landlord shall provide an allowance of up to but not in excess of the
"Additional Space Allowance." as hereinafter defined, toward the actual
cost of designing and constructing tenant improvements in the Additional
Space. The Additional Space Allowance shall be a rate-per-square-foot of
Usable Area in the Additional Space equal to the product of the "Gross
Allowance," as hereinafter defined, multiplied by a fraction, the numerator
of which shall be the number of full Lease Years remaining in the Initial
Term of the Lease as of the commencement date of the Lease with respect to
the Additional Space and the denominator of which shall be fifteen (15).
The Gross Allowance shall be Fifty-Three Dollars ($53) less the then
current value of ceiling and above-ceiling improvements in the Additional
Space which are reusable pursuant to Tenant's plans, but in no event less
than Forty-Three Dollars ($43). Any ceiling and above-ceiling improvements
which Tenant does not use may be removed by Landlord.
- 91 -
<PAGE> 67
(i) The First Offer Space shall, as of the commencement of the Term with
respect to the First Offer Space, be deemed to be added to and included in
the Premises for all purposes of this Lease, and this Lease shall,
irrespective of the date of which a formal amendment hereto shall be
executed, be deemed to have been so amended as of the commencement of the
Term with respect to the First Offer Space, in accordance with the terms
described in this Article XXI. Prior to commencement of the Term with
respect to the First Offer Space, Landlord and Tenant shall enter into a
lease amendment to this Lease setting forth in full the terms, provisions
and conditions as described in this Article XXI.
(j) Notwithstanding any provision in this Lease to the contrary:
(i) The First Offer granted herein (A) shall apply only to
Additional Space which is Available For Rent during the Initial Term
of this Lease and (B) shall be subordinate to any expansion rights
of initial lease-up tenants.
(ii) Nothing contained in this Article XXI shall in any way restrict
or limit Landlord's right to enter into any lease for all or any
part of floors 11 through 16 with CH&G or to grant options for
renewal or extensions thereof to CH&G with respect to such space.
(iii) Tenant's rights under this Section 21.1 shall not be
exercisable by Tenant if, at the time of exercise, there exists an
Event of Default with respect to the payment of Base Rent, Tenant's
Allocable Share of Operating Expenses, Tenant's Allocable Share of
Real Estate Tax Expense or utility services payable by Tenant to
Landlord.
(iv) Base Rent for Additional Space for any Renewal Term shall be
determined in accordance with Section 3.4 except that the Base Rent
shall be one hundred percent (100%) of Market Rent as of the first
day of the Renewal Term.
(v) When Tenant has added all of the space on a floor to the
Premises other than the elevator lobby, corridors and other similar
common areas on such floor, those common areas shall be added to the
Premises and the floor shall be entirely leased by Tenant for
purposes of Section 1.3(l).
(vi) The provisions of this Section 21.1 as they pertain to the 16th
floor of the building shall be subordinate to the rights of first
refusal and first offer of CH&G.
(vii) During the first two (2) years of the Initial Term of this
Lease, Landlord agrees to consult with Tenant on a periodic basis
(not less frequently than quarterly) regarding the status of
Landlord's lease-up of the Building but this obligation shall not
expand Tenant's right of First Offer under this Section 21.1.
21.2 RIGHT OF FIRST REFUSAL. Landlord hereby grants to Tenant the right to
lease the Additional Space during the Term of the Lease upon the following
terms and conditions:
(a) In the event, after the initial lease-up of space in the Building,
Additional Space or any portion thereof becomes available for lease and
Landlord shall receive a bonafide offer
- 92 -
<PAGE> 68
for the lease of such space, which offer Landlord shall be ready and
willing to accept (the "First Refusal Space") then Landlord shall furnish
Tenant written notice and a statement of the material terms and
conditions of such offer and Tenant shall have ten (10) days from the
receipt of such notice in which to elect to lease all of the First Refusal
Space described in the offer on the same terms and conditions as contained
in such statement. Tenant may exercise its right of first refusal to lease
such space by giving Landlord written notice within said ten (10) day
period and such notice by Tenant shall create a binding lease between
Landlord and Tenant upon the rent, terms and conditions contained in the
statement.
(b) If Tenant shall elect not to lease space in accordance with
subsection (a) above, or shall fail to give Landlord notice within the
time provided in subsection (a), then Landlord shall have one (1) year from
the expiration of the ten (10) day period in subsection (a) to lease the
First Refusal Space. If the First Refusal Space is not leased by Landlord
within one (1) year following the expiration of the ten (10) day period in
subsection (a) then Landlord shall submit any subsequent offer to Tenant
for such space in the manner provided herein prior to making any subsequent
lease of the First Refusal Space or part thereof.
(c) The provisions of this Section 21.2 shall not apply to Landlord's
initial lease-up of space in the Building and shall be subordinate to any
extension or expansion rights of initial lease-up tenants.
Notwithstanding the foregoing, if any lease granted by Landlord in initial
lease-up contains rights of expansion in the tenant for space in excess of
twenty percent (20%) of the initial rentable area of the tenant's space,
Tenant's right of first refusal with respect to that portion of such
expansion area in excess of twenty percent (20%) of the initial rentable
area shall have priority over the expansion rights of such tenant to such
excess area.
(d) Tenant's rights under this Section 21.2 shall not be exercisable by
Tenant if, at the time of exercise, there exists of an Event of Default
with respect to the payment of Base Rent, Tenant's Allocable Share of
Operating Expenses, Tenant's Allocable Share of Real Estate Tax Expense or
utility services payable by Tenant to Landlord.
- 93 -
<PAGE> 69
(e) The rights of Tenant in this Section 21.2 shall expire at such time
as Tenant has added flfty thousand (50,000) square feet of Rentable Area to
the Premises in accordance with the terms of this Section 21.2.
(f) When Tenant has added all of the space on a floor to the Premises
other than the elevator lobby, corridors and other similar common areas on
such floor, those common areas shall be added to the Premises and the floor
shall be entirely leased by Tenant for purposes of Section 1.3(l).
(g) The provisions of this Section 21.2 as they pertain to the 16th floor
of the Building shall be subordinate to the rights of first refusal and
first offer of CH&G.
21.3 RIGHT OF FIRST REFUSAL TO 16TH FLOOR SPACE. The right of first refusal
granted to Tenant under Section 21.2 shall apply to space in the 16th floor of
the Building both during and after initial lease-up of space in the Building.
If an offer presented to Tenant under Section 21.2 hereof pertains to 16th
Floor Space and other Additional Space, Tenant, if it exercises its right of
first refusal, must do so as to all of the space in such offer even though
Tenant's right of first refusal with respect to Additional Space (other
than the 16th floor space) does not apply during the initial lease-up of space
in the Building.
- 94 -
<PAGE> 70
IN WITNESS WHEREOF, the parties hereto have executed this Lease on the day
and year first above written.
Signed and acknowledged
in the presence of: LANDLORD:
NINTH STREET-SUPERIOR LIMITED
PARTNERSHIP
By St. Clair Management Co.,
Agent
Jeanne George By: M. Cleary
- ------------------------------ ------------------------------
Its President
------------------------------
Karen C. Paytosh And: David W. Cancoaret
- ------------------------------ ------------------------------
Its Secretary
------------------------------
TENANT:
McDONALD & COMPANY SECURITIES,
INC.
Thomas J. Bartos By: William B. Summers, Jr.
- ------------------------------ ------------------------------
Its President
------------------------------
William B. Summers, Jr.
Suzanne M. Christ And: Robert W. Green
- ------------------------------ ------------------------------
Its Senior Vice President
------------------------------
Robert W. Green
- 95 -
<PAGE> 71
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
BEFORE ME, a Notary Public in and for said County and State,
personally appeared the above-named St. Clair Management Co., an Ohio
corporation and agent for Ninth Street Limited Partnership, by M.J. Cleary,
its President , and David W. Pancoast , its Secretary ,
who each acknowledged that they did sign the foregoing instrument on behalf of
said corporation and that the same is their free act and deed individually and
as such officers and the free act and deed of such corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
Cleveland, Ohio, this 21st day of July, 1994.
Eleanor J. LeFevre
--------------------------
Notary Public
My Commission Expires: 5/27/98
--------------------
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
BEFORE ME, a Notary Public in and for said County and State, personally
appeared the above-named McDonald & Company Securities, Inc., a Delaware
corporation, by William B. Summers, Jr., its President ,
and Robert W. Green , its Sr. V. P. ,
who acknowledged that they did sign the foregoing instrument on behalf of said
corporation and that the same is their free act and deed individually and as
such officers and the free act and deed of said corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
Cleveland, Ohio, this 21st day of July, 1994.
Angela R. Bruck
--------------------------
Notary Public
My Commission Expires: Sept. 25, 1995
-------------------
- 96 -
<PAGE> 72
SDI2792L30309:91004:SDI-003B.DUP
tas 7/14/94
- 97 -
<PAGE> 1
Exhibit 11
<TABLE>
<CAPTION>
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Fiscal year ended
------------------------------------------------------
March 31, 1995 March 25, 1994 March 26, 1993
-------------- -------------- --------------
PRIMARY
- -------
<S> <C> <C> <C>
Average shares outstanding 9,150,000 8,870,000 8,218,000
Net effect of dilutive stock
options - based on the
treasury stock method using
average market price 153,000 206,000 159,000
----------- ----------- -----------
TOTAL 9,303,000 9,076,000 8,377,000
----------- ----------- -----------
Net income $13,684,000 $21,588,000 $16,050,000
----------- ----------- -----------
Net income per share $ 1.47 $ 2.38 $ 1.92
=========== =========== ===========
FULLY DILUTED
- -------------
Average shares outstanding 9,150,000 8,870,000 8,218,000
Net effect of dilutive stock
options - based on the
treasury stock method using greater
of year-end or average market price 153,000 215,000 232,000
Assumed conversion of 8% convertible
subordinated debentures -- 505,000 1,080,000
----------- ----------- -----------
TOTAL 9,303,000 9,590,000 9,530,000
----------- ----------- -----------
Net income $13,684,000 $21,588,000 $16,050,000
Add 8% convertible subordinated
debenture interest, net of
federal tax effect -- 265,000 689,000
----------- ----------- -----------
TOTAL $13,684,000 $21,853,000 $16,739,000
----------- ----------- -----------
Net income per share $ 1.47 $ 2.28 $ 1.76
=========== =========== ===========
</TABLE>
- 98 -
<PAGE> 1
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21
The following is a list of the subsidiaries of the Company:
1. McDonald & Company Securities, Inc.
McDonald & Company Securities, Inc., an Ohio corporation, is a wholly
owned subsidiary of the Company.
2. MCD Oil & Gas Co., Inc.
MCD Oil & Gas Co., Inc., an Ohio corporation, is a wholly owned
subsidiary of the Company.
3. MCD Real Estate, Inc.
MCD Real Estate, Inc., an Ohio corporation, is a wholly owned
subsidiary of the Company.
4. MCD-Gradison Agency, Inc.
The Company owns all of the issued and outstanding shares of preferred
stock of MCD-Gradison Agency, Inc., an Ohio corporation. All of the
issued and outstanding shares of Common Stock are held by three officers
of the Company.
5. McDonald Financial Services, Inc.
McDonald Financial Services, Inc., an Ohio corporation, is a wholly owned
subsidiary of the Company.
6. McDonald & Company Venture Capital, Inc.
McDonald & Company Venture Capital, Inc., an Ohio corporation, is a
wholly owned subsidiary of the Company.
7. McDonald & Company Venture Capital, Inc. II
McDonald & Company Venture Capital, Inc. II, an Ohio corporation, is a
wholly owned subsidiary of the Company.
8. McDonald Capital Management, Inc.
McDonald Capital Management, Inc., an Ohio corporation, is a wholly owned
subsidiary of the Company.
9. McD-SCG, Inc.
McD-SCG, Inc., an Ohio corporation, is a wholly owned subsidiary of the
Company.
10. McD Erie, Inc.
McD Erie, Inc., an Ohio corporation, is a wholly owned subsidiary of the
Company.
11. Gradvantage, Inc.
Gradvantage, Inc., an Ohio corporation, is a wholly owned subsidiary of
the Company.
- 99 -
<PAGE> 2
SUBSIDIARIES OF THE REGISTRANT (cont.)
12. Gradison Insurance Agency, Inc.
The Company owns all the issued and outstanding shares of Class B Common
Stock of Gradison Insurance Agency, Inc., an Ohio corporation. All the
issued and outstanding shares of Class A Common Stock are held by an
officer of the Company.
13. McD Property Advisors, Inc.
McD Property Advisors, Inc., an Ohio corporation, is a wholly-owned
subsidiary of the Company.
14. Bond Lease Corporation V
Bond Lease Corporation V, an Ohio corporation, is a wholly-owned
subsidiary of the Company.
15. Bond Lease Corporation VI
Bond Lease Corporation VI, an Ohio corporation, is a wholly-owned
subsidiary of the Company.
16. Bond Lease Corporation VII
Bond Lease Corporation VII, an Ohio corporation, is a wholly-owned
subsidiary of the Company.
17. Gradison & Company, Inc.
Gradison & Company, Inc., an Ohio corporation, is a wholly-owned
subsidiary of the Company.
18. Secured Lease Finance Corp.
Secured Lease Finance Corp., an Ohio corporation, is a wholly-owned
subsidiary of the Company.
19. Secured Lease Finance Corp. II
Secured Lease Finance Corp. II, an Ohio corporation, is a wholly-owned
subsidiary of the Company.
20. McDonald Mortgage Pass-Through Corp.
McDonald Mortgage Pass-Through Corp., an Ohio corporation, is a
wholly-owned subsidiary of the Company.
21. The McDonald Trust Company
The McDonald Trust Company, an Indiana corporation, is a wholly-owned
subsidiary of the Company.
- 100 -
<PAGE> 1
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration
Statements (Form S-8 Number 33-11335) pertaining to the McDonald & Company
Investments, Inc. Stock Option Plan, Registration Statement (Form S-8 Number
33-37603) pertaining to the McDonald & Company Investments, Inc. 1990 Stock
Option Plan for Outside Directors, and Registration Number 33-54521 pertaining
to the McDonald & Company Investments, Inc. 1993 Stock Bonus Plan, of our
report dated May 2, 1995, with respect to the consolidated financial statements
of McDonald & Company Investments, Inc. included in this Annual Report (Form
10-K) for the fiscal year ended March 31, 1995.
/s/ Ernst & Young LLP
Cleveland, Ohio
June 21, 1995
- 101 -
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENT OF FINANCIAL CONDITION - MAR-31-1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 2,850
<RECEIVABLES> 154,461
<SECURITIES-RESALE> 88,869
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 95,184
<PP&E> 11,286
<TOTAL-ASSETS> 401,332
<SHORT-TERM> 64,924
<PAYABLES> 56,166
<REPOS-SOLD> 52,029
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 47,701
<LONG-TERM> 25,000
<COMMON> 0
0
11,435
<OTHER-SE> 102,927
<TOTAL-LIABILITY-AND-EQUITY> 401,332
<TRADING-REVENUE> 45,883
<INTEREST-DIVIDENDS> 19,197
<COMMISSIONS> 50,054
<INVESTMENT-BANKING-REVENUES> 41,951
<FEE-REVENUE> 15,961
<INTEREST-EXPENSE> 6,370
<COMPENSATION> 152,557
<INCOME-PRETAX> 20,704
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,684
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.47
</TABLE>
<PAGE> 1
Exhibit 99(a)
SUPPLEMENTARY FINANCIAL DATA QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock*
----------------------------------
Primary Dividends Price Range
(In thousands, except Income Before Net Net Income Paid Per ------------------
per share amounts) Revenues Income Taxes Income Per Share Share High Low
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FISCAL 1995
First quarter (13 weeks) .............. $ 40,815 $ 3,192 $ 1,942 $ .20 $ .075 $15.62 $13.00
Second quarter (14 weeks).............. 40,281 3,409 2,029 .22 .080 13.25 12.38
Third quarter (13 weeks) .............. 47,316 6,387 4,067 .44 .080 13.00 11.12
Fourth quarter (13 weeks).............. 49,314 7,716 5,646 .61 .080 14.38 11.00
-------------------------------------------------------------
Total Year............................. $177,726 $ 20,704 $ 13,684 $ 1.47 $ .315
=============================================================
FISCAL 1994
First quarter (13 weeks)** ............ $ 47,717 $ 8,111 $ 5,111 $ .59 $ .063 $13.96 $12.40
Second quarter (13 weeks)**............ 48,020 7,832 4,832 .56 .075 15.00 12.39
Third quarter (14 weeks)............... 61,917 12,151 7,551 .80 .075 16.00 13.38
Fourth quarter (12 weeks).............. 47,026 6,594 4,094 .43 .075 16.88 14.50
-------------------------------------------------------------
Total Year............................. $204,680 $ 34,688 $ 21,588 $ 2.38 $ .288
=============================================================
</TABLE>
* The Common Stock of McDonald & Company Investments, Inc., is listed on the
New York Stock Exchange. The trading symbol is MDD. At April 30, 1995,
the approximate number of stockholders of record was 1,045.
** All income per share, dividends paid per share, and price range
information has been restated to reflect the effect of the 20% stock
dividend paid during the fiscal year ended March 25, 1994. (See Note F to
the Consolidated Financial Statements.)
- 102 -
<PAGE> 1
Exhibit 99(b)
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------------------------
March 31, 1995 March 25, 1994* March 26, 1993* March 27, 1992* March 29, 1991*
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Revenues.............................. $ 177,726 $ 204,680 $ 173,817 $ 128,063 $ 81,033
Income before income taxes
and extraordinary item............ 20,704 34,688 24,700 17,076 3,706
Income before extraordinary item...... 13,684 21,588 16,050 10,896 2,706
Net income............................ 13,684 21,588 16,050 10,896 3,918
Primary net income per share
Before extraordinary item......... 1.47 2.38 1.92 1.48 .42
Net income........................ 1.47 2.38 1.92 1.48 .60
Cash dividends paid per share......... .315 .288 .312 .167 .167
<CAPTION>
FINANCIAL POSITION AS OF: March 31, 1995 March 25, 1994 March 26, 1993 March 27, 1992 March 29, 1991
----------------------------------------------------------------------------------
Total assets.......................... $ 401,332 $ 590,578 $ 528,942 $ 322,029 $ 201,177
Long-term borrowings.................. 25,000 25,000 38,055 13,055 13,055
Stockholders equity................... 114,362 107,405 77,927 62,923 38,512
</TABLE>
* All income per share and cash dividends per share information has been
adjusted for the 20% stock dividend paid during the fiscal year ended March 25,
1994. (See Note F to the Consolidated Financial Statements.)
- 103 -
<PAGE> 1
Exhibit 99(c)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS ENVIRONMENT
McDonald & Company Investments, Inc. ("the Company"), operates a
full-service, regional investment banking, investment advisory and brokerage
business through its principal subsidiary, McDonald & Company Securities, Inc.
("McDonald Securities"). The Company is involved in the origination,
underwriting, distribution, trading, and brokerage of fixed income and equity
securities, and provides investment advisory services.
The profitability of the Company is sensitive to many factors, including
the level of securities trading volume and the volatility and general level of
market prices. Many of its activities have high operating costs which do not
decrease with reduced levels of activity. Sustained periods of reduced volume,
or loss of clients, could have adverse effects upon profitability.
The Company faces increasing competition from commercial banks and thrift
institutions as these institutions offer certain investment banking and
corporate and individual financial services traditionally provided only by
securities firms. The Company anticipates regulation of the securities
industry to increase and that compliance with regulations may become more
difficult. At present, the Company is unable to predict the extent of changes
that may be enacted, or the effect on the Company's business.
The Company has formulated a comprehensive strategic plan which is
periodically reviewed and revised as business conditions dictate. The plan
emphasizes the Company's historical roots as a regional brokerage and investment
banking firm. The Company has focused on the Ohio, Michigan and Indiana markets
by increasing the number of sales representatives covering individual investors,
as well as increasing investment banking activities in this region. The
Company's institutional equity and fixed income sales departments cover accounts
throughout the United States and internationally.
- 104 -
<PAGE> 2
LIQUIDITY AND CAPITAL RESOURCES
The majority of the Company's assets are highly liquid and short-term in
nature. Cash and liquid assets, principally receivables from customers, brokers
and dealers, securities purchased under agreements to resell, and securities
owned, represented approximately 89% of the Company's assets at March 31, 1995.
These assets are financed by a number of sources, including short-term
borrowings and securities sold under agreements to repurchase, long-term
borrowings and equity capital.
At March 31, 1995, McDonald Securities has outstanding $25,000,000 in
aggregate principal amount of 8.24% Subordinated Notes due January 15, 2002.
McDonald Securities is required to pay principal amounts of $5,000,000 on
January 15 of each year beginning in 1998. The notes are subordinated in right
of payment to all senior indebtedness and general creditors of McDonald
Securities. In addition to providing additional long-term financing, the notes
have been approved by the New Yo Stock Exchange, Inc., for inclusion in McDonald
Securities' regulatory capital.
Changes in the levels of securities owned and in customer and broker
receivables directly affect the Company's financing arrangements. The Company
has available lines of credit of $318,000,000, of which $257,500,000 was unused
as of March 31, 1995. Management believes that funds from operations, available
lines of credit and long-term borrowings provide sufficient resources to meet
present and anticipated financial needs.
Certain minimum amounts of capital must be maintained by McDonald
Securities to satisfy the regulatory requirements of the Securities and Exchange
Commission and the New York Stock Exchange, Inc. The regulatory requirements
represent Uniform Net Capital Rules designed to measure the general financial
integrity and liquidity of registered broker/dealers and to provide minimum
acceptable net capital levels to meet the continuing commitments to customers.
Net capital, as defined, changes from day to day. At March 31, 1995, McDonald
Securities was in compliance with the Uniform Net Capital Rules and had net
capital of $72,352,000, which was $69,504,000 in excess of the minimum required.
RESULTS OF OPERATIONS
The following table summarizes the changes in the major categories of
revenues and expenses for the fiscal years ended March 31, 1995, March 25, 1994,
and March 26, 1993.
<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1994
versus versus
Fiscal 1994 Fiscal 1993
---------------------------------------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
REVENUES
Underwriting and investment banking......... $(22,057) (34)% $21,277 50%
Principal transactions...................... (5,886) (11) (7,815) (13)
Commissions................................. (3,251) (6) 13,121 33
Investment management fees.................. 1,419 10 2,222 18
Interest and dividends...................... 3,867 25 1,480 11
Other....................................... (1,046) (18) 578 11
----------------------------------------
$(26,954) (13) $30,863 18%
========================================
EXPENSES
Employee compensation and benefits.......... $(14,275) (12)% $17,307 17%
Interest.................................... (2,927) (31) 1,598 21
Communications.............................. 1,574 14 1,215 13
Occupancy and equipment..................... 1,580 14 1,773 18
Promotional and development................. 169 2 616 9
Floor brokerage and clearance............... (329) (11) 78 3
Taxes other than income taxes............... 855 17 818 19
Other operating expenses.................... 383 6 (2,530) (29)
----------------------------------------
$(12,970) (8) $20,875 14%
========================================
</TABLE>
- 105 -
<PAGE> 3
FISCAL 1995 COMPARED WITH FISCAL 1994
Total revenues for the fiscal year ended March 31, 1995 were $177,726,000,
a decrease of $26,954,000, or 13%, from revenues of $204,680,000 for the fiscal
year ended March 25, 1994.
Net income for the fiscal year ended March 31, 1995 was $13,684,000, or
$1.47 per share, compared to $21,588,000, or $2.38 per share for the fiscal year
ended March 25, 1994, a decrease in net income of 37%.
The average number of shares and share equivalents outstanding was
9,303,000 for the fiscal year ended March 31, 1995 compared with 9,076,000 for
the fiscal year ended March 25, 1994.
On July 27, 1993, the Company declared a 20% stock dividend payable August
20, 1993, to shareholders of record August 10, 1993. Applicable share and per
share information has been adjusted for the stock dividend as if it had occurred
at the beginning of the fiscal 1994 and 1993 periods.
Revenues from underwriting and investment banking decreased $22,057,000, or
34% for the fiscal year ended March 31, 1995, when compared to the fiscal year
ended March 25, 1994. Revenues from corporate underwriting and investment
banking decreased $18,982,000, or 36% for the fiscal year ended March 31, 1995,
when compared to the prior fiscal year. This resulted from decreases in revenues
from managed and co-managed originations of $13,645,000, or 56%, and decreases
in revenues from participation in syndicate groups of $9,866,000, or 57% in the
current fiscal year. These declines are attributable to less favorable market
conditions for public offerings of equity securities and the continued weakness
in the taxable debt securities markets. These decreases were partially offset by
an increase of $3,166,000, or 49% in mergers and acquisitions and other
financial advisory fees due to favorable market conditions for this type of
activity. Additionally, revenues from private placements of debt and equity
securities and limited partnerships increased $1,363,000, or 26%. Revenues from
public finance decreased $3,075,000, or 28% for the fiscal year ended March 31,
1995, due to a lower level of public finance offerings.
Revenues from underwriting and investment banking activities are highly
dependent on general market conditions for such business activities. Market
conditions for underwriting and investment banking services can be affected by
economic and legislative events, both in the United States and abroad. To the
extent that future events are unpredictable, uncertainty will be a factor in the
level of McDonald Securities' business activity. Also, competitive pressure from
other entities providing investment banking services can and will have an effect
on the success of the Company in obtaining such business and on the prices which
can be charged for investment banking and underwriting services. Management
believes that the Company can compete effectively in this segment of its
business activities.
Revenues from principal transactions decreased $5,886,000, or 11% for the
fiscal year ended March 31, 1995, when compared to the prior fiscal year.
Revenues from trading taxable fixed-income securities, including corporate
bonds, United States government bonds and mortgage-backed securities, decreased
$3,157,000, or 12%. For the fiscal year ended March 25, 1994 revenues from
principal transactions in taxable fixed-income securities were adversely
impacted by a net trading loss of $3,718,000 experienced in the Company's fixed
income arbitrage area. The fixed-income arbitrage trading area was eliminated as
of the beginning of the current fiscal year. Without giving effect to this loss,
revenues from principal transactions in taxable fixed-income securities declined
$6,875,000, or 24% for the current fiscal year. This decrease in revenues from
principal transactions in taxable fixed-income securities was caused by less
favorable conditions for the trading of such securities with institutional
investors.
For the fiscal year ended March 31, 1995, institutional revenues from
trading corporate bonds declined $3,252,000, or 45%, institutional revenues from
trading U.S. government bonds declined $3,323,000, or 37%, and institutional
revenues from trading mortgage-backed securities declined $2,952,000, or 35%.
Institutional investor interest in fixed-income securities continued to decline
over the current fiscal year because of uncertainties related to interest rates
and the economy. These decreases were partially offset by increased revenues
from trading taxable fixed-income securities transactions with individual
investors of $2,652,000, or 60% for the fiscal year ended March 31, 1995, when
compared to the prior fiscal year. This increase is attributable to the
expansion of the retail sales force and increased interest in taxable
fixed-income products by individual investors due to higher yields.
- 106 -
<PAGE> 4
Revenues from trading municipal bonds decreased $485,000, or 6% for the
current fiscal year, primarily due to a trading loss of $2,440,000 recorded in
March 1995 related to certain municipal inventory positions. This loss was
partially offset by increased revenues from trading municipal bonds due to
increased individual investor interest in tax-exempt securities. Without regard
to the trading loss on certain municipal positions, revenues from trading
municipal bonds increased $1,955,000, or 25%.
Revenues from principal transactions in equity securities decreased
$2,244,000, or 12% for the fiscal year ended March 31, 1995, when compared to
the prior fiscal year. Revenues in this area were at record levels in the prior
fiscal year.
Commissions revenue decreased $3,251,000, or 6% for the fiscal year ended
March 31, 1995, when compared to the fiscal year ended March 25, 1994. The
decrease in commissions revenues resulted from decreased investor
- 107 -
<PAGE> 5
participation in the equity markets due to higher interest rates. The decrease
in commissions revenue was comprised primarily of decreases in revenues from
listed and over-the-counter agency commissions of $1,961,000, or 6%, and a
decrease in revenues from mutual fund sales of $1,535,000, or 10%, for the
current fiscal year.
Revenues from investment management fees include advisory fees from the
Company's mutual funds, money market funds, and investment management fees
earned related to individual managed accounts. Revenues from investment
management fees increased $1,419,000, or 10% for the fiscal year ended March 31,
1995, when compared to the prior fiscal year. Advisory fees from the Company's
mutual funds and money market funds increased $244,000, or 3%, and revenues from
investment management fees related to individual managed accounts increased
$1,175,000, or 20%. These increases were a result of an increase in assets under
management.
Interest and dividend income increased $3,867,000, or 25% for the fiscal
year ended March 31, 1995, when compared to the prior fiscal year. Of this
amount, $2,545,000 represented a 48% increase in interest income earned on
customer margin accounts due to both higher levels of customer margin accounts
and higher interest rates. The remaining increase in interest income of
$1,322,000 represents primarily a 14% increase in interest income from
securities owned. Of this amount, $4,880,000 represents an increase in interest
income from municipal bonds related to accrued interest on certain municipal
positions. The remaining decrease in interest income from securities owned of
$3,558,000 represents a 43% decrease in interest income from U.S. government
bonds, corporate bonds and mortgage-backed securities due to a decline in the
average levels of securities owned.
Other income decreased $1,046,000, or 18% for the fiscal year ended March
31, 1995, when compared to the prior fiscal year. The decrease was primarily due
to a decrease of $1,750,000 in gains related to venture capital investments.
Transfer agent and other fee income related to proprietary mutual funds
increased $605,000, or 36% for the fiscal year ended March 31, 1995, compared to
the 1994 fiscal year. This increase was due to both an increase in assets in the
funds and certain contractual changes.
Operating expenses (total expenses before interest) decreased $10,043,000,
or 6% for the fiscal year ended March 31, 1995, when compared to the prior
fiscal year. Employee compensation and benefits decreased $14,275,000, or 12%
for the current fiscal year. Commission and other sales compensation expense
decreased $10,203,000, or 16% for the current fiscal year, primarily as a result
of the decrease in revenues. Other clerical and administrative expenses
increased $2,628,000, or 8% for the current fiscal year. The increase in other
clerical and administrative expense represents compensation and employee
benefits costs related to an increase in the professional and support staff
during the current fiscal year. The remaining $6,700,000 decrease in employee
compensation represents decreases in incentive compensation and profit sharing
accruals, which are directly related to the decline in profitability.
All other operating expenses increased $4,232,000, or 10% for the fiscal
year ended March 31, 1995, when compared to the fiscal year ended March 25,
1994. The increase in all other operating costs reflects the communications,
occupancy and equipment, and other operating costs related to the expansion of
the Company's business. For the fiscal year ended March 31, 1995, communications
expenses increased $1,574,000, or 14%, primarily due to the effect of the
expansion of the business, including costs related to opening new branches.
Occupancy and equipment costs increased $1,580,000, or 14%, reflecting increases
in rent, equipment, and other occupancy costs in the Company's administrative
office, and in the branch system. Taxes other than income taxes increased
$855,000, or 17%, primarily because of an increase in payroll taxes caused by an
increase in the number of employees.
Interest expense decreased $2,927,000, or 31% for the fiscal year ended
March 31, 1995, when compared to the fiscal year ended March 25, 1994. The
decrease in interest expense was due to lower average borrowings due to a
decrease in the average level of securities owned and the conversion of the
Company's convertible subordinated debentures during the fiscal year ended March
25, 1994. The decrease in interest expense attributable to lower average
borrowings was partially offset by higher average short-term borrowing rates.
Income before income taxes for the fiscal year ended March 31, 1995, was
$20,704,000, resulting in a pre-tax return on revenues of 11.6%. For the fiscal
year ended March 25, 1994, income before income taxes was $34,688,000, resulting
in a pre-tax return on revenues of 16.9%.
- 108 -
<PAGE> 6
FISCAL 1994 COMPARED WITH FISCAL 1993
Total revenues for the fiscal year ended March 25, 1994 were $204,680,000,
an increase of $30,863,000, or 18%, from revenues of $173,817,000 for the fiscal
year ended March 26, 1993.
Net income for the fiscal year ended March 25, 1994 was $21,588,000, or
$2.38 per share, compared to $16,050,000, or $1.92 per share for the fiscal year
ended March 26, 1993, an increase in net income of 35%.
The average number of shares and share equivalents outstanding was
9,076,000 for the fiscal year ended March 25, 1994 compared with 8,377,000 for
the fiscal year ended March 26, 1993.
-109-
<PAGE> 7
FISCAL 1994 COMPARED WITH FISCAL 1993
On July 27, 1993, the Company declared a 20% stock dividend payable August
20, 1993, to shareholders of record August 10, 1993. Applicable share and per
share information has been adjusted for the stock dividend as if it had occurred
at the beginning of the fiscal 1994 and 1993 periods.
Revenues from underwriting and investment banking increased $21,277,000, or
50% for the fiscal year ended March 25, 1994, when compared to the fiscal year
ended March 26, 1993. Revenues from corporate underwriting and investment
banking increased $22,764,000, or 83% for the fiscal year ended March 25, 1994,
when compared to the prior fiscal year. This was caused by increases in managed
and co-managed originations, participation in syndicate groups and private
placements of equity and taxable debt securities in the fiscal year ended March
25, 1994. These increases are attributable primarily to continued favorable
market conditions for such offerings. Partially offsetting the increase,
revenues from public finance decreased $2,289,000, or 17% for the fiscal year
ended March 25, 1994, when compared to the prior fiscal year. Public finance
revenues were very strong in the prior fiscal year caused by favorable market
conditions. Revenues from mergers and acquisitions and other financial advisory
fees increased $802,000, or 37% for the fiscal year ended March 25, 1994, when
compared to the prior fiscal year.
Revenues from principal transactions decreased $7,815,000, or 13% for the
fiscal year ended March 25, 1994, when compared to the prior fiscal year.
Revenues from trading taxable fixed-income securities, including corporate
bonds, U.S. government bonds and mortgage-backed securities, decreased
$14,770,000, or 37%. This decrease in revenues from principal transactions in
taxable fixed-income securities was caused by less favorable market conditions
in the fiscal year ended March 25, 1994.
For the fiscal year ended March 25, 1994, revenues from trading corporate
bonds declined $5,214,000, or 31%, and revenues from trading mortgage-backed
securities declined $6,326,000, or 43%. These declines were generally
attributable to a less favorable market environment for taxable fixed-income
securities. Investor interest in fixed-income securities declined over the
fiscal year ended March 25, 1994 because of the rises in interest rates and
uncertainties related to the level of interest rates in the near future. During
the fiscal year ended March 25, 1994, revenues from the Company's fixed-income
arbitrage area declined $4,843,000 from revenues of $1,125,000 for the fiscal
year ended March 26, 1993, to a loss of $3,718,000 for the fiscal year ended
March 25, 1994. The loss for the fiscal year ended March 25, 1994, of $3,718,000
was caused by a trading loss of $5,600,000 experienced in the months of February
and March, 1994. This loss was caused by the rapid deterioration of the
fixed-income markets during those months. The Company eliminated its
fixed-income arbitrage activities effective as of the beginning of the fiscal
year ended March 31, 1995.
Revenues from trading municipal bonds increased $1,622,000, or 26% for the
fiscal year ended March 25, 1994, primarily because of improved market
conditions.
Revenues from principal transactions in equity securities increased
$5,333,000, or 41% for the fiscal year ended March 25, 1994, when compared to
the prior fiscal year. Substantially all of the increase was attributable to an
increase in revenues from trading unlisted equity securities because of investor
demand for such products and expansion of the retail sales force.
Commissions revenue increased $13,121,000, or 33% for the fiscal year ended
March 25, 1994, when compared to the fiscal year ended March 26, 1993. The
increase in commissions revenue reflects higher volume resulting from both
improved market conditions and the increase in the size of the retail sales
force. During the 1994 fiscal year, low interest rates and a strong stock market
encouraged investor participation in the equity markets. The increase in
commissions revenue was comprised primarily of increases in revenues from listed
and over-the-counter agency commissions of $7,603,000, or 29%, and an increase
in revenues from mutual fund sales of $4,408,000, or 40% for the 1994 fiscal
year.
- 110 -
<PAGE> 8
Revenues from investment management fees include advisory fees from the
Company's mutual funds, money market funds, and investment management fees
earned related to individual managed accounts. Revenues from investment
management fees increased $2,222,000, or 18% for the fiscal year ended March 25,
1994, when compared to the prior fiscal year. Advisory fees from the Company's
mutual funds and money market funds increased $756,000, or 9%, and revenues from
investment management fees related to individual managed accounts increased
$1,466,000, or 34%. These increases were caused by an increase in assets under
management.
Interest and dividend income increased $1,480,000, or 11% for the fiscal
year ended March 25, 1994, when compared to the prior fiscal year. The increase
was primarily caused by a higher level of customer margin loans and securities
owned in the 1994 fiscal year.
Other income increased $578,000, or 11% for the fiscal year ended March 25,
1994, when compared to the prior fiscal year. The increase was primarily caused
by increases in service fees and other fee income related to the expansion of
the retail business.
Operating expenses (total expenses before interest) increased $19,277,000,
or 14% for the fiscal year ended March 25, 1994, when compared to the prior
fiscal year. Employee compensation and benefits increased $17,307,000, or 17%
for the 1994 fiscal year. Commission
- 111 -
<PAGE> 9
and other sales compensation expense increased $10,306,000, or 20% for the 1994
fiscal year, primarily as a result of the increase in revenues. Other clerical
and administrative expenses increased $4,251,000, or 15% for the 1994 fiscal
year. The increase in other clerical and administrative expenses represents
compensation and employee benefits costs related to an increase in the
professional and support staff during the 1994 fiscal year. The remaining
$2,750,000 increase in employee compensation represents increases in incentive
compensation and profit sharing accruals, which are directly related to the
significant improvement in profitability.
All other operating expenses increased $1,970,000, or 5% for the fiscal
year ended March 25, 1994, when compared to the fiscal year ended March 26,
1993. The increase in all other operating costs reflects the communications,
occupancy and equipment, promotional, and other operating costs related to the
expansion of the Company's business.
For the fiscal year ended March 25, 1994, communications expenses increased
$1,215,000, or 13%, primarily because of increased volume and the effect of the
expansion of the Company's business, including costs related to opening new
branches. Occupancy and equipment costs increased $1,773,000, or 18%, reflecting
increases in rent, equipment, and other occupancy costs in the Company's
administrative office, and in the branch system.
Promotional and development expenses increased $616,000, or 9% for the
fiscal year ended March 25, 1994, when compared to the prior fiscal year. The
increase reflects increases in media advertising and other business development
expenses.
Taxes other than income taxes increased $818,000, or 19% for the 1994
fiscal year, primarily because of an increase in payroll taxes caused by higher
levels of compensation and the increase in the number of employees.
Other operating expenses decreased $2,530,000, or 29% for the fiscal year
ended March 25, 1994, when compared to the prior fiscal year. The decrease
results primarily from a decrease in litigation expenses of approximately
$2,956,000.
Interest expense increased $1,598,000, or 21% for the fiscal year ended
March 25, 1994, when compared to the fiscal year ended March 26, 1993. This
increase reflects a higher level of average short-term borrowings because of an
increase in the level of securities owned and customer margin accounts.
Additionally, the average rate on borrowings increased because of the issuance
in January 1993, by McDonald Securities, of $25,000,000 in 8.24% Subordinated
Notes.
Income before income taxes for the fiscal year ended March 25, 1994, was
$34,688,000, resulting in a pre-tax return on revenues of 16.9%. For the fiscal
year ended March 26, 1993, income before income taxes was $24,700,000, resulting
in a pre-tax return on revenues of 14.2%.
- 112 -
<PAGE> 1
Exhibit 99(d)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------
March 31, 1995 March 25, 1994 March 26, 1993
(In thousands, except share and per share amounts)
<S> <C> <C> <C>
REVENUES
Underwriting and investment banking...................... $ 41,951 $ 64,008 $ 42,731
Principal transactions................................... 45,883 51,769 59,584
Commissions.............................................. 50,054 53,305 40,184
Investment management fees............................... 15,961 14,542 12,320
Interest and dividends................................... 19,197 15,330 13,850
Other.................................................... 4,680 5,726 5,148
---------------------------------------------
177,726 204,680 173,817
---------------------------------------------
EXPENSES
Employee compensation and benefits....................... 102,557 116,832 99,525
Interest................................................. 6,370 9,297 7,699
Communications........................................... 12,493 10,919 9,704
Occupancy and equipment.................................. 13,061 11,481 9,708
Promotion and development................................ 7,494 7,325 6,709
Floor brokerage and clearance............................ 2,575 2,904 2,826
Taxes, other than income taxes........................... 5,989 5,134 4,316
Other operating expenses................................. 6,483 6,100 8,630
---------------------------------------------
157,022 169,992 149,117
---------------------------------------------
Income before income taxes................................... 20,704 34,688 24,700
Provision for income taxes................................... 7,020 13,100 8,650
---------------------------------------------
Net income................................................... $ 13,684 $ 21,588 $ 16,050
=============================================
Income per share
Primary.................................................. $ 1.47 $ 2.38 $ 1.92
Fully diluted............................................ $ 1.47 $ 2.28 $ 1.76
Average number of shares and share equivalents outstanding... 9,303,000 9,076,000 8,377,000
</TABLE>
See Notes to Consolidated Financial Statements.
-113-
<PAGE> 2
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, 1995 March 25, 1994
-------------------------------
(In thousands, except share and per share amounts)
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................................................. $ 2,850 $ 6,765
Receivable from customers.................................................................. 136,180 124,294
Receivable from brokers and dealers........................................................ 18,281 30,915
Securities purchased under agreements to resell............................................ 88,869 216,263
Securities owned........................................................................... 95,184 152,690
Other receivables.......................................................................... 16,368 12,087
Furniture, equipment, and leasehold improvements, at cost,
less accumulated depreciation and amortization of $18,717 at March 31, 1995
and $15,304 at March 25, 1994............................................................ 11,286 9,987
Other assets............................................................................... 32,314 37,577
-------------------------
$401,332 $590,578
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings...................................................................... $ 64,924 $ 90,731
Payable to customers....................................................................... 35,380 28,220
Payable to brokers and dealers............................................................. 20,786 23,527
Securities sold under agreements to repurchase............................................. 52,029 198,730
Securities sold but not yet purchased...................................................... 47,701 64,644
Accrued compensation and profit sharing contribution....................................... 20,282 24,586
Accounts payable, accrued expenses and other liabilities................................... 20,868 27,735
Long-term borrowings....................................................................... 25,000 25,000
-------------------------
286,970 483,173
Commitments and Contingencies
Stockholders' Equity
Preferred Stock, without par value; 200,000 shares authorized;
none issued
Common Stock, par value $1.00 per share; 15,000,000 shares
authorized; (11,434,788 and 11,176,129 shares issued, respectively)...................... 11,435 11,176
Additional paid-in capital................................................................. 48,342 44,916
Retained earnings.......................................................................... 77,034 66,239
-------------------------
136,811 122,331
Less treasury stock, at cost -
2,481,535 shares at March 31, 1995, and
1,915,138 shares at March 25, 1994....................................................... (22,449) (14,926)
-------------------------
114,362 107,405
-------------------------
$401,332 $590,578
=========================
</TABLE>
See Notes to Consolidated Financial Statements.
-114-
<PAGE> 3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock
----------------------------------------------
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C>
BALANCE AT MARCH 27, 1992.................................. $ 8,109 $30,020 $33,708 $ (8,914)
Net income for the fiscal year............................. 16,050
Purchase of 2,400 shares of treasury stock, at cost........ (28)
Issuance of 63,792 shares of treasury stock
to satisfy exercise of stock options....................... 157 348
Issuance of 110,656 shares of common stock................. 93 943
Cash dividends, $.312 per share............................ (2,559)
----------------------------------------------
BALANCE AT MARCH 26, 1993.................................. 8,202 31,120 47,199 (8,594)
Net income for the fiscal year............................. 21,588
Purchase of 496,509 shares of treasury stock, at cost...... (7,259)
Issuance of 140,230 shares of treasury stock
to satisfy exercise of stock options....................... 96 927
Issuance of 270,201 shares of common stock................. 241 3,838
Issuance of common stock to satisfy 20% stock dividend..... 1,681 (1,681)
Issuance of 1,064,031 shares of common stock because of
conversion of 8% convertible subordinated debentures....... 1,052 11,543
Cash dividends, $.288 per share............................ (2,548)
----------------------------------------------
BALANCE AT MARCH 25, 1994.................................. 11,176 44,916 66,239 (14,926)
Net income for the fiscal year............................. 13,684
Purchase of 674,377 shares of treasury stock, at cost...... (8,380)
Issuance of 107,980 shares of treasury stock
to satisfy exercise of stock options....................... (127) 857
Issuance of 258,659 shares of common stock................. 259 3,553
Cash dividends, $.315 per share............................ (2,889)
----------------------------------------------
BALANCE AT MARCH 31, 1995.................................. $11,435 $48,342 $77,034 $(22,449)
==============================================
</TABLE>
See Notes to Consolidated Financial Statements.
-115-
<PAGE> 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------
(In thousands) March 31, 1995 March 25, 1994 March 26, 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income.................................................................... $ 13,684 $ 21,588 $ 16,050
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization.............................................. 4,973 4,083 3,506
Deferred compensation...................................................... 609 298 205
Deferred income taxes...................................................... 560 (2,219) (1,569)
Increase in receivable from customers...................................... (11,886) (40,059) (25,002)
(Increase) decrease in receivable from brokers and dealers................. 12,634 5,729 (13,715)
(Increase) decrease in securities owned.................................... 57,506 9,231 (19,973)
Increase in other receivables.............................................. (4,281) (459) (2,894)
Increase in payable to customers........................................... 7,160 10,056 1,296
Increase (decrease) in payable to brokers and dealers...................... (2,741) 17,018 3,466
Increase (decrease) in securities sold but not yet purchased............... (16,943) 22,425 3,758
Increase (decrease) in accrued compensation and profit sharing
contribution............................................................. (492) 7,353 2,710
Increase (decrease) in accounts payable, accrued expenses and
other liabilities........................................................ (7,476) 7,009 7,033
------------------------------------------
Net cash provided by (used for) operating activities....................... 53,307 62,053 (25,129)
INVESTING ACTIVITIES:
Purchase of furniture, equipment, and leasehold improvements............... (5,678) (3,272) (5,118)
(Increase) decrease in other assets........................................ 4,109 (4,273) 1,755
------------------------------------------
Net cash provided by (used for) investing activities....................... (1,569) (7,545) (3,363)
FINANCING ACTIVITIES:
(Increase) decrease in securities purchased under agreements to resell..... 127,394 (31,114) (138,096)
Decrease in short-term borrowings.......................................... (25,807) (7,322) (15,418)
Increase (decrease) in securities sold under agreements to repurchase...... (146,701) (7,807) 164,132
Proceeds from issuance of subordinated notes............................... 25,000
Cash dividends............................................................. (2,889) (2,548) (2,559)
Purchase of treasury stock................................................. (8,380) (7,259) (28)
Proceeds from issuance of treasury stock................................... 730 1,023 505
Redemption of convertible subordinated debentures.......................... (198)
------------------------------------------
Net cash provided by (used for) financing activities....................... (55,653) (55,225) 33,536
------------------------------------------
Increase (decrease) in cash and cash equivalents.............................. (3,915) (717) 5,044
Cash and cash equivalents at beginning of fiscal year......................... 6,765 7,482 2,438
------------------------------------------
Cash and cash equivalents at end of fiscal year............................... $ 2,850 $ 6,765 $ 7,482
==========================================
</TABLE>
See Notes to Consolidated Financial Statements
-116-
<PAGE> 5
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The consolidated financial statements include the accounts of McDonald &
Company Investments, Inc., and its subsidiaries, collectively referred to as the
"Company." All significant intercompany accounts and transactions are eliminated
in consolidation.
The Company's fiscal year is the 52- or 53-week period ending on the last
Friday in March.
The Company, through its principal subsidiary, McDonald & Company
Securities, Inc. ("McDonald Securities"), is engaged in the business of a
securities broker and dealer, which is comprised of several classes of service,
such as underwriting and investment banking, principal and agency transactions,
and investment advisory services.
Substantially all of the Company's financial assets and liabilities are
carried at market value or at amounts which, because of the short-term nature of
the financial instruments, approximate current fair value. The market value of
the Company's long-term borrowings, estimated based on current interest rates,
does not differ significantly from the amount recorded at March 31, 1995.
Cash and cash equivalents represent cash in banks and excess cash invested
with banks overnight in short-term instruments.
Repurchase and resale agreements are treated as financing transactions and
are carried at the amounts at which the securities will be reacquired or resold
as specified in the respective agreements. It is the Company's policy to obtain
possession of collateral. The Company monitors the risk of loss by assessing the
market value of the underlying securities as compared to the related receivable
or payable, including accrued interest, and requires additional collateral where
deemed appropriate.
Securities owned and securities sold but not yet purchased are carried at
market value, and unrealized gains and losses are included in revenues from
principal transactions.
Securities transactions and related commissions revenue and expense are
recorded on the settlement date basis. The effect on the financial statements of
using the settlement date basis, rather than the trade-date basis, is not
material.
Investment banking revenue (other than underwriting revenue) and investment
management fees are recorded as the income is earned and the related services
are performed. Underwriting revenue is recorded upon completion of the
underwriting.
Furniture and equipment are depreciated on the straight-line method over
their estimated useful lives. Leasehold improvements are amortized on the
straight-line method over the life of the lease or the useful life of the
improvement, whichever is shorter.
The excess of the purchase price over net identifiable assets acquired
(goodwill) is included in other assets and is being amortized on the
straight-line basis over a period of 25 years.
- 117 -
<PAGE> 6
NOTE B - SECURITIES OWNED AND SECURITIES SOLD BUT NOT YET PURCHASED
Securities owned and securities sold, but not yet purchased, consist of the
following:
<TABLE>
<CAPTION>
March 31, 1995 March 25, 1994
--------------------------------------
(In thousands)
<S> <C> <C>
Securities owned
Corporate obligations................ $ 42,416 $ 80,987
State and municipal obligations...... 18,715 10,817
Mortgage-backed securities........... 18,040 16,380
Corporate stocks..................... 11,740 11,278
U.S. Government obligations.......... 3,520 33,020
Other................................ 753 208
--------------------------------
$ 95,184 $152,690
================================
Securities sold but not yet purchased
U.S. Government obligations.......... $ 40,799 $ 52,500
Corporate stocks..................... 6,727 7,539
Other................................ 175 4,605
--------------------------------
$ 47,701 $ 64,644
================================
</TABLE>
NOTE C - SHORT TERM BORROWINGS
Short-term borrowings include the following:
<TABLE>
<CAPTION>
March 31, 1995 March 25, 1994
---------------------------------
(In thousands)
<S> <C> <C>
Secured bank loans........... $ 33,383 $ 33,815
Unsecured bank loans......... 31,541 56,916
----------------------------
$ 64,924 $ 90,731
============================
</TABLE>
Short-term borrowings are bank loans payable on demand at rates ranging
from 6.75% to 8.25% at March 31, 1995. The secured loans were collateralized by
customer-owned securities with a market value of $70,005,000 and firm-owned
securities with a market value of $37,641,000 at March 31, 1995. At March 25,
1994, the secured loans were collateralized by customer-owned securities with a
market value of $20,818,000 and firm-owned securities with a market value of
$83,364,000. For the fiscal years ended March 31, 1995 and March 25, 1994, the
weighted average interest rate on short-term borrowings was 5.56% and 3.85%,
respectively.
McDonald Securities had total lines of credit of $318,000,000 at March 31,
1995, under which a maximum of $130,000,000 could be borrowed on an unsecured
basis. There were no compensating balance requirements associated with these
lines of credit.
Securities sold under agreements to repurchase bear interest at rates
ranging from 6.125% to 6.50% and are collateralized by firm-owned securities
with a market value of $4,373,000 and securities purchased under agreements to
resell with a market value of $47,593,000 at March 31, 1995. For the fiscal
years ended March 31, 1995 and March 25, 1994, the weighted average interest
rate on repurchase agreements was 3.43% and 2.89%, respectively.
- 118 -
<PAGE> 7
NOTE D - LONG-TERM BORROWINGS
McDonald Securities has outstanding $25,000,000 in aggregate principal
amount of 8.24% Subordinated Notes due January 15, 2002. McDonald Securities is
required to pay principal amounts of $5,000,000 on January 15 in each year
beginning in 1998. The notes are subordinated in right of payment to all senior
indebtedness of McDonald Securities. The principal amount of the notes have been
approved by the New York Stock Exchange, Inc., for inclusion in the regulatory
capital of McDonald Securities (See Note H).
As of March 26, 1993, the Company had outstanding $13,055,000 of 8%
convertible subordinated debentures ("debentures") due March 1, 2011. The
debentures were convertible at any time prior to maturity, unless previously
redeemed, at a conversion price of $12.08 per share. The debentures were
redeemable at the option of the Company at any time at 102.4% if redeemed prior
to March 1, 1994, and, thereafter, at prices declining to par on or after March
1, 1996, plus accrued interest. During the fiscal year ended March 25, 1994, the
Company redeemed $197,000 aggregate principal amount of debentures at a price of
102.4% of the principal amount, plus accrued interest for a total cash payment
of $204,310. During the fiscal year ended March 25, 1994, $12,858,000 principal
amount of debentures was converted into 1,064,031 shares of the Company's Common
Stock at a conversion price of $12.08 per share.
Total interest paid was $6,412,000 for the fiscal year ended March 31,
1995, $9,171,000 for the fiscal year ended March 25, 1994, and $7,470,000 for
the fiscal year ended March 26, 1993.
NOTE E - INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------
March 31, 1995 March 25, 1994 March 26, 1993
(In thousands)
<S> <C> <C> <C>
Federal
Current......................................... $6,260 $14,399 $ 9,769
Deferred........................................ 560 (2,219) (1,569)
------------------------------------------
6,820 12,180 8,200
State and local................................. 200 920 450
-------------------------------------------
$7,020 $13,100 $ 8,650
===========================================
</TABLE>
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<PAGE> 8
NOTE E - INCOME TAXES
The provision for income taxes differs from the amount computed using the
federal statutory rates of 35% for the fiscal years ended March 31, 1995
and March 25, 1994, and 34% for the fiscal year ended March 26, 1993, as a
result of the following:
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------
March 31, 1995 March 25, 1994 March 26, 1993
(In thousands)
<S> <C> <C> <C>
Expected tax provision at statutory rate.................. $ 7,246 $ 12,141 $ 8,398
Effects of
Non-taxable interest income............................. (813) (381) (572)
Non-deductible business meals and entertainment......... 378 142 122
Other-net............................................... 209 1,198 702
--------------------------------------------
$ 7,020 $ 13,100 $ 8,650
============================================
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
March 31, 1995 March 25, 1994
(In thousands)
<S> <C> <C>
Deferred tax assets:
Employee compensation accruals.......................... $ 2,790 $ 2,917
Litigation and other reserves........................... 1,810 2,278
Amortization............................................ 862 647
Other................................................... 963 1,125
--------------------------
Total deferred tax assets................................. 6,425 6,967
--------------------------
Deferred tax liabilities:
Depreciation........................................... 772 724
Other.................................................. 334 364
--------------------------
Total deferred tax liabilities............................ 1,106 1,088
--------------------------
Net deferred tax assets................................... $ 5,319 $ 5,879
==========================
</TABLE>
Total income taxes paid were $5,400,000 for the fiscal year ended March 31,
1995, $14,070,000 for the fiscal year ended March 25, 1994, and $10,788,000 for
the fiscal year ended March 26, 1993.
- 120 -
<PAGE> 9
NOTE F - INCOME PER SHARE
Primary income share is based on the average number of shares and share
equivalents outstanding during the fiscal years. Share equivalents represent the
effect of shares issuable under the Company's stock option plans. For the fiscal
years ended March 25, 1994 and March 26, 1993, fully diluted income per share
includes, in addition to the above, the effect of the conversion of the
Company's 8% convertible subordinated debentures.
On July 27, 1993, the Company declared a 20% stock dividend payable August
20, 1993, to stockholders of record August 10, 1993. Applicable share and
per-share information has been restated to reflect the effect of the stock
dividend as if it had occurred at the beginning of the fiscal 1994 and fiscal
1993 periods.
NOTE G - COMMITMENTS AND CONTINGENCIES
Company has letters of credit for $3,000,000 which are being used to
satisfy clearing corporation deposit requirements which approximated $1,983,000
at March 31, 1995. The agreements expire in June 1995 and September 1995 and the
Company pays fees at 1% per annum.
The Company is a defendant in various lawsuits incidental to its securities
business. In view of the number and diversity of claims against the Company and
the inherent difficulty of predicting the outcome of litigation and other
claims, the Company cannot state with certainty what the eventual outcome of
pending litigation or other claims will be. The Company provides for costs
relating to these matters when a loss is probable and the amount is reasonably
estimable. The effect of the outcome of these matters on the Company's future
results of operations cannot be predicted because any such effect depends on
future results of operations and the amount and timing of the resolution of such
matters. While it is not possible to predict with certainty, management
believes that the ultimate resolution of such matters will not have a
material adverse effect on the consolidated financial position or liquidity of
the Company.
Aggregate commitments under operating leases for office space and equipment
in effect as of March 31, 1995, with initial or remaining noncancellable lease
terms in excess of one year are approximately $56,690,000 payable as follows:
1996-$5,609,000; 1997-$5,464,000; 1998-$5,797,000; 1999-$4,821,000;
2000-$4,399,000, and thereafter-$30,600,000. Certain of these leases have
escalation clauses, based on certain increases in costs incurred by the lessor,
and renewal options. Rental expense amounted to $6,025,000 for the fiscal year
ended March 31, 1995, $5,429,000 for the fiscal year ended March 25, 1994, and
$5,154,000 for the fiscal year ended March 26, 1993.
NOTE H - NET CAPITAL REQUIREMENTS
McDonald Securities is subject to the Uniform Net Capital Rule (the "Rule")
of the Securities and Exchange Commission and the net capital rules of the New
York Stock Exchange, Inc. (the "Exchange"), of which McDonald Securities is a
member. McDonald Securities has elected to use the alternative method permitted
by the Rule which requires that it maintain minimum net capital, as defined,
equal to 2% of aggregate debit balances arising from customer transactions, as
defined. The Exchange may require a member firm to reduce its business if its
net capital is less than 4% of aggregate debit balances and may prohibit a
member firm from expanding its business or paying cash dividends if resulting
net capital would be less than 5% of aggregate debit balances.
Net capital and aggregate debit balances change from day to day. At March
31, 1995, McDonald Securities' net capital under the Rule was $72,352,000 or 51%
of aggregate debit balances, and $69,504,000 in excess of the minimum required
net capital.
NOTE I - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET AND CREDIT RISK
In the normal course of business, the Company's activities involve the
execution, settlement and financing of various securities transactions. These
activities may expose the Company to risk in the event the customer is unable to
fulfill its contractual obligations. The Company maintains cash and margin
accounts for its customers located throughout the United States, but primarily
in the Midwest.
- 121 -
<PAGE> 10
The Company, as a part of its normal brokerage activities, assumes short
positions on securities. The establishment of short positions exposes the
Company to off-balance sheet risk in the event prices change, as the Company may
be obligated to cover such positions at a loss. The Company manages its exposure
to these instruments by entering into offsetting or other positions in a variety
of financial instruments.
As a securities broker and dealer, a substantial portion of the Company's
transactions are collateralized. The Company's exposure to credit risk
associated with the nonperformance in fulfilling contractual obligations
pursuant to securities transactions can be directly impacted by volatile trading
markets, which may impair the customers' or contra parties' ability to satisfy
their obligations to the Company. Where considered necessary, the Company
requires a deposit of additional collateral, or a reduction of securities
positions.
In the normal course of business, the Company enters into underwriting and
forward commitments. At March 31, 1995, the Company's commitments included
forward purchase and sale contracts involving mortgage-backed securities and
collateralized mortgage obligations with market values of approximately $48
million and $33 million, respectively. Transactions relating to such
commitments, which were subsequently settled, had no material effect on
financial position.
At March 25, 1994, the Company had written option contracts outstanding
with a total contractual amount of approximately $1.1 billion, and futures
contracts to sell Eurodollar Securities with a notional amount of $175 million,
substantially all of which were offset by futures and options contracts and
United States government securities owned. The Company settled its positions by
entering into equal, but opposite contracts, and as such, the contractual
amounts did not represent cash requirements.
NOTE J - EMPLOYEE BENEFIT PLANS
Prior to January 1, 1993, the Company had profit sharing plans and an
employee stock ownership plan covering substantially all employees with at least
one year of service. The Company's contributions were determined annually, based
on the Company's performance. Effective January 1, 1993, the Company adopted the
McDonald & Company Securities, Inc., Retirement Savings Trust and Plan (the
"McDonald RSP Plan"), a 401(k) defined-contribution and profit-sharing plan
covering substantially all employees. The former profit sharing plans and the
employee stock ownership plan were merged into the McDonald RSP Plan as of
January 1, 1993. The Company's contribution expense related to the plans was as
follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------
(In thousands) March 31, 1995 March 25, 1994 March 26, 1993
<S> <C> <C> <C>
Profit Sharing and 401(k) Plans.................... $1,532 $2,000 $2,196
Employee Stock Ownership Plan...................... -- -- 500
------------------------------------------------
$1,532 $2,000 $2,696
================================================
</TABLE>
- 122 -
<PAGE> 11
NOTE K - STOCK OPTION AND RESTRICTED STOCK PLANS
The Company had authorized 720,000 shares of Common Stock for issuance
pursuant to the Company's Stock Option Plan for employees ("the Plan"), which
terminated on June 6, 1993. Options outstanding at the time of termination of
the Plan continue according to the terms of the Plan. An additional 28,800
shares were authorized for issuance under the Stock Option Plan for Outside
Directors. Stock option activity for the fiscal years ended March 31, 1995,
March 25, 1994, and March 26, 1993, was as follows:
<TABLE>
<CAPTION>
Stock Option Plan
Stock Option Plan for Outside Directors
------------------------- ----------------------
Number of Price Number of Price
Options Range Options Range
------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at March 27, 1992........... 524,681 $3.65-10.00 19,200 $4.90-9.69
Granted during fiscal 1993.............. 4,800 $8.85
Exercised............................... (63,792) $4.17-8.12
Canceled................................ (2,040) $5.83-7.32 (4,800) $4.90
-------- ------
Outstanding at March 26, 1993........... 458,849 $3.65-10.00 19,200 $4.90-9.69
Granted during fiscal 1994.............. 102,120 $12.60-12.71
Exercised............................... (140,228) $5.00-8.12
Canceled................................ (1,075) $6.14
-------- ------
Outstanding at March 25, 1994........... 419,666 $3.65-12.71 19,200 $4.90-9.69
Exercised............................... (107,980) $3.65-8.12
Canceled................................ (4,912) $6.15-7.32
-------- ------
Outstanding at March 31, 1995........... 306,774 $3.65-12.71 19,200 $4.90-9.69
======== ======
</TABLE>
The options become exercisable over a five-year period from the date of
grant and expire 10 years from the date of grant. At March 31, 1995, options to
purchase 220,038 shares were exercisable under the Plan. Under the Stock Option
Plan for Outside Directors, options to purchase 12,480 shares were exercisable
and options for a total of 9,600 shares were available for future grant at March
31, 1995. The Company purchases shares in the open market to provide for the
shares delivered pursuant to the exercise of options under the Plans.
The Company has authorized 960,000 shares of Common Stock for issuance
pursuant to the Company's 1993 Restricted Stock Bonus Plan (the "Bonus Plan").
Under the Bonus Plan, restricted stock awards may be granted to certain
employees. Shares of Common Stock granted under the Plan prior to April 1, 1993,
were awarded subject to forfeiture if the employee's employment terminated
within two years from the date of award. All shares granted under the Bonus Plan
are restricted as to sale or transfer for a period of two years from the date of
grant.
- 123 -
<PAGE> 12
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Stockholders and Board of Directors
McDonald & Company Investments, Inc.
We have audited the accompanying consolidated statements of financial
condition of McDonald & Company Investments, Inc., and subsidiaries as of March
31, 1995, and March 25, 1994, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the three fiscal
years in the period ended March 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of McDonald &
Company Investments, Inc., and subsidiaries at March 31, 1995, and March 25,
1994, and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended March 31, 1995, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
/s/Ernst & Young LLP
Cleveland, Ohio
May 2, 1995
- 124 -
