UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
--------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission file number 1-9143
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RODMAN & RENSHAW CAPITAL GROUP, INC.
- - -------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3111956
- - ----------------------------- --------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
233 S. Wacker Drive, Suite 4500, Chicago, IL 60606
- - -------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 312/526-2000
--------------
- - -------------------------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
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
------- ------
Shares of common stock outstanding at September 6, 1995: 6,645,802
par value $.09.
<PAGE>
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
INDEX
PAGE
- - ------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements -
Condensed Consolidated Statements of Financial Condition
as of September 30, 1995 (unaudited) and December 31, 1994.
Condensed Consolidated Statements of Operations (unaudited)
for the three and nine months ended September 30, 1995 and
September 30, 1994.
Condensed Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 1995 and
September 30, 1994.
Notes to Condensed Consolidated Financial Statements
(unaudited) - September 30, 1995.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
<TABLE>
<CAPTION>
September 30
1995 December 31
(unaudited) 1994
____________ ___________
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,489 $ 7,011
Securities purchased under agreements
to resell 2,000 35,054
Cash and short-term investments required to
be segregated under federal regulations
(including reverse repurchase agreements
09/30/95 - $2,675; 12/31/94 - $35,200) 24,828 39,215
Receivables:
Customers 41,472 47,036
Brokers, dealers, and clearing
organizations 39,051 155,408
Miscellaneous 13,189 10,607
Securities owned - at market 37,708 144,500
Memberships in securities and commodities
exchanges at cost(market value 09/30/95 -
$1,106; 12/31/94 - $6,227) 272 3,850
Furniture, fixtures and leasehold improvements,
at cost, less accumulated depreciation and
amortization (09/30/95 - $6,361; 12/31/94 -
$5,554) 8,729 2,298
Prepaid expenses and other assets 7,004 5,213
Recoverable income taxes 49 1,379
Deferred income taxes (Net of valuation
allowance: 09/30/95 - $10,219;
12/31/94 - $5,246) 2,347 2,760
__________ ___________
$ 178,138 $ 454,331
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings from banks $ 39,236 $ 54,331
Short-term note payable to affiliate 16,500 10,000
Payables:
Customers 35,350 89,878
Brokers, dealers, and clearing
organizations 39,164 158,151
Miscellaneous 5,976 661
Securities sold but not yet purchased,
at market 11,924 97,844
Accrued commissions 2,298 2,066
Accounts payable and accrued expenses 13,184 11,101
_________ ___________
163,632 424,032
Liabilities subordinated to the claims
of general creditors 2,500 3,874
Stockholders' equity:
Convertible non-voting preferred stock,
5,000,000 shares authorized; none issued
at 09/30/95 and 150 shares Series A,
$.01 par value issued at 12/31/94 - -
Common stock, $.09 par value: 20,000,000
shares authorized; 6,646,000 issued at
09/30/95; 4,577,000 issued at 12/31/94 598 412
Additional paid-in capital 30,749 30,935
Accumulated deficit (19,341) (4,922)
__________ _________
12,006 26,425
__________ _________
$ 178,138 $ 454,331
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
September 30 September 30
1995 1994 1995 1994
_________________ _________________
<S> <C> <C> <C> <C>
REVENUES:
Commissions $ 5,399 $ 6,694 $ 19,973 $ 20,107
Principal 7,411 5,656 19,241 13,726
Interest 1,813 4,350 9,051 8,732
Fee income 3,269 2,058 6,252 3,670
Other 1,211 609 2,590 1,111
_________ _________ _________ _________
TOTAL REVENUES 19,103 19,367 57,107 47,346
EXPENSES:
Employee compensation
and benefits 15,609 12,062 40,958 33,581
Commissions, floor brokerage
and clearance 754 1,778 3,280 4,871
Interest 2,470 2,922 8,150 5,644
Communications 2,234 1,575 6,508 4,583
Occupancy and equipment 2,509 1,580 5,484 4,601
Professional fees 941 522 3,256 2,789
Other operating expense 1,174 862 3,289 8,597
Restructuring charge - - - 3,815
_________ _________ ________ ________
TOTAL EXPENSES 25,691 21,301 70,925 68,481
_________ _________ ________ _________
Loss before taxes (6,588) (1,934) (13,818) (21,135)
Tax expense (benefit) 1,620 15 601 (1,469)
_________ _________ ________ _________
NET LOSS $ (8,208) $ (1,949) $(14,419) $(19,666)
========= ========= ========= =========
Earnings Per Share Data:
NET LOSS PER SHARE
AND COMMON EQUIVALENT
PRIMARY AND FULLY DILUTED $ (1.24) $ (0.43) $ (2.25) $ (4.30)
WEIGHTED AVERAGE SHARES AND
COMMON SHARE EQUIVALENTS 6,646 4,577 6,410 4,575
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
September 30 September 30
1995 1994
____________ ____________
<S> <C> <C>
CASH FLOWS FROM OPERATING
Net loss $ (14,419) $ (19,666)
Adjustments to reconcile net loss to
net cash flows provided by (used in)
operating activities:
Gain on sale of fixed assets (8) -
Gain on sale of exchange memberships (771) 102
Deferred income taxes 413 566
Depreciation and amortization 891 748
Net changes in operating assets
and liabilities:
Securities purchased under
agreements to resell 33,054 (41,941)
Cash and short-term
investments required to be
segregated under federal
regulations 14,387 (2,832)
Receivables from and payables
to customers, brokers, dealers
and clearing organizations (51,594) (83,946)
Miscellaneous receivables (2,582) 10,307
Recoverable income taxes and
income taxes payable 1,330 (1,379)
Securities owned 106,792 (119,140)
Prepaid expenses and other assets (1,791) (2,630)
Miscellaneous payables 5,315 3,812
Securities sold but not yet purchased (85,920) 85,697
Accrued commissions 232 143
Accounts payable and accrued expenses 2,083 5,061
__________ _________
NET CASH FLOWS FROM OPERATING ACTIVITIES 7,412 (165,098)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of furniture, fixtures and
leasehold improvements (7,314) (113)
Sale of exchange memberships 4,349 415
__________ ________
NET CASH FLOWS FROM INVESTING ACTIVITIES (2,965) 302
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term
borrowings from banks (15,095) 138,948
Proceeds from short-term note payable
to affiliate 6,500 10,000
Payment of liabilities subordinated to
claims of general creditors (1,374) (2,876)
Proceeds from issuance of common stock
in connection with stock option plan 0 1,139
Proceeds from issuance of convertible
non-voting preferred stock 0 15,000
__________ ________
NET CASH FLOWS FROM FINANCING ACTIVITIES (9,969) 162,211
NET DECREASE IN CASH AND CASH
EQUIVALENTS (5,522) (2,585)
Cash and cash equivalents at beginning
of period 7,011 1,996
__________ ________
Cash and cash equivalents at
end of period $ 1,489 $ (589)
========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
- - ------------------------------
The unaudited condensed consolidated financial statements of Rodman
& Renshaw Capital Group, Inc. and subsidiaries (collectively, the
"Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management of the
Company, all adjustments considered necessary for a fair
presentation of the financial condition and results of operations of
the Company for the periods presented have been included. Certain
reclassifications have been made to prior periods' amounts to
conform with current period presentations. Although the Company has
stock options outstanding such stock options do not have a dilutive
effect on earnings per share; accordingly, the primary and fully
diluted loss per share calculations are not different. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Transition Report on
Form 10-K for the period from June 25, 1994 through December 31,
1994.
NOTE B - ASSETS SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS
- - --------------------------------------------------------------
As of September 30, 1995 the Company was holding in safekeeping
$5,847,000 of securities owned by customers and as of December 31,
1994, it was holding $83,370,000 of such securities. In accordance
with applicable regulations, these securities are not included in the
Condensed Consolidated Statement of Financial Condition.
NOTE C - NET CAPITAL REQUIREMENT AND DIVIDEND RESTRICTIONS
- - ----------------------------------------------------------
The Company's primary subsidiary, Rodman & Renshaw, Inc.("Rodman"),
a registered broker-dealer and futures commission merchant, is
subject to the minimum net capital rules of the Securities and
Exchange Commission (the "SEC") (Rodman has elected to use the
alternative net capital method permitted by the SEC rule), Commodity
Futures Trading Commission (the "CFTC"), and the capital rules of
the New York Stock Exchange, Inc. (the "NYSE"), of which Rodman is a
member. These rules require that Rodman maintain minimum net
capital, as defined in such rules, equal to the greater of 2% of
aggregate debits arising from customer securities transactions or
$1,000,000, or 4% of the funds required to be segregated for
customers pursuant to the Commodity Exchange Act. The NYSE may
require a member firm to reduce its business if its net capital is
less than the greater of $125,000 or 6% of the funds required to be
segregated and may prohibit a member firm from expanding its
business or paying cash dividends if resulting net capital would be
less than the greater of $150,000 or 7% of the funds required to be
segregated. At September 30, 1995, and December 31, 1994, Rodman had
net capital of $8.91 million and $16.64 million, respectively, or $7.91
million and $11.04 million, respectively, in excess of required net
capital.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The results of operations should be read in conjunction with the
Company's condensed consolidated statements of income. The
Company's principal activities -- securities and commodities
brokerage, principal trading for servicing its customers, and
investment banking services -- are highly competitive and extremely
volatile. The earnings of the Company are subject to wide
fluctuations since many factors over which the Company has little or
no control -- such as the overall volume of activity in the
securities, futures and options markets and the volatility and
general level of market prices and interest rates -- may affect its
operations. In addition, results of operations for any particular
interim period may not be indicative of results to be expected for
the year ending December 31, 1995.
The Company previously had a last Friday in June fiscal year, which
was changed to a calendar fiscal year effective December 31, 1994.
Revenues for the quarter ended September 30, 1995 totalled $19.10
million, relatively flat from $19.37 million for the previous year's
comparative quarter. For the most recent quarter, the Company
recorded a net loss of $8.21 million, or $1.24 cents per common
share. For the quarter ended September 30, 1994, the Company reported
a net loss of $1.95 million, or $0.43 per common share and common
share equivalent.
For the nine month period ended September 30, 1995, revenues increased
21% to $57.11 million from the comparable period one year ago. For the
nine month period ended September 30, 1995, the Company reported a net
loss of $14.42 million, or $2.25 cents per share compared to a net loss
of $19.67 million or $4.30 per share for the comparable period in the
previous year.
REVENUES
During the quarter ended June 30, 1995 the Company decided to change
its status in the commodities and financial futures business from that
of a clearing to a non-clearing futures commission merchant. As a
result of this change commission revenue decreased 20% to $5.40 million
for the quarter ended September 30, 1995, from $6.69 million in the
corresponding 1994 calendar quarter. The nine month period commission
revenues decreased $135,000 or 1% to $19.97 million.
Revenues from principal transactions include mark-ups and realized
and unrealized gains and losses on securities held for resale.
Principal transaction revenues increased 31% to $7.41 million for
the quarter ended September 30, 1995, and 40% to $19.24 million from
the corresponding nine month period in the previous year.
Interest revenue is derived primarily from financing customer
security purchases and from investments which are maintained
pursuant to the rules and regulations of the SEC and the CFTC
pertaining to segregation of customer funds. Interest revenue
decreased by $2.54 million or 58% for the quarter ended September 30,
1995 as compared to the quarter ended September 30, 1994, due
principally to decreases in security inventory positions. For the nine
month period ended September 30, 1995 interest revenue increased 4%
to $9.05 million.
Fee income, which includes the activities of Rodman's Investment
Banking department, increased 59% and 70% for the quarter and nine
months ended September 30, 1995, respectively. Included in these
increases are the closing of two public offerings and one private
placement of securities during the quarter.
Other income increased 99% and 133% from the corresponding 1994
calendar quarter and nine month period. This is a result of the
sale of four commodity exchange memberships in connection with the
aforementioned change in status from a clearing to a non-clearing
futures commission merchant.
EXPENSES
Employee compensation and benefit expense increased by 29% and 22%
for the quarter and nine months ended September 30, 1995, respectively.
This change is attributable to the variable nature of certain
compensation related to increases in principal revenues and fee income.
As a result of the change from a clearing to a non-clearing futures
commission merchant, clearance and floor brokerage expense decreased
58% and 33% from the corresponding 1994 calendar quarter and nine
month period.
Interest expense decreased $452,000 to $2.47 million for the
three month period ended September 30, 1995, and increased
$2.51 million to $8.15 million for the nine month period.
The decrease for the three months is due to lower balances
of short term notes payable to banks, while the increase for
the nine months is due to interest paid on the short-term
notes payable to an affiliate.
Professional Fees increased 80% for the three month period ended
September 30, 1995 and 17% for the nine months then ended
due in part to the increased number of investment banking
transactions and consulting expenses related to Rodman's
clearing of securities transactions.
Other operating expenses increased 36% to $1.17 million for the
quarter ended September 30, 1995, and decreased 73% to $3.29 million
for the comparable nine month period of the previous year. The
comparable nine month period ended September 30, 1994 included certain
significant non-recurring expenses. The previous year's nine month
period also reflected losses resulting from discretionary trading
activities in customer accounts.
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets are substantially comprised of customer-related
receivables and securities inventory, both of which are highly
liquid. The principal sources of financing are stockholders'
equity, customer payables, proceeds from securities lending, short-
term loans from banks and affiliates and other payables.
Additionally, the Company maintains lines of credit with large
financial institutions which include daily demand loans, letters of
credit and reverse repurchase agreements to meet financing needs.
All of these lines of credit require collateral to be pledged, and
the borrowings may not exceed the value of the collateral. The
Company believes that such lines will be available as long as
collateral is available.
As a registered broker-dealer and futures commission merchant,
Rodman is required by the SEC and CFTC to maintain specific amounts
of net capital to meet its customers' obligations. As of September 30,
1995, Rodman's net capital, as defined, was $8.91 million, which was
$7.91 million in excess of the required net capital.
On June 22, 1994, the Company borrowed $10,000,000 from Confia,
S.A., Institucion de Banca Multiple, Abaco Grupo Financiero
("Confia, S.A."), an affiliated company of the Company's majority
stockholder, Abaco Casa de Bolsa, S.A. de C.V., Abaco Grupo
Financiero ("Abaco"). The loan was renewed most recently on
June 19, 1995 for a six month term.
On August 25, 1995, the Company borrowed $4,000,000 from Confia,
S.A. The stated due date of the loan is February 21, 1996, but it
is the non-binding intention of management of the Company and
Confia, S.A. to renew this borrowing at that time. Such renewal
may be on different terms than the original loan, depending
upon market factors and Confia, S.A.'s internal lending policies.
On September 29, 1995, the Company borrowed $2,500,000 from Confia,
S.A. The stated due date of the loan is March 27, 1996, but it is
the non-binding intention of management of the Company and
Confia, S.A. to renew this borrowing at that time. Such renewal
may be on different terms than the original loan, depending
upon market factors and Confia, S.A.'s internal lending policies.
Management of the Company believes that Confia, S.A. will continue
to renew the loans for additional six month periods. Because of the
higher prevailing interest rates in Mexico, the interest rate on the
loans due December, 1995 is currently 19.6%. The rate for the loans
due in February and March 1996 is currently 18%.
On September 29, 1995 management of the Company entered into a
conversion agreement with Confia, S.A. under which Confia has the right
to convert all or a portion of the outstanding subordinated debt to
equity, which right can be transferred to Abaco or another corporation
within the group of affiliated companies. The Company also has
continued its discussions with third parties concerning potential
replacement financing.
Rodman's subordinated borrowings have maturities at dates within the
next twelve months as follows:
December 18, 1995 $10,000,000
February 21, 1996 $ 4,000,000
March 27, 1996 $ 2,500,000
Rodman obtained regulatory approval to repay and repaid a $2,500,000
subordinated note from an unrelated party on October 2, 1995. Rodman
and the Company have entered into a senior subordinated credit facility
pursuant to which the Company has loaned to Rodman $16,500,000. This
facility terminates on June 15, 1997, and currently is funded by the
Company's borrowing from Confia, S.A. discussed above. It is the
intention of management of the Company and Rodman to extend these
subordinated borrowings through June, 1998. To the extent that such
subordinated borrowings are required for Rodman's continued
compliance with minimum net capital requirements, it may not be repaid.
Rodman also is in discussions with several unrelated parties to
increase its subordinated borrowings and regulatory net capital. If
Rodman is unable to obtain such capital, it may be unable to expand
its businesses but should be able to maintain its current level of
activities provided that it does not sustain substantial additional
losses (and provided that it renews the Confia, S.A. loan or obtains
replacement financing as discussed above). In the event that Rodman
is unable to obtain additional capital and wishes to expand in
certain areas, or in the event that it sustains substantial additional
losses, it may reduce its activities in areas it identifies as
insufficiently profitable to justify the regulatory capital required
to conduct them.
The Company negotiated tenant build-out concessions and has
finalized an equipment leasing arrangement for approximately $6.0
million in financing in order to minimize the impact of certain office
relocations on the Company's liquidity. Rodman funded approximately
$3.0 million through June 30, 1995, and such amounts were recouped
when the equipment leasing transaction was completed. The Company
does not anticipate any material capital expenditures or investments
during the next year. Future expenditures, if any, are expected
to be funded by cash generated from operations and other traditional
means of financing.
In the nine months ended September 30, 1995, the Company used cash and
cash equivalents of $25.64 million (exclusive of the decrease in
securities purchased under agreements to resell of $33,054,000) from
operating activities primarily related to the decrease in security
inventory positions. In the nine months ended September 30, 1994, the
Company's operations used $165.42 million.
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The following exhibits are included
herein or are incorporated by reference
(10.1) Note Conversion Agreement dated
September 29, 1995 by and between
Rodman & Renshaw Capital Group, Inc.
and Confia, S.A., Institucion de
Banca Multiple, Abaco Grupo
Financiero
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the
quarter ended September 30, 1995.
<PAGE>
SIGNATURES
----------
Pursuant to the requirement of Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
RODMAN & RENSHAW CAPITAL GROUP, INC.
(Registrant)
Date: November 13, 1995 By: /s/ John T. Hague
---------------------------------
John T. Hague
Chief Financial Officer
Date: November 13, 1995 By: /s/ Charles W. Daggs, III
----------------------------------
Charles W. Daggs, III
President and Chief Executive
Officer
C:\WP51\FILINGS\11-95.10Q
EXHIBIT 10.1
NOTE CONVERSION AGREEMENT
This Agreement is entered into as of the 29th day of
September, 1995 by and between Rodman & Renshaw Capital Group, Inc.
(the "Company") and Confia, S.A., Institucion de Banca Multiple,
Abaco Grupo Financiero, a banking corporation incorporated under
the laws of the United Mexican States ("Confia").
WHEREAS, Confia has loaned the Company $14,000,000, all of
which is outstanding, and the Company has requested that Confia
lend the Company an additional $2,500,000 on or prior to September
30, 1995 to fund the payment of such amount which is due to a third
party lender on or before such date, and to issue a standby letter
of credit for the account of the Company in the amount of
$6,000,000 to make available sale/leaseback financing from a third
party (the "Letter of Credit");
WHEREAS, the additional credit requested by the Company would
cause the aggregate credit to exceed the amount of the line of
credit Confia had committed to the Company;
WHEREAS, all of the credit provided by Confia to the Company
is unsecured and the loans have been effectively subordinated as a
result of the Company lending the proceeds of the loans to its
wholly-owned subsidiary, Rodman & Renshaw, Inc., on a subordinated
basis;
WHEREAS, the Company is in urgent need of the requested
additional financing to continue the operations of Rodman &
Renshaw, Inc., the Company's principal subsidiary;
WHEREAS, the Company has determined that no reasonable
alternative source of financing currently is available;
WHEREAS, Abaco Casa de Bolsa, S.A. de C.V., Abaco Grupo
Financiero, Confia's sister company ("Abaco"), owns 67% of the
issued and outstanding shares of the Company;
WHEREAS, to induce Confia to provide the requested financing
the Company is agreeing on the terms and conditions set forth
herein to grant Confia the right to convert the outstanding amount
of credit referred to above in addition to the credit to be
extended pursuant to the request of the Company, into shares of the
Company's common stock at a conversion price equal to the book
value per share of the common stock determined on the date of
conversion in accordance with this Agreement; and
WHEREAS, the Company would derive substantial benefit from the
conversion of its indebtedness to Confia into equity.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties agree as follows:
1. Certain Definitions. The terms defined in this Section
1 shall have the meanings herein specified.
Common Stock. The term "Common Stock" shall mean all shares
now or hereafter authorized of any class of Common Stock of the
Company and any other stock of the Company howsoever designated,
authorized after the date hereof, which has the right (subject
always to prior rights of any class or series of preferred stock)
to participate in the distribution of the assets and earnings of
the Company without limit as to per share amount.
Conversion Price. The term "Conversion Price" shall mean the
price per share of Common Stock used to determine the number of
shares of Common Stock deliverable upon conversion of the Notes,
which price shall be determined on a floating basis and shall equal
the book value per share of Common Stock from time to time
determined in accordance with generally accepted accounting
principles from the Company's financial statements for the most
recent fiscal quarter (or fiscal year end if more recent) as to
which financial statements have been filed with a governmental or
regulatory authority prior to the date of the conversion, subject
to further adjustment in accordance with the provisions of Section
7 below.
Holder. The term "Holder" shall mean any person who at the
time shall be the registered holder of a Note, provided that such
person is Confia, Abaco or an affiliated company.
Letter of Credit. The term "Letter of Credit" shall have the
meaning set forth in the first "WHEREAS" clause.
Note. The term "Note" shall mean (i) any promissory note
issued by the Company to Confia on or prior to September 30, 1995
and representing indebtedness for borrowed money and (ii) the
promissory note to be issued by the Company representing potential
indebtedness for reimbursement from any drawdown of the Letter of
Credit, provided that the obligations under such promissory note
are contingent upon, and such promissory note shall not be deemed
outstanding for purposes of this Agreement until, payment by Confia
to the beneficiary of the Letter of Credit upon a drawdown, and in
such event the outstanding principal amount thereof shall be equal
to the aggregate of such payments by Confia.
2. Additional Financing. Confia agrees to lend the Company
$2,500,000 on or prior to September 30, 1995 for the purpose of
funding the repayment of subordinated indebtedness to a third party
which is due on such date. Confia further agrees to issue a
standby letter of credit for the account of the Company in the
amount of $6,000,000 for the purpose of making available to the
Company the Letter of Credit.
3. Aggregate Financing. Including the amount of the Letter
of Credit and the amount to be loaned pursuant to the terms hereof,
the aggregate principal amount of the credit outstanding from
Confia to the Company is $22,500,000.
4. Book Value of Shares. The book value per share of Common
Stock determined in accordance with this Agreement as of June 30,
1995 and, accordingly, the Conversion Price as of the date hereof,
subject to adjustment, is $3.04.
5. Conversion Privilege.
5.1. Conversion. Upon and after satisfaction of the condition
set forth in Section 5.2 below, any Holder has the right, at its
option, at any time prior to payment in full of the principal
payment of any Note, to convert such Note, in accordance with the
provisions of Section 6 hereof, in whole or in part, to the extent
outstanding and convertible under Section 5.2, into fully paid and
nonassessable shares of Common Stock of the Company. The number of
shares of Common Stock into which a Note may be converted
("Conversion Shares") shall be determined by dividing the aggregate
outstanding principal amount of a Note together with any accrued
interest to the date of conversion by the Conversion Price in
effect at the time of such conversion; provided, however, that the
number, character and Conversion Price of such shares of Common
Stock are subject to adjustment as provided in Section 7 below.
5.2. Conversion Condition. So long as the New York Stock
Exchange Inc. ("NYSE") stockholder approval requirements shall be
applicable, a Note shall be convertible only to the extent that
such conversion is approved by the stockholders of the Company, if
so required. The parties understand that no stockholder approval
would be required for any conversion of Notes made in connection
with a rights offering to all stockholders at a per share cash
price equal to the Conversion Price pursuant to which the
stockholders (other than Abaco whose rights to purchase shares in
the offering would be deemed exercised and consummated by the
conversion) could purchase the number of shares proportional to the
number of shares issued upon conversion ("Rights Offering").
6. Conversion Procedure.
6.1 Notice of Conversion. Before the Holder shall be
entitled to convert a Note into shares of Common Stock it shall
give written notice to the Company at the principal corporate
office of the Company, of the election to convert a Note in whole
or in part, as the case may be, pursuant to Section 5, shall
surrender the Note, duly endorsed, and shall designate in writing
the name or names in which the certificate or certificates for
shares of Common Stock are to be issued, provided that such person
must be Confia, Abaco or an affiliated company thereof. Such
conversion shall be deemed to have been made immediately upon the
date of surrender of the Note and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders
of such shares of Common Stock as of such date.
6.2 Delivery of Stock Certificates and Replacement Note. As
promptly as practicable after the conversion of a Note pursuant to
Section 5, the Company at its expense will issue and deliver to the
Holder of a Note at the registered address of the Holder a
certificate or certificates for the number of full shares of Common
Stock issuable upon such conversion (bearing such legends as are
required by applicable state and federal securities laws in the
opinion of counsel to the Company), together with any other
securities and property to which the Holder is entitled upon such
conversion under the terms of this Agreement. If less than the
entire outstanding portion of the Note is converted, then the
Company at its expense together with the share certificates will
deliver to the Holder a replacement note identical to the Note
surrendered except in the principal amount of the remaining
principal balance.
6.3 Mechanics and Effect of Conversion. No fractional shares
of Common Stock shall be issued upon conversion of a Note. In lieu
of the Company issuing any fractional shares to the Holder upon the
conversion of a Note, the Company shall pay to the Holder the
amount of outstanding principal that is not so converted, such
payment to be made as soon as practicable after conversion of a
Note by wire transfer to an account designated by the Holder. Upon
conversion of the entire principal amount of a Note, the Company
shall be forever released from all its obligations and liabilities
under such Note, except that the Company shall be obligated to pay
the Holder, within ten (10) days after the date of such conversion,
any interest accrued and unpaid or unconverted to and including the
date of such conversion, and no more.
7. Merger, Sale of Assets, etc. If at any time while any
Note, or any portion thereof, is outstanding and unexpired there
shall be (i) a reorganization (other than a combination,
reclassification, exchange or subdivision of shares otherwise
provided for herein), (ii) a merger or consolidation of the Company
with or into another corporation in which the Company is not the
surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's
capital stock outstanding immediately prior to the merger are
converted by virtue of the merger into other property, whether in
the form of securities, cash, or otherwise, or (iii) a sale or
transfer of the Company's properties and assets as, or substan-
tially as, an entirety to any other person, then, as a part of such
reorganization, merger, consolidation, sale or transfer, the
Conversion Price shall be appropriately adjusted so that the Holder
shall thereafter be entitled to receive upon conversion of a Note,
during the period specified herein, the number of shares of stock
or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or
transfer that a holder of the shares deliverable upon conversion of
a Note would have been entitled to receive in such reorganization,
consolidation, merger, sale or transfer if the Note had been
converted immediately before such reorganization, merger, consoli-
dation, sale or transfer. The foregoing provisions of this
Section 7 shall similarly apply to successive reorganizations,
consolidations, mergers, sales and transfers and to the stock or
securities of any other corporation that are at the time receivable
upon the conversion of a Note. If the per-share consideration
payable to the Holder hereof for shares in connection with any such
transaction is in a form other than cash or marketable securities,
then the value of such consideration shall be determined in good
faith by the Company's Board of Directors. In all events,
appropriate adjustment (as determined in good faith by the
Company's Board of Directors) shall be made in the application of
the provisions of this Agreement with respect to the rights and
interests of the Holder after the transaction, to the end that the
provisions of this Agreement shall be applicable after that event,
as near as reasonably may be, in relation to any shares or other
property deliverable after that event upon conversion of a Note.
8. Reservation of Stock Issuable Upon Conversion. The
Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the
purpose of effecting the conversion of the Notes such number of its
shares of Common Stock as shall from time to time be sufficient to
effect the conversion of the Notes; and if at any time the number
of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of the entire outstanding
principal amount of the Notes, together with accrued interest
thereon, in addition to such other remedies as shall be available
to the holder of the Notes, the Company will use its best efforts
to take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be
sufficient for such purposes.
9. Notices.
(a) Whenever the Conversion Price or number of shares
into which the Notes are convertible shall be adjusted pursuant to
Section 7 hereof, the Company shall issue a certificate signed by
its Chief Financial Officer setting forth, in reasonable detail,
the event requiring the adjustment, the amount of the adjustment,
the method by which such adjustment was calculated, and the
Conversion Price and number of shares into which the Notes are
convertible after giving effect to such adjustment, and shall cause
a copy of such certificate to be mailed (by first-class mail,
postage prepaid) to the Holder.
(b) In the event of:
(i) any taking by the Company of a record of the
holders of any class of securities of the Company for the purpose
of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend payable out of earned surplus
at the same rate as that of the last such cash dividend theretofore
paid) or other distribution, or any right to subscribe for, pur-
chase or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right, or
(ii) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all of the assets
of the Company to any other person or any consolidation or merger
involving the Company, or
(iii) any voluntary or involuntary dissolution,
liquidation or winding-up of the Company,
the Company will mail to the holder of the Notes at least ten (10)
days prior to the earliest date specified therein, a notice
specifying:
(A) the date on which any such record is to be
taken for the purpose of such dividend, distribution or right, and
the amount and character of such dividend, distribution or right,
and
(B) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding-up is expected to become effective and the
record date for determining stockholders entitled to vote thereon.
10. Assignment. Subject to the restrictions on transfer
imposed by applicable law, the rights and obligations of the
Company and Confia shall be binding upon and benefit the successors
and permitted assigns of the parties, provided, however, that the
rights of Confia may be assigned only to Abaco or another affili-
ated company thereof.
11. No Stockholder Rights. Nothing contained in this
Agreement shall be construed as conferring upon the Holder or any
other person the right to vote or to consent or to receive notice
as a stockholder in respect of meetings of stockholders for the
election of directors of the Company or any other matters or any
rights whatsoever as a stockholder of the Company; and no dividends
shall be payable or accrued in respect of any Note or the shares of
Common Stock obtainable hereunder until, and only to the extent
that, the Note shall have been converted.
12. Stockholder Approval/Rights Offering. On one or more
occasions, the Holder may at its election require the Company (i)
to call a special meeting of its stockholders as soon as
practicable after such request to approve the conversion of Notes
into shares of Common Stock in accordance with the terms hereof,
(ii) include such approval on the agenda of the next annual meeting
of stockholders, or (iii) conduct a Rights Offering as soon as
practicable after such request, and in any such case to promptly
cause the shares issued upon conversion to be listed on the NYSE.
In the case of clauses (i) or (ii) above, Confia agrees to cause
Abaco and all of its affiliated companies to vote all of the shares
of the Company held by it for such approval. In the event that any
Notes are converted and clause (iii) is not elected in connection
therewith, Confia and the Company agree that a Rights Offering will
be made within one year after the conversion of the Notes at a
price per share equal to the Conversion Price used in such
conversion.
13. Investment Intent. Any shares of Common Stock which may
be acquired upon conversion of the Notes will be acquired by Confia
or its assigns or designees for their own account and not with a
view to, or for resale in connection with, any distribution.
Confia acknowledges that it is aware of the applicable limitations
under the Securities Act of 1933, as amended, upon the sale of any
such shares of Common Stock and that accordingly, certificates
representing such shares may bear an appropriate legend.
14. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of Delaware,
excluding that body of law relating to conflict of laws.
15. Miscellaneous Provisions.
A. Amendment, Modification and Waiver. This Agreement may
be amended, modified and supplemented, in writing only, by mutual
consent of the parties hereto. No failure on the part of any party
to exercise any right, power or privilege hereunder shall operate
as a waiver.
B. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but
both of which together shall constitute one and the same
instrument.
C. Headings; References. All headings used herein are used
for convenience only and shall not be used to construe or interpret
this Agreement. Except where otherwise indicated, all references
herein to sections refer to sections hereof.
D. Entire Agreement. This Agreement contains the entire
understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than
those expressly set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first written above.
RODMAN & RENSHAW CAPITAL GROUP, INC.
By: /s/ Charles W. Daggs, III
__________________________
Name: Charles W. Daggs, III
Title: President &
Chief Executive Officer
CONFIA, S.A., INSTITUCION DE BANCA
MULTIPLE, ABACO GRUPO FINANCIERO
By: /s/ Mario S. Velasco Coppel
____________________________
Name: Mario S. Velasco Coppel
Title: Responsible Regional - Monterrey
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 26,317,000
<SECURITIES> 2,000,000
<RECEIVABLES> 93,712,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 169,409,000
<PP&E> 8,729,000
<DEPRECIATION> 891,000
<TOTAL-ASSETS> 178,138,000
<CURRENT-LIABILITIES> 166,132,000
<BONDS> 0
<COMMON> 598,000
0
0
<OTHER-SE> 11,408,000
<TOTAL-LIABILITY-AND-EQUITY> 178,138,000
<SALES> 19,973,000
<TOTAL-REVENUES> 57,107,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 62,775,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,150,000
<INCOME-PRETAX> (13,818,000)
<INCOME-TAX> 601,000
<INCOME-CONTINUING> (14,419,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,419,000)
<EPS-PRIMARY> (2.25)
<EPS-DILUTED> (2.25)
</TABLE>
