<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 [FEE REQUIRED] FOR THE FISCAL
YEAR ENDED ______________________________________
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE
TRANSITION PERIOD FROM JUNE 25, 1994 TO DECEMBER 31, 1994
COMMISSION FILE NUMBER 1-9143
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.)
120 S. LaSalle Street, Chicago Illinois 60603
- - -------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including (312) 977-7800
area code
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of Each Class on which Registered
- - ---------------------- -------------------------------
Common Stock, par New York Stock Exchange
value $0.09 per share
Securities registered pursuant to Section 12(g)
of the Act: None
Indicate by a 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 a 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. [ ]
<PAGE> 2
As of February 28, 1995, 6,645,802 shares of Common Stock, par value
$0.09 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
February 28, 1995, which was $3.75) was $8,090,235.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement for 1995 Annual Meeting of Stockholders
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<PAGE> 3
PART I.
ITEM 1. BUSINESS
Rodman & Renshaw Capital Group, Inc. (the "Company") is a holding
company which was incorporated in Delaware on November 20, 1980, as the
successor, through its subsidiaries, to the business of Rodman & Renshaw, a
partnership which commenced operations in Chicago in 1951. Unless the context
otherwise requires, the "Company" as used herein shall also include all
subsidiaries of Rodman & Renshaw Capital Group, Inc. The Company, through its
principal subsidiary, Rodman & Renshaw, Inc. ("Rodman"), is a full-service
securities broker-dealer and commodities futures commission merchant with
memberships on the New York Stock Exchange ("NYSE") and other principal stock
and commodity exchanges. The Company offers a comprehensive range of investor
services to meet the needs of individual investors, corporations and other
business organizations, tax-exempt entities, financial institutions and
fiduciaries, and other securities and commodities dealers.
Rodman acts as a broker and dealer in the purchase or sale of listed,
preferred, and over-the-counter stocks, options, certificates of deposit,
mutual funds, taxable and tax-exempt debt instruments, commodities and
financial futures. Through the corporate finance, municipal finance, and
private placement departments, Rodman provides investment banking advice,
underwritings and merger and acquisition consulting, and assists its clients in
obtaining funds for leveraged acquisitions, corporate expansion or
recapitalization financings, municipality and other tax-exempt entity
financings, and real estate private placements.
Rodman provides financial institutions, fiduciaries and professional
investors with selected research. These entities, as well as other securities
and commodities dealers, are able to utilize Rodman's trade execution services
in equity securities, bonds and commodities. The Company, through its other
subsidiaries, provides investment advisory services, acts as general partner
for real estate limited partnerships, and acts as general partner and commodity
pool operator for commodity limited partnerships.
On December 22, 1993, the Mexican brokerage firm Abaco Casa de Bolsa,
S.A. de C.V., Abaco Grupo Financiero ("Abaco"), acquired 54% of the Company's
outstanding shares through a tender offer at a price of $10.50 per share.
Abaco is a brokerage subsidiary of Abaco Grupo Financiero, S.A. de C.V.
("Parent"), a multi-faceted financial services holding company based in
Monterrey, Mexico. In addition to Abaco, Parent owns a commercial bank,
Confia, S.A. Institucion de Banca Multiple, Abaco Grupo Financiero ("Confia,
S.A."), leasing company, foreign exchange house, factoring firm and insurance
company, all based in Mexico. Parent's shares are traded on the Mexican Stock
Exchange. Since the acquisition, a substantially new senior management team
has been put in place at the Company. Confia, S.A. and Abaco also have
provided the Company with additional funding through a $10,000,000 loan from
Confia, S.A. and a $15,000,000 purchase by Abaco of preferred stock from the
Company that was converted into a total of 2,068,965 shares of common stock of
the Company on January 31, 1995 pursuant to its terms. See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources and Item 12. Security Ownership
of Certain Beneficial Owners and Management.
On February 24, 1995, the Company acquired for a price of $150,000,
51% of the stock of Advantage Funding Group, Inc. ("Advantage"), an indirect
consumer lending and leasing company that originates and acquires non-prime
credit vehicle receivables for re-marketing through securitization. The
purpose of the investment is to provide a source of product for Rodman's fixed
income department.
On March 28, 1995, Rodman acquired certain of the assets and hired
substantially all of the employees of the institutional equities and investment
banking departments of Mabon Securities Corp., a New York based securities
broker-dealer (the
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<PAGE> 4
"Mabon transaction"). Under the agreement, Rodman purchased certain assets for
a cost of approximately $300,000, offered positions to certain professionals in
those departments and assumed certain liabilities associated with the
individuals.
The Company's executive offices are located at 120 South LaSalle
Street, Chicago, Illinois 60603 and its principal telephone number is (312)
977-7800. The Company also has offices in New York, Kansas City, Cleveland,
San Francisco, San Diego, Dallas and Boston.
REVENUES BY SOURCE
In 1994, the Company changed its fiscal year from the year ending on
the last Friday in June to a calendar year. The following table sets forth
certain information regarding the revenues of the Company by source, for the
transition period from June 25, 1994 to December 31, 1994 (the "Transition
Period") and for the three most recent fiscal years. See Note 2 to the
Consolidated Financial Statements enclosed herein for a discussion of
accounting changes in fiscal 1993.
<TABLE>
<CAPTION>
(in thousands)
--------------
Transition
Period FISCAL YEARS
(6/25/94 -
12/31/94) 1994 1993 1992
---------- ------ ------ ------
<S> <C> <C> <C> <C>
COMMISSIONS
Commodities $ 8,279 $19,833 $26,031 $28,553
Listed securities 1,915 6,080 9,386 9,040
Over-the-counter securities 1,360 2,446 2,387 2,639
Options 316 799 914 1,009
------- ------- ------- -------
TOTAL COMMISSIONS 11,870 29,158 38,718 41,241
PRINCIPAL
Institutional credits:
Bonds 4,494 13,117 17,382 11,709
Equity and debt underwritings 80 644 925 443
Over-the-counter stocks 1,101 575 202 288
------- ------- ------- -------
5,675 14,336 18,509 12,440
Retail credits:
Bonds 1,164 3,844 5,586 5,470
Equity and debt underwritings 1,068 2,724 3,479 2,309
Over-the-counter stocks 1,273 2,712 1,388 536
Mutual funds 627 1,811 1,533 995
------- ------- ------- -------
4,132 11,091 11,986 9,310
------- ------- ------- -------
TOTAL CREDITS 9,807 25,427 30,495 21,750
Market-making and dealer
transactions:
Corporate fixed income and
government zero coupon bonds (1,136) 500 408 2,864
Over-the-counter stocks 231 1,600 1,211 933
Other (1,869) (214) 102 93
------- ------- ------- -------
Total market-making and
dealer transactions (2,774) 1,886 1,721 3,890
------- ------- ------- -------
TOTAL PRINCIPAL 7,033 27,313 32,216 25,640
INTEREST
Market-making;
securities inventory 4,975 4,412 5,238 5,692
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Margin accounts 1,362 2,420 3,452 3,786
Securities finder service 1,535 2,381 1,868 1,370
------- ------- ------- -------
TOTAL INTEREST 7,872 9,213 10,558 10,848
FEE INCOME
Corporate and municipal finance 3,723 7,269 2,410 3,971
Limited partnerships 78 95 415 479
Advisory services 75 234 320 278
------- ------- ------- -------
TOTAL FEE INCOME 3,876 7,598 3,145 4,728
OTHER 1,543 4,035 2,672 1,921
------- ------- ------- -------
TOTAL REVENUES $32,194 $77,317 $87,309 $84,378
======= ======= ======= =======
</TABLE>
COMMISSIONS
Commissions from securities and commodities brokerage activities
represented approximately 37% of the Company's revenue in the Transition Period
and 38%, 44% and 49% in the fiscal years ended June 24, 1994, June 25, 1993,
and June 26, 1992, respectively. Commissions on commodity brokerage
represented approximately 70% of the Company's total commission revenue for the
Transition Period and 68%, 67% and 69% in the fiscal years ended June 24, 1994,
June 25, 1993, and June 26, 1992.
Rodman executes customer orders to buy and sell securities and commodity
futures contracts. Rodman charges commissions competitive within the industry.
PRINCIPAL TRANSACTIONS
Rodman acts as principal to effect transactions in the equity, fixed
income and over-the-counter markets for institutional and retail customers, as
well as for other broker-dealers. Principal transactions, including market
making, require the maintenance of inventories of securities for resale. These
inventories are valued at market, and accordingly, gains and losses are
included in the results of operations. Rodman monitors its inventory aging and
turnover and employs various hedging strategies which attempt to mitigate the
effects of changing market conditions.
Institutional and Retail Credits. Rodman acts as principal in executing
trades in fixed income securities and in over-the-counter stocks for
institutional and individual customers, underwrites equity and debt securities,
and sells shares in mutual funds. In connection with these transactions,
Rodman receives, in lieu of commissions, credits in the form of mark-ups or
mark-downs from the price of the security.
Rodman employs traders and salespersons in its Boston, Chicago, New York
and San Francisco offices to service institutional clients such as insurance
companies, banks, state and municipal pension funds and investment advisors.
Market-making and Dealer Transactions. Rodman employs traders and
salespersons to make secondary markets in investment grade corporate fixed
income securities. Rodman employs over-the-counter traders to make secondary
markets in approximately 140 equity securities. Rodman maintains inventories
of over-the-counter stocks to facilitate sales, primarily for institutional and
individual customers. Rodman employs taxable and municipal bond traders and
salespersons and maintains inventories of taxable and municipal bonds to
facilitate transactions with its retail and institutional customers. See Note
7 to the Consolidated Financial Statements for the market value of the
Company's long and short securities inventory positions at December 31, 1994.
The Company does not conduct proprietary trading or invest in commodity
futures, forward contracts, commodity options or stock or commodity future
indices.
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<PAGE> 6
Rodman does utilize commodity futures contracts and other fixed income
instruments to hedge its fixed income inventory positions. The extent of
hedging utilizing these contracts is insignificant to the Company's financial
condition and results of operations. At December 31, 1994, the Company had
long and short open futures positions with a net unrealized profit of
approximately $115,000. At December 31, 1994, the Company had no short options
positions. See Note 17 to the Consolidated Financial Statements.
INTEREST
Rodman earns interest revenue principally from financing customers
purchases of securities, from securities inventories carried for resale to
customers, from securities finder services, and from short-term investments.
Margin Accounts. Interest is charged to customers on the amount loaned to
finance margin transactions. Financing of margin purchases is an important
source of revenue and profits to Rodman since the interest rate paid by the
customer on the funds loaned to them exceeds Rodman's cost of short-term funds.
Interest rates charged to customers on such loans range from zero to two and
one-half percent over the broker call rate (the rate paid to banks by brokers
on loans collateralized by marketable securities) depending upon the average
net margin balance in the customer's account and the volume of the customer's
transactions.
Securities Finder Service. Rodman operates a securities finder service
which matches the specific needs of broker-dealers that must borrow securities
to make deliveries on short sales, or for other reasons, with organizations
that have excess securities legally available for lending. Rodman also lends
securities itself. In performing this service, Rodman assumes a principal
position, recording funds received against securities loaned as liabilities and
funds advanced against securities borrowed as assets. Such loans and borrowings
are collateralized through initial cash deposits and subsequent deposits made
as a result of daily marking-to-market of the underlying securities.
FEE INCOME
Fee income represented approximately 12% of the Company's total revenue
for the Transition Period and is expected to become a more important component
of the Company's revenue as a result of the Mabon transaction.
Investment Banking. Rodman's investment banking division provides
financial advice to and raises capital for corporate clients. It also advises
clients in connection with mergers and acquisitions. This division arranges
public offerings and private placements of equity and debt securities directly
with institutional and individual investors. Rodman also provides advice to
clients with respect to matters such as acquisitions, financial planning, and
corporate recapitalizations.
Municipal Finance. Rodman acts as a manager or co-manager of negotiated
public offerings and private placements of tax-exempt securities issued by
state and municipal governments, power agencies, industrial development and
pollution control financing authorities, sewer and water authorities and state
and local housing authorities.
Limited Partnerships. Rodman markets limited partnership interests in
real estate, commodity pools, and other businesses.
Advisory Consulting Services. Rodman Advisory Services Inc., a wholly
owned subsidiary of the Company, provides investment advisory consulting
services to individuals, municipalities and employee benefit plans.
Other Services. Rodman assists in the design and development of corporate
benefit plans. In addition, it acts as a general insurance agent providing
insurance
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<PAGE> 7
consultations and advice and represents a number of insurance companies in the
sale of a broad range of insurance products.
MARKET RESEARCH
Rodman provides investment recommendations and market information to its
securities and commodity futures customers. Rodman's research efforts are
supplemented by research services purchased from outside consultants.
COMPETITION
The Company competes for customers on the basis of price, range of
services, quality of services, financial resources and reputation. The Company
encounters intense competition in all aspects of the securities and commodities
business and competes for customers and personnel directly with other
securities and commodities firms, a number of which have greater resources and
offer a wider range of financial services. In addition, there is increasing
competition from other sources, such as commercial banks and insurance
companies. Several leading commercial banks have obtained approval from the
Federal Reserve Board to enter into various new business activities, such as
underwriting securities, and pending legislative proposals would permit all
commercial banks to engage in activities similar to the Company's activities.
These developments may lead to the creation of a greater number of integrated
financial services firms that may be able to compete more effectively than the
Company for investment funds by offering a greater range of financial services.
EMPLOYEES
As of February 28, 1995, the Company employed approximately 494 people,
including 84 retail securities representatives, 77 commodities associated
persons, and 54 institutional securities sales representatives. It hired
approximately 60 people on March 28, 1995 as part of the Mabon transaction.
None of the Company's employees are covered by a collective bargaining
agreement. During the past year the Company experienced significant turnover
in its personnel as a result of the reorganization of some of its businesses.
However, the Company considers its relations with its current employees to be
good and regards compensation and employee benefits, including medical, life
and disability plans, to be competitive with those offered by other comparable
firms. Competition for experienced financial services personnel is keen in the
securities and commodities industry and, from time to time, the Company may
experience losses of valuable personnel.
REGULATION
Rodman is registered as a broker-dealer with the Securities and Exchange
Commission (the "SEC") and in all 50 states and the District of Columbia.
Rodman also is registered as a futures commission merchant with the Commodity
Futures Trading Commission ("CFTC"). The securities and commodities industry
in the United States is subject to extensive regulation under both federal and
state laws. The SEC is the federal agency responsible for the administration
of the federal securities laws. The CFTC is the federal agency responsible for
the administration of federal laws governing commodities transactions. Much of
the regulation of broker-dealers and futures commission merchants has been
delegated to self-regulatory organizations, principally the National
Association of Securities Dealers and national securities and commodities
exchanges. The NYSE and the Chicago Mercantile Exchange have been designated
by the SEC and the CFTC, respectively, as Rodman's primary regulators. These
self-regulatory organizations adopt rules (subject to approval by the SEC and
the CFTC) that govern the industry and the conduct of business. Rodman
Advisory Services Inc. is registered as an investment adviser with the SEC.
Broker-dealers and futures commission merchants are subject to regulations
that cover all aspects of the securities and commodities business, including
sales methods,
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<PAGE> 8
trade practices, use and safekeeping of customers' funds and securities,
capital structure, recordkeeping and the conduct of directors, officers and
employees. Under certain circumstances, these regulations could limit the
ability of the Company to make withdrawals of capital from Rodman. Additional
legislation, changes in rules promulgated by the SEC and CFTC and
self-regulatory organizations, or changes in the interpretation or enforcement
of existing legislation and rules may directly affect the method of operation
and profitability of broker-dealers and futures commission merchants. The SEC,
CFTC, self-regulatory organizations, and state securities commissions may
conduct audits and administrative proceedings which can result in censure,
fine, the issuance of cease-and-desist orders or the suspension or expulsion of
a broker-dealer or futures commission merchant, its officers or employees. The
principal purpose of regulation and discipline of broker-dealers and futures
commission merchants is the protection of customers and the securities and
commodities markets, rather than the protection of creditors and stockholders
of broker-dealers and futures commission merchants.
The Company is a member of the Securities Investor Protection Corporation
("SIPC"), which provides, in the event of the liquidation of a broker-dealer,
protection for customers' accounts held by the firm of up to $500,000 for each
customer, subject to a limitation of $100,000 for claims for cash balances.
SIPC is funded through assessments on registered broker-dealers, which may not
exceed 1% of a broker-dealer's gross revenues, SIPC assessments currently are
.073% of Rodman's gross securities related revenues, as defined. In addition,
the Company provides additional protection through a private insurer of up to
$9,500,000 for securities in each account (with certain limitations), for a
combined coverage of $10,000,000. Additional protection may be purchased by
individual customers subject to the limitations of the contract.
NET CAPITAL REQUIREMENTS
As a registered broker-dealer, Rodman is subject to SEC Rule 15c3-1, the
Uniform Net Capital Rule, which is monitored by the NYSE, together with certain
additional requirements set forth in the NYSE's Rule 325. The Uniform Net
Capital Rule is designed to measure the general financial integrity and
liquidity of a broker-dealer and requires that at least a portion of a
broker-dealer's assets be kept in relatively liquid form. As a futures
commission merchant, Rodman is subject to the net capital requirements of the
CFTC and various commodity exchanges. Both SEC and CFTC rules specify minimum
net capital levels as discussed below.
Rodman has elected to compute net capital under the alternative method of
calculation permitted by the Uniform Net Capital Rule. The Rule requires that
Rodman maintain minimum net capital, as defined, equal to the greater of (i) 2%
of aggregate debits arising from customer transactions, (ii) $1,000,000, or
(iii) 4% of the funds required to be segregated for customers pursuant to the
Commodity Exchange Act.
Failure to maintain the required net capital may subject a firm to
suspension or revocation of registration by the SEC and suspension or expulsion
by the NYSE and other regulatory bodies and ultimately may require its
liquidation. The Uniform Net Capital Rule also provides that the total
outstanding principal amounts of a broker-dealer's indebtedness under certain
subordination agreements, the proceeds of which are includible in its net
capital, may not exceed for a period in excess of 90 days, 70% of the sum of
the total outstanding principal amounts of all subordinated indebtedness
included in net capital plus stockholder's equity. See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations
- - -Liquidity and Capital Resources.
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<PAGE> 9
ITEM 2. PROPERTIES
The headquarters of the Company are at 120 South LaSalle Street, Chicago,
Illinois. Branch offices are located in Boston, New York, Kansas City,
Cleveland, San Francisco, San Diego and Dallas. All of the offices are leased
on a long-term basis under leases which expire at various dates from 1995 to
2010. See Note 14 to the Consolidated Financial Statements for the minimum
annual rentals in succeeding fiscal years under all noncancellable leases with
terms in excess of one year, as of December 31, 1994.
The Company is moving its Chicago and New York office locations within the
next three months. In Chicago, the Company has entered into a lease for
approximately 75,000 square feet in the Sears Tower, an increase from
approximately 50,000 square feet in its present location. In New York, the
Company will be moving to Two World Financial Center to share a floor with
Abaco International Corporation, a wholly owned subsidiary of Abaco, expanding
its space by approximately 10,000 square feet.
Management believes that it will need approximately 7,000 additional
square feet in New York to accommodate some of the personnel hired in the Mabon
transaction once it decides to move them from their current space shared with
Mabon. The Company will pay minimal rent on the current shared space until
July, 1995.
ITEM 3. LEGAL PROCEEDINGS
Many aspects of the Company's business involve risks of liability. The
Company has been named as a defendant in civil actions arising in the ordinary
course of business out of its activities as a broker-dealer in securities and
as a futures commission merchant. The Company also may be required to
contribute to any adverse judgments or settlements in actions arising out of
its participation in various underwritten offerings of securities. The
ultimate outcome of such matters cannot be predicted with certainty. In the
opinion of management of the Company, however, after consultation with outside
legal counsel, the ultimate resolution of pending litigation will not have a
material adverse effect on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth for each of the Company's current executive
officers his age, current positions with the Company, period of service and
business experience for the past five years.
Paul C. Blackman Age 54; Director, Executive Vice President of the
Company since April 11, 1994 and Managing Director of
Retail Sales for Rodman; Senior Vice President of the
Company from 1993 to 1994; Senior Vice President of
Dean Witter Reynolds Inc., a financial services firm,
from 1990 to 1993.
Peter Boneparth Age 35; Managing Director of Investment Banking for
Rodman since March 28, 1995; Managing Director of
Investment Banking for Mabon Securities Corp., a
financial services firm, from 1989 to March 28, 1995.
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<PAGE> 10
Charles W. Daggs, III Age 47; Director, President and Chief Executive
Officer of the Company and President of Rodman since
April 11, 1994; Senior Managing Director, Bear
Stearns & Co., Incorporated, a financial services
firm, from 1991 to 1994; Chairman and Chief Executive
Officer of Sutro & Co. Incorporated, a financial
services firm, from 1986 to 1990.
John T. Hague Age 40; Executive Vice President and Chief Financial
Officer of the Company since June 28, 1994; Executive
Vice President and Director of Internal Audit of the
Company from April 11, 1994 to June 28, 1994; Senior
Manager with Deloitte & Touche, a certified public
accounting firm, from 1990 to April, 1994.
Francis L. Kirby Age 50; Director since September 8, 1994; Executive
Vice President of the Company since June 24, 1994;
Senior Vice President of Oppenheimer & Co., Inc., a
financial services firm, from May 1993 to June 1994;
Director and Executive Vice President of the Company
from 1981 to 1993.
Edwin J. McGuinn, Jr. Age 43; Managing Director of Equities for Rodman
since March 28, 1995; Managing Director of Mabon
Securities Corp., a financial services firm, from
1992 to March 28, 1995; investment banker with Lehman
Bros. from 1981 to 1992 with final position of
Managing Director.
Keith F. Pinsoneault Age 47; Director since November 17, 1994; Executive
Vice President of the Company since June 1, 1994 and
Chief Operating Officer of the Company since
September 8, 1994; Senior Portfolio Manager for
Harris Bretall Sullivan & Smith from 1991 to June
1994; Portfolio Manager for McCullough Andrews &
Cappiello from 1990 to 1991.
David H. Shulman Age 32; Executive Vice President of the Company since
October 1, 1994; Managing Director of Rodman's Fixed
Income Group since February 14, 1994; Rodman's First
Vice President and Sales Manager for New York Taxable
Fixed Income from 1990 to February 14, 1994.
Frederick G. Uhlmann Age 65; Director from 1989 to 1993 and since April
11, 1994; Executive Vice President of the Company and
Rodman since 1990.
James D. Van De Graaff Age 34; Executive Vice President, General Counsel and
Secretary of the Company since March 14, 1994;
Attorney with Baker & McKenzie, attorneys at law,
from 1987 to 1994.
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<PAGE> 11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
SUPPLEMENTARY FINANCIAL DATA
QUARTERLY DATA (UNAUDITED)
(in thousands of dollars except per share data)
<TABLE>
<CAPTION>
INCOME (LOSS)
BEFORE
TAXES AND
CUMULATIVE
EFFECT OF INCOME
ACCOUNTING NET (LOSS) STOCK PRICE
FOR INCOME INCOME PER RANGE
REVENUES EXPENSES TAXES (LOSS) SHARE HIGH LOW
-------- -------- ------------- ------ ------- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Transition
Period
Quarter ended:
9/30/94 $19,367 $21,301 $( 1,934) $( 1,949) $( .43) $6.000 $5.000
12/31/94 12,827 17,225 ( 4,398) ( 2,215) ( .48) 5.500 3.625
------- ------- -------- -------- ------
TOTAL $32,194 $38,526 $( 6,332) $( 4,164) $( .91)
======= ======= ======== ======== ======
Fiscal year 1994
Quarter ended:
09/24/93 $26,355 $22,557 $ 3,798 $ 2,859 $ .61 $9.750 $5.375
12/31/93 23,441 25,469 ( 2,028) ( 1,643) ( .38) 9.750 7.125
3/25/94 14,593 17,707 ( 3,114) ( 2,088) ( .46) 7.875 5.750
6/24/94 12,928 29,015 (16,087) (15,629) (3.46) 6.875 5.000
------- ------- -------- -------- ------
TOTAL $77,317 $94,748 $(17,431) $(16,501) $(3.69)
======= ======= ======== ======== ======
Fiscal year 1993
Quarter ended:
09/25/92 $19,950 $19,880 $ 70 $ 51 $ .01 $5.750 $4.500
12/31/92 21,950 21,323 627 318 .07 5.625 4.500
03/26/93 22,607 22,287 320 263 .06 6.625 5.000
06/25/93 22,802 23,271 ( 469) ( 376) ( .08) 7.250 5.250
------- ------- -------- -------- ------
TOTAL $87,309 $86,761 $ 548 $ 256 $ .06
======= ======= ======== ======== ======
</TABLE>
The common stock of Rodman & Renshaw Capital Group, Inc. is listed on the NYSE.
The trading symbol is RR. At February 28, 1995, the approximate number of
stockholders of record was 232.
Information contained herein may not agree with information published in the
quarterly reports due to the change in accounting methods effective June 27,
1992. For fiscal 1993, total revenues and total expenses previously reported
in the first quarter were $21,458 and $21,388, respectively; and for the second
quarter were $23,377 and $22,750, respectively. There was no effect on net
income because of the accounting change for commission revenues and expenses on
customer transactions originated from introducing brokers discussed in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Certain Accounting Matters.
No dividends were declared during the Transition Period or in fiscal 1994 or
fiscal 1993. The Board of Directors reviews its dividend policy periodically.
However, there is no assurance that dividends will be paid in the future since
they are dependent upon earnings, financial condition and other factors. See
Note 13 to the Company's Consolidated Financial Statements for a discussion of
potential restrictions on the payment of dividends and Note 11 for a discussion
of dividends on preferred stock.
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<PAGE> 12
The cumulative effect of the accounting changes in fiscal 1993 per share
amounts was zero.
ITEM 6. SELECTED FINANCIAL DATA
(in thousands of dollars except per share data)
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------------------
Transition
Period 1994 1993 1992 1991 1990
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues (1) $ 32,194 $ 77,317 $ 87,309 $ 84,378 $ 76,590 $ 71,882
Expenses (1) 38,526 94,748 86,761 81,175 78,962 69,729
-------- -------- -------- -------- -------- --------
Income (loss) before
income taxes (6,332) (17,431) 548 3,203 (2,372) 2,153
Net income
(loss) (4,164) (16,501) 256 1,989 (1,595) 1,752
Net income (loss)
per common share (.91) (3.69) 0.06 0.46 (0.37) 0.42
Cash dividends per
share -0- -0- -0- -0- -0- -0-
BALANCE SHEET DATA
Total assets (1) $454,331 $300,664 $310,198 $321,890 $242,563 $315,941
Total
liabilities(1) 424,032 263,325 271,288 282,772 205,434 277,244
Liabilities
subordinated to the
claims of general
creditors 3,874 6,750 8,000 8,500 8,500 10,000
Total stockholders'
equity 26,425 30,589 30,910 30,618 28,629 28,697
Book value
per common
share (2) 5.77 6.68 7.07 7.01 6.56 6.92
Book value
per common share
assuming conversion
at 12/31/94(2) 3.98 --- --- --- --- ---
</TABLE>
_____________
(1) See Note 2 to the Consolidated Financial Statements regarding accounting
changes.
(2) Effective June 24, 1994, the Company issued to Abaco for an aggregate
price of $15,000,000, 150 shares of non-voting preferred stock convertible
into the Company's common stock, with the amount received allocated to the
book value per then outstanding common share during 1994 and during the
Transition Period. On January 31, 1995, the shares of preferred stock
held by Abaco were converted into a total of 2,068,965 shares of common
stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS ENVIRONMENT
The Company conducts its businesses in highly volatile markets.
Consequently, the Company's results of operations are affected by many factors,
including general market conditions, the liquidity of secondary markets, the
level and volatility of interest rates, currency and security valuations,
competitive conditions and the size, number and timing of transactions. In
periods of unfavorable market activity, profitability can be adversely affected
because certain expenses remain relatively
- 12 -
<PAGE> 13
fixed. As a result, revenues and net earnings can vary significantly from
quarter to quarter and year to year.
The period from June 26, 1993, through June 24, 1994, was one of change
and volatility in the financial services area. Long-term interest rates began
to rise after several years of decline. This depressed the performance of
fixed income departments throughout the brokerage industry.
Interest rate increases continued during the Transition Period and
intensified the volatility, particularly in the fixed income markets. The
number of investment banking transactions and the amount of fees earned
declined industry wide during the Transition Period. An acceleration in the
consolidation of investment banking, fixed income and equities departments
within the industry was indicative of its increasingly competitive environment.
The Company underwent substantial change during fiscal 1994 and the
Transition Period. As discussed in Item 1. Business, on December 22, 1993,
Abaco acquired a majority of the Company's outstanding shares through a tender
offer. The Company's earnings during fiscal 1994 and during the Transition
Period were impacted negatively by the transaction. The Company incurred
significant costs as senior management was replaced. Production was lost due
to significant employee turnover, thereby reducing revenues and earnings. The
Company also incurred material, nonrecurring expenses and a restructuring
charge relative to the acquisition.
Since the acquisition, the Company has substantially changed its senior
management team, conducted a review of the profitability of each of its core
businesses, and developed overall company and individual departmental business
plans. The Company has added a substantial number of revenue producers -- both
traders and salespersons -- to its fixed income, retail sales and futures
departments. The Company also has expanded its investment banking and
institutional equity businesses, particularly as a result of the Mabon
transaction. Further, the Company has identified new geographical markets for
expansion and has opened new offices in Boston, Dallas, San Diego and San
Francisco.
OUTLOOK
Rodman's hiring of employees from the institutional equities and
investment banking departments of Mabon Securities Corp. on March 28, 1995 is a
significant step that is expected to broaden the Company's capabilities and
customer base in those areas and to complement the Company's retail securities
capability, particularly in the area of research. After a transition period of
several months, and assuming stable market conditions, Rodman expects these
departments to begin to contribute to the Company's results from operations.
The Company expects to experience improvements in results from its futures and
institutional fixed income departments as well. The Company continues to
review its processing procedures and cost structure, implementing changes to
improve its profit margins. The Company is expanding its investment advisory
services and money management capabilities to benefit from the rapidly growing
movement in the investment industry toward fee-based income. The Company also
intends to continue hiring experienced individuals in 1995 to be prepared in
the event of improving market conditions.
The Company and Abaco continue to explore potential areas of synergy,
including market making in certain Mexican equity issues in the United States
and providing research and trade execution relative to Mexican companies to
U.S. institutional and retail customers. However, the destabilizing effect of
the devaluation of the Mexican peso is likely to delay the Company's
development of other opportunities in Mexico.
- 13 -
<PAGE> 14
RESULTS OF OPERATIONS
The results of operations should be read in conjunction with the Company s
consolidated statements of operations and related notes. Following completion
of the fiscal year ended June 24, 1994, the Company changed its fiscal year
from the last Friday in June to a calendar year end.
The following table summarizes the changes in the major categories of
revenues and expenses (including the nonrecurring expenses and restructuring
charge) for the six month transition period ended December 31, 1994 and the
past two fiscal years (dollar amounts in thousands):
<TABLE>
<CAPTION>
Increase (Decrease)
-------------------
Transition Period vs. FISCAL YEARS
06/26/93 - 12/31/93 1994 vs 1993 1993 vs 1992
--------------------- ------------------ ------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Commissions $ (3,875) (25%) $(9,560) (25%) $(2,523) (6%)
Principal (12,211) (63%) (4,903) (15%) 6,576 26%
Interest 3,042 63% (1,345) (13%) (290) (3%)
Fee income (2,109) (35%) 4,453 142% (1,583) (33%)
Other (1,990) (56%) 1,363 51% 751 39%
-------- ---- ------- ---- ------- ----
TOTAL $(17,143) (35%) $(9,992) (11%) $ 2,931 4%
======== ==== ======= ==== ======= ====
EXPENSES
Employee compensation
and benefits $ (6,650) (23%) $ (34) 0% $ 2,722 6%
Commissions, floor
brokerage and clearing (1,720) (42%) (1,580) (18%) 349 4%
Interest 2,942 98% (1,421) (20%) 170 2%
Communication 125 4% (740) (11%) 446 7%
Occupancy and equipment 65 2% (512) (8%) 385 6%
Professional fees (2,197) (74%) 2,517 93% 909 50%
Other operating (1,606) (53%) 5,942 123% 605 14%
Restructuring charge -0- -0- 3,815 100% -0- -0-
-------- ---- ------- ---- ------- ----
TOTAL $ (9,041) (19%) $ 7,987 9% $ 5,586 7%
======== ==== ======= ==== ======= ====
</TABLE>
Revenues for the Transition Period totaled $32,194,000, a 35% decrease
from the comparable six month period ended December 31, 1993. During the
fiscal year ended June 24, 1994, the Company s revenues decreased approximately
11% to $77,317,000. This followed an increase of 4% for fiscal year 1993 when
revenues rose to $87,309,000 from $84,378,000 in fiscal 1992.
The Company recorded a net loss of $4,164,000 or $.91 per common share for
the Transition Period. The Company recorded a net loss for fiscal 1994 of
$16,501,000, or $3.69 per common share, compared with fiscal 1993 net income of
$256,000, or $.06 per common share, and fiscal 1992 net income of $1,989,000,
or $.46 per common share.
SIX MONTHS ENDED DECEMBER 31, 1994 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1993
REVENUES
During the Transition Period, commission revenues decreased 25% from the
comparable six month period in 1993 to $11,870,000, a function of the changes
in the number of revenue producing personnel and the lag in revenue production
for those employees who commenced employment during the Transition Period.
Revenues from principal transactions, which include realized and
unrealized gains and losses on securities held for resale to customers,
decreased 63% from the comparable six month period in 1993 to $7,033,000,
primarily due to market conditions. The Company aggressively hired experienced
traders and salespersons in the institutional fixed income department during
the Transition Period.
- 14 -
<PAGE> 15
During the Transition Period, interest income increased 63% from the
comparable six month period in 1993 to $7,872,000. The increase was due to
higher interest rates earned on increased balances of securities inventories
and increased commodities customers cash deposits. In addition, average
securities customers margin receivables began to increase in the Transition
Period and the Company increased its efforts in the stock loan and securities
finders business.
Fee income decreased 35% from the comparable six month period in 1993 to
$3,876,000. The timing of revenue recognition on investment banking
transactions is a function of when the transactions are completed. The Company
completed 3 and 11 investment banking transactions during the six month periods
ended December 31, 1994 and 1993, respectively.
Other revenue decreased 56% from the comparable six month period in 1993
to $1,543,000. The Company realized a $696,000 gain on the sale of a Chicago
Board of Trade exchange membership during the Transition Period. The Company
intends to sell two additional exchange memberships in 1995, as these assets
are not required for the Company to conduct its commodities business. The
Company realized nonrecurring gains of $2,551,000 from the sale of businesses
in the comparable six month period ended December 31, 1993.
EXPENSES
During the Transition Period, employee compensation and benefits expense
decreased 23% from the comparable six month period in 1993 to $21,886,000.
This decrease is the net effect of reduced variable compensation related to the
decrease in commission revenues and an increase in fixed compensation expense
resulting from the employment of new management and producers with temporarily
enhanced commission payouts.
Commissions, floor brokerage, and clearing expenses decreased 42% from the
comparable six month period in 1993 to $2,328,000, commensurate with the
decrease in commission revenues.
Interest expense increased 98% from the comparable six month period in
1993 to $5,933,000 due to higher interest rates on increased securities
inventory balances and the effect of increased short-term borrowings from
Abaco. See Note 9 to the Consolidated Financial Statements.
Professional fees decreased 74% from the comparable six month period in
1993 to $763,000. The Company paid approximately $1,600,000 in nonrecurring
professional fees related to the ownership change transaction during the period
ended December 31, 1993, as discussed below. Other operating expenses
decreased 53% from the comparable six month period in 1993 to $1,443,000,
primarily related to a significant decrease in errors, bad debt and legal
settlements.
The Company recorded an income tax benefit of $2,168,000 for the
Transition Period as management believes that this benefit will be realized in
connection with the Company's intended tax strategies and projected future
income. The intended tax strategies include the sale of certain exchange
memberships and the cashing in of the cash surrender value of certain life
insurance policies that will generate taxable income of approximately $750,000
and $1,700,000, respectively. The sale of the exchange memberships will not
affect Rodman's ability to maintain its present clearing and execution
capabilities.
The minimum amount of future taxable income, exclusive of that amount
generated by the tax planning strategies noted above, needed to be generated to
realize the deferred tax asset is approximately $6,000,000. Historically, the
Company has demonstrated profitability, exclusive of the loss incurred in
fiscal 1994 (which management believes to be an aberration), evidenced by
cumulative net
- 15 -
<PAGE> 16
income of approximately $8,200,000 for the nine year period ended June 1993.
As a result of the change in management (See Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Business
Environment), the Company has refocused its efforts, exited certain business
lines deemed to be unprofitable, terminated many non-essential personnel, and
formulated a business plan intended to enable the Company to achieve
profitability in the future. As a result of these efforts, management believes
sufficient profits will be realized to utilize the deferred tax asset.
The Company will periodically review its achievement of its business goals
and evaluate the ability to recognize the deferred tax asset. In the event the
Company does not achieve its business plans, it may not be able to realize the
deferred tax asset, which could adversely impact future results of operations,
as the Company would be required to recognize the nonutilization of this
benefit.
The net operating loss carryforward expires in 2009. The Company has not
had operating or tax credit carryforwards expire unused. Historically, there
have not been material differences between pretax earnings for financial
reporting purposes and taxable income for income tax purposes.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
AND FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992
REVENUES
Commission revenue decreased 25% in fiscal 1994 to $29,158,000, largely a
function of the reduced volume in the securities and futures markets and the
aforementioned loss in personnel (as discussed in Item 1. Business -
Employees). Total fiscal 1993 commission revenues decreased from 1992 due to
the accounting change discussed in Note 2 to the Consolidated Financial
Statements. Absent this accounting change, commission revenues increased
$1,249,000 in fiscal 1993 to $38,718,000.
Revenues from principal transactions, which include realized and
unrealized gains and losses on securities held for resale, decreased 15% to
$27,313,000 in fiscal 1994 primarily due to losses incurred as a result of
volatility in the debt markets. Principal revenues rose 26% in fiscal 1993 to
$32,216,000.
Interest income decreased 13% in fiscal 1994 to $9,213,000 due to a
decrease in average customer margin receivables and a reduction of firm
inventory carried for sale to customers.
Fee income increased 142% in fiscal 1994 to $7,598,000, which followed a
33% decrease in fiscal 1993 from $4,728,000 in fiscal 1992. The timing of
revenue recognition on investment banking transactions is a function of when
the transactions are completed. The Company completed 18 investment banking
transactions during fiscal 1994, as compared to 7 and 13 transactions during
fiscal 1993 and 1992, respectively.
The Company realized nonrecurring net gains of $2,551,000 in fiscal 1994
from the sales of its London futures and option operations and its Chicago
Stock Exchange specialist operation. The London futures and options branch was
sold because of recurring losses. The Chicago Stock Exchange specialist
operation was sold because the Company changed its long-term strategic plan.
EXPENSES
Nonrecurring Expenses and Restructuring Charge. As noted above, the
Company incurred several material nonrecurring expenses and a restructuring
charge during fiscal 1994. These items are recorded in various financial
statement line items
- 16 -
<PAGE> 17
including Employee Compensation and Benefits, Professional Fees and Other
Operating Expenses. Such items are summarized below by the type of transaction
which gave rise to the expense or charge.
<TABLE>
<S> <C>
Ownership change transaction $ 6,401,000
Restructuring charge 3,815,000
Litigation and settlements 3,427,000
Employee related 1,178,000
Other 3,545,000
-----------
Total nonrecurring expenses
and restructuring charge $18,366,000
===========
</TABLE>
The components of the $6,401,000 incurred in the ownership change transaction
are as follows:
<TABLE>
<S> <C>
Employee option tender $ 2,026,000
Professional fees 1,604,000
Employee costs (hiring
and severance) 2,231,000
Other 540,000
-----------
$ 6,401,000
===========
</TABLE>
The Company has recorded a restructuring charge totaling approximately
$3,815,000 related to its office relocations in Chicago and New York. See Item
2. Properties. This figure includes the costs of abandoning certain leasehold
improvements (a net noncash charge of approximately $450,000) and certain lease
obligations for space which management believes it will be unable to sublet
after the moves. Any sublease revenues realized in the future will be recorded
as a reduction of occupancy costs.
Rodman incurred expenses totaling $3,427,000 related to certain legal
settlements during the year ended June 24, 1994. This amount does not include
the costs of normal recurring litigation inherent in day-to-day operations.
Rodman incurred certain employee related expenses totaling $1,178,000
during fiscal 1994 in connection with the severance of certain employees,
employment fees and other costs associated with the new hirings.
Other nonrecurring expenses totaling $3,545,000 include expenses and
allowances incurred in connection with the termination of Rodman's high-yield
fixed income securities business and liquidation of the related portfolio.
Rodman terminated its high-yield fixed income business because it determined
that the earnings to be derived from such business were insufficient to justify
the costs and risks involved in conducting the business. In connection with
the termination of the business, Rodman made the decision to repurchase certain
high-yield bonds held in the accounts of certain of its customers or to reprice
high-yield bonds that such customers continued to hold by refunding to them
part of their initial purchase price. The expenses incurred in connection with
the termination of the business included $1.1 million attributable to these
repurchase and repricing transactions. The remainder of the $3,545,000
includes professional and consulting fees and write-offs of certain deferred
expenses and receivables.
Substantially all of the nonrecurring expenses discussed above were paid
during fiscal 1994. The restructuring charge liability will be paid in future
periods as follows: $240,000 in the Transition Period, $1,745,000 in calendar
1995, and $1,380,000 in calendar 1996.
Total Expenses. Total expenses increased $7,987,000 to $94,748,000 in
fiscal 1994, following an increase of $5,586,000 in fiscal 1993. The following
discussion
- 17 -
<PAGE> 18
focuses on the changes in expenses after excluding the nonrecurring expenses
discussed above. Those expenses were summarized above by transaction type, not
by financial statement line item. They are excluded by financial statement
line item below.
Employee compensation and benefit expense, excluding nonrecurring expenses
totaling $5,358,000 as discussed above, totaled $44,696,000, a decrease of
$5,392,000, or 11%, from 1993 amounts. This decrease is the net effect of
reduced variable compensation related to the decrease in commission revenues
and an increase in fixed compensation expense resulting from the employment of
new management and producers.
Commissions, floor brokerage, and clearing expenses decreased 18% to
$7,141,000 in fiscal 1994, commensurate with the decrease in commission
revenues. These expenses increased 4% in 1993.
Interest expense decreased 20% to $5,714,000 in fiscal 1994 from
$7,135,000 in 1993. This is a result of lower interest rates in the first half
of fiscal 1994 when customer balances were relatively unchanged from the prior
year and decreased customer balances during the second half of the year. This
followed an increase of 2% to $7,135,000 in fiscal 1993.
Communication expense decreased 11% to $6,063,000 from $6,803,000 due to
the reduction in customer and market trading activity, the sale of the London
futures and option operations and negotiated reductions with certain
communication vendors. This followed an increase in fiscal 1993 of 7% due to
expansion in Cleveland and Milwaukee.
Occupancy and equipment expense decreased 8% to $5,949,000 in fiscal 1994,
primarily due to the sale of the London futures and option operations in August
1993. The increase in fiscal 1993 over 1992 of 6% was due to expansion in
Cleveland and Milwaukee.
Professional fees, excluding the certain nonrecurring expenses of
$3,384,000, as discussed above, decreased 32% to $1,843,000 in fiscal 1994 due
to a reduction in consulting projects.
Other operating expenses, excluding certain nonrecurring expenses of
$5,809,000, as discussed above, increased 3% to $4,976,000 in fiscal 1994.
The Company recorded a net tax benefit of $930,000 for fiscal 1994. An
additional benefit of $4,518,000, was offset by a valuation allowance pursuant
to Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." This valuation allowance has been recognized due to the uncertainty of
realizing the tax benefit of loss carry forwards and temporary differences
totaling $2,469,000 and $2,627,000, respectively, at June 24, 1994.
LIQUIDITY AND CAPITAL RESOURCES
As a registered broker-dealer and futures commission merchant, Rodman is
required by the SEC and CFTC to maintain specified amounts of net capital to
meet its customer obligations. See Note 13 to the Consolidated Financial
Statements. At December 31, 1994, Rodman's net capital, as defined, was
$16,644,000, which was $11,038,000 in excess of the minimum required net
capital. As of June 24, 1994, Rodman's net capital was $30,703,000, which was
$25,327,000 in excess of required net capital. As of June 25, 1993, Rodman's
net capital was $15,843,000, which was $10,790,000 in excess of required net
capital.
The Company's assets are substantially comprised of customer-related
receivables and securities inventory, both of which are highly liquid. The
- 18 -
<PAGE> 19
principal sources of financing are stockholders' equity, customer payables,
proceeds from securities lending, short-term loans from banks and Confia, S.A.,
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 all of 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.
Effective June 24, 1994, the Company issued to Abaco, for an aggregate
price of $15,000,000, 150 shares of nonvoting preferred stock convertible into
the Company's common stock. The preferred stock was converted into an
aggregate of 2,068,965 shares of common stock on January 31, 1995 pursuant to
its terms following stockholder approval of the conversion.
On June 22, 1994, the Company borrowed $10,000,000 from Confia, S.A. The
loan was renewed on December 19, 1994 for a six month term. Management of the
Company believes that Confia, S.A. will continue to renew the loan for
additional periods. However, the interest rate on the loan, if it is renewed,
will be established at the time of the renewal, and such rate is expected to
increase substantially because of rising interest rates in Mexico. Management
of the Company is engaged in discussions with Abaco and Confia, S.A. concerning
a change in the nature of the short-term borrowing. It also is initiating
discussions with third parties concerning replacement financing.
Rodman's subordinated borrowings have maturities at dates within the next
twelve months as follows:
<TABLE>
<S> <C>
June 19, 1995 $ 10,000,000
September 30, 1995 2,500,000
</TABLE>
On January 3, 1995, Rodman obtained regulatory approval to repay and repaid
$1,374,000 of a subordinated note to an unrelated party pursuant to a
termination agreement. The subordinated borrowing due September 30, 1995,
which also is from an unrelated party, will either be renewed or repaid,
depending on Rodman's capital needs, renewal terms and other factors. If the
borrowing is repaid, the repayment will be funded from cash reserves. The
$10,000,000 subordinated borrowing is part of a senior subordinated revolving
credit facility between Rodman and the Company terminating on June 15, 1997,
which facility 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 this subordinated borrowing through June 1998 unless the nature of
the short-term borrowing between the Company and Confia, S.A. is changed, as
discussed above. To the extent that such subordinated borrowing is required
for Rodman's continued compliance with minimum net capital requirements, it may
not be repaid. In the event that the borrowing between the Company and Confia,
S.A. is not renewed and Rodman is not permitted to repay the subordinated debt
to the Company, the Company will have to seek third party sources of funds as
discussed above. If the Company is unable to obtain such third party funds, it
will be required to curtail substantially the business activities of Rodman in
order to reduce Rodman's minimum net capital requirements and, in turn, allow
Rodman to repay its subordinated debt to the Company. See Notes 10 and 13 to
the Consolidated Financial Statements.
Rodman also is initiating 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 in the above
two paragraphs). In the event that it is unable to obtain additional capital
and wishes to expand in
- 19 -
<PAGE> 20
certain areas, or in the event that it sustains substantial losses, it may
reduce its activities in areas it identifies as insufficiently profitable to
justify the regulatory capital required to conduct them.
In the Mabon transaction, Rodman assumed certain liabilities associated
with individuals to whom it extended offers of employment. These liabilities,
initially estimated to be $600,000, will offset working capital over time as
they are dependent on the individual employees' employment by Rodman.
Although the Company is anticipating two office relocations during the
next year, the Company has negotiated tenant build-out concessions and intends
to utilize other traditional means of financing to minimize the impact of such
relocations on the Company's liquidity. The Company estimates that it will
spend approximately $1,000,000 out of cash reserves related to these moves.
The Company is presently analyzing the effect of the Mabon transaction on its
office space and equipment requirements and believes that the impact on
liquidity and capital will not be material. The Company does not anticipate
any other 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 Transition Period, the Company used $157,000, exclusive of the
increase in securities purchased under agreements to resell of $21,631,000, in
operating activities. In fiscal 1994, the Company generated cash and cash
equivalents of $3,188,000, exclusive of the increase in securities purchased
under agreements to resell of $13,423,000, from operating activities. In
fiscal 1993 and 1992, the Company's operations used $7,270,000 and $12,106,000,
respectively.
In the Transition Period, the Company generated $700,000 from investing
activities related to the sale of a Chicago Board of Trade exchange membership.
In fiscal 1994, the Company generated $3,732,000 from investing activities,
primarily the result of the sale of its London futures and option operations
and Chicago Stock Exchange specialist operation. In fiscal 1993 and 1992,
investing activities used $926,000 and $724,000, respectively, primarily for
the purchase of furniture and equipment.
In the Transition Period, the Company generated $28,213,000 from financing
activities, which represents the net effect of an increase in short-term
borrowings from banks of $31,089,000 to finance increased securities
inventories and the payment of $2,876,000 in subordinated borrowings. In
fiscal 1994, the Company generated $5,957,000 from financing activities, which
represents debt and equity financing from Abaco and Confia, S.A., net of
reductions in short-term bank and subordinated borrowings. Financing
activities provided $7,848,000 and $7,650,000 in fiscal 1993 and 1992,
respectively, primarily through increases in short-term bank borrowings.
INFLATION
The Company's assets are primarily monetary, consisting of cash,
securities inventory, and receivables. These monetary assets are generally
liquid and turn over rapidly and, consequently, are not in general
significantly affected by inflation. However, the rate of inflation affects
various expenses of the Company, such as employee compensation and benefits,
communications, and occupancy and equipment, which may not be readily
recoverable in the price of its services.
- 20 -
<PAGE> 21
CERTAIN ACCOUNTING MATTERS
During fiscal year 1993 Rodman implemented the accounting changes
described below:
1. Rodman changed its method of accounting for commission revenue and
expenses for commodity transactions executed for introducing brokers. For
1993, the net commission retained by the Company was recorded as revenue.
In previous years, the entire amount of commissions charged to customers
on introducing brokers were recorded as commission expense. See Note 2
for the effects on the Financial Statements.
2. Rodman adopted SFAS No. 109, "Accounting for Income Taxes." The
cumulative effect of this change was an $18,000 benefit.
Rodman believes these accounting changes better reflect the economic service
and substance of the transactions.
In 1992, the FASB issued SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." Effective for fiscal years beginning after
December 15, 1993, SFAS No. 115 requires the Company to classify its
investments in debt and qualifying equity securities into three categories:
"trading", "available-for-sale" or "held-to-maturity." Securities that are
classified as trading and available-for-sale are required to be recorded at
fair value. The implementation of SFAS No. 115 did not have a material effect
on the Company's financial position or results of operations.
In October, 1994, the FASB issued SFAS No. 119, "Disclosure about
Definitive Financial Instruments and Fair Value of Financial Instruments."
Rodman adopted this standard during the Transition Period. See Note 17 to the
Consolidated Financial Statements.
On April 11, 1994 the Board of Directors voted to change the Company's
fiscal year end to December 31. Accordingly, the Company's next reporting
period will be from January 1, 1995 through December 31, 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is submitted as a separate section
of this report. (See Index on page F-1)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required by Regulation S-K Item 304 was previously
reported in the Company's Proxy Statement dated December 27, 1994, pertaining
to its Special Meeting of Stockholders held on January 31, 1995.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
Incorporated by reference to the Company's definitive proxy statement for
its 1995 annual meeting of stockholders.
ITEM 11. EXECUTIVE COMPENSATION
- 21 -
<PAGE> 22
Incorporated by reference to the Company's definitive proxy statement for
its 1995 annual meeting of stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Company's definitive proxy statement for
its 1995 annual meeting of stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Company's definitive proxy statement for
its 1995 annual meeting of stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
The following are Consolidated Financial Statements of Rodman &
Renshaw Capital Group, Inc. and Subsidiaries:
Consolidated Statements of Financial Condition - December 31,
1994 and June 24, 1994.
Consolidated Statements of Operations - Transition Period ended
December 31, 1994, Fiscal Years ended June 24, 1994, June 25,
1993, and June 26, 1992.
Consolidated Statements of Stockholders' Equity - Transition
Period ended December 31, 1994, Fiscal Years ended June 24,
1994, June 25, 1993, and June 26, 1992.
Consolidated Statements of Cash Flows - Transition Period ended
December 31, 1994, Fiscal Years ended June 24, 1994, June 25,
1993, and June 26, 1992.
Notes to Consolidated Financial Statements.
(b) Reports on Form 8-K
A report on Form 8-K dated October 6, 1994, was filed during the last
quarter of the period covered by this report. The filing reported under
Item 4 of Form 8-K the Company's change of accountants.
(c) Exhibits - The following exhibits are included herein or are
incorporated by reference:
(3) Certificate of Incorporation and By-Laws
3.1 Certificate of Incorporation - Incorporated by reference to
Exhibit 3.1 of the Company's Annual Report on Form 10-K for
the year ended June 24, 1994.
3.2 By-Laws - Incorporated by reference to Exhibit 3.2 of the
Company's Annual Report on Form 10-K for the year ended
June 24, 1994.
(4) Instruments Defining the Rights of Security Holders
- 22 -
<PAGE> 23
4.1 Certificate of Designations of Rights, Privileges and
Restrictions of Series A Non-Voting Convertible Preferred
Stock - Incorporated by reference to Exhibit 4.1 of the
Company's Annual Report on Form 10-K for the year ended
June 24, 1994.
(10) Material Contracts (Asterisk indicates management contracts or
compensatory plans or arrangements)
10.1 Rodman & Renshaw Capital Group, Inc. Non-Employee Director
Stock Option Plan - Incorporated by reference to Exhibit A
to the Company's Proxy Statement dated April 5, 1994.*
10.2 Rodman & Renshaw Capital Group, Inc. 1994 Stock Option
Plan - Incorporated by reference to Exhibit B to the
Company's Proxy Statement dated April 25, 1994.*
10.3 Lease Agreement dated October 20, 1980 - Incorporated by
reference to Exhibit 10.3 to the Company's Form S-1
Registration Statement (Reg. No. 33-4649), which became
effective on May 29, 1986.
10.4 Deferred Compensation Plan (dated January 1, 1993) -
Incorporated by reference to exhibit 10(b) of the
Company's Annual Report on Form 10-K for the year ended
June 25, 1993.*
10.5 Deferred Compensation Trust (dated January 1, 1993) -
Incorporated by reference to Exhibit 10(c) of the
Company's Annual Report on Form 10-K for the year ended
June 25, 1993.*
10.6 Supplemental Executive Retirement Plan (dated January 1,
1993) - Incorporated by reference to Exhibit 10(d) of the
Company's Annual Report on Form 10-K for the year ended
June 25, 1993 and Exhibit 5 to the Company's Schedule
14D-9 dated November 23, 1993.*
10.7 Supplemental Executive Retirement Trust (dated January 1,
1993) - Incorporated by reference to Exhibit 10(e) of the
Company's Annual Report on Form 10-K for the year ended
June 25, 1993.*
10.8 Stock Purchase Agreement dated June 24, 1994 between the
Company and Abaco - Incorporated by reference to Exhibit
10.8 of the Company's Annual Report on Form 10-K for the
year ended June 24, 1994.
10.9 Promissory Note from the Company to Confia, S.A. dated
December 19, 1994.
10.10 Employment agreement between the Company and Charles
W. Daggs, III, dated April 11, 1994 - Incorporated by
reference to Exhibit 10.10 of the Company's Annual
Report on Form 10-K for the year ended June 24,
1994.*
10.11 Employment agreement between Rodman & Renshaw, Inc.
and David H. Shulman dated February, 1994 - Incorporated
by
- 23 -
<PAGE> 24
reference to Exhibit 10.11 of the Company's Annual
Report on Form 10-K for the year ended June 24, 1994.*
10.12 Employment agreement between the Company and F.L.
Kirby dated June 20, 1994 - Incorporated by reference
to Exhibit 10.12 of the Company's Annual Report on
Form 10-K for the year ended June 24, 1994.*
10.13 Acquisition Agreement dated as of November 17, 1993
among the Company, Abaco and Parent - Incorporated by
reference to Exhibit (c)(1) to Schedule 14D-1 of
Abaco and Parent filed by EDGAR on January 18, 1994.
10.14 Lease between Tower Leasing, Inc. and the Company.
10.15 First Amendment to the Rodman & Renshaw, Inc.
Supplemental Executive Retirement Plan.
(21) Subsidiaries of the Registrant
21.1 Subsidiaries of the Registrant.
(23) Consents of Experts and Counsel
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Deloitte & Touche LLP
(27) Financial Data Schedule
27.1 Financial Data Schedule.
- 24 -
<PAGE> 25
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.
RODMAN & RENSHAW CAPITAL GROUP, INC.
By:/s/ Charles W. Daggs, III
Charles W. Daggs, III
President and Chief Executive Officer
Date: March 30, 1995
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 and on the dates indicated.
Signature Title Date
- - --------- ----- ----
/s/ Charles W. Daggs, III President, Chief March 30, 1995
Charles W. Daggs, III Executive Officer,
and Director
(Principal
Executive Officer)
/s/ John T. Hague Chief Financial March 30, 1995
John T. Hague Officer (Principal
Financial Officer and
Accounting Officer)
/s/ Alexander C. Anderson Director March 30, 1995
Alexander C. Anderson
/s/ Paul C. Blackman Director March 30, 1995
Paul C. Blackman
/s/ Eduardo Camarena Legaspi Director March 30, 1995
Eduardo Camarena Legaspi
/s/ Jorge Antonio Garcia Garza Director March 30, 1995
Jorge Antonio Garcia Garza
/s/ Francis L. Kirby Director March 30, 1995
Francis L. Kirby
- 25 -
<PAGE> 26
/s/ Jorge Lankenau Rocha Director March 30, 1995
Jorge Lankenau Rocha
/s/ Thomas E. Meade Director March 30, 1995
Thomas E. Meade
/s/ Richard Pigott Director March 29, 1995
Richard Pigott
/s/ Keith F. Pinsoneault Director March 30, 1995
Keith F. Pinsoneault
/s/ David S. Ruder Director March 30, 1995
David S. Ruder
/s/ Joseph P. Shanahan Director March 30, 1995
Joseph P. Shanahan
/s/ Frederick G. Uhlmann Director March 30, 1995
Frederick G. Uhlmann
- 26 -
<PAGE> 27
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
REPORTS OF INDEPENDENT ACCOUNTANTS F-2
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION F-4
CONSOLIDATED STATEMENTS OF OPERATIONS F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
</TABLE>
F-1
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Rodman & Renshaw Capital Group, Inc.:
We have audited the accompanying consolidated statement of financial condition
of Rodman & Renshaw Capital Group, Inc. (the "Company," a majority-owned
subsidiary of Abaco Casa de Bolsa, S.A. de C.V., Abaco Grupo Financiero) and
subsidiaries as of December 31, 1994, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the six month
transition period ended December 31, 1994. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company and its subsidiaries as of December 31, 1994, and the results of their
consolidated operations and cash flows for the six month transition period then
ended, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Chicago, Illinois
February 24, 1995
F-2
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Rodman & Renshaw Capital Group, Inc.:
We have audited the accompanying consolidated statements of financial condition
of Rodman & Renshaw Capital Group, Inc. (the "Company," a majority-owned
subsidiary of Abaco Casa de bolsa, S.A. de C.V., Abaco Grupo Financiero) and
subsidiaries as of June 24, 1994 and June 25, 1993, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three fiscal years in the period ended June 24, 1994. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and its subsidiaries
as of June 24, 1994 and June 25, 1993, and the results of their operations and
their cash flows for each of the three fiscal years in the period ended June
24, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, in fiscal
1993, the Company and its subsidiaries changed its methods of accounting for
commission revenues and expenses for commodity transactions executed for
introducing brokers and for income taxes.
/s/ Deloitte & Touche LLP
AUGUST 19, 1994
F-3
<PAGE> 30
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands except per share amounts)
DECEMBER 31, JUNE 24,
1994 1994
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS $ 7,011 $ 575
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL 35,054 13,423
CASH AND SHORT-TERM INVESTMENTS REQUIRED TO BE SEGREGATED UNDER FEDERAL
REGULATIONS (including reverse repurchase agreements: December - $35,200, June - 39,215 36,837
$32,500)
RECEIVABLES
Customers 47,036 57,254
Brokers, dealers, and clearing organizations 155,408 132,458
Miscellaneous 10,607 5,726
SECURITIES OWNED - At market 144,500 40,936
MEMBERSHIPS IN SECURITIES AND COMMODITIES EXCHANGES -
At cost (market value: December - $6,227; June - $7,000) 3,850 3,854
FURNITURE, FIXTURES, AND LEASEHOLD IMPROVEMENTS -
At cost, less accumulated depreciation and amortization (December - $5,554; June - 2,298 1,987
$7,408)
PREPAID EXPENSES AND OTHER ASSETS 5,213 5,057
RECOVERABLE INCOME TAXES 1,379 1,979
DEFERRED INCOME TAXES (Net of valuation allowance: December - $5,246; June - $4,518) 2,760 578
-------- ---------
TOTAL ASSETS $454,331 $300,664
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
SHORT-TERM BORROWINGS FROM BANKS $ 54,331 $ 23,242
SHORT-TERM NOTE PAYABLE TO AFFILIATE 10,000 10,000
PAYABLES:
Customers 89,878 118,657
Brokers, dealers, and clearing organizations 158,151 79,828
Miscellaneous 661 1,082
SECURITIES SOLD BUT NOT YET PURCHASED - At market 97,844 13,788
ACCRUED COMMISSIONS 2,066 1,715
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 11,101 15,013
-------- ---------
424,032 263,325
COMMITMENTS AND CONTINGENCIES (NOTE 14)
LIABILITIES SUBORDINATED TO THE CLAIMS OF GENERAL CREDITORS 3,874 6,750
STOCKHOLDERS' EQUITY:
Convertible non-voting preferred stock, 5,000,000 shares authorized;
150 shares Series A, $.01 par value issued at December and June
Common stock, $.09 par value; 20,000,000 shares authorized;
4,577,000 shares issued at December and June 412 412
Additional paid-in capital 30,935 30,935
Accumulated deficit (4,922) (758)
-------- ---------
26,425 30,589
-------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $454,331 $300,664
======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 31
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Six Month Fiscal Year Ended
Transition Period ---------------------------------------------
Ended December 31, June 24, June 25, June 26,
1994 1994 1993 1992
<S> <C> <C> <C> <C>
REVENUES:
Commissions $ 11,870 $ 29,158 $ 38,718 $ 41,241
Principal 7,033 27,313 32,216 25,640
Interest 7,872 9,213 10,558 10,848
Fee income 3,876 7,598 3,145 4,728
Other 1,543 4,035 2,672 1,921
---------- ---------- ---------- ----------
Total revenues 32,194 77,317 87,309 84,378
EXPENSES:
Employee compensation and benefits 21,886 50,054 50,088 47,366
Commissions, floor brokerage, and clearing 2,328 7,141 8,721 8,372
Interest 5,933 5,714 7,135 6,965
Communications 3,180 6,063 6,803 6,357
Occupancy and equipment 2,993 5,949 6,461 6,076
Professional fees 763 5,227 2,710 1,801
Other operating expenses 1,443 10,785 4,843 4,238
Restructuring charge -- 3,815 -- --
---------- ---------- ---------- ----------
Total expenses 38,526 94,748 86,761 81,175
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES (6,332) (17,431) 548 3,203
INCOME TAX EXPENSE (BENEFIT) (2,168) (930) 310 1,214
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING FOR INCOME
TAXES (4,164) (16,501) 238 1,989
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES -- -- 18 --
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (4,164) $ (16,501) $ 256 $ 1,989
========== ========== ========== ==========
EARNINGS (LOSS) PER SHARE DATA:
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING FOR INCOME TAXES $ (0.91) $ (3.69) $ 0.06 $ 0.46
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
INCOME TAXES -- -- -- --
---------- ---------- ---------- ----------
NET INCOME (LOSS) PER COMMON SHARE $ (0.91) $ (3.69) $ 0.06 $ 0.46
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 4,577,000 4,472,000 4,366,000 4,365,000
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 32
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
PREFERRED COMMON PAID-IN (ACCUMULATED
STOCK STOCK CAPITAL DEFICIT) TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1991 $ 393 $ 14,738 $ 13,498 $ 28,629
Net income for the year 1,989 1,989
------- ------ --------- --------- ---------
BALANCE, JUNE 26, 1992 393 14,738 15,487 30,618
Net income for the year 256 256
Proceeds from issuance of
7,200 shares of common
stock in connection with
employee stock option plan 36 36
------- ------ --------- --------- ---------
BALANCE, JUNE 25, 1993 393 14,774 15,743 30,910
Net loss for the year (16,501) (16,501)
Proceeds from issuance of
204,920 shares of common
stock in connection with
employee stock option plan 19 1,161 1,180
Proceeds from issuance of
150 shares of convertible
non-voting preferred
stock, Series A, $.01 par
value 15,000 15,000
------- ------ --------- --------- ---------
BALANCE, JUNE 24, 1994 412 30,935 (758) 30,589
Net loss for the
transition period (4,164) (4,164)
------- ------ --------- --------- ---------
BALANCE, DECEMBER 31, 1994 $ 0 $ 412 $ 30,935 $ (4,922) $ 26,425
======= ====== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE> 33
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Month Fiscal Year Ended
Transition Period ---------------------------------------
Ended December 31, June 24, June 25, June 26,
1994 1994 1993 1992
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (4,164) $(16,501) $ 256 $ 1,989
Adjustment to reconcile net income (loss) to net cash flows
(used in) operating activities:
Write-off of furniture, fixtures and leasehold improvements 748
Gain on sale of exchange memberships and related assets (696) (2,551) (172)
Deferred income taxes (2,182) (171) (686) (73)
Depreciation and amortization 378 988 1,093 1,402
Net changes in operating assets and liabilities:
Securities purchased under agreements to resell (21,631) (13,423)
Cash and short-term investments required to be
segregated under federal regulations (2,378) 25,962 (19,611) (27,938)
Receivables from and payables to customers, brokers
dealers, and clearing organizations 36,812 (9,575) 16,192 11,166
Miscellaneous receivables (4,881) 1,691 (4,962) 1,899
Recoverable income taxes and income taxes payable 600 (1,617) (73) 897
Securities owned (103,564) 75 (7,032) (12,035)
Prepaid expenses and other assets (156) 477 3,185 (960)
Miscellaneous payables (421) (2,016) (2,657) 1,712
Securities sold but not yet purchased 84,056 (1,963) 5,448 7,732
Accrued commissions 351 (679) 64 528
Accounts payable and accrued expenses (3,912) 8,320 1,685 1,575
-------- ------- ------- ------
Net cash flows (used in) operating activities (21,788) (10,235) (7,270) (12,106)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture, fixtures, and leasehold improvements (689) (438) (1,302) (721)
Sales of furniture, fixtures and leasehold improvements 324
Purchases of memberships in security and commodity exchanges (11) (3)
Sales of exchange memberships and related assets 700 3,846 387
------- ------- ------- ------
Net cash flows provided by (used in) investing activities 11 3,732 (926) (724)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings from banks 31,089 (18,973) 8,312 7,650
Proceeds from short-term note payable issued to affiliate 10,000
Proceeds from issuance of notes subordinated to claims of
general creditors 4,500
Payments of notes subordinated to claims of general creditors (2,876) (1,250) (5,000)
Proceeds from issuance of common stock in connection
with stock option plan 1,180 36
Proceeds from issuance of convertible non-voting
preferred stock 15,000
-------- ------- ------- ------
Net cash flows provided by financing activities 28,213 5,957 7,848 7,650
-------- ------- ------- ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,436 (546) (348) (5,180)
CASH AND CASH EQUIVALENTS -- Beginning of period 575 1,121 1,469 6,649
-------- ------- ------- ------
CASH AND CASH EQUIVALENTS -- End of period $ 7,011 $ 575 $ 1,121 $1,469
======== ======= ======= ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 4,939 $ 5,720 $ 7,135 $7,252
======== ======= ======= ======
Cash paid for income taxes $ 15 $ 824 $ 1,006 $ 411
======== ======= ======= ======
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 34
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TRANSITION PERIOD ENDED DECEMBER 31, 1994 AND FISCAL YEARS
ENDED JUNE 24, 1994, JUNE 25, 1993, AND JUNE 26, 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts and transactions of Rodman & Renshaw Capital Group,
Inc. (the "Company") and its subsidiaries, all of which are wholly owned,
including Rodman & Renshaw, Inc. ("Rodman"), the Company's principal
subsidiary, which is a registered broker-dealer and futures commission
merchant. All significant intercompany balances and transactions have been
eliminated in consolidation. The Company's majority stockholder, Abaco Casa
de Bolsa, S.A. de C.V., Abaco Grupo Financiero ("Abaco"), is a brokerage
subsidiary of Abaco Grupo Financiero, S.A. de C.V. ("Abaco Grupo"). Abaco
Grupo is a multi-faceted financial services holding company based in
Monterrey, Mexico. Abaco acquired its majority interest in the Company
through a tender offer for common shares completed on December 22, 1993.
FISCAL YEAR - In 1994, the Company changed its fiscal year from the last
Friday in June to a calendar year end. Accordingly, the statements of
operations, stockholders' equity and cash flows are for the transition
period June 25, 1994, through December 31, 1994, and the 52/53-week
accounting periods ended the last Friday in June 1994, 1993, and 1992.
REVENUE RECOGNITION - Effective December 31, 1994, the Company changed
the method for recording purchases and sales of securities and the related
commission revenues and expenses from the settlement date basis to the trade
date basis to be in accordance with industry accounting principles. The
effect of utilizing the settlement date basis, as compared to the trade date
basis, in prior periods was not material. The cumulative effect of this
change as of June 25, 1994 and the effect of adopting this change on the net
loss for the six month transition period ended December 31, 1994 was not
material. Commodity transactions and resulting gains and losses are recorded
on a trade date basis. Commission revenues and expenses related to
customers' commodity transactions are recognized on a half-turn transaction
basis.
CASH AND CASH EQUIVALENTS - The Company considers unrestricted cash and
firm-owned investments with maturities of three months or less when
purchased to be cash and cash equivalents.
REVERSE REPURCHASE AGREEMENTS AND REPURCHASE AGREEMENTS - Securities
purchased under agreements to resell and securities sold under agreements to
repurchase are financing transactions which are collateralized by negotiable
securities and are carried at the amounts at which the securities will be
subsequently resold or repurchased, including accrued interest. The
Company's policy is to take possession of securities purchased under
agreements to resell. The Company monitors daily the market value of the
underlying securities acquired or delivered as compared to the contract
amounts of the resale or repurchase agreements including accrued interest.
The Company requires the prompt transfer of additional securities to
mitigate any material collateral deficiencies.
SECURITIES OWNED - Securities owned and securities sold but not yet
purchased are recorded at market value. Unrealized gains and losses are
included in revenues.
F-8
<PAGE> 35
FURNITURE, FIXTURES AND LEASEHOLD IMPROVEMENTS - Furniture, fixtures and
leasehold improvements are reported at cost, net of accumulated depreciation
and amortization. Furniture and fixtures are depreciated using the
straight-line method over the estimated useful lives of the assets,
generally three to five years. Leasehold improvements are amortized using
the straight-line method over the lesser of the estimated useful lives of
the improvements or the noncancelable period of the related lease.
INCOME TAXES - The Company and its subsidiaries file a consolidated
federal income tax return. In the transition period and the fiscal years
ended 1994 and 1993, provision for income taxes includes deferred taxes
resulting from temporary differences between the financial statement and tax
bases of assets and liabilities using the liability method as required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." In fiscal 1992, the provision for income taxes included deferred
taxes based on the provisions of Opinion No. 11 of the Accounting Principles
Board.
EARNINGS (LOSS) PER SHARE - Earnings (loss) per share of common stock is
based on the weighted average number of shares outstanding during each
respective period. The effect of common stock equivalents, including stock
options and convertible preferred stock, are anti-dilutive.
RECLASSIFICATIONS - Certain reclassifications have been made to prior
years' amounts to conform with current year presentations.
2. ACCOUNTING CHANGES
In the first quarter of fiscal 1993, the Company implemented the
accounting changes described below:
The Company changed its method of accounting for commission revenue and
expenses for commodity transactions executed for introducing brokers. The
net commission retained by the Company was recorded as revenue. Previously,
the entire amount of commission charged to customers on introducing broker
transactions was recognized as revenue, and amounts rebated to introducing
brokers were recorded as commission expense. The Company believes that the
change better reflects the economic services provided in introducing
brokers' activities. The change did not affect net income.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." A cumulative benefit in 1993 of $18,000
resulted from this accounting change.
The following schedule reflects the reported and pro forma changes
related to the accounting for commission revenues and expenses on customer
transactions originated from introducing brokers.
Consolidated Statement of Operations
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
YEAR ENDED YEAR ENDED
JUNE 26, 1992 JUNE 26, 1992
<S> <C> <C>
Revenues:
Total revenues $84,378,000 $80,606,000
Expenses:
Total expenses $81,175,000 $77,403,000
</TABLE>
F-9
<PAGE> 36
3. RESTRUCTURING CHARGE
In the fourth quarter of fiscal 1994, the Company recorded a
restructuring charge of $3,815,000 related to the Company's decision to move
from its office space at its Chicago and New York premises. This
nonrecurring charge includes write-off of leasehold improvements and charges
for future obligations on noncancelable occupancy leases (net of rent
abatement liability), lease termination penalties and anticipated moving
costs.
Included in the restructuring charge is the noncash write-off of
leasehold improvements totaling $568,000. Restructuring charges for
obligations on noncancelable occupancy leases, lease termination penalties
and anticipated moving costs relate to future cash outflows. Accrued
expenses at December 31, 1994 include $3,125,000 for lease termination costs
payable in future years as follows: 1995 - $1,745,000; 1996 - $1,380,000.
4. SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
Rodman is a party to reverse repurchase agreements with various
financial institutions to enhance yields on amounts required to be
segregated under federal regulations and to meet the delivery needs of
certain short positions.
At December 31, 1994, reverse repurchase agreements totaling $35,054,000
earn interest at rates ranging from 4.50% to 5.25%, and were collateralized
by U.S. Treasury notes with an approximate market value of $35,081,000. At
June 24, 1994, reverse repurchase agreements of $13,423,000, earned interest
at rates ranging from 2.37% to 3.76%, and were collateralized by U.S.
Treasury notes with an approximate market value of $13,162,000.
5. ASSETS SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS
Rodman is required under the Commodity Exchange Act and the Securities
Exchange Act of 1934 (the "Acts") to account for and segregate all customer
related assets, as defined by the Acts, in connection with regulated
commodities and securities transactions. Rodman has placed into a
segregated safekeeping account $83,370,000 and $46,580,000 of securities
owned by commodities customers, as of December 31, 1994 and June 24, 1994,
respectively. These securities are not included in the statement of
financial condition. At December 31, 1994, Rodman was in compliance with
the segregation requirements of the Commodity Exchange Act and had total
segregated funds in excess of the aggregate required amount by $8,055,000.
At December 31, 1994, reverse repurchase agreements totaling $35,200,000
earned interest at rates ranging from 5.30% to 5.50%, were collateralized by
U.S. Treasury notes and bonds with an approximate market value of
$35,213,000, and were held in a designated safekeeping account pursuant to
Commodity Futures Trading Commission (the "CFTC") segregation requirements.
At June 24, 1994, reverse repurchase agreements totaling $32,500,000 earned
interest at rates ranging from 4.07% to 4.20%, were collateralized by U.S.
Treasury notes and bonds with an approximate market value of $32,397,000,
and were held in a designated safekeeping account pursuant to CFTC
segregation requirements.
F-10
<PAGE> 37
6. RECEIVABLES FROM AND PAYABLES TO BROKERS, DEALERS, AND CLEARING
ORGANIZATIONS
At December 31, 1994 and June 24, 1994, the components of receivables
from and payables to brokers, dealers, and clearing organizations, are as
follows:
<TABLE>
<CAPTION>
December June
1994 1994
<S> <C> <C>
Receivables:
Receivables from brokers and dealers
(net trade date accrual) $ 63,813,000
Margin deposits with and receivables from brokers and
clearing organizations for customer commodity transactions -0- $ 67,807,000
Securities borrowed 46,510,000 62,291,000
Securities failed to deliver 6,490,000 2,080,000
Clearing organizations and commodity carrying brokers 38,595,000 280,000
------------ ------------
Total $155,408,000 $132,458,000
============ ============
Payables:
Securities loaned $151,802,000 $ 67,352,000
Clearing organizations 106,000 1 ,002,000
Securities failed to receive 6,243,000 11,474,000
------------ ------------
Total $158,151,000 $ 79,828,000
============ ============
</TABLE>
7. SECURITIES
At December 31, 1994 and June 24, 1994, securities owned and securities
sold but not yet purchased are recorded at market value, except for limited
partnerships, and are comprised of:
<TABLE>
<CAPTION>
December June
1994 1994
-------------------------------------------------------------
Sold But Sold But
Not Yet Not Yet
Owned Purchased Owned Purchased
<S> <C> <C> <C> <C>
Bank notes $ 1,926,000 $22,000
Corporate debt securities 50,861,000 14,488,000 $ 18,029,000 $ 1,379,000
Equity securities 10,752,000 1,949,000 3,935,000 498,000
State and municipal obligations 5,847,000 87,000 13,246,000 214,000
United States and Canadian government
and agency obligations 75,498,000 81,298,000 5,341,000 11,697,000
Limited partnerships (384,000) 385,000
---------- ---------- ----------- ----------
Total $ 144,500,000 $97,844,000 $ 40,936,000 $13,788,000
============= =========== ============= ===========
</TABLE>
Investments in limited partnerships (some of which are general
partnership interests) are recorded at cost, except for those partnerships
in which the Company exercises significant influence. Such investments are
recorded on the basis of the Company's equity therein.
F-11
<PAGE> 38
8. SHORT-TERM BORROWINGS FROM BANKS
To finance the purchase of securities by customers on margin and
purchases for its own account, Rodman borrows from commercial banks.
Interest on the borrowings is paid at or below the broker call rate. At
December 31, 1994, the borrowings were collateralized by approximately
$39,232,000 of Rodman-owned securities, $23,996,000 of customer-owned
securities and $4,372,000 of other assets. At June 24, 1994, the borrowings
were collateralized by approximately $30,062,000 of Rodman-owned securities
and $4,201,000 of other assets. The weighted average interest rate on
short-term borrowings, including the short-term note payable to affiliate,
as of December 31, 1994 and June 24, 1994 was 8.0% and 5.2%, respectively.
9. SHORT-TERM NOTE PAYABLE TO AFFILIATE
The Company entered into a note agreement with Confia, S.A., an
affiliate of Abaco, at an annual rate of interest of 11.50% for the period
June 19, 1994 through December 19, 1994 and 13.50% for the period December
19, 1994 through June 19, 1995. The principal amount of $10,000,000 and
interest thereon is due in full on June 19, 1995. This amount was loaned to
Rodman under a subordinated revolving credit facility which terminates on
June 15, 1997 and is included in Rodman's regulatory net capital. See Notes
10 and 13.
10. LIABILITIES SUBORDINATED TO THE CLAIMS OF GENERAL CREDITORS
At December 31, 1994, Rodman has the following subordinated notes outstanding:
<TABLE>
<S> <C>
Subordinated note, interest payable semi-annually, based on
LIBOR at beginning of interest period plus 3.25% (8.5% at
December 31, 1994), due on September 30, 1995 $2,500,000
Subordinated note, interest payable semi-annually, at an annual
rate of 6.375% 1,374,000
-----------
Total $3,874,000
==========
</TABLE>
The subordinated notes are covered by agreements approved by the New
York Stock Exchange, Inc. (the "NYSE") and the Chicago Mercantile Exchange,
and are available for Rodman in computing adjusted net capital under the
uniform net capital rule of the Securities and Exchange Commission (the
"SEC"). To the extent that such notes are required for Rodman's continued
compliance with minimum net capital requirements, they may not be repaid.
The rights of the note holders to receive any payment from Rodman under the
terms of the notes are subordinated to the claims of all present and future
creditors of Rodman which arise prior to maturity. Under the terms of the
note agreements, Rodman must meet various financial requirements specified
in the agreements, the most restrictive of which is the maintenance of net
worth, as defined, of $20,000,000.
On December 31, 1993, Rodman entered into a termination agreement which
modified the original repayment terms of the $1,374,000 subordinated note
and fixed the interest rate at 6.375% annually. On January 3, 1995, Rodman
obtained regulatory approval to repay and repaid this subordinated note
pursuant to the termination agreement.
11. PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of $0.01 par value
per share preferred stock. On June 24, 1994, the Company issued 150 shares
of Series A Non-voting Convertible Preferred Stock, (the "Preferred
F-12
<PAGE> 39
Stock") at $100,000 per share to Abaco. On January 31, 1995, upon the
approval by the stockholders of the Company, the Preferred Stock was
converted into 2,068,965 shares of common stock. For the period beginning
December 30, 1994 to the date of the conversion, each share of the preferred
stock was entitled to receive quarterly cash dividends at a rate based on
the Prime Rate plus two percent per annum. Abaco waived the right to such
dividends for the period from December 30, 1994 to January 31, 1995.
Dividends on the Preferred Stock are cumulative and payable when
declared by the Company's Board of Directors. No cash dividends or
distribution upon liquidation may be paid on the Company's common stock if
dividends or required redemptions of Preferred Stock are in arrears.
12. STOCK OPTIONS
The Company's stock option plans provide for the granting of options to
officers, directors, nonemployee directors, and employees to purchase
shares of common stock at not less than market value on the date of grant.
All options expire no later than ten years from the date of grant. Prior
to June 24, 1993, the Company had also granted non-qualified stock options.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
QUALIFIED NONQUALIFIED
-------------------------------- ------------------------------
NUMBER PER SHARE NUMBER PER SHARE
OF OPTION OF OPTION
SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
June 30, 1991 952,880 $ 5.00 - 10.50 30,200 $ 5.00 - 6.13
Granted 111,950 5.00 - 6.00 35,800 5.00 - 7.50
Canceled (67,390) 5.00 - 10.50 (23,200) 5.00 - 7.50
------- ------
Outstanding at
June 26, 1992 997,440 5.00 - 8.00 42,800 5.00 - 7.50
Granted 311,775 5.00 - 6.38 71,275 5.00 - 6.38
Canceled (194,300) 5.00 - 8.00 (37,400) 5.00 - 7.50
Exercised (7,200) 5.00 - 5.00 -
------- ------
Outstanding at
June 25, 1993 1,107,715 5.00 - 7.00 76,675 5.00 - 6.38
Granted 121,500 5.00 - 6.92 166,050 5.63 - 5.63
Canceled (692,770) 5.00 - 7.00 (83,780) 5.00 - 6.13
Exercised (204,820) 5.00 - 6.38 (100) 5.00 - 5.00
------- ------
Outstanding at
June 24, 1994 331,625 5.00 - 6.50 158,845 5.00 - 6.38
Granted - 38,500 5.13 - 5.38
Canceled (91,680) 5.00 - 6.18 (40,550) 5.00 - 6.38
Reclassified (100,000) 6.50 - 6.50 100,000 6.50 - 6.50
------- ------
Outstanding at
December 31, 1994 139,945 5.00 - 6.00 256,795 5.00 - 6.50
======= =======
</TABLE>
Options outstanding at December 31, 1994 are exercisable at an average price of
$5.56.
F-13
<PAGE> 40
Effective June 30, 1993, the Company granted an aggregate of 166,050
nonqualified stock options to certain employees, 84,650 of which remained
outstanding at December 31, 1994. These nonqualified options were not
granted pursuant to a stock option plan.
In the fiscal year ended June 24, 1994, the Company's Board of Directors
and stockholders approved the 1994 Stock Option Plan, pursuant to which the
Company may issue nonqualified or qualified options. There were 16,000 and
100,000 stock options granted and reclassified, respectively, under this
plan during the transition period ended December 31, 1994 and the year ended
June 24, 1994, respectively. As of December 31, 1994, there were 884,000
unoptioned shares reserved and available for grant. Options granted under
this plan expire no later than ten years from the date of grant.
In the fiscal year ended June 24, 1994, the Company's Board of Directors
and stockholders approved the nonqualified Nonemployee Director Stock Option
Plan. There were 22,500 stock options granted under this plan during the
transition period ended December 31, 1994 and no options granted during the
fiscal year ended June 24, 1994, and 377,500 unoptioned shares reserved and
available for grant as of December 31, 1994. Options granted under this
plan expire ten years from the date of grant.
Pursuant to the Acquisition Agreement with Abaco, certain employees
canceled stock options which were exercisable prior to the Tender Closing
Date in consideration of the payment by the Company of an amount equal to
the excess of $10.50 over the per share exercise price of such options,
multiplied by the number of options exercisable. The cancellation of
445,240 shares of stock options resulted in the payment of $2,027,000 which
was recorded as employee compensation expense in the fiscal year ended June
24, 1994.
13. NET CAPITAL REQUIREMENTS AND DIVIDEND RESTRICTIONS
As a registered broker-dealer and futures commission merchant, Rodman is
subject to the minimum net capital rules of the SEC (Rodman has elected to
use the alternative net capital method permitted by these rules), the CFTC,
and the NYSE, of which Rodman is a member. These rules require that Rodman
maintain minimum net capital, as defined, equal to the greater of 2% of
aggregate debits arising from securities customer transactions or
$1,000,000, or 4% of the funds required to be segregated for commodities
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 December 31, 1994, Rodman's net capital, as defined, of $16,644,000
was $11,038,000 in excess of the required net capital.
F-14
<PAGE> 41
14. COMMITMENTS AND CONTINGENCIES
The Company and Rodman lease office space and certain equipment under
operating leases. Leases for office facilities are subject to escalation
factors based on the operating experience of the lessor. At December 31,
1994, future minimum lease payments under noncancelable operating leases
with terms in excess of one year are as follows:
<TABLE>
<S> <C>
1995 $4,141,000
1996 4,113,000
1997 2,589,000
1998 2,310,000
1999 2,310,000
2000 AND THEREAFTER 19,666,000
------------
Total minimum lease payments $35,129,000
</TABLE>
The aggregate annual rentals charged to operations were $1,011,000 in
the transition period ended December 31, 1994, $2,656,000 in fiscal 1994,
$2,527,000 in fiscal 1993, and $2,456,000 in fiscal 1992.
At December 31, 1994 and June 24, 1994, Rodman had a letter of credit of
$2,250,000 on deposit with a clearing organization. The letter of credit
satisfies margin requirements and is collateralized by customer-owned
securities with a market value of $4,366,000 at December 31, 1994.
Rodman, together with various other broker-dealers, corporations, and
individuals, has been named as a defendant in several class action lawsuits
that allege violations of federal and state securities laws, and claim
substantial damages. Rodman is also a defendant in other pending civil
actions, arbitration proceedings and claims incidental to its securities and
commodities business. The ultimate outcome of these matters cannot be
predicted with certainty. In the opinion of management of the Company,
after consultation with outside legal counsel, the ultimate resolution of
these matters will not have a material adverse effect on the Company's
financial position.
15. BENEFIT PLANS
Rodman established a defined-contribution Retirement Savings Plan (the
"Savings Plan") on July 1, 1990, available to employees with six months
service who have worked or are scheduled to work a minimum of 1,000 hours
per year. Under the Savings Plan, Rodman matches employee contributions up
to 25 percent of an employee's before-tax contributions. Rodman's matching
contributions were $ 66,000 in the transition period ended December 31,
1994, $153,000 in fiscal 1994, $145,000 in fiscal 1993, and $115,000 in
fiscal 1992.
On January 1, 1993, Rodman adopted the Supplemental Executive Retirement
Plan (the "SERP") and the Deferred Compensation Plan (the "DCP"),
retroactively to June 27, 1992. The SERP and DCP cover designated senior
employees. Under the DCP, eligible employees may elect to defer
compensation up to a maximum of 60 percent of base compensation and 100
percent of annual bonus. The minimum contribution is $200 per month.
Contributions to the DCP are fully vested and nonforfeitable.
The SERP is a nonqualified, discretionary retirement plan. Rodman
contributions to the SERP are determined annually, at Rodman's discretion
based upon eligibility and bonus formulas. Participants in the SERP vest in
accordance with a ten-year schedule, based upon annual eligibility.
Benefits are payable upon retirement or death. Rodman has the right to
terminate the SERP at any time. The SERP assets consist of insurance
F-15
<PAGE> 42
annuity products. There were no contributions to the SERP during the
six month transition period ended December 31, 1994 and the fiscal year
ended June 24, 1994. During the fiscal year ended June 25, 1993,
contributions totaled $580,813.
16. INCOME TAXES
The components of the income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Six Month
Transition Period Fiscal Year Ended
Ended ---------------------------------------------
December 31, 1994 1994 1993 1992
----------------- ---- ---- ----
<S> <C> <C> <C> <C>
Current:
Federal $ 0 $(942,000) $193,000 $1,028,000
State 15,000 183,000 214,000 259,000
Deferred-principally
federal (2,183,000) (171,000) (97,000) (73,000)
---------- --------- -------- --------
Total income tax
expense (benefit) $(2,168,000) $(930,000) $310,000 $1,214,000
=========== ========== ======== ==========
</TABLE>
A deferred federal tax benefit of $18,000 also was recorded in fiscal
1993 as the cumulative effect of the change in accounting for income taxes.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities at December 31, 1994 and June 24,
1994:
<TABLE>
<CAPTION>
December June
1994 1994
-------- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 5,139,000 $2,469,000
Restructuring charges 1,107,000 1,297,000
Employee compensation and benefits 1,019,000 806,000
Allowance for bad debts 139,000 248,000
Other 1,191,000 861,000
---------- ----------
Total assets 8,595,000 5,681,000
---------- ----------
Deferred tax liabilities:
Partnership interests (527,000) (542,000)
Prepaid insurance (62,000) (43,000)
---------- ----------
Total liabilities (589,000) (585,000)
---------- ----------
Net deferred tax asset 8,006,000 5,096,000
Valuation allowance (5,246,000) (4,518,000)
---------- ----------
Deferred income taxes $ 2,760,000 $ 578,000
=========== ==========
</TABLE>
The valuation allowance has been recognized due to the uncertainty of
realizing the benefit of the loss carryforwards and temporary differences.
The net deferred tax asset balance of $2,760,000 increased by $2,182,000
during the six month transition period at December 31, 1994, and is expected
to be realized in
F-16
<PAGE> 43
connection with the Company's intended tax strategies and projected
future income. The Company has a net operating loss carryforward of
approximately $15,115,000 which expires in 2009.
A reconciliation of the effective income tax rate to the statutory
federal income tax rate is as follows:
<TABLE>
<CAPTION>
December June June June
1994 1994 1993 1992
-------- ---- ---- ----
<S> <C> <C> <C> <C>
Statutory rate (34.0)% (34.0)% 34.0% 34.0%
City and state income
taxes, net of federal
benefit:
New York City 0.2 0.5 15.2 3.5
Other 0.2 10.6 1.8
Goodwill amortization 9.7 2.8
Nondeductible interest 0.3 0.2 10.7 2.0
Tax-exempt interest 0.7 (0.8) (31.7) (5.3)
Net cash surrender value
of keyman life
insurance (0.4) (0.5) (18.4) (2.6)
Political contributions 0.1 4.4 0.4
Travel and entertainment 0.7 0.2 6.3 2.0
Valuation allowance 25.9
Other (1.5) 2.9 15.8 (0.7)
----- ----- ----- -----
Effective rate (34.0)% (5.3)% 56.6% 37.9%
===== ===== ===== =====
</TABLE>
17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK, DERIVATIVE FINANCIAL
INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
Rodman maintains active inventory positions in a variety of fixed income
financial instruments. Most of these positions are customer oriented, and
inventory positions are established as necessary to meet customers' demands.
In addition, to anticipate customer demand for such transactions, Rodman
also carries an inventory of fixed income financial instruments and
maintains its access to market liquidity by quoting bid and offer prices to,
and trading with, other market makers. These two activities constitute its
proprietary trading business and are essential to provide customers with
fixed income products at competitive prices. All positions are reported at
fair value and changes in fair value are reflected in trading income as they
occur. Rodman enters into transactions in derivative financial instruments
(primarily futures and options contracts traded on exchanges) in order to
facilitate its normal trading activities and to manage its market and
interest rate risk. Rodman has adopted Financial Accounting Standards Board
Statement No. 119, "Disclosure about Derivative Financial Instruments and
Fair Value of Financial Instruments."
These financial instruments involve varying degrees of on and
off-balance sheet market and credit risk. Market risk is the potential
change in value of the financial instrument caused by unfavorable changes in
interest rates or the market values of the securities underlying the
instruments. Rodman monitors its exposure to market risk through a variety
of control procedures, including daily review of trading positions. The
extent of utilization of these derivative financial instruments is
insignificant to Rodman's financial condition and results of operations.
Counterparties to Rodman include domestic and foreign corporations,
governments and institutional and individual investors. Counterparty credit
risk is measured by the loss Rodman would record if its counterparties
failed to perform pursuant to terms of their obligations to Rodman. The
exposure to credit risk associated with the nonperformance of these
counterparties in fulfilling their contractual obligations pursuant to
securities and commodities transactions can be directly impacted by volatile
trading markets which may
F-17
<PAGE> 44
impair the counterparties' ability to satisfy their obligations. Rodman
controls such risks by requiring minimum margins for open positions in
accordance with regulatory and Rodman guidelines. Rodman monitors minimum
margin levels daily and may require additional collateral to be deposited
with or returned to Rodman when deemed necessary. Market declines could,
however, reduce the value of any collateral below the principal amount
loaned, plus accrued interest, before the collateral can be sold.
Rodman's customer financing and securities settlement activities permit
it to pledge customer margin securities as collateral in support of various
collateralized financial sources such as bank loans, letters of credit, and
securities loaned. Additionally, Rodman pledges customer securities as
collateral to satisfy margin deposit requirements of various exchanges. In
the event the counterparty is unable to meet its contracted obligation to
return customer securities pledged as collateral, Rodman may be exposed to
the risk of acquiring the securities at prevailing market prices in order to
satisfy its customer obligations. Rodman seeks to control this risk by
monitoring the market value of securities pledged daily and by requiring
adjustments of collateral levels in the event of excess market exposure.
Credit limits are also established for such activities and are monitored
daily.
Rodman's counterparties primarily consist of domestic and foreign
corporations, governments, and institutional and individual investors.
Concentrations of credit risk can be affected by changes in economic,
industry or geographic factors. Rodman seeks to control the potential for
concentration risk through a variety of control procedures described above.
Securities sold but not yet purchased commit Rodman to deliver specified
securities at predetermined prices. To satisfy the obligation, Rodman must
acquire the securities at market prices, which may differ from the values on
the statement of financial condition.
Rodman's customer activities involve the execution, settlement and
financing of various customer securities and commodities transactions.
Customer securities activities are transacted on either a cash or margin
basis and customer commodity transactions are generally transacted on a
margin basis subject to individual exchange regulations. In accordance with
industry practice, Rodman records customer transactions on a settlement date
basis, which is generally five business days after trade date. These
transactions may expose Rodman to off-balance-sheet risk in the event the
customer is unable to fulfill its contracted obligations and margin
requirements are not sufficient to fully cover losses which customers may
incur. In the event the customer fails to satisfy its obligations, Rodman
may be required to purchase or sell financial instruments at prevailing
market prices in order to fulfill the customer's obligations.
Rodman seeks to control the risks associated with its customer
activities by requiring customers to maintain margin collateral in
compliance with various regulatory and internal guidelines. Rodman monitors
required margin levels daily and, pursuant to such guidelines, requires the
customers to deposit additional collateral or reduce positions, when
necessary. Rodman also establishes credit limits for customers engaged in
commodity futures activities, which are monitored daily.
In connection with these activities, Rodman enters into collateralized
reverse repurchase agreements, securities borrowing and lending arrangements
and certain other collateralized transactions which may result in
significant credit exposure in the event the counterparty to the transaction
is unable to fulfill their contractual obligations. In accordance with
industry practice, securities borrowing arrangements are generally
collateralized by cash or securities with a market value in excess of the
Rodman's obligation under the contract. Rodman attempts to minimize credit
risk associated with these activities by monitoring customer credit exposure
and collateral values daily and requiring additional collateral to be
deposited with or returned to Rodman when deemed necessary.
F-18
<PAGE> 45
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that the carrying amount of its financial
instruments is a reasonable estimate of fair value. Assets, including cash
and cash equivalents, cash and short-term investments required to be
segregated under federal regulations, and certain receivables are carried at
fair value or contracted amounts which approximate fair value. Similarly,
liabilities including short-term notes payable to banks and certain payables
are carried at amounts approximating fair value.
Securities owned and securities sold but not yet purchased are carried
at fair value. Fair value for these instruments is estimated using
available market quotations for traded instruments. Market quotations for
traded instruments are obtained from various sources, including the major
securities exchanges and dealers.
The estimated fair value of the Company's liabilities subordinated to
the claims of general creditors, determined using discounted cash flow
analysis based upon borrowing rates for similar types of borrowing
arrangements, approximates carrying value.
19. TRANSITION PERIOD AND COMPARABLE PRIOR YEAR
As discussed in Note 1, effective December 31, 1994 the Company changed
its fiscal year from the last Friday in June to a calendar year end.
Results of operations for the six month transition period ended December 31,
1994 and unaudited results of operations for the comparable six month period
are as follows:
<TABLE>
<CAPTION>
SIX MONTH TRANSITION PERIOD SIX MONTH PERIOD
ENDED DECEMBER 31, 1994 ENDED DECEMBER 31, 1993
(unaudited)
<S> <C> <C>
Total revenues $ 32,194,000 $ 49,337,000
Total expenses 38,526,000 47,567,000
---------- ----------
Income (loss) before income taxes (6,332,000) 1,770,000
Income tax provision (benefit) (2,168,000) 554,000
----------- ------------
Net income (loss) $ (4,164,000) $ 1,216,000
============= ============
</TABLE>
F-19
<PAGE> 46
20. QUARTERLY OPERATING RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
Income (loss)
Before taxes
and Cumulative
Effect of
Accounting for Income (loss)
Revenues Income Taxes Net income (loss) per share
-------- -------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Transition Period
Quarter ended:
09/30/94 $19,367 $(1,934) $(1,949) $(.43)
12/31/94 12,827 (4,398) (2,215) (.48)
------- ------- ------- -----
TOTAL $32,194 $(6,332) $(4,164) $(.91)
======= ======= ======= =====
Fiscal year 1994
Quarter ended:
09/24/93 $26,355 $ 3,798 2,859 $ .61
12/31/93 23,441 (2,028) (1,643) (.38)
03/25/94 14,593 (3,114) (2,088) (.46)
06/24/94 12,928 (16,087) (15,629) (3.46)
------- ------- ------- -----
TOTAL $77,317 $(17,431) $(16,501) $(3.69)
======= ======= ======= =====
Fiscal year 1993
Quarter ended:
09/25/92 $19,950 $ 70 $ 51 $ .01
12/31/92 21,950 627 318 .07
03/26/93 22,607 320 263 .06
06/25/93 22,802 (469) (376) (.08)
------- ------- ------- -----
TOTAL $87,309 $ 548 $ 256 $ .06
======= ======= ======= =====
</TABLE>
*****
F-20
<PAGE> 47
EXHIBIT INDEX
Exhibit Page Number
- - ------- -----------
3.1 Certificate of Incorporation *
3.2 By-laws *
4.1 Certificate of Designations of Rights,
Privileges and Restrictions of Series A
Non-Voting Convertible Preferred Stock *
10.1 Rodman & Renshaw Capital Group, Inc.
Non-Employee Director Stock Option Plan *
10.2 Rodman & Renshaw Capital Group, Inc.
1994 Stock Option Plan *
10.3 Lease Agreement dated October 20, 1980 *
10.4 Deferred Compensation Plan
(dated January 1, 1993) *
10.5 Deferred Compensation Trust
(dated January 1, 1993) *
10.6 Supplemental Executive Retirement Plan
(dated January 1, 1993) *
10.7 Supplemental Executive Retirement Trust
(dated January 1, 1993) *
10.8 Stock Purchase Agreement dated June 24, 1994
between the Company and Abaco Caso de Bolsa,
S.A., de C.V., Abaco Grupo Financiero *
10.9 Promissory Note from the Company to Confia,
S.A., dated December 19, 1994
10.10 Employment Agreement between the Company
and Charles W. Daggs, III
dated April 11, 1994 *
10.11 Employment Agreement between
Rodman & Renshaw, Inc. and David H.
Shulman dated February, 1994 *
10.12 Employment Agreement between the Company
and F.L. Kirby dated June 20, 1994 *
10.13 Acquisition Agreement dated as of
November 17, 1993, among the Company,
Abaco and Parent *
10.14 Lease between Tower Leasing, Inc. and the Company
10.15 First Amendment to the Rodman & Renshaw; Inc.
Supplemental Executive Retirement Plan
21.1 Subsidiaries of the Registrant
<PAGE> 48
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Deloitte & Touche LLP
* Incorporated by reference
<PAGE> 1
EXHIBIT 10.9
CONFIA, S.A., INSTITUCION DE BANCA MULTIPLE,
ABACO GRUPO FINANCIERO
PROMISSORY NOTE
By means of this PROMISSORY NOTE, the SUBSCRIBER unconditionally promises to
pay to the order of Confia, S.A., Institucion de Banca Multiple, Abaco Grupo
Financiero, Grand Cayman Branch (the "BANK"), the principal amount of
USD$10,000,000.00 (Ten Million 00/100 U.S. Dlls) lawful currency of the United
States of America precisely on June 19, 1995.
The SUBSCRIBER promises to pay on June 19, 1995 interest on the principal
amount hereof an annual rate of interest of 13.50%.
In the event the SUBSCRIBER shall fail to pay the principal amount hereof as
and when due hereunder, the unpaid amount shall bear interest from the date
such payment was due until payment of such amount in full calculated on a daily
basis of a rate per annum of 30%.
Interest hereunder shall be computed on the basis of a year of 360 days for the
actual number of days elapsed.
The principal amount hereof and interest thereon shall be payable to the BANK
in New York, New York, U.S.A., at the office of Swiss Bank, Co. of New York,
for the credit of BANK's account No. 101-WA-012297-000, in freely transferable
Dollars and in same day funds, no later than 12:00 noon (New York time), on the
date on which such payments are due.
Whenever any payment to be made hereunder shall be stated to be due on a day
which is not a business day, (meaning a day of the year on which banks in
London, England, carry on transactions in Dollars and banks in New York City,
U.S.A. and in Mexico City, United Mexican States ("Mexico") are not required or
authorized to close), such payment shall become due on the next following
business day.
The SUBSCRIBER agrees to make all payments in respect of principal and interest
free and clear of and without deduction, charge or withholding, or any tax
liabilities imposed on such amounts, actually or in the future payable in any
jurisdiction. If at any time Mexico (or any other country entitled to do so)
or any political subdivision or any taxing authority thereof or therein shall
impose, charge or collect any tax, charge, withholding, deduction, levy, or any
other fiscal liability together with interest, penalties, fines, or charges
thereof (the "Taxes"), on or with respect hereto or to any payment hereunder,
the SUBSCRIBER agrees to pay, immediately to the appropriate tax authority, on
behalf of the BANK the amount of any such additional amounts required to ensure
the BANK received the full amount that the BANK would have received had no such
payment of taxes been made.
<PAGE> 2
The SUBSCRIBER and the GUARANTOR hereby irrevocably submit to the jurisdiction
of any New York State court or any United States court sitting in New York
City, New York, United States or any competent court of Mexico City, Mexico or
of the city of CHICAGO, ILLINOIS, USA, in any action or proceeding arising out
of or relating to this PROMISSORY NOTE, as the plaintiff in such action or
proceeding may elect and the SUBSCRIBER and the GUARANTOR hereby irrevocably
agree that all claims in respect of such action or proceeding may be heard and
determined in any of such courts. The SUBSCRIBER and the GUARANTOR irrevocably
waive, to the fullest extent permitted by law, any objection which it may now
or hereafter have to laying of venue of any suit, action or proceeding with
respect to this PROMISSORY NOTE brought in any court aforementioned, and the
SUBSCRIBER and the GUARANTOR further irrevocably waive any claim that any such
suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. The SUBSCRIBER and the GUARANTOR hereby expressly
waive all rights to any other jurisdiction, which they may now or hereafter
have any reason of their present or subsequent domiciles.
The SUBSCRIBER and the GUARANTOR hereby consent to service of process upon them
in any action or proceeding arising out of or relating to this PROMISSORY NOTE:
(i) if in the State of New York, United States, at the address of CT
Corporation System (the "Process Agent"), (ii) and if in the Federal District
of Mexico or in CHICAGO, ILLINOIS, USA, at the domicile appearing under their
respective name in this signature page.
This PROMISSORY NOTE is executed in an English and Spanish version, both of
which shall bind the SUBSCRIBER and the GUARANTOR and constitute one and the
same PROMISSORY NOTE; provided however, that in the case of doubt as to the
proper interpretation or construction of this PROMISSORY NOTE, the English text
shall be controlling in all cases, except that in the case of any legal
proceeding instituted in any court of Mexico the Spanish text shall be
controlling.
This PROMISSORY NOTE is executed in Chicago, Illinois, USA, on December 19,
1994.
THE SUBSCRIBER
/s/Charles W. Daggs
- - -------------------------------
By: Rodman & Renshaw Capital Group, Inc.
Title: President and Chief Executive Officer
Address: 120 South LaSalle Street
Chicago, Illinois 60603, USA
THE GUARANTOR
- - -------------------------------
By:
Title:
Address:
<PAGE> 1
EXHIBIT 10.14
LEASE
SEARS TOWER
233 SOUTH WACKER DRIVE
CHICAGO, ILLINOIS
AGREEMENT OF LEASE made as of this 12 day of Januray, 1995
(hereinafter referred to as the "Lease") between TOWER LEASING, INC., a
Massachusetts corporation (hereinafter referred to as ("Landlord"), and RODMAN
& RENSHAW CAPITAL GROUP, INC., a Delaware corporation (hereinafter referred to
as "Tenant");
W I T N E S S E T H:
Landlord hereby agrees to lease to Tenant, and Tenant hereby agrees to
accept, the premises designated on the plan attached hereto as Exhibit A and
containing approximately 76,378 square feet of "Rentable Area" on the entire
45th and a portion of the 46th floors (hereinafter referred to as the
"Premises") in the building commonly known as the Sears Tower (hereinafter
referred to as the "Building") located at 233 South Wacker Drive, in the City
of Chicago, Cook County, Illinois (hereinafter referred to, together with all
present and future easements, additions, improvements and other rights
appurtenant thereto, as the "Land"), subject to the terms and conditions of
this Lease.
In consideration thereof, Landlord and Tenant covenant and agree as follows:
1. TERM
The term of this Lease (hereinafter referred to as the "Term") shall commence
on the earlier of (i) June 1, 1995 or (ii) the date that Tenant substantially
completes the Tenant Work as defined in the Tenant Work Letter attached hereto
as Exhibit "C" (the "Commencement Date") subject to delays in Tenant completing
the Tenant Work to the extent caused by the failure of Landlord to complete the
Concurrent Work in a timely manner. The Term shall end on the last day of the
180th full calendar month after the Commencement Date (hereinafter referred to
as the "Termination Date"), unless sooner terminated as provided herein or
extended by the exercise of the option conferred upon Tenant pursuant to
Section 32 of this Lease.
Notwithstanding the date set for the commencement of this Lease, all of the
terms and provisions of this Lease (other than Tenant's obligation to pay Rent)
shall be effective as of the date of full execution of this Lease.
<PAGE> 2
2. BASE RENT
BASE RENT PAYMENTS. Tenant shall pay to Landlord or Landlord's agent at
Sears Tower, 233 South Wacker Drive, Chicago, Illinois, or at such other place
as Landlord or Landlord's agent may from time to time designate in writing, in
currency which, at the time of payment, is legal tender for private or public
debts in the United States of America, rent at the annual rates per square foot
of Rentable Area in the Premises set forth in Exhibit B attached hereto and
made a part hereof (hereinafter referred to as the "Base Rent"). Base Rent
shall commence on the Commencement Date. Such Base Rent shall be escalated as
set forth in Exhibit B. Each period of twelve (12) months beginning on the
Commencement Date or on any anniversary thereof and ending on the day before
the following anniversary of the Commencement Date or on the Termination Date,
as the case may be, falling within the Term is hereinafter referred to as a
"Lease Year." The Base Rent (subject to the increases set forth in Exhibit B)
shall be payable in equal monthly installments on or before the first day of
each and every month during the Term, without demand and without any abatement,
set-off or deduction whatsoever, except as specifically set forth in this
Lease. If the Term commences or ends on a day other than on the first day of a
month, the Base Rent or Additional Rent, as the case may be, for such month
shall be prorated based upon the number of days in such month included in the
Term. The prorated Base Rent or Additional Rent for the portion of the month
in which the Term commences or ends or the abatements end shall be paid on the
first day of the month in question.
3. ADDITIONAL RENT
In addition to paying the Base Rent specified in Section 2 hereof, Tenant
shall pay as "Additional Rent" the amounts described in this Section 3.
Additional Rent shall commence as of the Commencement Date. Such Additional
Rent paid by Tenant and other tenants in the Building shall reimburse Landlord
for all expenses of owning, operating and maintaining the Land and the
Building, except as expressly excluded below, and shall permit Landlord to
receive the Base Rent as "net" rent. The Base Rent and the Additional Rent and
all other amounts due under this Lease are herein collectively referred to as
the "Rent." All Additional Rent shall be payable for the same periods and in
the same manner, time and place as the Base Rent is to be paid. Without
limitation on other obligations of Tenant which shall survive the expiration of
the Term, the obligations of Tenant to pay Additional Rent shall survive the
expiration of the Term. For any Calendar Year which is not wholly included in
the Term, Tenant shall be obligated to pay only a pro rata share of the
Additional Rent for such Calendar Year, based on the number of days of the Term
falling within such Calendar Year. Except as specifically provided in this
Lease, Rent shall be paid without abatement, deduction or set off of any kind,
it being the intention of the parties that, to the full extent permitted by
2
<PAGE> 3
law, Tenant's covenant to pay Rent shall be independent of all other covenants
contained in this Lease.
A. DEFINITIONS. As used in this Section 3, the terms:
(1) "Calendar Year" shall mean each calendar year in which any part of the
Term falls, through and including the year in which the Term expires.
(2) "Operating Expenses" shall mean all bona fide expenses, costs and
disbursements (other than Taxes) of every kind and nature (determined for the
applicable Calendar Year on an accrual basis) paid (to the extent not accrued
and included in Operating Expenses in a prior Calendar Year) or incurred (with
any appropriate accounting adjustments for subsequent Calendar Years or going
forward if the manner of accounting for any item is changed at any time during
the Term) by Landlord or its managing agent in connection with the ownership,
management (excluding salaries of employees of Landlord and managing agent at
the building manager level and above), operation, maintenance and repair of the
Land and Building (including, without limitation, the cost of providing
electricity with respect to overhead or ceiling lighting for the Premises and
other office space), except the following:
A. Costs of capital improvements or tenant improvements to any tenant's
premises;
B. Principal or interest payments on, and any other fees and charges on
or in connection with, loans secured by mortgages or trust deeds on the Building
or Land or rent payable on any ground lease of the Land;
C. Costs of capital improvements whether purchased or leased to the
Building, including, without limitation, any and all finance charges thereon,
except that Operating Expenses shall, upon completion of the lobby renovation
project currently in progress, include (x) the costs of any capital improvement
completed during the Term which is reasonably projected by Landlord to reduce
any component of Operating Expenses and (y) the costs of any capital
improvement which is made by Landlord to keep the Land or Building in
compliance with all governmental rules and regulations enacted after the date
of this Lease applicable from time to time thereto, in each case as evenly
amortized over the useful life of each such capital improvement with interest
on the unamortized amount at two percent (2%) per annum above the "prime rate"
or "corporate base rate" announced from time to time by a major Chicago bank
selected by Landlord (the "Prime Rate") (but in no event at a rate which is
more than the highest lawful rate allowable in the State of Illinois);
provided, however (A) such amortized costs (including interest as aforesaid)
shall only be included in Operating Expenses under this Lease for that portion
of the useful life of the capital improvement that falls within the
3
<PAGE> 4
Term, (B) that portion of the total amortized costs (including interest as
aforesaid) to be included in Operating Expenses within the Term shall not
exceed the total projected reduction in Operating Expenses for that portion of
the useful life of the capital improvement that falls within the Term
reasonably estimated by Landlord prior to making such capital improvement, and
(C) all elements of such projection shall be completed in accordance with
generally accepted accounting principles and practices in effect at the time
the capital improvement is proposed to be made. The determination of whether a
repair or replacement made by Landlord shall be a capital expenditure, shall be
based upon generally accepted accounting principles consistently applied
existing on the date such capital improvement is completed;
D. Costs of utilities and other services provided to and used in the
operation of the retail stores, the skydeck, the parking garage in the Building
and the antennae farm on the roof of the Building and any health club installed
in the lower level of the Building, provided that the costs of operating and
maintaining the common areas adjoining such retail stores, the health club and
the skydeck shall be included in Operating Expenses and provided further that
the cost of overhead lighting and HVAC service used in the skydeck and/or the
health club may be included to the extent that the occupants of the skydeck
and/ or the health club pay their proportionate share of Operating Expenses;
E. Costs and expenses incurred in connection with leasing space in the
Building, including, without limitation, leasing commissions and advertising
and promotional expenses, architectural, space planning or engineering
services, tenant allowances, costs of obtaining or making tenant space ready
for occupancy, advertising and promotional expenses, legal fees for the
preparation of leases, rent abatements, lease takeover payments, moving expense
payments or allowances and rent payable with respect to that portion of the
Building which is occupied by Landlord or its leasing agent and used
exclusively for the leasing of the Building;
F. The cost of any work or services provided by any employee of Landlord
whose salary is included in Operating Expenses, except for the cost of any
overtime payments to such employee or where the work or services provided by
such employee exceeds the scope of his employment or such employee is entitled
to additional compensation for such work.Landlord agrees that the management
fees included in Operating Expenses shall be competitive with those management
fees charged by first-class office buildings in the Chicago loop area and shall
not exceed three percent (3%) of the gross receipts of the Building in a
Calendar Year ;
4
<PAGE> 5
G. All expenses (and capital costs) for which Landlord receives
reimbursement or is entitled to receive reimbursement pursuant to written
contracts or agreements (net of the cost of collecting), including, without
limitation, insurance contracts, other than indirect reimbursement by the
payment by any tenant of base rent or its share of Operating Expenses;
H. Attorneys' fees, costs and disbursements and other expenses incurred
in connection with tenant leases, including, without limitation, negotiations
with prospective tenants or disputes with any tenant other than the enforcement
by Landlord of the Building rules and regulations against any such tenant.
I. Expenses for repairs or other work occasioned by a casualty, except
that Operating Expenses shall include the cost of repairs or other work
occasioned by a casualty to the extent that such costs are not covered by
Landlord's insurance described herein; provided, however, that such costs shall
be excluded from Operating Expenses in the event that they are not covered
because Landlord has not maintained the insurance which it is required to
maintain pursuant to this Lease;
J. Depreciation or amortization (except as permitted Section 3A(2)(c)
above);
K. The cost of operating and maintaining the skydeck, the garage in the
Building, the antennae farm on the roof of the Building, and the health club
(but only to the extent such health club is operated by Landlord and does not
pay its share of Operating Expenses), including all additional security and
maintenance solely attributable to the public use of and access to such space;
provided, however, if the user of the skydeck or health club pays its
proportionate share of Operating Expenses relating to maintenance, then the
cost of maintenance of such space shall be included in Operating Expenses to
the extent such maintenance does not exceed the services typically provided to
office tenants in the Building;
L. Expenses incurred in connection with services or other benefits of a
type that are not made available to Tenant and are not customarily provided to
tenants without charge, but that are provided to another tenant or occupant of
the Building;
M. Any fine, penalty or late charges incurred by Landlord due to the
violation of any law, rules or regulations, contract or lease ;
N. Any compensation paid to clerks, attendants or other persons in
commercial concessions operated by Landlord;
O. Costs for sculptures, paintings and other objects of art located
within the Building or the plaza area, except only for the costs of insuring and
maintaining such objects and providing security for such objects;
5
<PAGE> 6
P. Any taxes, assessments, fees or charges specifically excluded from the
definition of Taxes pursuant hereto;
Q. Expenses incurred by Landlord in putting the Building into compliance
with the Americans With Disabilities Act in its form as of the date of this
Lease (this Subsection does not obligate Landlord to put any tenant space into
compliance);
R. Expenses incurred by Landlord in putting the Building into compliance
with (i) any laws, rules or regulations concerning asbestos and
asbestos-containing materials or (ii) ASHRAE No. 62-1989 entitled "Ventilation
for Acceptable Indoor Air Quality" but specifically excluding any testing of
the ventilation system to determine the scope of any possible problem or
violation or (iii) any other law or governmental rule or regulation applicable
to the Building with which the Building is not in compliance on the date
hereof;
S. Costs, expenses and fees of land trusts, partnerships, title
insurance, land surveys and corporations involved in the ownership or
operation or management of the Building and Land;
T. The amount of any judgments against Landlord and indemnification
obligations of Landlord in excess of the amount of any liability policies
required to be carried by Landlord pursuant to this Lease; and
U. Charitable or political contributions.
(3) "Taxes" shall mean taxes levied, assessed or imposed (or which Landlord
is obligated to pay on behalf of any other person or entity having any interest
in the Land or the Building) in connection with the Land, the Building, the
operation thereof or any rights or responsibilities related thereto. "Taxes"
shall include without limitation: (a) real estate taxes and assessments,
special or otherwise, levied or assessed upon the Land or Building; (b) ad
valorem taxes for any personal property owned or leased by Landlord and used
exclusively in connection with operating or maintaining the Land or Building;
(c) any tax, assessment, charge or fee which is imposed in substitution for, or
in lieu of an increase in, such real estate taxes or ad valorem personal
property taxes; (d) any income or franchise tax based on Landlord's income from
the Land and Building which taxes such income in a different manner than income
from sources other than the ownership and operation of income-producing real
estate, which is substantively the functional equivalent of a tax on gross
rents or leases, but is called by another name; or (e) a tax on gross rents or
leases; or (f) a tax on the development of real estate or the construction or
improvement of buildings or premises therein. In determining the amount of
Taxes for any year, the amount of special assessments to be included shall be
limited to the amount of the installment (plus any interest
6
<PAGE> 7
payable thereon) of such special assessment required to be paid during such
year as if the Landlord had elected to have such special assessment paid over
the maximum period of time permitted by law. All references to Taxes "for" a
particular year shall be deemed to refer to Taxes levied or assessed for such
year without regard to when such Taxes are paid or payable. Taxes shall also
include, in the year paid, all fees for consultants and attorneys and all other
costs reasonably incurred by Landlord in seeking to obtain a reduction of, or a
limit on the increase in, any Taxes, regardless of whether any reduction nor
limitation that is obtained. Neither Operating Expenses nor Taxes shall
include any inheritance, estate, succession, transfer, gift, franchise, or
capital stock tax or any current state or federal income taxes or any income
taxes other than those described above. With respect to any taxes which
include assessments against income or property not related to the Land or
Building, Taxes shall include only that portion of such Taxes which would be
payable if the Land and Building and all rights related thereto were the only
assets of Landlord. Neither Operating Expenses nor Taxes shall include
interest or penalties arising as a result of a late payment, except to the
extent such late payment is due to default of Tenant hereunder.
Notwithstanding the foregoing, if the sum of all payments received by Landlord
in any Calendar Year from all office tenants for reimbursement of Operating
Expenses or the sum of all payments received by Landlord in any Calendar Year
from all office and retail tenants for reimbursement for Taxes exceeds the
amount of Operating Expenses or Taxes allocable to such Calendar Year, then
Tenant's Proportionate Share of Operating Expenses or Taxes, as the case may
be, shall be reduced proportionately.
(4) "Tenant's Proportionate Share" shall mean (a) 2.181% for purposes of
determining Taxes (as defined below) payable by Tenant hereunder, such
percentage being the percentage calculated by dividing the Rentable Area
contained in the Premises, as determined by Landlord and shown on the first
page of this Lease, by 3,530,477 rentable square feet (being 95% of the
aggregate amount of all office and retail space in the Building), and (b)
2.344% for purposes of determining Operating Expenses payable by Tenant
hereunder, such percentage being the percentage calculated by dividing the
Rentable Area of the Premises, by 3,284,958 rentable square feet (being 95% of
the aggregate amount of all office space in the Building). Tenant's
Proportionate Share as defined herein shall be adjusted proportionately if the
aggregate amount of office or retail space in the Building is either increased
or decreased; provided, however, that in no event shall Tenant's Proportionate
Share exceed, as a result of one or more adjustments thereto as specified
above, one hundred ten percent (110%) of the respective amounts specified
above. Further, if at any time during the Term more than 95% of the aggregate
amount of all office and retail space in the Building is subject to leases,
then Tenant's Proportionate Share of Taxes shall be recalculated from time to
time to replace the denominator thereof with the aggregate amount of all office
and retail space in the Building
7
<PAGE> 8
subject to leases. If at any time during the Term, more than 95% of the office
space in the Building is subject to leases, then Tenant's Proportionate Share
of Operating Expenses shall be recalculated from time to time to replace the
denominator thereof with the aggregate amount of all office space in the
Building subject to leases.
(5) "Rentable Area" is not measured in accordance with BOMA Standards.
Office rentable area includes a portion of public lobbies at the base of the
Building and a portion of the mechanical spaces supplying air conditioning and
heating to the office section of the Building. The loss factor for the 45th
Floor is 11.3% and the loss factor for the 46th Floor is 16.4%. If the
Rentable Area of either the Premises or the Building changes in any Calendar
Year during the Term of this Lease, or any renewal thereof, such Rentable Areas
shall be recomputed in accordance with this Section and all applicable
adjustments hereunder shall be made as of the date of each such change. In the
event of any dispute over Rentable Areas, the dispute shall be referred to an
architect mutually acceptable to both Landlord and Tenant. The fees of the
architect shall be borne by Tenant unless the investigation discloses an error
in excess of two percent (2%) to the detriment of Tenant in which event
Landlord shall bear such fees. Tenant shall make payments during any dispute
based on the Rentable Areas reasonably determined by Landlord until resolution
of such dispute at which time any necessary adjustments shall be made, and any
amounts due to Landlord or Tenant as a result shall be paid within ten (10)
days after demand together with interest on such adjusted amount at two percent
(2%) over the Prime Rate from the date of overpayment or underpayment.
B. EXPENSE ADJUSTMENT. Tenant shall pay to Landlord or Landlord's agent as
Additional Rent, an amount ("Expense Adjustment Amount") equal to Tenant's
Proportionate Share of the amount of Operating Expenses (subject to the cap on
such amount described below) incurred with respect to each Calendar Year, plus
Tenant's pro rata share of the special allocation of Operating Expenses to the
occupied Premises if Section 3C is applicable for such Calendar Year or any
portion thereof. The Expense Adjustment Amount with respect to each Calendar
Year shall be paid in monthly installments during such Calendar Year in an
amount reasonably estimated from time to time by Landlord (but not more than
twice with respect to any one Calendar Year) and communicated by written notice
to Tenant. Landlord shall cause to be kept books and records showing Operating
Expenses in accordance with generally accepted accounting principles
consistently applied. Within ninety (90) days following the close of each
Calendar Year, Landlord shall cause the amount of the Expense Adjustment Amount
for such Calendar Year to be computed based on Operating Expenses (and any
special allocation thereof if applicable) for such Calendar Year and shall
deliver to Tenant a statement of such amount, certified by an officer or agent
of Landlord as true and correct, plus a statement of all
8
<PAGE> 9
estimated installments paid by Tenant with respect to such Calendar Year.
Tenant shall pay to Landlord any deficiency shown by such statement within
thirty (30) days after receipt of such statement. If the installments paid
exceed the amounts due, Landlord shall either credit the excess against
payments next due to Landlord from Tenant hereunder or at Tenant's option, and
if Tenant is not then in Default hereunder, refund the excess to Tenant. If
Tenant is then in Default hereunder, Landlord shall apply the difference first
to any delinquent Rent hereunder (including interest thereon) and then to the
next succeeding payments of Rent coming due hereunder. The foregoing
obligations of Landlord and Tenant shall survive the expiration of the Term.
Delay in computation of the Expense Adjustment Amount shall not be deemed a
default hereunder or a waiver of Landlord's right to collect the Expense
Adjustment Amount.
Notwithstanding the foregoing, Tenant's Proportionate Share of Operating
Expenses hereunder in the Second Lease Year shall not increase by more than
three percent (3%) over Tenant's Proportionate Share of Operating Expenses in
the First Lease Year. Thereafter, during the first five (5) Lease Years
Tenant's Proportionate Share of Operating Expenses shall not increase from one
Lease Year to the next by more than three percent (3%) over the amount of the
cap on Tenant's Proportionate Share of Operating Expenses by Tenant in the
prior Lease Year and during the 6th through 15th Lease Years by more than four
percent (4%) over the amount of the cap on Tenant's Proportionate Share of
Operating Expenses in the prior Lease Year. For example, if Tenant's
Proportionate Share of Operating Expenses in the First Lease Year is $1,000.00,
then Tenant's Proportionate Share of Operating Expenses shall be capped at
$1,030.00 in the Second Lease Year, at $1,060.90 in the Third Lease Year, at
$1,092.73 in the fourth Lease Year, at $1,125.51 in the Fifth Lease Year,
$1,170.53 in the Sixth Lease Year etc.
C. ALLOCATION OF OPERATING EXPENSES. If at any time during the
Term less than ninety-five percent (95%) of the then current office space in
the Building is occupied, at Landlord's option those components of Operating
Expenses which vary with occupancy shall be removed from general Operating
Expenses and allocated to the portion of the office space in the Building which
is actually occupied and generating such components of Operating Expenses.
Such special allocation shall be made in accordance with generally accepted
accounting principles consistently applied and shall be on a pro rata basis
over the occupied office space in the Building, based on both the comparative
Rentable Areas of the occupied premises and the portion of such Calendar Year
during which such premises were occupied. Operating Expenses which do not vary
with occupancy, such as public liability insurance and lobby maintenance will
continue to be allocated on a pro rata basis over the office space in the
Building whether or not occupied and Tenant shall only be responsible for
Tenant's Proportionate Share of such Operating Expenses. Operating Expenses
which currently vary with
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occupancy are janitorial services, electricity (with respect to lighting) and
HVAC costs.
D. TAX ADJUSTMENT. Tenant shall pay to Landlord or Landlord's
agent as Additional Rent, an amount ("Tax Adjustment Amount") equal to Tenant's
Proportionate Share of the amount of Taxes incurred with respect to each
Calendar Year. The Tax Adjustment Amount with respect to each Calendar Year
shall be paid in monthly installments during such Calendar Year in an amount
reasonably estimated from time to time by Landlord (but not more than twice
with respect to any Calendar Year) and communicated by written notice to
Tenant. If Taxes for any Calendar Year are payable in whole or in part before
the end of such Calendar Year, Tenant shall, within thirty (30) days after the
written request of Landlord, promptly pay Tenant's Proportionate Share of such
payment as a special installment, after deducting installments previously paid
by Tenant under this Section 3D for such Calendar Year. Within ninety (90)
days following the final payment of Taxes for each Calendar Year, Landlord
shall cause the amount of the Tax Adjustment Amount for such Calendar Year to
be computed and deliver to Tenant a statement of such amount, certified by an
officer or agent of Landlord as being true and correct, plus a statement of all
estimated installments paid by Tenant for such Calendar Year. Tenant shall pay
to Landlord any deficiency shown by such statement within thirty (30) days
after receipt of such statement. If the installments paid exceed the actual
amount due, Landlord shall either credit the excess against payment next due to
Landlord from Tenant hereunder or at Tenant's option, and if Tenant is not then
in Default hereunder, refund the excess to Tenant. If Tenant is then in
Default hereunder, Landlord shall apply the difference first to any delinquent
Rent hereunder (including interest thereon) and then to the next succeeding
payments of Rent coming due hereunder. The amount of any refund of Taxes
received by Landlord shall be credited against Taxes for the year in which such
refund is received. The foregoing obligations of Landlord and Tenant shall
survive the expiration of the Term. Delay in computation of the Tax Adjustment
Amount shall not be deemed a default hereunder or a waiver of Landlord's right
to collect the Tax Adjustment Amount.
E. MONTHLY STATEMENTS. It is the current practice of Landlord to
send to each tenant a statement of Base Rent and Additional Rent due and
payable each month. The failure of Landlord to send any such monthly statement
to Tenant shall not relieve Tenant of its obligation to make its scheduled
monthly payment of Rent hereunder to Landlord on a timely basis; provided,
however that Tenant shall not be required to pay any increase in the monthly
installments of Additional Rent hereunder until such time as Landlord provides
Tenant with written notice that the amount of such monthly installment has
increased.
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F. OVERPAYMENT BY TENANT. Notwithstanding the foregoing, if the
sum of all payments received by Landlord in any Calendar Year from all office
tenants for reimbursement of Operating Expenses or the sum of all payments
received by Landlord in any Calendar Year from all office and retail tenants
for reimbursement for Taxes exceeds the amount of Operating Expenses or Taxes
allocable to such Calendar Year, then Tenant's Proportionate Share of Operating
Expenses or Taxes, as the case may be, shall be reduced proportionately.
G. BOOKS AND RECORDS. Landlord shall cause to be kept books and
records showing Operating Expenses in accordance with generally accepted
accounting practices and principles maintained on a consistent basis. Promptly
following the close of each Calendar Year, Landlord shall cause a nationally
recognized firm of certified public accountants to review its books and records
(and to do such other work as may be necessary to enable such firm to give the
certificate hereinafter required) and to deliver to Landlord its certificate
specifying the amount of Operating Expenses for such Calendar Year, certifying
that it has reviewed such books and records and that such books and records
have been maintained in accordance with generally accepted accounting
principles and practices consistently applied. Such certificate shall include
a statement as to Tenant's pro rata share of Operating Expenses which vary with
occupancy pursuant to Section 3C. After receipt of such certificate, Landlord
shall deliver a copy of such certificate to Tenant and cause the amount of the
Expense Adjustment for such Calendar Year to be computed for such Calendar Year
as specified in such firm's certificate and Landlord shall deliver to Tenant a
statement for the amount of such Expense Adjustment.
H. INSPECTION OF LANDLORD'S BOOKS AND RECORDS. Tenant, its
employees and agents shall have the right, but only once as to any one (1)
Calendar Year, to examine copies of Landlord's books and records with respect
to Landlord's final year end statement of Operating Expenses for such Calendar
Year. Tenant's examination of Landlord's books and records shall occur at the
office of the Landlord in Chicago, Illinois during the normal business hours of
the Building and following written notice to Landlord which notice must be
given within two (2) years after the date that Tenant receives Landlord's final
year end statement of Operating Expenses for each such Calendar Year. If
Tenant fails to send such notice to Landlord within such two (2) year period,
then Tenant will be deemed to have conclusively accepted said final year end
statement, absent fraud, and waived its right to audit said books and records.
Tenant may make photocopies of the books and records provided Tenant bears the
reasonable expense of such copying. Tenant agrees and will cause its
accountants, officers, agents, attorneys, representatives and employees to
agree in a written certificate in form and content acceptable to Landlord to
keep any copies made and any information obtained in such audit strictly
confidential and not to disseminate such information in any way other than to
such
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other accountants, officers, employees, agents, and representatives of Tenant
who need such information in order to evaluate said information and who also
agree to keep such information confidential. Tenant shall not have more than
three (3) people present at any one time at the site of the audit. Tenant
shall complete its review of the books and records at the Landlord's office
within ten (10) days after commencing such review. Tenant agrees not to
unreasonably interfere with the conduct of Landlord's business while performing
such audit. If Tenant does not send a written notice to Landlord of the
specific errors which Tenant has discovered in its audit within sixty (60) days
after the date that Tenant completes such audit at Landlord's office, then
Tenant shall be deemed to have accepted such statement of Operating Expenses
and/or Taxes, absent fraud. If Tenant is able to prove as a result of any such
audit that Tenant has been overcharged for Operating Expenses and/or Taxes
hereunder, then Landlord shall reimburse Tenant for any overpayment made by
Tenant promptly upon submission of such proof to Landlord. If such audit
discloses that Tenant has been undercharged for Operating Expenses and/or
Taxes, then Tenant shall promptly pay Landlord any amount due as a result of
said undercharge. If any such audit proves that Tenant has overpaid its
Operating Expenses for a Calendar Year by more than three percent (3%) of the
total amount paid by Tenant for Operating Expenses for that Calendar Year then
Landlord agrees to pay Tenant's reasonable actual out-of-pocket expenses
incurred in connection with the audit of Tenant's books and records for that
Calendar Year upon submission of reasonable back up documentation of such
expenses.
4. USE OF THE PREMISES
A. RESERVED AREAS. This Lease does not give Tenant any right to
use, and Landlord hereby excludes and reserves for its sole and exclusive use,
the following areas in and about the Premises: janitor closets, stairways and
stairwells (except for emergency use of public stairwells and the use of the
stairwell described in Section 4E below), fan, mechanical, electrical,
telephone and similar rooms (other than those installed for Tenant's exclusive
use or to the extent Tenant reasonably needs access thereto and use thereof and
receives Landlord's prior approval for such access); elevator, pipe and other
vertical shafts, flues and ducts except to the extent, if any, otherwise
authorized as part of Tenant's Work pursuant to the Work Letter; all areas
above the acoustical ceiling and below the finished floor covering installed in
the Premises; all other structural or mechanical elements serving other areas
of the Building; and all subterranean, mineral, air, light and view rights.
Notwithstanding the foregoing, Tenant shall have the right to use all common
areas of the Building to the extent that such common areas are available to all
other tenants of the Building without charge and where applicable, the public,
including without limitation, the common elevators, plaza areas, public
lobbies, public stairways, and common hallways and and common washrooms
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subject to reasonable restrictions for security. Tenant shall have access to
the loading docks and receiving areas as set forth in Section 6 below.
B. PERMITTED USE. Tenant shall use and occupy the Premises for
general office use which may include, without limitation, the operation of a
retail investment brokerage firm.
C. COMPLIANCE WITH LAWS. Tenant shall not knowingly use or permit
the use of any part of the Premises for any purpose prohibited by law. Tenant
shall, at its sole expense, comply with and conform to all of the requirements
of all governmental authorities having jurisdiction over the Building which
relate in any way to the condition, use and occupancy of the Premises
throughout the entire Term of this Lease other than those requirements relating
to the structural components of the Building and the heating, ventilating,
air-conditioning, electrical, plumbing, fire protection and life safety systems
serving the Building (collectively, "Building Systems"); provided, however,
Landlord shall be responsible for ensuring that all structural components of
the Building and any and all components of Building Systems contained in the
Premises comply with all such ordinances and laws unless Tenant has caused any
violation thereof. By way of example and not by way of limitation, Tenant
will be deemed to have caused any violation of a requirement of a governmental
authority which violation is the result of any construction or alteration to
the Premises [other than the Landlord's Work (as described in the Work Letter)]
including work which is made by Landlord at the request or direction of Tenant.
Notwithstanding the foregoing, if Tenant submits plans for any improvements to
the Premises to Landlord for Landlord's prior approval in form and content
acceptable to Landlord and Landlord approves such plans and such improvements
are constructed substantially in accordance with the plans approved by Landlord
and the improvements as constructed violate applicable law in effect as of the
date that Landlord approved such plans and the condition causing such violation
was disclosed in the plans submitted to Landlord for approval, then Tenant
shall be responsible for such violation, however, Tenant shall not be in
Default hereunder so long as Tenant cures such matter within a reasonable
period of time after having notice of such condition. Without limitation of
the foregoing, Tenant covenants and agrees not to knowingly bring into the
Premises or to use, store, treat or dispose, or permit the use, storage,
treatment or disposal, in the Premises of (1) any hazardous substance or
regulated materials as defined under any present or future federal, state or
local law, rule or regulation or (2) any explosives or any flammable
substances, including, but not limited to, gasoline, liquefied petroleum gas,
turpentine, kerosene and naphtha (the substances and materials referred to in
clauses (1) and (2) hereof are collectively referred to herein as "Hazardous
Materials"); except that Tenant shall have the right to bring Hazardous
Materials into the Premises on the condition that the Hazardous Materials are
those typically used in offices and Tenant
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complies with all applicable laws, rules, regulations and ordinances
governing the use and the disposal of the Hazardous Materials and provided
further that Tenant complies with all instructions on the product container
labels. The knowledge of Tenant's officers, employees, agents, affiliates,
contractors, subcontractors and material suppliers shall be imputed to Tenant
in determining whether Tenant had knowledge of a matter.
D. ENVIRONMENTAL DISCLOSURE. Tenant, from time to time, upon not
less than 10 days prior written request by Landlord, will provide Landlord with
such information in Tenant's possession which Landlord may reasonably request
regarding Tenant's operations in the Premises (including, without limitation,
whether or not, to the knowledge of Tenant, such operations involve the
generation, transportation, storage, treatment or disposal of Hazardous
Materials) and shall reasonably cooperate with Landlord in the event Landlord
is required to prepare an Environmental Disclosure Document pursuant to the
provisions of the Illinois Responsible Property Transfer Act of 1988 or any
government rules or regulations issued pursuant thereto or in connection
therewith or in connection with any other federal, state or local laws, rules
or regulations. Landlord agrees to reimburse Tenant for Tenant's reasonable
bona fide out-of-pocket costs in so cooperating with Landlord.
E. INTERIOR FIRE STAIRWELL. Subject to the provisions of Section
4A hereof, Landlord grants Tenant the non-exclusive right to use during the
Term of this Lease (at no cost to Tenant) the interior fire stairwells
identified as Stairwell Nos. 1 & 2 on Exhibit "A" for access between the floors
comprising the Premises and for no other purpose (other than for emergency
evacuations) and in connection therewith, Tenant shall have the right, as part
of Tenant's Work, to improve the portion of said stairwell between the
respective floors of the Premises in accordance with the terms of the Work
Letter and on the condition that such improvements do not interfere with the
use of said stairwell for its intended purpose by the other occupants of the
Building or cause the stairwell to be in violation of any applicable laws,
rules, regulations or ordinances and comply with Building Standard key card
access control locking devices and life safety.
F. HAZARDOUS MATERIALS INDEMNIFICATION. Landlord agrees to
indemnify, defend and hold Tenant and its officers, employees and agents
harmless from any claims, judgments, damages, fines, penalties, costs,
liabilities (including sums paid in settlement of claims) or losses, including
the reasonable fees of attorneys and consultants, which arise during the Term
of this Lease in connection with the identification, presence, encapsulation,
removal or disposal of asbestos in the Building or the presence of any other
Hazardous Materials in or about the Building or in connection with the unlawful
use, storage or disposal of any Hazardous Materials to the extent that such
asbestos or Hazardous Materials were caused to be placed in the Building by
Landlord.
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5. POSSESSION
A. Possession of the Premises shall be tendered to Tenant by
Landlord on the date that this Lease is executed by both Landlord and Tenant
subject to Landlord completing the Concurrent Work (as defined in the Tenant
Work Letter attached hereto as Exhibit C). Tenant may commence to occupy the
Premises as of the date of full execution of this Lease in order to commence
the Tenant's Work. Tenant shall not be obligated to pay Rent until the
Commencement Date.
B. Tenant has inspected the Premises and acknowledges that the
Premises are in Base Building Condition (as described in the Tenant Work
Letter) other than for the Concurrent Work. The Tenant's taking possession of
any portion of the Premises shall be conclusive evidence that such portion of
the Premises was in good order and satisfactory condition when the Tenant took
possession, subject to latent defects not readily discovered by Tenant, "punch
list" items and a one (1) year warranty described below. No promise of the
Landlord to construct, alter, remodel or improve the Premises or the Building
and no representation by Landlord or its agents respecting the condition of the
Premises or the Building have been made to Tenant or relied upon by Tenant
other than as may be contained in this Lease.
Landlord agrees to warrant the construction of the Landlord's Work for a period
of one year from the date of substantial completion of the Concurrent Work or
as to any repairs made pursuant to such warranty one (1) year from the date of
such repair.
C. Under no circumstances shall the occurrence of any of the
events described in this Section 5 be deemed to accelerate or defer the
Termination Date.
6. SERVICES
A. LIST OF SERVICES. Landlord shall provide the following
services on all days during the Term, except Sundays and holidays, unless
otherwise stated:
(1) Landlord will provide, install, maintain and operate the
system of distribution ducts, supply registers and diffusers, return grilles
and associated fixtures to provide in the Premises as partitioned in accordance
with the Plans (as defined in the Tenant Work Letter) heating and air
conditioning with capacity to produce the following results effective under
normal business operation, Monday through Friday, during the period from 8 a.m.
to 6 p.m., and on any Saturday which is not a holiday (a list of current
Building holidays is attached hereto as Exhibit "I" and made a part hereof)
during the period from 8 a.m. to 1 p.m. heating capable of maintaining inside
space conditions of not less than 72 degrees fahrenheit when the outside air
temperature ranges from not less than -10 degrees Fahrenheit to not more than
65 degrees fahrenheit; air
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conditioning capable of maintaining inside space conditions of 78 degrees
fahrenheit dry bulb and 50% relative humidity when outside conditions are 92
degrees fahrenheit dry bulb and 75 degrees fahrenheit wet bulb. The foregoing
is based upon occupancy density of not more than one (1) person per hundred
(100) square feet of floor area, and a maximum electric lighting and office
machine load of five (5) watts per square foot of floor area.
Landlord agrees to provide and Tenant will pay for all heating and air
conditioning requested and furnished prior to or following such hours at rates
to be established from time to time by Landlord, which rates shall be
reflective of the actual cost to Landlord of furnishing the same, including
overhead but not profit. Landlord's obligations with respect to heating and
air conditioning are subject to all governmental rules, regulations and
guidelines applicable thereto. Wherever heat generating machines or equipment
are used by Tenant in the Premises, which affect the temperature otherwise
maintained by the air-cooling system, or where the configuration of such
equipment and the placement of same creates a per square foot heat load above
what would be considered normal for office use, Landlord reserves the right to
install supplementary air-conditioning units in the Premises and the expense of
installation, operation and maintenance of any such supplementary units shall
be paid by Tenant to Landlord as Additional Rent. Landlord agrees to inform
Tenant at the time that Landlord approves the Plans whether Landlord reasonably
believes that the construction of the Tenant's Work (as defined in the Work
Letter) and the use thereof by Tenant as represented by Tenant to Landlord will
cause such supplementary units to be necessary.
(2) Electricity solely for the lighting fixtures in the
Premises of up to two (2) watts per square foot of usable area within the
Premises, together with adequate electrical wiring and facilities for standard
building lighting fixtures and for Tenant's incidental uses. All electricity
used in the Premises other than for lighting fixtures shall be separately
metered by a meter or meters to be installed at Landlord's expense. Tenant
agrees to pay for such electricity directly to the utility providing such
electricity. Tenant shall bear the cost of providing all light fixtures and
replacement of all lamps, tubes, ballasts and lighting fixtures. With
respect to such incidental uses, adequate electrical wiring and facilities will
be furnished up to the meter in the Premises by Landlord, provided that (a) the
connected electrical load of the incidental use equipment does not exceed an
average of three (3) watts per square foot of usable area within the Premises;
(b) the electricity so furnished for incidental uses will be at a nominal 120
volts; and (c) such electricity will be used only for equipment and accessories
normal to office usage, such as typewriters, calculating machines, personal
computers and printers, telecopiers, photo-copying machines and other machines
all of which have similar low electrical consumption (120 volts). If Tenant's
requirements for electricity for incidental uses are
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in excess of those set forth in the preceding sentence, the Landlord reserves
the right to require Tenant to install the conduit, wiring and other equipment
necessary to supply electricity for such excess incidental use requirements at
the Tenant's expense by arrangement with Commonwealth Edison Company or another
approved local utility. If Tenant's actual usage of electricity for overhead
lighting exceeds two (2) watts per square foot, then Landlord may charge and
collect from Tenant a reasonable fee for such excess usage, the amount of such
fee is to be determined by Landlord, which fee will be reflective of Landlord's
actual cost, including overhead, but not profit. With respect to electricity
for lighting, electricity for 260 hours of lighting per month will be provided
without extra charge. Landlord currently provides 240 hours of lighting per
month scheduled Monday through Friday. Tenant shall be billed monthly for all
overtime hours of lighting in excess of 260 hours per month, which bill shall
be reflective of the actual cost to Landlord including overhead, but not
profit.
(3) City water from the regular Building outlets for
drinking, lavatory and toilet purposes and upon execution by Landlord and
Tenant of the "Condenser Water Addendum" attached hereto as Exhibit D, Tenant
shall be furnished with supplemental condenser water as therein provided. When
Landlord approves the Plans set forth in the Tenant Work Letter, Landlord
agrees to tell Tenant if the improvements disclosed in the Plans will require
additional condenser water. Tenant acknowledges that matters not disclosed in
the Plans may necessitate the use of condenser water.
(4) Janitorial services as generally provided in first class
office buildings in downtown Chicago, including, without limitation, those
services described on Exhibit H attached hereto and made a part hereof.
(5) Window washing of the inside and outside of those windows
in the Building's perimeter walls which are situated in the Premises, at
intervals to be determined by Landlord, but in no event less than two (2) times
per Calendar Year inside and four (4) times per Calendar Year outside.
(6) Adequate automatic passenger elevator service to the
Premises 24 hours per day.
(7) Freight elevator services, Monday through Friday only,
from 7 a.m. to 5 p.m. from the first lower level of the Building to the level
on which the Premises are located, subject to reasonable scheduling by
Landlord. The use of freight elevators shall be subject to reasonable
regulations promulgated by Landlord from time to time. Landlord agrees to use
reasonable efforts to allocate freight elevator services and loading dock and
receiving room services to Tenant on a priority basis during Tenant's initial
move into the Premises, at no cost to Tenant during regular Building hours,
provided that Tenant gives
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Landlord at least one (1) week's written notice of its move-in schedule.
(8) Except as provided in Subsection 7 above, receiving room
and loading dock services, on any Monday through Friday which is not a Holiday,
from 8 a.m. to 4 p.m., subject to reasonable scheduling by Landlord. The use
of the receiving room and loading dock shall be subject to reasonable
regulations promulgated by Landlord from time to time.
(9) Maintenance of public and common areas of the Land
and Building consistent with the operation of a first-class building in
Chicago, Illinois.
(10) Such other services as are customarily furnished
generally to tenants by landlords of first-class office buildings in Chicago,
Illinois, provided, that Landlord shall not be required to make capital
expenditures to provide such services.
(11) Security services and life safety systems in the
common areas of the Building consistent with the operation of a first-class
office building in Chicago, Illinois.
(12) Landlord agrees to list Tenant and Tenant's officers,
managers and account executives who have offices in the Premises in the
Building Directory located on the first (1st) floor of the Building.
(13) Landlord agrees to cause the Building to be managed
in a manner consistent with other first class office buildings in downtown
Chicago.
B. INTERRUPTION OF SERVICES. Except as provided below in this
Section 6B and except for the limited abatement of Rent upon a fire or casualty
described in Section 11, Tenant agrees that Landlord shall not be liable in
damages, by abatement of Rent or otherwise, for failure to furnish or delay in
furnishing any service, or for any diminution in the quality or quantity
thereof, when such failure or delay or diminution is occasioned, in whole or in
part, by repairs, renewals, or improvements, by any strike, lockout or other
labor trouble, by inability to secure electricity, gas or other fuel, or water,
at the Building after reasonable effort so to do, by any accident or casualty
whatsoever, by act or default of Tenant or other parties, or by any cause
beyond Landlord's reasonable control. Except in cases of emergency, Landlord
shall give Tenant reasonable prior notice of any delay or diminution in any
service and shall use reasonable efforts to minimize any inconvenience to
Tenant where such delay or diminution is the result of Landlord's voluntary
actions. Except as set forth below in this Section 6B, such failures or delays
or diminution shall never be deemed to constitute an eviction or disturbance of
Tenant's use and possession of the Premises or relieve Tenant from paying Rent
or performing any of its obligations under this Lease.
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If Landlord ceases to furnish any of the services referred to in this
Section 6 or such services are interrupted, and if (i) such cessation does not
arise as a result of a willful act or omission of Tenant, (ii) as a result of
such cessation, the Premises or any material portion thereof is rendered
untenantable (meaning a lack of elevator access or Tenant's inability to use
the Premises or such material portion thereof in the normal course of its
business) and Tenant in fact so ceases to use the Premises or such material
portion thereof for the normal conduct of its business, and (iii) such
cessation continues for a period of more than three (3) consecutive business
days, then the Rent payable hereunder shall be equitably abated from the date
the services ceased based upon the percentage of the space in the Premises so
rendered untenantable and not being used by Tenant as a result thereof. A
portion of the Premises will be deemed to be "untenantable" under this Section
6B if Tenant is unable to operate its business therein as a result of the
interruption of service involved. If Subsections (i) through (iii) above are
present, but Tenant continues to use a material portion of the Premises for the
normal conduct of its business despite the fact that the interruption of
services has had a materially adverse effect on the use of the Premises by
Tenant, then the Rent payable hereunder shall be equitably abated based upon
fifty percent 50% of the percentage of the space in the Premises so rendered
untenantable but still used by Tenant plus the percentage of space rendered
untenantable but not used by Tenant. The foregoing abatements of Rent shall
become effective as of the date that the Premises or such material portion
thereof becomes untenantable and/or Tenant ceases to use such space for the
normal conduct of its business and shall continue until either service is
restored or the Lease is terminated or Landlord delivers Comparable Space (as
defined below) to Tenant ready for occupancy by Tenant. If such services are
so interrupted as set forth in Subsections (i) through (iii) (not as a result
of an act or omission of Tenant), and at least fifty percent (50%) of the
Premises then occupied by Tenant is rendered untenantable for a period of
ninety (90) consecutive days (to be extended to 150 consecutive days if such
cessation is caused as a result of a matter or condition affecting two (2) or
more city blocks such as a city-wide power outage), and Landlord is unable to
substitute Comparable Space in the Building or in a first class office building
in downtown Chicago for the Premises ("Comparable Space" shall be space in the
Building or in a first class office building in downtown Chicago which is
comparable to the Premises in the size and layout), then Tenant may terminate
this Lease upon written notice to Landlord received by Landlord after the
expiration of such ninety (90) (or 150, as the case may be) day period and
prior to Landlord restoring such service or delivering such substitute space.
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C. CHARGES FOR SERVICES. Charges for any service for which
Tenant is required to pay, from time to time hereunder, including but not
limited to after hours hoisting services or after hours heating or air
conditioning shall be due and payable at the same time as the installment of
Rent with which they are billed, or if billed separately, shall be due and
payable within twenty (20) days after such billing. Landlord shall bill Tenant
for such services at Landlord's actual cost including overhead but not profit.
D. ENERGY/NATURAL RESOURCES CONSERVATION. Notwithstanding
anything to the contrary in this Section 6 or elsewhere in this Lease, Landlord
shall have the right to institute such policies, programs and measures on a
Building - wide basis as may be reasonably necessary for the conservation,
recycling and/or preservation of energy and natural resources or energy or
natural resource related services, or as may be required to comply with any
applicable codes, rules and regulations. In the event Landlord institutes a
program for conservation, recycling and/or preservation of energy on a
Building-wide basis, which is not required by law, then Tenant shall not be
required to participate in such program if such participation shall materially
increase the cost to Tenant of operating its business from the Premises or
materially impair Tenant's use of the Premises. Tenant agrees to comply with
any other voluntary policies, programs or measures provided that a majority of
the office tenants in the Building agree to comply therewith.
E. BILLING FOR ELECTRICITY
(1) SEPARATE METERING. Tenant shall pay for the use of the
electrical service to the Premises for incidental uses as described above
(excluding electrical services which are included in Operating Expenses)
directly to the utility company supplying electricity to the Premises based
upon separate metering and billing. Tenant shall be billed directly by such
utility company and Tenant agrees to pay each bill promptly in accordance with
its terms. In the event that for any reason Tenant cannot be billed directly,
Landlord shall forward to Tenant each bill received by it with respect to such
electrical usage in the Premises and Tenant shall pay it promptly in accordance
with its terms.
(2) LACK OF SEPARATE METERING. If Tenant's incidental uses of
electricity in the Premises cannot be separately metered for any reason, Tenant
shall pay Landlord as Additional Rent, in monthly installments at the time
prescribed for monthly installments of Rent, an amount, as reasonably estimated
by Landlord from time to time (which estimate shall be based on a survey
reasonably acceptable to Tenant), which Tenant would pay for such electricity
if the same were separately metered to the Premises by the local electric
utility company and billed to Tenant at such utility company's then current
rates.
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7. REPAIRS/MAINTENANCE
A. Tenant will, at Tenant's own expense, keep the Premises in
good order, repair and condition at all times during the Term, subject to
reasonable wear and tear and damage by fire or other insured casualty
(provided, however, if such damage is caused by Tenant and despite the fact
that the required insurance policies with waivers of subrogation may have been
obtained, the insurance company has no legal obligation to pay for the damage
due to no fault of Landlord, then Tenant shall be responsible for the damage)
and except as otherwise specified in Sections 11 or 12 hereof, Tenant shall
promptly and adequately repair all damage to the Premises and replace or repair
all damaged or broken fixtures and appurtenances included in the Premises,
under the supervision and subject to the reasonable approval of the Landlord,
and within any reasonable period of time specified by the Landlord. If Tenant
does not do so, Landlord may, but need not, make such repairs and replacements,
and Tenant shall pay Landlord the reasonable bona fide out-of-pocket cost
thereof plus a coordination fee payable to Landlord in connection with each
such repair and or replacement equal to five percent (5%) of the actual total
cost of any such repair and/or replacement. Tenant shall pay such costs and fee
within twenty (20) days after being billed therefor. Tenant shall not be
billed for any coordination fee if the work in question is performed by
employees of Landlord whose salaries are included in Operating Expenses and the
work is performed by such employees within the scope of their employment at no
additional charge to Landlord. Landlord covenants and agrees to use reasonable
efforts to have such work performed by employees of Landlord. Landlord may,
but shall not be required to, enter the Premises at all reasonable times to
make such repairs, alterations, improvements, installations and additions to
the Premises or to the Building or to any equipment located in the Building as
Landlord shall desire or deem necessary or as Landlord may be required to do by
governmental authority or court order or decree; provided, however, that
Landlord shall use reasonable efforts not to materially interfere with Tenant's
business operations when making such repairs, alterations, improvements,
installations and additions. If such repairs, alterations, improvements,
installations, or additions will materially interfere with Tenant's business,
Landlord agrees to perform such work after normal business hours at Tenant's
cost if Landlord is performing work which is otherwise the obligation of Tenant
under this Lease and at Landlord's cost if such work is work which is
Landlord's obligation under this Lease. Except when repairs are needed in the
case of a bona fide emergency, Landlord shall give Tenant not less than three
(3) business days verbal notice of the date Landlord intends to commence such
work in the Premises.
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B. Landlord shall keep and maintain the Building structure, and
lavatories and toilets on each floor of the Premises the common areas of the
Building and all Building Systems including, without limitation, the plumbing,
heating, ventilating, air conditioning, and sprinkler systems, in good working
order, condition and repair and in compliance with all applicable governmental
laws, ordinances, rules and regulations. Landlord shall undertake such
maintenance as and when needed (all of which costs are included in Operating
Expenses). In the event that Tenant provides written notice to Landlord of the
need for any maintenance or repairs to the common areas or the Building systems
that materially and adversely affect Tenant's use of the Premises, Landlord
shall undertake such maintenance or repairs within thirty (30) days after
receipt of such notice, or as soon as possible if the repair involves a
hazardous condition. In the event that Landlord fails to undertake such
maintenance or repairs within such period, Landlord shall be liable for any
actual damages or injury sustained by Tenant as a result of such condition.
Notwithstanding the foregoing, Landlord shall have no liability to Tenant for
any such matter caused by the negligence or intentional act of Tenant or
Tenant's contractor, subcontractors, agents, employees, principals, partners,
clients or invitees and Tenant shall be liable for all such matters.
8. ADDITIONS AND ALTERATIONS
A. After completion of Tenant's Work, Tenant shall not, without
the prior written consent of Landlord, make any alterations, improvements,
installations or additions to the Premises, which shall include, without
limitation, installation of telephone, computer or internal sound or paging
systems or other similar systems or the performance of any decorating, painting
or other similar work in the Premises; provided, however Tenant shall not be
required to obtain Landlord's consent to alterations, improvements,
installations or additions which cost less than $10,000.00 and do not affect
the Building systems or Building structure or the safety of the Building or its
occupants. Landlord's consent shall not be unreasonably withheld so long as
such alterations, improvements, installations and additions are consistent with
the permitted uses of the Premises set forth in Section 4B hereof and do not
adversely affect the mechanical, electrical, plumbing, HVAC or structural
components or common systems of the Building. Landlord agrees not to withhold
its consent so long as such alterations, improvements, installations and
additions (1) are consistent with the permitted uses of the Premises set forth
in Section 4B hereof, (2) do not adversely affect the mechanical, electrical,
structural or life safety systems of the Building, (3) are in compliance with
all applicable laws and other governmental or insurance company rules and
regulations, and (4) are not in conflict in any respect with Landlord's own
contracts, contractor or union agreements; provided that Landlord shall notify
Tenant of the relevant provisions of all such contracts and agreements. If
Landlord consents to said alterations, improvements, installations or
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additions, it may impose such reasonable conditions with respect thereto as
Landlord deems appropriate, including, without limitation, requiring Tenant to
furnish Landlord with reasonable security for the payment of all costs to be
incurred in connection with such work, insurance against liabilities which may
arise out of such work, plans and specifications plus permits necessary for
such work and, following completion, "as-built" drawings showing the actual
location of said alterations, improvements, installations and additions
(however, Landlord cannot require removal of any such items except pursuant to
Section 8B below). The work necessary to make any alterations, improvements,
installations or additions to the Premises, whether prior to or subsequent to
the Commencement Date shall be done at Tenant's expense (except for the
Landlord's Work) by employees of, or contractors hired by, Landlord (except for
the Tenant's Work). Tenant shall promptly pay to Landlord or the Tenant's
contractors, as the case may be, when due, the reasonable bona fide
out-of-pocket cost of all such work plus, in all cases other than decorating or
redecorating, a coordination fee payable to Landlord in connection with each
such improvement, installation, alteration and/or addition equal to five
percent (5%) of the actual total cost of any such improvement, installation,
alteration and/or addition in excess of $10,000. Tenant shall pay such costs
and fee within twenty (20) days after being billed therefor.
B. All alterations, improvements, installations and additions to
the Premises, whether temporary or permanent in character, made or paid for by
Landlord or Tenant, shall without compensation to Tenant become Landlord's
property at the termination of this Lease by lapse of time or otherwise and
shall be relinquished to Landlord in good condition, ordinary wear and tear and
damage by fire and other insured casualty (provided, however, if such damage is
caused by Tenant and despite the fact that the required insurance policies with
waivers of subrogation may have been obtained, the insurance company has no
legal obligation to pay for the damage due to no fault of Landlord, then Tenant
shall be responsible for the damage) excepted and Tenant shall have no
obligation to remove such items upon the termination of this Lease or
expiration of the Term. Notwithstanding the foregoing, Tenant acknowledges
that Landlord may condition its consent to major alterations to the Premises,
such as the installation of interior stairways, upon Tenant removing and
restoring such alterations upon the termination of this Lease or expiration of
the Term.
9. COVENANT AGAINST LIENS
Tenant has no authority or power to cause or permit any lien or
encumbrance of any kind whatsoever, whether created by act of Tenant, operation
of law or otherwise, to attach to or be placed upon Landlord's title or
interest in the Land, Building or Premises, and any and all liens and
encumbrances created by Tenant shall attach to Tenant's interest only. Tenant
covenants
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and agrees not to suffer or permit any lien of mechanics or materialmen or
others to be placed against the Land, Building or the Premises with respect to
work or services claimed to have been performed for or materials claimed to
have been furnished to Tenant or the Premises by Tenant or a contractor hired
by Tenant or any subcontractor or material supplier hired by a contractor hired
by Tenant and, in case of any such lien attaching, or claim thereof being
asserted, Tenant covenants and agrees to cause it to be released and removed of
record within thirty (30) days of Tenant having knowledge thereof or to be
insured against by a title insurer or bonded by a surety reasonably
satisfactory to Landlord and all mortgage lenders having an interest in the
Land or the Building. Such insurance or bond must cover all costs of defense
and all interest payable pursuant to such lien and Tenant must diligently
contest the lien and ultimately pay the amount of any judgment and cause the
release the lien prior to foreclosure. In the event that such lien is not
released and removed insured over or bonded over as provided above, Landlord,
after notice to Tenant, at its sole option, may take all action necessary to
release and remove such lien (without any duty to investigate the validity
thereof) and Tenant shall promptly upon notice reimburse Landlord for all sums,
costs and expenses (including reasonable attorney's fees) incurred by Landlord
in connection with such lien.
10. INSURANCE
A. WAIVER OF SUBROGATION. To the extent not prohibited by
applicable law Landlord and Tenant each hereby waive any and every claim for
recovery from the other for any and all loss of or damage to the Building or
Premises or to the contents thereof, which loss or damage is covered by valid
and collectible physical damage insurance policies or would have been covered
had the insurance policies required by this Lease been in force, to the extent
that such loss or damage is recoverable or would have been recoverable under
such insurance policies. Inasmuch as this mutual waiver will preclude the
assignment of any such claim by subrogation (or otherwise) to an insurance
company (or any other person), Landlord and Tenant each agree to give to each
insurance company which has issued, or in the future may issue, to its policies
of physical damage insurance, written notice of the terms of this mutual
waiver, and to have said insurance policies properly endorsed, if necessary, to
prevent the invalidation of said insurance coverage by reason of said waiver.
In the event that either party is unable to obtain such an endorsement to its
insurance policies without paying a materially higher insurance premium, then
such party shall give written notice to the other party in which it shall elect
not to provide such endorsement and stating the increase in the cost of such
insurance premium and thereafter shall provide the other party with any other
information regarding such insurance as such other party shall reasonably
request. Such other party shall have the option of paying the increased cost
of the insurance policy in order to obtain such endorsement dealing with waiver
of subrogation. If
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one party so elects not to provide such endorsement then the other party shall
have no obligation to provide said endorsement on its own insurance policy for
the benefit of the party electing not to provide said endorsement.
B. COVERAGE. Tenant shall purchase and maintain insurance during
the entire Term (and any period before or after the Term that Tenant has
possession of the Premises) for the benefit of Tenant and Landlord (as their
interest may appear) with terms, coverages and in companies reasonably
satisfactory to Landlord, and with such increases in limits as Landlord may
from time to time reasonably request upon sixty (60) days written notice to
Tenant, which coverage shall be consistent with requirements of other first
class office buildings in downtown Chicago, but initially Tenant shall maintain
the following coverages in the following amounts:
(1) Commercial General Liability Insurance naming Landlord,
Sears, Roebuck and Co., Landlord's management, leasing and redevelopment agents
and any mortgagees designated by Landlord as additional insureds with coverage
for premises/operations, personal and advertising injury, products/completed
operations and contractual liability with combined single limits of liability
of not less than $3,000,000.00 per occurrence for bodily injury and property
damage arising out of Tenant's operations.
The foregoing insurance requirements may be satisfied in part by
maintaining umbrella coverage so long as the sum of the primary coverage and
umbrella coverage is not less than the coverage required above.
(2) Physical Damage Insurance covering the Tenant's Work and
all other tenant improvements in the Premises, office furniture, trade
fixtures, office equipment, merchandise and all other items of Tenant's
property on the Premises, which insurance shall, with respect only to the
Tenant's Work and other tenant improvements, name Landlord, Sears, Roebuck and
Co., Landlord's management, leasing and redevelopment agents and any mortgagees
designated by Landlord. Such insurance shall be written on an "all risks" of
physical loss or damage basis, including, but not limited to the perils or
fire, extended coverage, windstorm, vandalism, malicious mischief and sprinkler
leakage, for the full replacement cost value of the covered items and in
amounts that meet any co-insurance clause of the policies of insurance and
shall contain a commercially reasonable deductible amount.
(3) Host Liquor Insurance, on a case-by-case basis, naming
Landlord, Sears, Roebuck and Co., Landlord's management, leasing and
redevelopment agents and any mortgagees designated by Landlord as additional
insureds covering any liability that might arise from the provision or use of
alcoholic beverages by Tenant on the Premises in an amount reasonably
satisfactory to Landlord from time to time in light of statutory limits.
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(4) Workers' Compensation Insurance covering all costs,
statutory benefits and liabilities under State Workers' Compensation and
similar laws for the employees of Tenant, and Employers' Liability Insurance
with limits of not less than $500,000.00 per accident or disease.
Tenant shall, prior to the commencement of the Term and from time to
time during the term upon thirty (30) days written notice from Landlord furnish
to Landlord certificates evidencing such coverage, which certificates shall
state that such insurance coverage may not be changed or canceled without at
least ten days prior written notice to Landlord and Tenant.
Landlord shall have no right or interest in the proceeds of any
physical damage insurance on the personal property owned by Tenant and located
in the Premises. Tenant shall be entitled to all insurance proceeds relating
to such personal property and shall have the right to deal with all insurance
claims relating thereto.
C. AVOID ACTION INCREASING RATES. Landlord and Tenant
shall comply with all applicable laws and ordinances, all orders and decrees of
court and all requirements of other governmental authorities, and shall not,
directly or indirectly, make any use of the Premises or the Building which may
thereby be prohibited or be dangerous to person or property or which may
jeopardize any insurance coverage required hereunder or may increase the cost
of insurance or require additional insurance coverage. If by reason of the
failure of Tenant to comply with the provisions of this Section 10C after
written notice and expiration of cure periods under such Section 22 hereof (1)
any insurance coverage is jeopardized or (2) insurance premiums are increased,
then (i) Landlord shall have the right to enjoin the use which is jeopardizing
the insurance coverage and (ii) if an insurance premium is increased, Tenant
shall be required to make immediate payment of the increase in such premium.
D. INSURANCE MAINTAINED BY LANDLORD. Landlord agrees to maintain
fire and extended coverage insurance insuring the Building, in commercially
reasonable amounts and coverages. At the Commencement Date, Landlord will
maintain at least the following insurance:
(i) Physical Damage Insurance upon the Building and
Landlord's personal property and equipment contained therein, to include those
perils generally covered on an "All-Risks" Causes of Loss - Special Form,
including fire, extended coverages, windstorm, vandalism, malicious mischief,
and sprinkler leakage, in an amount equal to at least eighty percent (80%) of
the full replacement cost;
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(ii) Commercial General Liability Insurance covering
Landlord's operations on the premises, products/completed operations,
contractual liability, personal and advertising injury liability with combined
single limits of at least $5,000,000.00 per occurrence for death, bodily injury
or property damage; and
(iii) Workers' Compensation Insurance covering all costs,
statutory benefits and liabilities under State Workers' Compensation and
similar laws for the employees of Landlord, and Employers' Landlord Insurance
with limits of not less than $500,000.00 per accident or disease.
11. FIRE OR CASUALTY
A. Section 7 hereof notwithstanding, if the Premises or the
Building (including machinery or equipment used in its operation) shall be
damaged by fire or other casualty and if such damage does not cause a
termination of this Lease as described in the following sentences, then
Landlord shall repair and restore the same with reasonable promptness, subject
to reasonable delays for insurance adjustments and delays caused by matters
beyond Landlord's reasonable control, but Landlord shall not be obligated to
expend therefor an amount in excess of the proceeds of insurance recovered with
respect thereto, plus any deductible amount (provided, however, that any
deductible shall be included in Operating Expenses); provided, however, such
limitation shall not be applicable in the event that Landlord is self-insured.
If in Landlord's estimate the Premises cannot be restored within 180 days from
the date of such fire or casualty, then Landlord shall give notice to Tenant of
such estimate within forty-five (45) days after such fire or casualty. Tenant
may elect in writing within ninety (90) days following the date of such notice
from Landlord to terminate this Lease effective as of the date of the casualty.
If any such damage (1) renders substantially all of the floors in the 7 floor
elevator bank in which the Premises are located untenantable, or (2) renders
general Building systems inoperable and such systems cannot be repaired in
Landlord's reasonable estimate within 180 days from the date of such damage, or
(3) occurs within the last two (2) Lease Years, Landlord shall have the right
to terminate this Lease as of the date of such damage upon giving written
notice to the Tenant at any time within ninety (90) days after the date of such
damage. If there is damage to the Premises as a result of fire and other
casualty within the last two (2) Lease Years and Landlord does not reasonably
believe that it can repair such damage within 180 days of the date of such
casualty then Tenant may terminate this Lease by written notice to Landlord.
Landlord shall have no liability to Tenant, and Tenant shall not be entitled to
terminate this Lease, by virtue of any delays in completion of such repairs and
restoration which delays are beyond Landlord's reasonable control. Rent,
however, shall abate on those portions of the Premises as are, from time to
time, untenantable or inaccessible as a result of such damage from the date of
the casualty.
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B. Notwithstanding anything to the contrary herein set forth,
Landlord shall have no duty pursuant to this Section 11 to repair or restore
any portion of the Tenant's Work or any other alterations, additions,
installations or improvements in the Premises or the decorations thereto except
to the extent that the proceeds of the Allowance were used to initially
construct such items. Landlord shall not be required to restore or repair any
personal property owned by Tenant or other property to the extent that Tenant
receives the insurance proceeds for such property. Landlord shall not be
required to perform any such work if the damage would be covered by insurance
which Tenant is required to maintain hereunder and Tenant failed to maintain
such insurance or if such insurance carrier refuses to pay said claim for any
reason other than the fault of Landlord. If Tenant desires any other or
additional repairs or restoration, and if Landlord consents thereto, the same
shall be done at Tenant's sole cost and expense subject to all of the
provisions of Sections 7 and 8 hereof except that Landlord shall receive a one
percent (1%) coordination fee rather than a five percent (5%) fee pursuant to
Sections 7 and 8. Tenant acknowledges that Landlord shall be entitled to the
full proceeds of any insurance coverage, whether carried by Landlord or Tenant,
for damage to the Tenant's Work or any other alterations, additions,
installations, improvements or decorations which would become Landlord's
property upon the termination of this Lease, unless Tenant is actually doing
the work repairing or replacing the damaged item in which case Tenant shall be
entitled to use the insurance proceeds to repair or replace such item.
12. WAIVER OF CLAIMS - INDEMNIFICATION
A. To the extent not prohibited by law, Landlord and its
partners, affiliates, officers, agents, servants and employees shall not be
liable for any damage either to person, property or business or resulting from
the loss of use thereof sustained by Tenant or by other persons due to the
Building or any part thereof or any appurtenances thereto becoming out of
repair, or due to the happening of any accident or event in or about the
Building, including the Premises, or due to any act or neglect of any tenant or
occupant of the Building or of any other person, unless caused by the
negligence or willful misconduct of Landlord or its agents, employees or
contractors. This provision shall apply particularly, but not exclusively, to
damage caused by gas, electricity, snow, ice, frost, steam, sewage, sewer gas
or odors, fire, water or by the bursting or leaking of pipes, faucets,
sprinklers, plumbing fixtures and windows, and, except as provided above, shall
apply without distinction as to the person whose act or neglect was responsible
for the damage and shall apply whether the damage was due to any of the causes
specifically enumerated above or to some other cause of an entirely different
kind. Tenant further agrees that all personal property upon the Premises, or
upon loading docks, receiving and holding areas, or freight elevators of the
Building, shall be at the risk of Tenant only, and that Landlord shall not be
liable
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for any loss or damage thereto or theft thereof unless caused by the negligence
or willful misconduct of Landlord or its agents, employees or contractors in
which case Landlord shall be responsible to the extent not otherwise specified
in Section 10A hereof. Without limitation of any other provisions hereof, but
subject to the provisions of Section 10A hereof, Tenant agrees to defend,
protect, indemnify and save harmless Landlord and its partners, affiliates,
officers, agents, servants and employees from and against all liability to
third parties arising out of the use of the Premises or the acts or omissions
of Tenant or its servants, agents, employees, contractors, suppliers, workers
or invitees.
B. To the extent not prohibited by law, neither Tenant nor
Tenant's affiliates, officers, agents, servants, employees, invitees,
licensees, or other occupants of the Premises shall be liable to Landlord for
injury or damage to any person or injury or damage to, or loss (by theft or
otherwise) of any of Landlord's property or of the property of any other
person, regardless of the cause of such injury, damage or loss (including the
acts of negligence of any other tenant) unless due to the negligence or willful
misconduct of Tenant or Tenant's partners, affiliates, officers, agents,
servants, employees, invitees, or licensees or occupants of the Premises in
which case Tenant shall be responsible to the extent not otherwise specified in
Section 10A hereof. Notwithstanding anything to the contrary contained in this
Lease and the Tenant Work Letter, Tenant and its partners, officers and
employees shall not be liable to Landlord for physical damage to the Building
(excluding the Premises) caused by Tenant, its partners, affiliates, officers,
agents, servants, employees, invitees, licensees, or other occupants of the
Premises beyond the greater of the limits of insurance required to be carried
by Tenant or its contractors or subcontractors hereunder or under the Work
Letter or the insurance actually carried by Tenant. Landlord and any parties
claiming by, through or under Landlord agree to look solely to such insurance
in the event of such physical damage to the Building (excluding the Premises).
13. NON-WAIVER
No waiver of any provision of this Lease shall be implied by any
failure of Landlord or Tenant to enforce any remedy on account of the violation
of such provisions, even if such violation be continued or repeated
subsequently, and no express waiver shall affect any provision other than the
one specified in such waiver and that one only for the time and in the manner
specifically stated. No receipt of monies by Landlord from Tenant after the
termination of this Lease shall in any way alter the length of the Term or of
Tenant's right of possession hereunder or after the giving of any notice shall
reinstate, continue or extend the Term or affect any notice given Tenant prior
to the receipt of such monies, it being agreed that after the service of notice
or the commencement of a suit or after
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final judgment for possession of the Premises, Landlord may receive and collect
any Rent due, and the payment of said Rent shall not waive or affect said
notice, suit or judgment.
14. CONDEMNATION
If the Land or the Building (or any portion of the Building, the loss
of which would require reconfiguration or restoration of the Building which
Landlord reasonably estimates will cost in excess of $2,500,000) shall be taken
or condemned by any competent authority for any public or quasi-public use or
purpose, Landlord shall have the right, exercisable at its sole discretion, to
cancel this Lease upon not less than sixty (60) days notice prior to the date
of cancellation designated in the notice. No money or other consideration
shall be payable by Landlord to Tenant for the right of cancellation and Tenant
shall have no right to share in the condemnation award or in any judgment for
damages caused by such taking or condemnation; provided, however, that
notwithstanding the foregoing Tenant shall have the right to pursue a separate
award for the loss of Tenant's equipment, trade fixtures, and any leasehold
improvements paid for by Tenant, the loss or damage to Tenant's business,
relocation costs and the value, immediately prior to such taking, of Tenant's
leasehold estate created hereunder which is terminated as a result of such
taking; provided that such award does not diminish Landlord's award for said
taking.
15. ASSIGNMENT AND SUBLETTING
A. Subject to any provisions of this Section 15 to the contrary,
Tenant shall not, without the prior written consent of Landlord, (1) assign,
convey or mortgage this Lease or any interest hereunder; (2) permit to occur or
permit to exist any assignment of this Lease, or any lien upon Tenant's
interest, voluntarily or by operation of law; (3) sublet the Premises or any
part thereof; (4) advertise as available for sublet or assignment all or any
portion of the Premises; or (5) permit the use of the Premises by any parties
other than Tenant and its employees and clients. Any such action on the part
of Tenant shall be void and of no effect. There shall be no partial assignment
of Tenant's interest in this Lease. The term "sublease" and all words derived
therefrom, as used in this Section 15, shall include any subsequent sublease or
assignment of such sublease and any other interest arising under such sublease.
Landlord's consent to any assignment, subletting or transfer or Landlord's
election to accept any assignee, subtenant or transferee as the tenant
hereunder and to collect rent from such assignee, subtenant or transferee shall
not release Tenant or any subsequent tenant from any covenant or obligation
under this Lease unless otherwise provided herein. Landlord's consent to any
assignment, subletting or transfer shall not constitute a waiver of Landlord's
right to withhold its consent to any future assignment, subletting, or
transfer. Landlord shall not unreasonably withhold or delay its consent to a
request by Tenant
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to advertise to sublet any portion of the Premises or assign the Lease.
Landlord agrees not to unreasonably withhold its consent to any such sublease
or assignment so long as Tenant complies with all of the provisions of this
Section 15 and is otherwise not in Default under this Lease at the time of the
request for such consent. Landlord may condition its consent upon execution by
the subtenant or assignee of an instrument (reasonably acceptable to Landlord)
confirming such restrictions on further subleasing or assignment and joining in
or assuming the waivers and indemnities made by Tenant hereunder insofar as
such waivers and indemnities relate to the affected space. Without limitation
of the foregoing, Tenant agrees to indemnify, defend and hold Landlord and its
employees, agents, their officers and partners harmless from and against any
claims made by any broker or finder for a commission or fee in connection with
any subleasing or assignment by Tenant or any subtenant or assignee of Tenant.
B. If Tenant desires the consent of Landlord to an assignment or
subletting, Tenant shall submit to Landlord at least ten (10) days prior to the
proposed effective date of the assignment or sublease a written notice which
includes:
(1) all documentation then available related to the proposed
sublease or assignment (copies of final executed documentation are to be
supplied to Landlord by Tenant as soon as possible, but in any event on or
before the effective date of such assignment or sublease); and
(2) sufficient information to permit Landlord to
determine the identity and character of the proposed subtenant or assignee and
the financial condition of the proposed assignee.
Landlord agrees to notify Tenant as to whether Landlord consents to
such assignment or sublease within ten (10) business days after receipt by
Landlord of all documents required pursuant to (1) and (2) above. If the terms
of the proposed sublease or assignment change in any material respect from the
terms contained in the documents delivered to Landlord pursuant to (1) above,
then Tenant shall resubmit such documents to Landlord and indicate in writing
such changes and Landlord shall have an additional ten (10) business days after
receipt of such revised documents to either approve or disapprove of such
assignment or sublease.
C. In the event Tenant desires to assign this Lease or sublet all
or part of the Premises during the last three (3) Lease Years of the Term of
the Lease or during the last three Lease Years during an option period pursuant
to Section 35, Landlord may either consent to such assignment or sublease or
terminate this Lease in the event of a proposed assignment of this Lease or a
proposed sublease of the entire Premises, or terminate this Lease as to that
portion of the Premises which Tenant seeks to sublet if more than fifty percent
(50%) of the Premises in the aggregate during a two (2) year period but less
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than the entire Premises. Landlord may exercise such right to terminate by
giving written notice to Tenant at any time prior to the date that Landlord is
required to consent or object to such assignment or sublease. In the event
that Landlord exercises such right to terminate, Landlord shall be entitled to
recover possession of and Tenant shall surrender such portion of the Premises
on the later of (1) the proposed date for possession by such assignee or
subtenant, or (2) ninety (90) days after the date of Landlord's notice of
termination to Tenant, unless Tenant withdraws its request for such consent in
writing within ten (10) days of receipt of notice from Landlord that Landlord
has exercised its right to terminate this Lease in whole or in part as provided
above.
D. In the event that Landlord consents to any assignment of this
Lease or sublease of more than fifty percent (50%) of the Rentable Area of the
Premises in the aggregate during a two (2) year period, as a condition of
Landlord's consent, if Landlord consents, Tenant shall pay to Landlord any
reasonable attorneys' fees and expenses incurred by Landlord in connection with
such assignment or sublease plus twenty-five percent (25%) of all Sublease
Profits (as defined below) derived by Tenant from such assignment or sublease.
"Sublease Profits" shall mean the entire excess, after deduction of all
reasonable actual out-of-pocket costs of subletting or assignment (which costs
shall include, without limitation, brokerage commissions, reasonable attorneys'
fees, advertising, marketing and construction costs, rent concessions, lease
assumptions and tenant improvement allowances and abatements) of revenues
generated by the subleasing or assignment of the Premises or portions thereof
over the Rent applicable thereto; provided that Tenant may reduce the amount of
its Sublease Profits for any given sublease by any negative Sublease Profits
incurred in earlier subleases to the extent that such losses have not
theretofore been used to reduce the Sublease Profits in other transactions. All
such revenues shall be applied first to reimbursement of such costs of
subletting until they are paid in full. Tenant shall furnish Landlord with a
certified sworn statement, by the chief financial officer of Tenant, setting
forth in detail the computation of Sublease Profits, and Landlord, or its
representatives, shall have access to the books, records and papers of Tenant
in relation thereto, and to make copies thereof. If a part of the
consideration for such assignment shall be payable other than in cash, the
payment to Landlord shall be payable in accordance with the foregoing
percentage of the cash and other non-cash considerations in such form as is
reasonably satisfactory to Landlord. Such percentage of Sublease Profits shall
be paid to Landlord promptly by Tenant upon Tenant's receipt from time to time
of periodic payments from such assignee or subtenant or at such other time as
Tenant shall realize Sublease Profits from such assignment or sublease. If
such sublease or assignment is part of a larger transaction in which other
assets of Tenant are being transferred, the consideration for the assignment or
sublease shall be a
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reasonable allocation of the fair market value of such sublease or assignment.
E. If Tenant is a partnership, a withdrawal or change, whether
voluntary, involuntary or by operation of law or in one or more transactions,
of partners owning directly or indirectly a controlling interest in Tenant
(more than a seventy percent (70%) interest in the profits of Tenant in the
prior Calendar Year) shall be deemed an assignment of this Lease and subject to
Landlord's approval under the provisions of this Section 15. If Tenant is a
corporation, any dissolution, merger, consolidation or other reorganization of
Tenant, or the sale, transfer or redemption of a direct or indirect controlling
interest in the capital stock of Tenant, in one or more transactions, shall be
deemed a voluntary assignment of this Lease and subject to Landlord's approval
under the provisions of this Section 15. Neither this Lease nor any interest
therein nor any estate created thereby shall pass by operation of law or
otherwise to any trustee, custodian or receiver in bankruptcy of Tenant or any
assignee for the assignment of the benefit of creditors of Tenant.
F. Notwithstanding the foregoing, Landlord may not withhold its
consent to an assignment of this Lease or a sublease of all or part of the
Premises by Tenant to (1) a corporation owned by substantially the same
shareholders who own the stock of Tenant in substantially the percentage as
they own such shares of Tenant or (2) a corporation which is a subsidiary of
Tenant or (3) corporation which is the parent of Tenant or (4) any corporation
resulting from a merger or consolidation with Tenant or (5) any person,
corporation or other entity which acquires all or substantially all of the
assets of Tenant as a going concern of the business which Tenant is operating
in the Premises.
16. SURRENDER OF POSSESSION
Subject to the provisions of Section 11 upon the expiration of the Term
or upon the termination of Tenant's right of possession, whether by lapse of
time or at the option of Landlord as herein provided, Tenant shall forthwith
surrender the Premises to Landlord in good order, repair and condition,
ordinary wear and tear and fire or other insured casualty excepted. Any
interest of Tenant in the alterations, improvements, installations and
additions to the Premises made or paid for by Landlord or Tenant shall, without
compensation to Tenant, become Landlord's property at the termination of this
lease by lapse of time or otherwise and such alterations, improvements,
installations and additions shall be relinquished to Landlord in good
condition, ordinary wear and tear and damage by fire or other insured casualty
not caused by Tenant excepted. Prior to the termination of the Term or of
Tenant's right of possession Tenant shall remove any property which it is
required to remove under Section 8 of this Lease and its office furniture,
trade fixtures, office equipment and all other items of Tenant's
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movable property on the Premises. Except as provided in Section 8, Tenant
shall not have any right or obligation to remove any alterations, improvements,
installations or additions, which shall include built-in furniture or shelves
and all other attached items, excluding trade fixtures. Tenant shall pay to
Landlord upon demand the cost of repairing any damage to the Premises and to
the Building caused by the removal by Tenant of any property from the Premises.
If Tenant shall fail or refuse to remove any property which Tenant is obligated
to remove from the Premises, Tenant shall be conclusively presumed to have
abandoned the same, and title thereto shall thereupon pass to Landlord without
any cost either by set-off, credit, allowance or otherwise, and Landlord may at
its option accept the title to such property or at Tenant's expense may (A)
remove the same or any part in any manner that Landlord shall choose, repairing
any damage to the Premises caused by such removal, and (B) store, destroy or
otherwise dispose of the same without incurring liability to Tenant or any
other person.
17. HOLDING OVER
Tenant shall pay to Landlord an amount as Rent equal to 150% of
one-twelfth of the Base Rent and 150% of one-twelfth of the Additional Rent
paid by Tenant during the previous Calendar Year herein provided during each
month or portion thereof for which Tenant shall retain possession of the
Premises or any part thereof after the expiration or termination of the Term or
of Tenant's right of possession, whether by lapse of time or otherwise, and
also shall pay all damages sustained by Landlord on account thereof. Landlord
will not exercise any right to extend the Term of this Lease due to Tenant
holding over in the Premises. The provisions of this Section 17 shall not be
deemed to limit or constitute a waiver of any other rights or remedies of
Landlord provided herein or at law.
18. ESTOPPEL CERTIFICATE
A. TENANT'S ESTOPPEL CERTIFICATE. Tenant agrees, that, from time
to time upon not less than thirty (30) days prior request by Landlord and not
more than twice per Calendar Year unless required by a lender or a purchaser,
in each case, for a bona fide transaction, Tenant, or Tenant's duly authorized
representative having knowledge of the following facts, will deliver to
Landlord a statement in writing certifying (i) 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); (ii) the dates to which Rent and other charges have been
paid; (iii) that the Landlord is not in default under any provision of this
Lease, or, if in default, the nature thereof in detail; and (iv) such further
matters substantially as are set forth on the form of estoppel certificate
attached hereto as Exhibit E and made a part hereof, or as may be reasonably
requested by Landlord concerning the performance by Landlord and
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Tenant under this Lease and the terms of this Lease, it being intended that any
such statement may be relied upon by any mortgagees or prospective mortgagees,
or any prospective assignee of any Mortgagee, or any prospective and/or
subsequent purchaser or transferee of all or a part of Landlord's interest in
the Land and/or Building.
B. LANDLORD'S ESTOPPEL CERTIFICATE. Landlord agrees that from
time to time at Tenant's request, not more than once per calendar year,
Landlord will deliver to Tenant within thirty (30) days of Tenant's written
request, a statement in writing addressed to Tenant or such other party as
Tenant shall reasonably designate, certifying, to the extent the same shall be
true: (i) that this Lease is unmodified and in full force and effect (or if
there have been modifications, that the same is in full force and effect as
modified and identifying the modifications); (ii) the dates to which Rent and
other charges have been paid; (iii) that Tenant is not in default under the
provisions of this lease (or, if Tenant is in default the nature thereof in
reasonable detail); and (iv) such other matters as may be reasonably requested
by Tenant. Such certificate shall provide that it may be relied upon only by
the person to whom it is addressed.
19. OBLIGATIONS TO MORTGAGEES
A. SUBORDINATION. Subject to Section 19C below, this Lease is
subject and subordinate to all present and future ground or underlying leases
of the Land and/or improvement leases of the Building and to the lien of any
mortgages or trust deeds now and hereafter in force against the Land or
Building and to all renewals, extensions, modifications, consolidations and
replacements thereof; other than the mortgage dated as of November 7, 1994 to
Sears, Roebuck and Co. filed with the Cook County Recorder of Deeds as Document
No. 94956335 and the mortgage dated as of November 7, 1994 to Partners Tower,
L.P. filed with the Cook County Recorder of Deeds as Document No. 94956336
(collectively, the "Subordinate Mortgages"). At Landlord's request (and after
consent from any prior mortgagee or lessor if Tenant has agreed not to so
subordinate without such consent), Tenant shall execute such further
instruments or assurances as Landlord may deem reasonably necessary to
evidence, confirm or effectuate such subordination of this Lease thereto or, if
requested, to make Tenant's interest in this Lease superior thereto. If any
mortgage shall be foreclosed or property encumbered thereby is transferred in
lieu of foreclosure, of if any such ground or underlying lease be terminated,
(1) the liability of the mortgagee, trustee, transferee, purchaser at such
foreclosure sale or ground lessor or improvement lessor and the liability of a
subsequent owner (all of the foregoing parties are collectively referred to as
"Mortgagee") shall exist only with respect to the period during which
Mortgagee, is the owner of the Land or Building and such liability shall not
exist with respect to the period after
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further transfer of ownership and in no event shall any such party have any
liability whatsoever for the acts of the Landlord prior to any such transfer or
any liability for any deposits made by Tenant hereunder unless such deposits
have been transferred to such party; and (2) Tenant agrees to attorn to and
recognize as Landlord, Mortgagee or any successor lessor under the Master Lease
(as hereinafter defined) and, upon request of the Mortgagee, will execute such
instruments as may be required by said Mortgagee.
B. NOTICE TO LANDLORD AND MORTGAGEE. In the event of any act or
omission by Landlord which would give Tenant the right to damages from Landlord
or any rights with respect to this Lease, Tenant will not sue for such damages
or exercise any such rights until (1) it shall have given written notice of the
act or omission to Landlord and to the holder (s) of the indebtedness or other
obligations secured by any mortgage or deed of trust affecting the Premises
other than the Subordinate Mortgages or of any ground or underlying lease, if
the name and address of such holder (s) have been furnished to Tenant in
writing prior to the date of such notice, and (2) a reasonable period of time
(in light both of the time required to effect a remedy and the impact of the
act or omission on Tenant's business operations in the Premises but in no event
to exceed 120 days after written notice to Mortgagee and Landlord) for
remedying the act or omission has elapsed following the giving of the notice,
during which time Landlord and such holder (s), or either of them, their agents
or employees, will be entitled to enter upon the Premises and do therein
whatever may be necessary to remedy the act or omission without materially
interfering with Tenant's use of the Premises.
C. NON-DISTURBANCE AGREEMENTS. As a condition to the
subordination of this Lease, Landlord agrees to deliver to Tenant,
Subordination, Non-Disturbance and Attornment Agreements from the holder of any
mortgage or trust deed of the Land and/or the Building other than the
Subordinate Mortgages in which such holder will agree not to disturb Tenant in
its possession of the Premises provided Tenant is not in Default hereunder.
Tenant agrees that, from time to time within thirty (30) days of request by
Landlord that it will execute and deliver to Landlord Subordination,
Non-Disturbance and Attornment Agreements for the holder of any mortgage or
trust deed of the Land and/or the Building other than the Subordinate
Mortgages; provided, however, Tenant shall not be required to execute
Subordination, Non-Disturbance and Attornment Agreements more than twice in any
one Calendar Year unless required by a lender for a bona fide transaction.
Each such Subordination, Non-Disturbance and Attornment Agreement shall be in
a form reasonably acceptable to Landlord, Tenant and such holder of a mortgage
or trust deed. Attached hereto as Exhibits G-1, G-2 and G-3 are the current
forms of Subordination, Non-Disturbance and Attornment Agreements which
Landlord and Tenant agree are satisfactory to each.
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20. CERTAIN RIGHTS RESERVED BY LANDLORD
Landlord shall have the following rights, each of which Landlord may
exercise without notice to Tenant, subject to item (C) below of this Section
20, and without liability to Tenant for damage or injury to property, person or
business on account of the exercise thereof, and the exercise of any such
rights shall not be deemed to constitute an eviction or disturbance of Tenant's
use or possession of the Premises and shall not give rise to any claim for
set-off or abatement of rent or any other claim:
(A) To change the name of the Building.
(B) To install, affix and maintain any and all signs on the
exterior or interior of the Building.
(C) To decorate or to make repairs, alterations, additions,
installations or improvements, whether structural or otherwise, in and about
the Building, or any part thereof, and for such purposes to enter upon the
Premises after reasonable prior notice to Tenant (which may be given verbally),
and during the continuance of any of said work, to temporarily close doors,
entryways, public space and corridors in the Building and to interrupt or
temporarily suspend services or use of facilities, all without affecting any of
Tenant's obligations hereunder, so long as the Premises are reasonably
accessible and usable and provided that Landlord shall use reasonable diligence
with respect thereto. Unless such repairs, renewals or improvements can be
made during business hours without material interference with Tenant's business
operations, Landlord shall make such repairs, alterations or replacements
during non-business hours at Landlord's cost.
(D) To furnish door keys, magnetic cards or electronic access systems
for the entry door (s) in the Premises at the commencement of the Lease and to
retain at all times, and to use in appropriate instances, keys or access cards
to all doors within and into the Premises after reasonable prior notice to
Tenant (which may be given verbally). Tenant agrees to purchase only from
Landlord additional keys and access cards as required, to change no locks, and
not to affix locks on doors without the prior written consent of the Landlord
which shall not be unreasonably withheld. Notwithstanding the provisions for
Landlord's access to Premises, Tenant relieves and releases the Landlord of all
responsibility arising out of theft, robbery, pilferage and personal assault,
excluding negligence or willful misconduct of Landlord or its agents. Upon
the expiration of the Term or Tenant's right to possession, Tenant shall return
all keys and access cards to Landlord and shall disclose to Landlord the
combination of any safes, cabinets or vaults left in the Premises.
Notwithstanding anything contained herein to the contrary, Tenant shall have
the right to designate and maintain locked, secured room or rooms on a single
floor of the Premises,
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aggregating not more than 3,000 square feet of Rentable Area. Tenant shall not
be required to give Landlord a key for any such secured room or rooms and
Landlord and Landlord's agent shall not be allowed access to such secured room
or rooms except as set forth below. Landlord and Landlord's agents may, in the
event of an emergency, forcefully enter such room or rooms as reasonably
necessary. Landlord shall have the right to have access to such secured room
or rooms periodically provided that Landlord or its agents shall be accompanied
by a representative of Tenant when having access and Landlord or its agents
shall not interfere with Tenant's business operations in said secured room or
rooms nor shall Landlord have access to any confidential materials or
information maintained by Tenant in such room or rooms. In no event shall
Landlord or Landlord's agent have any responsibility for any damage to any such
secured room or rooms or any personnel or property located therein, nor shall
Landlord or Landlord's agent have any liability for any damage caused by
forceful entry to such room or rooms by Landlord or its agents as permitted
above. Tenant agrees to indemnify, defend and hold Landlord and Landlord's
agents and employees harmless from any loss, injury or damage suffered by
Landlord or the Building as a result of Tenant limiting access to such room or
rooms. Landlord shall not provide janitorial service or cleaning services for
the designated secured room or rooms and Tenant acknowledges that the foregoing
shall not reduce Tenant's Proportionate Share of Operating Expenses or Taxes
for the Building.
(E) To designate and approve all window coverings used in the
Building, including, without limitation, solar window coverings.
(F) To approve the weight, size and location of safes, vaults,
vertical files and other heavy equipment and articles in and about the Premises
and the Building so as not to exceed the legal live load per square foot
designated by the structural engineers for the Building, and to require all
such items and furniture and similar items to be moved into or out of the
Building and Premises only at such times and in such manner as Landlord shall
direct in writing. If Landlord approves the Plans pursuant to the Tenant Work
Letter and any such items are disclosed in the Plans, a second consent by
Landlord will not be necessary. Tenant shall not install or operate machinery
or any mechanical devices of any nature not directly related to Tenant's
ordinary use of the Premises without the prior written consent of Landlord
which shall not be unreasonably withheld. Movements of Tenant's property into
or out of the Building or Premises and within the Building are entirely at the
risk and responsibility of Tenant, and Landlord reserves the right to require
permits before allowing any property to be moved into or out of the Building or
Premises.
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(G) To establish reasonable controls for the purpose of regulating
all property and packages, both personal and otherwise, to be moved into or out
of the Building and Premises and all persons using the Building after normal
office hours.
(H) To regulate in a reasonable manner delivery and service of
supplies and the usage of the loading docks, receiving areas and freight
elevators.
(I) To show the Premises with prior verbal notice to Tenant to
prospective tenants, lien holders and purchasers at reasonable times and in a
manner not to interfere, other than on a de minimus basis with Tenant's use and
enjoyment of the Premises; provided that Landlord shall not show the Premises
to prospective tenants desiring to lease the Premises (as opposed to other
space in the Building) except during the last twelve (12) months of the Term,
unless Tenant has vacated the Premises.
(J) To enter the Premises at any reasonable time to inspect the
Premises with prior notice to Tenant which may be given verbally.
(K) To grant to any person or to reserve unto itself the exclusive
right to conduct any business in the Building provided that no such exclusive
shall interfere with Tenant's intended use of the Premises as a retail
investment brokerage firm.
(L) To provide janitorial services for the Premises or an
exclusive basis pursuant to the terms of this Lease.
21. RULES AND REGULATIONS
Tenant agrees to observe the rules and regulations for the Building
attached hereto as Exhibit F and made a part hereof. Landlord shall have the
right from time to time to prescribe additional rules and regulations for
general application to all office tenants which, in its reasonable judgment,
may be desirable for the use, entry, operation and management of the Premises
and Building, each of which rules and regulations and any amendments thereto
shall become a part of this Lease. Tenant shall comply with all such rules
and regulations; provided, however, that such rules and regulations shall not
contradict, materially limit or abrogate any right or privilege herein
expressly granted to Tenant and provided such rules and regulations are
uniformly enforced against all tenants of the Building to which they apply
(provided that the rules and regulations applicable to Tenant shall not be
materially more restrictive against Tenant than the rules and regulations
applicable to other Building tenants). To the extent there shall be any
conflict between the Rules as they may from time to time exist and the body of
this Lease, the terms and provisions of the body of this Lease shall control.
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22. DEFAULTS; LANDLORD'S REMEDIES
Any one or more of the following events shall constitute a "Default"
under this Lease: (1) If default shall be made in the payment of the Rent or
any installment thereof or in the payment of any other sum required to be paid
by Tenant under this Lease or under the terms of any other agreement between
Landlord (or Landlord's predecessors in title there being no such agreements
with Landlord's predecessors in title as of the date hereof) and Tenant and
such default shall continue ten (10) days after written notice to Tenant; or
(2) if default shall be made in the observance or performance of any of the
other covenants or conditions in this Lease which Tenant is required to observe
and perform and such default shall continue for thirty (30) days after written
notice to Tenant unless with respect to any default that cannot be cured within
thirty (30) days, Tenant, in good faith, promptly after receipt of such notice
shall have commenced and thereafter shall continue diligently to prosecute all
action necessary to cure such default, but in no event later than one hundred
twenty (120) days after the date of such written notice; or (3) if a default is
made in the performance by Tenant of any covenant of this Lease which involves
a hazardous condition and is not cured by Tenant as soon as possible after
written notice to Tenant; or (4) if the interest of Tenant in this Lease shall
be levied on under execution or other legal process; or (5) if any voluntary
petition in bankruptcy or for corporate reorganization or any similar relief
shall be filed by Tenant; or (6) if any involuntary petition in bankruptcy
shall be filed against Tenant under any federal or state bankruptcy or
insolvency act and shall not have been dismissed within ninety (90) days from
the filing thereof; or (7) if a receiver shall be appointed for Tenant or any
of the property of Tenant by any court and such receiver shall not have been
dismissed within ninety (90) days from the date of his appointment; or (8) if
Tenant shall make an assignment for the benefit of creditors; or (9) if Tenant
shall admit in writing Tenant's inability to meet Tenant's debts as they
mature. In the event of a Default hereunder Landlord may, at its option, with
or without further notice or demand of any kind to Tenant or any other person,
have any one or more of the following described remedies in addition to all
other rights and remedies provided at law or in equity or elsewhere herein:
A. Landlord may terminate this Lease and the Term created hereby, in
which event Landlord may forthwith repossess the Premises and be entitled to
recover forthwith, in addition to any other sums or damages for which Tenant
may be liable to Landlord, as damages a sum of money equal to the greater of
(1) the excess of the present value of the Rent provided to be paid by Tenant
for the balance of the Term over the present value of the fair market rent for
the Premises (computed based upon the yield on U.S. Treasury obligations having
a maturity closest to the Termination Date) that could be achieved for said
period, after deduction of all anticipated expenses of reletting including all
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allowances, abatements and other tenant concessions likely to be required under
then-existing market conditions or (2) the unamortized portion of any
construction allowances or other costs incurred by Landlord in connection with
this Lease, as amortized on a straight-line basis without interest over the
initial Term. Should the present value of the anticipated fair market rent for
the Premises, after deduction of all anticipated expenses of reletting, that
could be achieved for the balance of the Term exceed the present value of the
Rent provided to be paid by Tenant for the balance of the Term, Landlord shall
have no obligation to pay to Tenant the excess or any part thereof or to credit
such excess or any part thereof against any other sums or damages for which
Tenant may be liable to Landlord.
B. Landlord may terminate Tenant's right of possession and may
repossess the Premises by forcible entry and detainer suit, by taking peaceful
possession or otherwise, without terminating this Lease, in which event
Landlord shall take reasonable measures (but shall not be obligated to show the
Premises before showing other space in the Building to a prospective tenant),
to the extent required by law, to relet the same for the account of Tenant, for
such rent and upon such terms as shall be reasonably satisfactory to Landlord.
For the purpose of such reletting, Landlord is authorized to decorate, repair,
remodel or alter the Premises and to relet the Premises at such rental rate
(which may be higher than the rental rate then applicable under this Lease), as
Landlord reasonably determines to be necessary to maximize the effective rent
on reletting. If Landlord shall fail to relet the Premises, Tenant shall pay
to Landlord as damages the amount of the Rent reserved in this Lease for the
balance of the Term as due thereunder. If the Premises are relet and a
sufficient sum shall not be realized from such reletting after paying all of
the costs and expenses of all decoration, repairs, remodeling, alterations,
installations and additions and the expenses of such reletting (including all
allowances, abatements and other tenant concessions required under
then-existing market conditions), to satisfy the Rent provided for in this
Lease, Tenant shall satisfy and pay the same upon demand therefor from time to
time. Tenant shall not be entitled to any rents received by Landlord in excess
of the Rent provided for in this Lease. Tenant agrees that Landlord may file
suit to recover any sums falling due under the terms of this Section 22 from
time to time and that no suit or recovery of any portion due Landlord hereunder
shall be any defense to any subsequent action brought for any amount not
theretofore reduced to judgment in favor of Landlord.
C. Notwithstanding anything to the contrary contained herein,
neither Landlord nor Tenant shall have the right to claim punitive damage
against the other.
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23. EXPENSES OF ENFORCEMENT
In any proceeding to enforce the terms of this Lease, the losing party
shall pay upon demand all of the prevailing party's reasonable costs, charges
and expenses including the reasonable fees and out-of-pocket expenses of
counsel, agents and others retained by the prevailing party.
24. COVENANT OF QUIET ENJOYMENT
Landlord covenants that Tenant, on paying the Rent, charges for
services and other payments herein reserved and on keeping, observing and
performing all the other terms, covenants, conditions, provisions and
agreements herein contained on the part of Tenant to be kept, observed and
performed, shall, during the Term, peaceably and quietly have, hold and enjoy
the Premises subject to the terms, covenants, conditions, provisions and
agreements hereof.
Tenant recognizes that the Building is undergoing redevelopment and
the renovations to the lobby and other common areas may be disruptive and cause
inconvenience to Tenant. Tenant acknowledges that the foregoing shall not be
deemed a breach of the covenant of quiet enjoyment so long as access to and use
of the Premises by Tenant is not materially and adversely affected.
25. REAL ESTATE BROKER
Tenant represents that Tenant has dealt with (and only with) LRS
Associates, Inc. and The John Buck Company as broker in connection with this
Lease, and that insofar as Tenant knows, no other brokers negotiated this Lease
or are entitled to any commissions in connection therewith. Tenant agrees to
indemnify, defend and hold Landlord and its employees, agents, their officers
and partners, harmless from and against any claims made by any broker or finder
other than the brokers named above claiming by, through or under Tenant for a
commission or fee in connection with this Lease, provided that Landlord has not
in fact dealt with such broker or finder in connection with this Lease.
Landlord represents that Landlord has dealt with (and only with) LRS
Associates, Inc. and The John Buck Company as broker in connection with this
Lease, and that insofar as Landlord knows, no other brokers negotiated this
Lease or are entitled to any commissions in connection therewith. Landlord
agrees to indemnify, defend and hold Tenant and its officers, employees,
agents, their officers and partners, harmless from and against any claims made
by any broker or finder other than the brokers named above claiming by, through
or under Landlord for a commission or fee in connection with this Lease,
provided that Tenant has not in fact dealt with such broker or finder in
connection with this Lease.
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26. INTENTIONALLY DELETED
27. MISCELLANEOUS
A. RIGHTS CUMULATIVE. All rights and remedies of Landlord and
Tenant under this Lease shall be cumulative and none shall exclude any other
rights and remedies allowed by law.
B. INTEREST. All payments becoming due under this Lease and
remaining unpaid for more than ten (10) days after its due date shall bear
"Interest" until paid at the greater of (i) ten percent (10%) per annum or (ii)
two percent (2%) per annum above the Prime Rate (as such term is defined in
Section 3.A (2) c. hereof).
C. TERMS. The necessary grammatical changes required to make the
provisions hereof apply either to corporations or partnerships or individuals,
men or women, as the case may require, shall in all cases be assumed as though
in each case fully expressed.
D. BINDING EFFECT. Each of the provisions of this Lease shall
extend to and shall, as the case may require, bind or inure to the benefit not
only of Landlord and of Tenant, but also of their respective successors or
assigns, provided this clause shall not permit any assignment by Tenant
contrary to the provisions of Section 16 hereof.
E. LEASE CONTAINS ALL TERMS. All of the representations and
obligations of Landlord and Tenant are contained herein and in the Work Letter
and other Exhibits attached hereto, and no modification, waiver or amendment of
this Lease or of any of its conditions or provisions shall be binding upon the
Landlord or Tenant unless in writing signed by such party or by a duly
authorized agent of such party empowered by a written authority signed by such
party.
F. DELIVERY FOR EXAMINATION. Submission of the Lease for
examination shall not bind Landlord in any manner, and no Lease or obligations
of either party shall arise until this instrument is signed by both Landlord
and Tenant and delivery is made to each.
G. NO AIR RIGHTS. No rights to any view or to light or air over
any property, whether belonging to Landlord or any other person, are granted to
Tenant by this Lease.
H. MODIFICATION OF LEASE. If any lender requires, as a condition
to its lending funds the repayment of which is to be secured by a mortgage or
trust deed on the Land and Building or either, that certain modifications be
made to this Lease, which modifications will not require Tenant to pay any
additional amounts or otherwise change in other than a de minimus manner the
rights or obligations of Tenant hereunder, Tenant shall, upon
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Landlord's reasonable request, execute appropriate instruments effecting such
modifications.
I. TRANSFER OF LANDLORD'S INTEREST. Landlord is Lessee under a
Master Lease dated as of November 7, 1994 (the "Master Lease") with State
Street Bank and Trust Company as Trustee under the 233 South Wacker Drive Trust
("Beneficial Fee Owner") and Chicago Title and Trust Company Trust No. 1095841
(the "Land Trustee") under a Trust Agreement dated June 12, 1990. Tenant
agrees that Landlord has the right to transfer its interest in the Land and
Building and in this Lease, and that in the event of any such transfer Landlord
shall automatically be released from all liability under this Lease (other than
the obligations of the Landlord under the Tenant Work Letter relating to the
initial build out of the Premises) arising after the effective date of such
transfer provided that such transferee assumes in writing the obligations of
Landlord accruing after the effective date of such assignment and Tenant agrees
to look solely to such transferee for the performance of Landlord's obligations
hereunder arising after the effective date of such transfer. Tenant further
acknowledges that the Landlord may assign its interest in this Lease to a
mortgage lender as additional security on the condition that such an assignment
shall not release Landlord from its obligations hereunder and that Tenant shall
continue to look to Landlord for the performance of its obligations hereunder.
J. LANDLORD'S TITLE. Nothing herein contained shall empower
Tenant to commit or engage in any act which can, shall or may encumber the
estate of Landlord or the title of the Beneficial Fee Owner or Land Trustee.
The Master Lease provides in part:
"4.3 Recognition by Tower Owner. Tower Owner expressly agrees that:
(a) Master Lessee may enter into leases (and other agreements) extending beyond
the Term of this Master Lease; (b) all leases and all tenant's rights
thereunder (and other agreements and the rights of contracting parties
thereunder) will under no circumstances ever be terminated or impaired as a
result of any termination, modification, or surrender of this Master Lease; and
(c) in the event of any termination or surrender of this Master Lease, all
leases and agreements shall remain in full force and effect as direct leases or
agreements between Tower Owner (or Master Lessee's successor or assign) and
such tenants (or contracting parties). Master Lessee may, on behalf and in the
name of Tower Owner, execute any and all recognition and other agreements that
Master Lessee deems appropriate to assure to tenants of the Tower Real Property
(or contracting parties) that the provisions of their leases (and agreements)
will continue throughout their entire term (including all extension and renewal
options), notwithstanding any termination, modification or surrender of this
Master Lease."
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K. PROHIBITION AGAINST RECORDING. Neither this Lease, nor
affidavit or other writing with respect thereto, shall be recorded by Tenant or
by anyone acting through, under or on behalf of Tenant, and the recording
thereof in violation of this provision shall make this Lease null and void at
Landlord's election; provided, that Tenant may record a memorandum of lease in
form and content reasonably satisfactory to Landlord.
L. CAPTIONS. The captions of Paragraphs and subparagraphs are
for convenience only and shall not be deemed to limit, construe, affect or
alter the meaning of such paragraphs or subparagraphs.
M. ONLY LANDLORD/TENANT RELATIONSHIP. Nothing contained in this
Lease shall be deemed or construed by the parties hereto or by any third party
to create the relationship of principal and agent, partnership, joint venturer
or any association between Landlord and Tenant, it being expressly understood
and agreed that neither the method of computation of Rent nor any act of the
parties hereto shall be deemed to create any relationship between Landlord and
Tenant other than the relationship of landlord and tenant.
N. APPLICATION OF PAYMENTS. Landlord shall have the right to
apply payments received from Tenant pursuant to this Lease (regardless of
Tenant's designation of such payments) to satisfy any obligations of Tenant
hereunder, in such order and amounts, as Landlord in its sole discretion, may
elect.
O. DEFINITION OF LANDLORD AND TENANT. All indemnities of
Landlord contained herein which inure to the benefit of the Tenant shall be
construed to also inure to the benefit of Tenant's beneficiaries, shareholders,
officers, directors, partners, agents and employees. All indemnities of Tenant
contained herein which inure to the benefit of Landlord shall be construed to
also inure to the benefit of (i) Landlord's beneficiaries if Landlord is a
trust, (ii) Landlord's partners if Landlord is a partnership, (iii) Landlord's
shareholders, officers and directors if Landlord is a corporation, and (iv) the
Beneficial Fee Owner and Land Trustee, (v) the successors and assigns of any of
the foregoing, and (vi) the respective beneficiaries, shareholders, directors,
officers, partners, agents and employees, agents, managers, affiliates and
employees of any persons mentioned in clauses (i) through (vi) above.
P. TIME OF ESSENCE. Time is of the essence of this Lease and
each of its provisions.
Q. GOVERNING LAW. Interpretation of this Lease shall be governed
by the laws of the State of Illinois.
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R. PARTIAL INVALIDITY. If any term, provision or condition
contained in this Lease shall, to any extent, be invalid or unenforceable, the
remainder of this Lease (or the application of such term, provision or
condition to persons or circumstances other than those in respect to which it
is invalid or unenforceable) shall not be affected thereby, and each and every
other term, provision and condition of this Lease shall be valid and
enforceable to the fullest extent possible permitted by law.
S. PARKING SPACES. During the Term, Landlord agrees to provide
Tenant with two (2) unreserved parking spaces in the Building at the then
market rate which is currently $300.00 per space per month. Landlord agrees to
abate Tenant's rent on the two (2) spaces for the 1st two (2) months of the
Term. Tenant may terminate said arrangement upon thirty (30) days written
notice to Landlord without otherwise affecting this Lease, however, after such
termination Landlord shall have no obligation to provide said spaces to Tenant.
T. HEALTH CLUB. Within ten (10) business days of the date that
Tenant moves into the Premises, Tenant shall fill out and submit all necessary
application forms to the health club in the Building for ten (10) associate
memberships and one (1) executive membership. Landlord agrees to pay the
initiation fee for the ten (10) associate memberships and one (1) executive
membership. In addition, Landlord agrees to pay for the regular monthly dues
(but no other costs or expenses) for the one (1) executive membership only
during the initial 15 year Term for so long as the health club is operated in
the Building, but specifically excluding any option terms or extensions.
28. NOTICES
All notices to be given under this Lease shall be in writing and
delivered personally upon an officer of Landlord (or Landlord's agent) or
Tenant, as the case may be, or deposited in the United States mail, certified
or registered mail with return receipt requested, postage prepaid, addressed as
follows:
A. IF TO LANDLORD:
TOWER LEASING, INC.
c/o Aldrich, Eastman and Waltch, Inc.
225 Franklin Street
Boston, Massachusetts 02110
Attn: Grant Monohan
Tom Albert
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WITH COPIES TO:
THE JOHN BUCK COMPANY
233 South Wacker Drive
Suite 4410
Chicago, Illinois 60606
Attention: Charles Wagener
or to such other person or such other address designated by notice sent by
Landlord or Tenant. Notice to Landlord by mail shall be deemed to have been
given on the date shown on the return receipt.
B. (1) IF TO TENANT PRIOR TO THE COMMENCEMENT DATE:
RODMAN & RENSHAW CAPITAL GROUP, INC.
120 South LaSalle
Chicago, Illinois 60603
Attention: General Counsel
(2) IF TO TENANT AFTER THE COMMENCEMENT DATE:
RODMAN & RENSHAW CAPITAL GROUP, INC.
Sears Tower
45th Floor
233 South Wacker
Chicago, Illinois 60606
Attention: General Counsel
or if no address is inserted above, addressed to Tenant at Tenant's present
address, and, after occupancy of the Premises by Tenant, to Tenant at 233 South
Wacker Drive, Chicago, Illinois 60606, or to such other address as is
designated by Tenant in a notice to Landlord.
Notice to Tenant by mail shall be deemed to have been given on the date
shown on the return receipt.
29. LIMITATION OF LIABILITY
Tenant, and any person claiming an interest in the Premises through or
under Tenant, each agree to look solely to the interests of Landlord,
Beneficial Fee Owner and Land Trustee from time to time in the Land and
Building, and no judgments against such persons may be satisfied out of any
other assets. In no event shall Landlord, Beneficial Fee Owner or Land Trustee
(or any of their respective officers, directors, agents, advisors, managers,
shareholders, partners, beneficiaries or affiliates) ever have any personal
liability for any covenant, agreement, obligation, warranty, representation,
indemnity or undertaking under this Lease or otherwise or be answerable or
liable in any equitable, judicial or administrative proceeding or order.
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30. EXPANSION OF THE PREMISES
A. EXPANSION SPACES. Tenant shall have the right hereinafter
described in this Section 30 to expand the Premises by leasing (1) between
5,000 and 6,000 square feet of Rentable Area on the forty sixth (46th) Floor of
the Building on or about the sixth (6th) Lease Year (the "First Expansion
Space") and (2) an additional 8,000 to 9,000 square feet of Rentable Area on a
floor of the Building in the same elevator bank as the Premises (42nd to 48th
Floors) (the "Second Expansion Space") on or about the eleventh (11th) Lease
Year. The First Expansion Space and the Second Expansion Space are sometimes
referred to herein collectively as the "Expansion Spaces" and individually as
an "Expansion Space". Tenant shall exercise its right to add such Expansion
Space by written notice to Landlord given no later than (a) six (6) months
prior to the fifth (5th) anniversary of the Commencement Date as to the First
Expansion Space and (b) six (6) months prior to the tenth (10th) anniversary of
the Commencement Date as to the Second Expansion Space. If Tenant fails to
give the advance notice required herein to Landlord by the specified date with
respect to an Expansion Space, Tenant will be deemed to have declined to
exercise its right to lease such Expansion Space, provided, however, if Tenant
fails to exercise its option under this Section 30A as to the First Expansion
Space, Tenant shall not lose its rights hereunder as to the Second Expansion
Space.
B. EXPANSION WINDOW. To permit Landlord flexibility in leasing
the Expansion Spaces prior to Tenant's need for such space, Landlord may
deliver the First Expansion Space to Tenant between the fifth (5th)
anniversary of the Commencement Date and a date six (6) months after the fifth
(5th) anniversary of the Commencement Date (the "First Expansion Window") and
the Second Expansion Space to Tenant between the tenth (10th ) anniversary of
the Commencement Date and a date six (6) months after the tenth (10th)
anniversary of the Commencement Date (the "Second Expansion Window"). Landlord
will specify such date on which it intends to deliver the Expansion Spaces to
Tenant (the actual delivery date shall be the "First Expansion Date" and
"Second Expansion Date" respectively) by not less than six (6) months prior
written notice to Tenant.
C. MECHANICS OF EXPANSION. Upon the exercise by Tenant of its
right to expand as provided in this Section 30, Landlord and Tenant shall
promptly proceed to enter into a written agreement modifying this Lease to
include such Expansion Space in the Premises. The Expansion Space so included
will be considered to be a part of the Premises as of the First Expansion Date
or Second Expansion Date, respectively, subject to the provisions of Section
30F hereof. The Expansion Spaces shall be governed by all the terms of this
Lease, except that Tenant's Proportionate Share shall be increased accordingly,
the Base Rent for each Expansion Space will be at the per square foot rate then
applicable to the Premises, to be thereafter increased as and
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when the Base Rent for the Premises increases. Possession of any such space
shall be delivered to Tenant in an "as is" condition, provided, however,
Landlord shall pay Tenant the following construction Allowances in accordance
with its then standard work letter provided that said work letter is similar to
the Work Letter attached hereto as Exhibit "C":
(1) If the Expansion Space is not built out within the five (5)
years prior to the date of Landlord tendering the Expansion Space to Tenant
(that is, Landlord has spent less than $10.00 per square foot of Rentable Area
in the Expansion Space to improve the Expansion Space) then Landlord will
provide Tenant an Allowance of $20.00 per square foot of Rentable Area in the
Expansion Space.
(2) If the Expansion Space has been built out within the five (5)
years prior to the date of Landlord tendering the Expansion Space to Tenant to
the extent that Landlord has spent in excess of $20.00 per square foot of
Rentable Area in the Expansion Space on such build out, then Landlord will give
Tenant an Allowance of $5.00 per square foot of Rentable Area;
(3) If the Expansion Space has been built out within the five (5)
years prior to the date of Landlord tendering the Expansion Space to Tenant to
the extent that Landlord has spent in excess of $10.00 per square foot of
Rentable Area but less than $20.00 per square foot of Rentable Area, then
Landlord shall give Tenant an Allowance of the difference between $20.00 per
square foot and the actual cost of such build out per square foot of Rentable
Area previously performed by Landlord.
D. TEMPORARY EXPANSION SPACE. If Landlord is unable to deliver
an Expansion Space to Tenant during the Expansion Window, then Landlord agrees
to give notice of such event to Tenant prior to the end of the first three (3)
months of the Expansion Window. In such event, Tenant shall have the right by
written notice to Landlord exercised by Tenant within 15 days of receipt of
such notice from Landlord to request that Landlord provide Tenant with
temporary space (the "Temporary Expansion Space") in the Building until the
Expansion Space is available or to revoke the exercise of such option as
provided in Subsection E below. Landlord agrees to use reasonable efforts to
provide Tenant with such Temporary Expansion Space in the event Tenant so
elects. The Temporary Expansion Space shall be (1) comparable in size to the
Expansion Space and a condition reasonably satisfactory to Tenant; (2) built
out as office space; and (3) accepted by Tenant in its "as is" condition.
Tenant shall have no obligation to pay Base Rent for such Temporary Expansion
Space, however Tenant's Proportionate Share shall increase based upon the
number of square feet of Rentable Area in the Temporary Expansion Space and the
Temporary Expansion Space shall be deemed to be part of the Premises for all
purposes herein other than the terms relating to its build out, effective as of
the date that Tenant occupies such Temporary Expansion Space. If Tenant elects
not to occupy the
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Temporary Expansion Space within sixty (60) days after Landlord notifies Tenant
that such space is available then Landlord will no longer be obligated to offer
such Temporary Expansion Space to Tenant. Tenant shall move from the Temporary
Expansion Space into the proper Expansion Space promptly upon receipt of notice
from Landlord that the Expansion Space is ready for occupancy. Landlord shall
reimburse Tenant for Tenant's reasonable bona fide out-of-pocket cost incurred
by Tenant to move its personal property from the Temporary Expansion Space to
the Expansion Space. Landlord shall pay such amount to Tenant within 30 days
of Tenant delivering to Landlord paid receipts substantiating such costs.
Landlord shall not be responsible for the cost of moving any property from any
location other than the Temporary Expansion Space to the Expansion Space or for
the cost of loss of business, if any, resulting from the move from the
Temporary Expansion Space to the Expansion Space. Notwithstanding the
foregoing, if the Temporary Expansion Space is located outside of the Building,
then Landlord shall reimburse Tenant for Tenant's reasonable bona fide out of
pocket costs to move its personal property from the Premises to the Temporary
Expansion Space and also from the Temporary Expansion Space to the Expansion
Space.
E. DELAYS. Landlord will use reasonable diligence to make each
Expansion Space available to Tenant on the Expansion Date. If Landlord is
unable to do so for reasons beyond Landlord's reasonable control (however,
Landlord's leasing of Expansion Space to other tenants shall be deemed to be
within Landlord's control), Landlord will not be liable for such failure or
inability, nor shall this failure or inability impair the validity of this
Lease, nor extend the Term, but the Expansion Space will not become a part of
the Premises, and therefore the commencement of Tenant's obligation to pay Rent
on such space shall be deferred, until possession is delivered to Tenant.
Notwithstanding the foregoing, Tenant may elect by written notice to Landlord
to terminate the exercise of the expansion option, effective no less than
thirty (30) days following delivery of such notice, in the event Landlord has
failed to make the Expansion Space available to Tenant within ninety (90) days
following the Expansion Date. If Landlord has not made an Expansion Space
available to Tenant within twenty (20) months after the first day of an
Expansion Window and if Tenant has not previously terminated its exercise of
its Expansion Option as provided herein, then Tenant may terminate this Lease
without penalty by giving Landlord written notice of such termination or after
the end of such twenty (20) month period provided such notice is received prior
to Landlord making said Expansion Space available to Tenant. Such twenty (20)
month period shall be extended to the extent that Landlord's management of
litigation against any holdover tenant is the sole cause of delaying Landlord's
ability to make said Expansion Space available to Tenant. If such a delayed
delivery occurs due to a hold-over by another tenant and Tenant does not
terminate its expansion exercise, Landlord shall remit to Tenant, if and when
Landlord recovers rent and damages from such tenant, any excess of
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hold-over rent paid over the stated rent and all costs of recovery, for the
period of delay. Landlord shall diligently pursue all remedies against any
such holdover tenant and shall not settle or compromise any such claims without
Tenant's prior consent which consent shall not be unreasonably withheld
provided that if Tenant refuses to consent to a proposed settlement of such
claim which is recommended by Landlord, Tenant shall pay for the cost of
pursuing such claim after the date such proposed settlement. The deferral,
right to terminate and remittance are in full settlement of all claims that
Tenant might otherwise have against Landlord by reason of such inability.
F. CONDITIONS TO EXERCISE. If on the date when Tenant notifies
Landlord of its election to exercise an Expansion Option, Tenant shall be in
Default in the performance of any of the terms, covenants or conditions
contained in this Lease, Landlord shall have the option, on written notice to
Tenant, to declare Tenant's election to expand to be void and of no effect.
Notwithstanding the foregoing, if (1) Tenant is in Default hereunder at the
time Tenant notifies Landlord of Tenant's election to exercise an Expansion
Option, and (2) such Default is not a monetary Default under Section 22(2) and
does not involve a hazardous condition under Section 22(3), then Tenant may
exercise its Expansion Option; provided, however Landlord may terminate such
exercise if Tenant fails to cure such Default within 120 days of the date such
Default occurred.
G. EARLY EXPANSION. If within one (1) year from the date hereof,
Tenant sends Landlord written notice that it desires to lease additional space
in the Building, then Landlord agrees to make available to Tenant approximately
5,000 square feet of Rentable Area on the 46th Floor of the Building
("Additional Space") at a location reasonably acceptable to Landlord and Tenant
upon the same terms and conditions as this Lease. Landlord agrees to deliver
the Additional Space to Tenant in Base Building Condition (except for
Concurrent Work) within one hundred twenty (120) days after receipt of the
written notice from Tenant. Landlord agrees to give Tenant an allowance of
$60.00 per square foot of Rentable Area in the Additional Space in accordance
with the Work Letter attached hereto as Exhibit C. Landlord will have no other
obligation as to the build out of the Additional Space. Tenant will pay Rent
(including Taxes and Operating Expenses) on the Additional Space one hundred
twenty (120) days after Landlord delivers possession thereof to Tenant. If
Tenant exercises its option to add the Additional Space to the Premises,
Landlord and Tenant agree to amend this Section 30 to reduce the size of the
Expansion Space to allow for the fact that less space will be available for
Tenant to expand into.
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31. RIGHT OF FIRST OFFER
If at any time after the Commencement Date and during the Term of this
Lease any space becomes available for leasing on the 44th or 46th Floor of the
Building and, if Tenant is not then in Default hereunder, Landlord shall not
lease such space to any party without first giving Tenant (i) notice of the
availability of such space which shall include a description thereof, the
proposed term and rental rate (including escalations, if any), abatements and
allowances, if any, and other economic concessions that Landlord would agree to
with respect to such space (the "Offered Terms") and (ii) thirty (30) days
after the date of such notice in which to commit in writing to lease such space
on the Offered Terms for the remainder of Term, taking into account on an
equitable basis satisfactory to both Landlord and Tenant any modifications in
such Offered Terms required by the fact that the remaining Term may be longer
or shorter than that proposed by Landlord, and otherwise on the terms,
covenants and conditions contained in this Lease. Landlord agrees that the
Offered Terms will be reasonably related to market terms then available for
similar office space. If Tenant fails, refuses or is otherwise unable to
commit to such a lease within the 30-day period, Landlord shall have the right
to lease the space to any third party or parties on such terms as are
acceptable to Landlord, subject to Tenant's expansion options under hereof.
Notwithstanding the foregoing, Landlord shall not be obligated to offer space
on the 44th Floor to Tenant prior to Landlord entering into a lease of said
space with Landlord's leasing and/or management agent.
32. TENANT'S OPTION TO RENEW
Tenant is hereby granted one (1) five (5) year option to renew the
Lease ("Renewal Option"). If Tenant desires to exercise the Renewal Option, it
shall so notify the Landlord, in writing, not later than the first day of the
twelfth (12th) month prior to the then current expiration date of the Term.
Such notice shall only be effective if delivered at a time when the Tenant is
not in Default of its obligations under the terms and provisions of this Lease.
Within thirty (30) days following its receipt of Tenant's notice of its
election to exercise the Renewal Option, given at the time and in the manner
provided above, Landlord shall prepare and transmit to Tenant an appropriate
amendment to this Lease extending the Term for five (5) years ("Extended Term")
and specifying (i) the Base Rent for such extension, which shall be at the base
rental rate then being offered and accepted by Landlord to other renewal
tenants of comparable size and location leasing space in the Building taking
into account all concessions then being given, as reasonably determined by
Landlord and evidenced by recent transactions which shall be disclosed to
Tenant ("Market Rent") and (ii) that all other terms and conditions during the
Extended Term are the same as those during the Term except for any expansion
rights, tenant improvement allowances, reduction rights, cancellation rights,
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renewal options, and limitations on Operating Expenses. In the event the
Tenant shall fail for any reason to execute and deliver the lease amendment
within twenty (20) business days of Tenant's receipt of the same, then in such
event, at Landlord's option, Tenant's purported exercise of its Renewal Option
shall be of no force or effect and the Renewal Option shall become null and
void.
33. CONSENTS
Whenever under any terms or provisions of this Lease either party's
consent or approval is required or requested to the performance by either party
of any act or some other matter is to be to the satisfaction of or acceptable
to the other party, such consent or approval shall not be unreasonably withheld
or delayed and such parties shall not be unreasonable in withholding its
satisfaction or acceptance, excepting any instance where it is provided that
such party may act arbitrarily or at its discretion and any instance in which
specific standards for a consent or approval are provided in this Lease.
34. PAYMENT FOR TERMINATION OF EXISTING OFFICE LEASE
Landlord agrees to pay an amount not to exceed $300,000 toward the
cost to Tenant to terminate its existing office lease (the "Existing Lease") at
120 South LaSalle Street. Landlord shall pay such amount when due under the
Existing Lease (1996), but in no event prior to Tenant moving into the Premises
after completion by Tenant of the Tenant's Work pursuant to the Work Letter.
Landlord's obligation to make said payment shall be conditioned upon Tenant not
being in Default hereunder. Landlord may make said payment directly to the
landlord under the Existing Lease. If Tenant has already made said payment,
Tenant shall provide proof of said payment to Landlord prior to Landlord making
said payment to Tenant.
35. SECURITY DEPOSIT - LETTER OF CREDIT
A. Within thirty (30) days of the date hereof Tenant agrees to
deposit with Landlord an unconditional and irrevocable letter of credit
("Letter of Credit") in the initial amount of $1,500,000.00 issued by a
national bank reasonably satisfactory to Landlord, as security for the full and
faithful performance by Tenant of each and every term, provision, covenant and
condition of this Lease. Each Letter of Credit issued pursuant to this Section
35 shall be for the benefit of Landlord and its successors and assigns and
shall entitle Landlord or its successor or assigns to draw from time to time
under the Letter of Credit in portions or in whole upon presentation of a sight
draft and statement by Landlord that Landlord is entitled to draw thereunder
pursuant to the terms and provisions of this Lease. Landlord agrees to
reimburse Tenant for one half (1/2) of the annual cost of each Letter of Credit
up to a maximum
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reimbursement of $15,000.00 per year (but not after the sixth anniversary of
the Commencement Date per Section 35C).
The first such Letter of Credit shall expire no earlier than June 1,
1996 and all subsequent replacement Letters of Credit shall expire no earlier
than twelve (12) months from the expiry date of the then outstanding and
expiring Letter of Credit. Tenant shall deliver a replacement Letter of Credit
to Landlord no later than thirty (30) days prior to the expiry date of the then
outstanding and expiring Letter of Credit; provided, however, the replacement
Letter of Credit is not required to have an effective date sooner then the
expiry date of the then existing Letter of Credit, it being the intent that
Tenant not be required to have two outstanding Letters of Credit at any one
time, and the replacement Letter of Credit may be in the reduced amount under
subsection B below. Failure by Tenant to delivery any replacement Letter of
Credit as required above shall entitle Landlord to draw under the outstanding
Letter of Credit and to retain the entire proceeds thereof for application as
the security deposit under this Lease. Any security deposited with Landlord by
Tenant other than the Letter of Credit shall be referred to herein as the
"Security Deposit". Tenant shall not be entitled to interest for any period
during which Landlord is holding cash as a Security Deposit nor shall Landlord
be required to keep such cash Security Deposit separate from its general funds.
B. The initial amount of the Letter of Credit shall be One
Million Five Hundred Thousand Dollars ($1,500,000.00) and provided Tenant is
not then in Default, (i) the amount of the Letter of Credit may be reduced to
One Million Dollars ($1,000,000.00) on the fourth anniversary of the
Commencement Date, (ii) the amount of the Letter of Credit may be reduced to
Five Hundred Thousand Dollars ($500,000.00) on the fifth (5th) anniversary of
the Commencement Date, and (iii) Tenant shall no longer be obligated to post a
Letter of Credit as of the sixth (6th) anniversary of the Commencement Date.
C. If Tenant defaults in respect to any of the terms, provisions,
covenants or conditions of this Lease, including, but not limited to, payment
of Base Rent or Additional Rent and such default is not cured by Tenant within
the applicable notice and cure periods contained in this Lease, if any,
Landlord may draw upon the Letter of Credit in part or in whole to the extent
necessary in Landlord's judgment to cure such Default and Landlord may use,
apply or retain the whole or any part of the proceeds thereof or any cash or
other Security Deposit for the payment of any such Base Rent or Additional Rent
in Default, or for any other sum which Landlord may expend or be required to
expend by reason of Tenant's Default, including without limitation any damages
or deficiency in the reletting of the Premises, whether such damages or
deficiency shall have occurred before or after any re-entry by Landlord.
Tenant further agrees that Landlord may draw upon the Letter of Credit in whole
in the
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event Tenant defaults in its obligation to timely deliver a replacement Letter
of Credit. If the Letter of Credit shall be drawn upon or otherwise if any of
the proceeds of the Letter of Credit shall be used, applied or retained by
Landlord, at any time or from time to time, then Tenant shall promptly, in each
such instance, upon the written demand therefor by Landlord, pay to Landlord
such additional sum as may be necessary to restore the then current amount of
the Letter of Credit. Further, in the event that Tenant defaults under this
Lease twice during the time that Tenant is required to post the Letter of
Credit and Landlord draws on the Letter of Credit as a result of said defaults,
then, notwithstanding Section 35B above, Tenant shall be required to maintain
the Letter of Credit or other Security Deposit at the then current amount
throughout the remainder of the Term.
D. Landlord may deliver the Letter of Credit or any cash Security
Deposit deposited hereunder by Tenant to the transferee of Landlord's interest
in the Building in the event that such interest is transferred, and thereupon
Landlord shall be discharged from any further liability with respect to said
Letter of Credit or other Security Deposit provided that such purchaser shall
assume Landlord's obligations hereunder relative to the Letter of Credit or
Security Deposit. Tenant hereby agrees not to look to any mortgagee as
mortgagee, mortgagee in possession, or successor in title to the Landlord or
the owner of the Building for any Letter of Credit or Security Deposit required
by Landlord hereunder, unless said Letter of Credit or sums have actually been
received by said mortgagee as security for Tenant's performance of this Lease.
Except as otherwise required by law, Tenant shall not be entitled to, nor
Landlord liable for, any interest on the aforesaid Security Deposit. Landlord
shall not be required to keep any Security Deposit separate from its general
funds. In the absence of evidence satisfactory to Landlord of any assignment
of the right to receive any Security Deposit or the remaining balance thereof,
Landlord may return the Letter of Credit or other Security Deposit to the
original Tenant, regardless of one or more assignments of this Lease.
36. OPTION OF TENANT TO TERMINATE LEASE
A. Subject to the conditions set forth below, Tenant shall have
the right to terminate this Lease upon written notice to Landlord given at
least six (6) months prior to its effective date. The effective date for such
termination shall be the last day of the tenth (10th) Lease Year, subject to
Tenant making the payments set forth in Section 36B below.
B. If Tenant elects to terminate this Lease pursuant to Section
36A above, Tenant shall pay to Landlord at the time that Tenant delivers the
notice exercising its right to terminate a fee of $4,296,262.50 which
represents Fifty Six and 25/100 dollars ($56.25) per square foot of Rentable
Area multiplied by 76,378 square feet of Rentable Area initially in the Demised
55
<PAGE> 56
Premises subject to being increased if Tenant has exercised a right to lease
additional space in the Building.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and year
first above written.
LANDLORD:
TOWER LEASING, INC.
By:
-------------------------------
Its Vice President
------
TENANT:
RODMAN & RENSHAW CAPITAL GROUP,
INC.
By:
--------------------------------
Its Executive Vice President
and Chief Financial Officer
---------------------------
SCHEDULE OF EXHIBITS
Exhibit A - Floor Plan
Exhibit B - Base Rent and Base Rent Escalations
Exhibit C - Work Letter
Exhibit D - Water Condenser Addendum
Exhibit E - Estoppel Certificate
Exhibit F - Rules and Regulations
Exhibit G - Subordination, Non-Disturbance and
Attornment Agreements
Exhibit H - Janitorial Service
Exhibit I - Holidays
56
<PAGE> 57
EXHIBIT "A"
FLOOR PLAN OF PREMISES
<PAGE> 58
[MAP]
<PAGE> 59
[MAP]
<PAGE> 60
EXHIBIT "B"
BASE RENT AND BASE RENT ESCALATIONS
<TABLE>
<CAPTION>
ANNUAL BASE RENT
PER SQUARE FOOT
LEASE YEAR(S) OF RENTABLE AREA
------------- ----------------
<S> <C>
1-5 $6.30
6-10 $9.75
11-15 $15.15
</TABLE>
<PAGE> 61
EXHIBIT "D"
WATER CONDENSER ADDENDUM
This Water Condenser Addendum constitutes a part of the Lease dated
________________, 1995 (the "Lease"), between TOWER LEASING, INC., as Landlord,
and RODMAN & RENSHAW CAPITAL GROUP, INC., as Tenant for premises as described
in the Lease and located at 233 South Wacker Drive, Chicago, Illinois (the
"Premises").
Whereas Landlord has constructed and is operating an auxiliary Condenser
Water System (the "System") for its use and the use of tenants in the Building
(as defined in the Lease); and whereas Tenant is desirous of connecting certain
facilities to the System to be indicated on the plans.
Now therefore the parties agree as follows:
1) Tenant shall advise Landlord of its requirements for condenser
water use, determined separately for each floor of the Premises, and furnish to
Landlord plans and specifications of its facilities which it proposes to
connect to the System.
2) Upon Landlord's approval thereof and payment of Landlord's
reasonable costs in connection therewith, Landlord shall grant to Tenant the
right to connect its facilities to the System which connection shall be made
only by Landlord's approved contractor.
3) Prior to making said connection, Tenant shall pay Landlord a one
time "Connection Fee" of $1000.00 for each floor that is in the Premises which
is hooked up to condenser water.
4) Tenant shall pay to Landlord a "Monthly Fee" for its dedicated
capacity on the System. The fee shall be calculated as follows:
CONDENSER WATER RATE - GPH (GPM X 60) X 728
-------------------- hours/month x cost/gallon =
Monthly Fee
Landlord's current cost per
gallon is $.0004
5) All proposed changes in Tenant's facilities shall be submitted
to Landlord in advance for Landlord's approval. No changes shall be made in
Tenant's facilities without the prior written approval of Landlord which shall
not be unreasonably withheld or delayed. Landlord shall have the right to
designate such conditions and charges for the making of Tenant's changes as
Landlord deems reasonably appropriate. It is expressly agreed that Landlord
may refuse to make any changes which increase the amount of condenser water
supplied to Tenant.
<PAGE> 62
6) All the terms and conditions of the Lease shall apply to this
Addendum.
7) This Addendum shall become effective on the Commencement Date
and will terminate on the termination of the Lease.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Water Condenser
Addendum to the Lease to be duly executed as of this ______ day of
________________, 1995.
LANDLORD:
TOWER LEASING, INC.
By: ____________________________
Its ________ President
TENANT:
RODMAN & RENSHAW CAPITAL GROUP, INC.
By: ____________________________
<PAGE> 63
EXHIBIT "E"
FORM OF TENANT ESTOPPEL CERTIFICATE
ESTOPPEL CERTIFICATE
Landlord: TOWER LEASING, INC.
Tenant: RODMAN & RENSHAW CAPITAL GROUP, INC.
Address of Tenant:
Premises: Approximately ________ Rentable Square Feet of
Rentable Area.
Lease: That certain Lease, dated __________, 1995 by and
between Landlord and Tenant, including the following
amendments, if any, _____________ (the "Lease", a copy
of which is attached and made a part hereof).
Commencement Date:
Expiration Date:
Total Square Footage of Premises: ________ square feet on the _________
(___) floor of Sears Tower, Chicago,
Illinois.
Monthly Base Rent
Paid Through:
Current Monthly Office Operating Expense Payment:
Current Monthly Payment With Respect to Taxes:
Lenders: Metropolitan Life Insurance Company and AEW Partners,
L.P. (or their successors and assigns or any new lender)
1. Tenant hereby certifies as true and correct the following statements:
(a) The Lease is a true, correct and complete agreement between
Landlord and Tenant with respect to the premises described therein (the
"Premises").
<PAGE> 64
(b) The Lease is in full force and effect and constitutes the entire
agreement between Landlord and Tenant. The Lease has not been amended,
modified, supplemented or changed, whether in writing or orally (including,
without limitation, any agreement by Landlord to assume any lease of Tenant
covering space in other property), except as disclosed herein.
(c) Tenant is in sole possession of and is occupying the Premises.
Except as specified below, Tenant is not in any respect in Default under the
Lease and has not subleased all or any part of the Premises or assigned the
Lease, or otherwise transferred or hypothecated its interest in the Lease or
the Premises except as disclosed herein.
(d) The Commencement Date and Expiration Date of the term of the
Lease are correctly stated above. Tenant has no options or rights of renewal,
extension, expansion, purchase, or first refusal concerning the Lease, the
Premises or other space within the building of which the Premises are a part,
except as are stated in the Lease. Tenant has not exercised any option or
rights to renew, extend, amend, modify, or change the term of the Lease, except
as are stated in the Lease or disclosed herein. Tenant does not have any
preferential right to purchase all or any part of the property of which the
Premises are a part.
(e) The Monthly Base Rent and other amounts payable under the Lease
are correctly stated above. Monthly Base Rent has been paid through the date
stated above. Tenant has not prepaid any rent for more than one (1) month and
is paying rent under the Lease on a current basis with no offsets, credits,
claims or set-offs except as set forth herein. Tenant has not been given any
free rent, partial rent, rebates, rent abatements, or rent concessions of any
kind, which are unexpired, except as disclosed herein.
(f) Tenant has not deposited a security deposit with Landlord except
for _________________.
(g) As of the date hereof, to the best of Tenant's knowledge,
Landlord has fully performed all of its obligations under the Lease which were
to be performed as of this date and, to the best of Tenant's knowledge, has
satisfied all commitments required to be performed as of this date and made to
induce Tenant to enter into the Lease. To the best of Tenant's knowledge,
Landlord is not in default under the terms and conditions of the Lease and no
event has occurred which would constitute a default under the Lease, either
upon service of notice or passage of time. To the best of Tenant's knowledge,
no claim, controversy or dispute exists between Tenant and Landlord except as
disclosed herein. As of the date hereof, Tenant is not asserting that the
Lease is not fully enforceable by Landlord in accordance with its terms.
<PAGE> 65
(h) To the best of Tenant's knowledge, all construction, build-out,
improvements, or alterations to the Premises required under the Lease have been
fully completed in accordance with the plans and specifications described in
the Lease except for any "punch list" items and any unexpired construction
warranty obligations and all contributions required to be made by Landlord
prior to the date hereof on account thereof have been made.
(i) Landlord has not previously given any consent to Tenant (i.e.,
consent to sublease or alter the Premises) that is required under the Lease
before the taking of any action by Tenant, except as disclosed herein.
(j) Tenant is not insolvent and is able to pay its debts as they
mature. There are no actions, whether voluntary or otherwise, pending against
Tenant under the bankruptcy or insolvency laws of the United States or any
state thereof.
2. Except as set forth in the Lease, Tenant agrees that from and
after the date hereof, Tenant will not pay any rent under the Lease more than
thirty (30) days in advance of its due date.
Tenant hereby certifies that the address for notices to Tenant under the
Lease is correctly set forth above.
This certificate has been given to Lenders in good faith; provided,
however, that if Lenders shall rely hereon in connection with loans which will
be secured by the property of which the Premises constitute a part, it is
agreed that in no event shall Tenant be responsible for losses resulting by
reason of Landlord's failure to repay its loans. Lenders' sole remedy in the
event of a material breach by Tenant hereunder is to seek specific performance.
The undersigned hereby certifies that he or she is duly authorized to sign and
deliver this Estoppel Certificate.
IN WITNESS WHEREOF, Tenant has caused this Estoppel Certificate to be
executed by its duly authorized representative as of the __ day of
_______________, _____.
TENANT:
RODMAN & RENSHAW CAPITAL GROUP, INC.
By: _________________________
<PAGE> 66
EXHIBIT "F"
RULES AND REGULATIONS
1. Tenant shall not in any manner deface or injure the Building or
any part thereof, nor do anything tending to injure the reputation of the
Building or its occupants.
2. Tenant shall not install any sign, lettering, picture, notice,
advertisement or object unacceptable to Landlord against glass partitions,
doors or windows which would be visible from the Building's corridors, or place
same on any outside window or in a position visible from outside the Building.
Landlord will not unreasonably withhold its consent to any objects visible from
the Building's corridors. Tenant agrees to promptly remove same upon notice
from Landlord. Any sign, lettering, picture, notice or advertisement installed
within the Premises which is visible to the public from within the Building
shall be installed at Tenant's cost and in such manner, character and style as
approved by prior written consent of Landlord not to be unreasonably withheld
or delayed.
3. Tenant shall not, in advertising or other publicity, without
prior written consent of Landlord, use the name of the Building (Sears Tower)
or use pictures or illustrations of the Building.
4. The Tenant's mailing address shall include:
RODMAN & RENSHAW CAPITAL GROUP, INC.
233 South Wacker Drive
Chicago, Illinois 60606-____
Notwithstanding the foregoing, Tenant may use the name of the
Building (currently "Sears Tower") in its mailing address and on its stationery
so long as Tenant's use thereof does not give third parties any impression that
there is any connection between Tenant and Sears, Roebuck and Co. and that
Landlord shall have the right to approve such use which approval shall not be
unreasonably withheld.
5. Tenant shall not obstruct sidewalks, entrances, passages,
courts, corridors, vestibules, halls, elevators, loading docks, escalators and
stairways in and about the Building.
<PAGE> 67
6. Tenant shall not make noises, cause disturbances or vibrations
or use or operate any electrical or electronic devices or other devices that
emit sound or other waves or disturbances, or that create a fire hazard, or
create odors, any of which may be offensive to other tenants and occupants of
the Building or that would interfere with the operation of any device or
equipment or radio or television broadcasting or reception from or within the
Building or elsewhere, and shall not place or install any projections,
antennae, aerials or similar devices inside or outside the Premises.
7. Tenant shall not make any canvass in the Building to solicit
business or for any other reason.
8. Tenant shall not exhibit, sell or offer to sell, use, rent or
exchange any item or service in or from the Premises unless ordinarily embraced
within the Tenant's use of the Premises specified herein.
9. Tenant shall use reasonable efforts to report all peddlers,
solicitors and beggars at the Premises immediately to the office of the
Building or as Landlord otherwise requests.
10. Tenant shall not waste water and agrees to reasonably cooperate
with Landlord to assure the most effective operating of the Building's heating
and air conditioning, and shall refrain from adjusting any controls other than
room thermostats installed for Tenant's use, and shall keep public corridor
doors closed, and shall not block any heating and air conditioning induction
units.
11. Tenant shall not employ persons to do janitor work in the
Premises and no persons other than the janitors of the Building shall clean the
Premises without prior written consent of Landlord. With prior written consent
of Landlord which shall not be unreasonably withheld or delayed, any person
employed by Tenant to do janitor's work shall, while in the Building, either
inside or outside of the Premises, be subject to and under the control and
direction of the manager of the Building (but not as agent or servant of said
manager or Landlord).
12. Tenant shall not:
(1) Cook in the Premises other than coffee machines and
microwave ovens for the sole use by Tenant, its employees and clients;
(2) Place vending or dispensing machines of any kind in or
about the Premises except for the sole use of Tenant, its employees, and
clients;
<PAGE> 68
(3) At any time sell, purchase or give away, or permit the
sale, purchase or gift of, food in any form;
however, with prior written consent of Landlord which shall not be unreasonably
withheld, the activities set forth in (1) and (2) may be permitted in lounges
or other facilities specifically designated for this purpose.
13. Tenant shall not:
(1) Use the Premises for lodging or for any immoral or
illegal purposes.
(2) Use the Premises to engage in the manufacture or sale
of, or permit the use of, any spirituous, fermented, intoxicating or alcoholic
beverages on the Premises.
(3) Use the Premises to engage in the manufacture or sale
of, or permit the use of, any illegal drugs on the Premises.
14. Tenant shall not install any equipment utilizing an ammonia
process or using any ammonia products or any other noxious process
necessitating venting.
15. Tenant shall not bring firearms into the Premises.
16. Tenant shall keep doors and other means of entry to the Premises
closed and secured.
<PAGE> 69
EXHIBIT "H"
JANITORIAL SERVICES
MONDAY THROUGH FRIDAY
(BETWEEN THE HOURS OF 5:00 P.M. AND 6:00 A.M. EXCLUDING HOLIDAYS)
A. Empty all trash receptacles and replace liners as necessary.
B. Remove all collected trash to designated area.
C. Empty and damp wipe ashtrays.
D. Dust all furniture, fixtures, equipment and accessories.
E. Spot clean all horizontal and vertical surfaces removing fingerprints,
smudges and stains.
F. Spot clean all partition glass.
G. Vacuum all carpeted traffic lane areas.
H. Using approved spotter, spot clean carpeted areas.
I. Dust mop all hard surface floors with treated dust mop.
J. Mop all stains and spills especially coffee and drink spills.
K. Clean/sanitize restrooms and replenish supplies.
L. Clean and polish all drinking fountains.
M. Remove all rubbish from the floor.
N. Maintain janitor closets in a neat and orderly manner.
O. Dust all furniture, file cabinets and fixtures to the extent not
covered with papers and/or books.
P. Damp clean telephones.
Q. Vacuum all carpeted areas including under chairs.
WEEKLY CLEANING
A. Spray buff resilient floors in high traffic areas.
B. Damp mop hard surface areas.
<PAGE> 70
MONTHLY
A. Vacuum corners, edges and chairs.
B. Low dust table and chair legs, moldings, ledges.
C. High dust exposed horizontal surfaces above 65".
D. Power scrub restroom floors.
E. Dust picture frames and blinds.
QUARTERLY
A. Wash restroom partitions.
B. Clean interior perimeter windows.
C. Shampoo common area carpeting.
D. Dust lighting fixtures, air conditioning louvers and grills
and vacuum upholstered furniture.
THREE TIMES/YEAR
A. Machine scrub hard surface floors and apply one coat of polish.
SEMI-ANNUALLY
A. Dust HVAC louvers.
B. Machine wash all ceramic tile walls in restroom areas.
ANNUALLY
A. Strip and refinish resilient tile flooring.
B. Convector cleaning.
<PAGE> 71
LAVATORIES
A. NIGHTLY - MONDAY - FRIDAY
(1) Clean, sanitize using disinfectant solution and polish all vitreous
fixtures including toilet bowls, urinals and wash basins.
(2) Clean all chrome and stainless steel fittings.
(3) Clean and sanitize both sides of toilet seats.
(4) Clean all glass and mirrors.
(5) Empty all containers and disposals and insert new liners where required.
(6) Wash and sanitize using a disinfectant solution, exteriors of all
containers.
(7) Empty all sanitary containers and sanitize interiors using a
disinfectant solution.
(8) Dust horizontal surfaces of all partitions.
(9) Spot clean all partitions and remove all graffiti.
(10) Spot clean all walls, doors, light switches, etc.
(11) Refill all dispensers to normal limits including soap,
tissue, towels, etc.
(12) Wet mop and sanitize tile floors.
(13) Vacuum entire carpeted areas.
(14) Remove all rubbish.
(15) Wet mop tile floors.
B. MONTHLY
(1) Wash partitions.
(2) Machine scrub tile floors as required.
C. QUARTERLY
(1) Dust all HVAC grills and louvers.
(2) Wash ceramic tile walls.
<PAGE> 72
EXHIBIT "I"
HOLIDAYS
The Holidays observed by the Building are as follows:
New Years' Day
Memorial Day
Fourth of July
Labor Day
Thanksgiving Day
The day after Thanksgiving Day
Christmas Day
(or such date upon which any of such holidays are observed)
<PAGE> 1
EXHIBIT 10.15
FIRST AMENDMENT TO THE
RODMAN & RENSHAW, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Rodman & Renshaw, Inc. Supplemental Executive Retirement Plan ("Plan") is
hereby amended effective July 1, 1993, as follows:
I
Article II of the plan is amended by adding a new Section 2.1A thereto, to read
as follows:
"2.1A "Change in Control" means any of the following events:
(a) the direct or indirect acquisition by any person, other than the
Company, of the power to vote twenty percent (20%) or more of the
voting stock of the Company;
(b) the acquisition by any person, other than the Company, of more
than fifty percent (50%) of the total fair market value of the
assets of the Company;
(c) the replacement during any twelve month period of a majority of
the members of the Board of Directors of the Company;
(d) the commencement by any person, other than the Company, of a
tender offer or an exchange offer for twenty percent (20%) or
more of the voting stock of the Company;
(e) the merger or consolidation of the Company with one or more other
corporations as a result of which the shareholders of the Company
immediately prior to such merger or consolidation hold less than
eighty percent (80%) of the voting stock of the surviving or
resulting corporation(s); or
(f) the acquisition of the power to control, directly or indirectly,
the management and policies of the Company by any person not
previously possessing such power, whether through the ownership
of Company stock, by contract, or other legal right.
For purposes of this Section 2.1A, the term "person" means a natural person,
corporation, partnership, joint venture, trust, government, instrumentality of
a government, or any two or more of the foregoing acting as a partnership,
limited partnership, syndicate or other group."
<PAGE> 2
II
Subsection 7.2(b) of the Plan is amended by adding the following at the end
thereof:
"Notwithstanding the foregoing, on the effective date of a Change in
Control, each Participant's SERP Account shall immediately become fully
(100%) vested and non-forfeitable, regardless of the number of the
Participant's Years of SERP Service."
III
In all other respects, the Plan shall remain in full force and effect as set
forth therein.
Executed this 11th day of October, 1993.
RODMAN & RENSHAW, INC.
By: /s/ Gregory P. Quinlivan
Title: Secretary to the Board
& General Counsel
<PAGE> 1
EXHIBIT 21.1
RODMAN & RENSHAW CAPITAL GROUP, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
COMPANY STATE OF INCORPORATION
- - ------- ----------------------
<S> <C>
Rodman & Renshaw, Inc. Delaware
Rodman Advisory Services Inc. Delaware
Rodman & Renshaw Chicago Theatre Ltd. Delaware
Rodman & Renshaw Futures Management, Inc. Delaware
Rodman River West, Inc. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Registration Statement No.
33-73206 on Form S-8 of Rodman & Renshaw Capital Group, Inc. and in
Registration Statement No. 33-56951 on Form S-8 of Rodman & Renshaw Capital
Group, Inc. of our report dated February 24, 1995, on our audit of the
consolidated financial statements of Rodman & Renshaw Capital Group, Inc. as of
December 31, 1994 and for the transition period from June 25, 1994 through
December 31, 1994, which report is included in this Transition Report on Form
10-K.
/s/ Coopers & Lybrand L.L.P.
Chicago, Illinois
March 30, 1995
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-73206 of Rodman & Renshaw Capital Group, Inc. on Form S-8 and in
Registration Statement No. 33-56951 of Rodman & Renshaw Capital Group, Inc. on
Form S-8 of our report dated August 19, 1994 appearing in this Transition
Report on Form 10-K of Rodman & Renshaw Capital Group, Inc. for the transition
period from June 25, 1994 through December 31, 1994.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 30, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JUN-25-1994
<PERIOD-END> DEC-31-1994
<CASH> 81,280,000
<SECURITIES> 144,500,000
<RECEIVABLES> 213,051,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 452,033,000
<PP&E> 2,298,000
<DEPRECIATION> 5,554,000
<TOTAL-ASSETS> 454,331,000
<CURRENT-LIABILITIES> 424,032,000
<BONDS> 0
<COMMON> 412,000
0
0
<OTHER-SE> 26,013,000
<TOTAL-LIABILITY-AND-EQUITY> 454,331,000
<SALES> 11,870,000
<TOTAL-REVENUES> 20,324,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 38,526,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,933,000
<INCOME-PRETAX> (6,332,000)
<INCOME-TAX> (2,168,000)
<INCOME-CONTINUING> (4,164,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,164,000)
<EPS-PRIMARY> (.91)
<EPS-DILUTED> 0
</TABLE>
