<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
-------------------
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.)
233 S. WACKER DR., STE. 4500, CHICAGO, IL 60606
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (312) 526-2000
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 [ ] NO [X]
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. [ ]
As of February 28, 1997, 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,
1997, which was $0.375) was $810,987.75.
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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 exchanges. The
Company offers a comprehensive range of investment banking, research and
investor services to meet the needs of business organizations, financial
institutions and fiduciaries, other securities and commodities dealers and
individual investors.
Rodman acts as a broker and dealer in the purchase and sale of securities,
commodities and financial futures. The corporate finance department 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, and private placements.
Rodman provides financial institutions, fiduciaries and other investors with
research on over 100 companies within a broad range of industries. Rodman's
equity department provides integrated research, sales distribution and
principal market making for institutional and retail customers and investment
banking clients. Its retail group provides brokerage services to high net worth
and other individuals. Through its other subsidiaries, the Company also
provides investment advisory services and acts as general partner and commodity
pool operator for commodity limited partnerships.
On December 22, 1993, Abaco Casa de Bolsa, S.A. de C.V., Abaco Grupo
Financiero ("Abaco"), acquired 54% of the Company's outstanding common stock
through a tender offer. Abaco is a Mexican 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."), a leasing company, a factoring firm and an
insurance company, all based in Mexico. Parent's shares are traded on the
Mexican Stock Exchange. During the period December 1993 through December 1996,
the Abaco group provided the Company with a total of $32,500,000 in additional
equity capital and $26,500,000 in short-term debt. Abaco currently owns 69.6%
of the Company's outstanding common stock, but on February 4, 1997, it announced
plans to initiate a series of transactions that would result in the Abaco Group
owning all of the Company's common stock. Such plans are described in detail in
Schedule 13E-3 filings with the Securities and Exchange Commission made by Abaco
and related entities pursuant to Section 13(e) of the Securities Exchange Act of
1934 and Rule 13e-3 thereunder. Among other things, the plans include converting
shares of the Company's Series E Preferred Stock held by Abaco into shares of
the Company's common stock and effecting a "Short Form" merger in which the
Company's minority stockholders would receive $.30 in cash for each share of the
Company's outstanding common stock held by them. These transactions have been
initiated and are being implemented by the Abaco Group. The board of directors
of the Company has not reviewed or approved these transactions and is not
currently required to do so. These transactions have not yet been completed.
The New York Stock Exchange has informed the Company that implementation of
these transactions may result in delisting of the common stock. In addition, a
purported class action on behalf of the named individual plaintiffs and all
other holders of the Company's common stock was commenced in early April 1997
against the Company, Abaco, certain Abaco affiliates and the directors of the
Company who are employed by the Company, Abaco or affiliates thereof.
Plaintiffs allege in the complaint that the above-mentioned transactions are
part of a plan to acquire the publicly held common stock and eliminate the
Company's public stockholders in violation of the defendants' fiduciary duties
and, among other things, seek to preliminarily and permanently enjoin such
transactions. 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 March 28, 1995, Rodman acquired certain of the assets and hired
approximately 60 employees of the institutional equities, investment banking
and research departments of Mabon Securities Corp., a New York based securities
broker- dealer. The transaction was consistent with the Company's plan to
reposition itself as an integrated, research driven investment banking,
institutional equity, fixed income and retail firm concentrating on middle
market U.S. companies and Mexican corporations. During 1995, the Company also
decided to divest a majority of its
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futures business and substantially downsize and refocus its fixed income
business. In late 1996, the Company further reduced its fixed income business
and in early 1997, it further downsized its futures business.
In January 1996, the Company began outsourcing its securities processing
functions. It now clears customer accounts through Correspondent Services
Corporation ("CSC"), a wholly-owned subsidiary of PaineWebber, Incorporated, on
a fully disclosed basis.
The Company's executive offices are located in the Sears Tower at 233
South Wacker Drive, Suite 4500, Chicago, Illinois 60606 and its principal
telephone number is (312) 526-2000. The Company also has offices in New York,
San Francisco, 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
years ended December 31, 1996 and December 31, 1995, the Transition Period from
June 25, 1994 to December 31, 1994 (the "Transition Period"), and the fiscal
year ended June 24, 1994.
<TABLE>
<CAPTION>
($, IN THOUSANDS)
---------------
TRANSITION
YEAR YEAR PERIOD YEAR
ENDED ENDED (6/25/94- ENDED
12/31/96 12/31/95 12/31/94) 06/24/94
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
COMMISSIONS
Commodities $2,499 $8,385 $8,279 $19,833
Listed securities 8,944 11,457 1,915 6,080
Over-the-counter
securities 7,921 4,161 1,360 2,446
Options 532 876 316 799
----- ----- ------ ------
TOTAL COMMISSIONS 19,896 24,879 11,870 29,158
PRINCIPAL
Institutional credits:
Bonds 15 12,624 4,494 13,117
Equity and debt
underwritings 2,490 3,183 80 644
Over-the-counter
stocks 6,735 3,342 1,101 575
------ ----- ----- ------
9,240 19,149 5,675 14,336
Retail credits:
Bonds 276 1,148 1,164 3,844
Equity and debt
underwritings 113 6,898 1,068 2,724
Over-the-counter
stocks 10,872 2,050 1,273 2,712
Mutual funds 623 1,167 627 1,811
------ ------ ----- -----
11,884 11,263 4,132 11,091
------ ------ ----- ------
Total Credits 21,124 30,412 9,807 25,427
Market-making and dealer
transactions:
Corporate fixed income
and government zero
coupon bonds 7,530 (423) (1,136) 500
Over-the-counter stocks (605) (2,375) 231 1,600
Other 1,136 (986) (1,869) (214)
------ ----- ------- ------
Total market-making
and dealer
transactions 8,061 (3,784) (2,774) 1,886
------ ------- ------- -----
TOTAL PRINCIPAL 29,185 26,628 7,033 27,313
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
INTEREST
Market-making;
securities inventory 1,079 4,594 4,975 4,412
Margin accounts 954 3,951 1,362 2,420
Securities finder service 0 1,592 1,535 2,381
----- ------ ----- -----
TOTAL INTEREST 2,033 10,137 7,872 9,213
FEE INCOME
Corporate and municipal
finance 2,758 4,648 3,723 7,269
Limited partnerships 2 424 78 95
Advisory services 4,920 2,993 75 234
----- ----- ----- -----
TOTAL FEE INCOME 7,680 8,065 3,876 7,598
OTHER
1,780 2,816 1,543 4,035
----- ----- ----- -----
TOTAL REVENUES $60,574 $72,525 $32,194 $77,317
======= ======= ======= =======
</TABLE>
COMMISSIONS
Commissions from securities and commodities brokerage activities
represented approximately 33% of the Company's revenue in 1996, 34% of the
Company's revenue in 1995, 37% in the Transition Period and 38% in the fiscal
year ended June 24, 1994. Commissions on commodity brokerage represented
approximately 13% of the Company's total commission revenue for 1996, 34% for
1995, 70% for the Transition Period and 68% in the fiscal year ended June 24,
1994.
Rodman executes customer orders to buy and sell securities and commodity
futures contracts. Rodman charges commissions competitive within the industry.
PRINCIPAL TRANSACTIONS
Revenues from principal transactions accounted for approximately 48% of
the Company's revenue in 1996, 37% of such revenue in 1995, 21% in the
Transition Period and 35% in the fiscal year ended June 24, 1994. 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 negative 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 200 equity securities. Rodman maintains inventories of
over-the-counter stocks to facilitate sales, primarily for institutional and
individual customers. Rodman employs traders and salespersons for and maintains
inventories of taxable bonds to facilitate transactions with its retail and
institutional customers. See Note 5 to the Consolidated Financial Statements
for the market value of the Company's long and short securities inventory
positions at December 31, 1996.
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The Company does not conduct proprietary trading or invest in commodity
futures, forward contracts, or commodity options. Rodman does utilize commodity
futures contracts and other fixed income instruments to hedge its fixed income
inventory positions. The extent of its utilization of these contracts for
hedging is not material to the Company's financial condition or results of
operations. At December 31, 1996, the Company had no long or short open futures
positions and no short option positions. See Note 14 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 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 a source of
revenue 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. As a result of
the conversion to clear its customer business through CSC, Rodman now shares the
interest charged to customers with CSC.
SECURITIES FINDER SERVICE. Prior to February 1996, Rodman operated a
securities finder service which matched the specific needs of broker-dealers
that needed to borrow securities to make deliveries on short sales, or for
other reasons, with organizations that had excess securities legally available
for lending. Rodman also loaned securities itself. In performing this service,
Rodman assumed a principal position, recording funds received against
securities loaned as liabilities and funds advanced against securities borrowed
as assets. Such loans and borrowings were collateralized through initial cash
deposits and subsequent deposits made as a result of daily marking-to-market of
the underlying securities. As a result of the conversion to clear its customer
business through CSC, Rodman ceased conducting this activity in February 1996.
FEE INCOME
Fee income represented approximately 13% of the Company's total revenue
for 1996. The Company derives fee income primarily from the following areas:
INVESTMENT BANKING. Rodman's investment banking department provides
financial advice to and raises capital for corporate clients. It also advises
clients in connection with mergers and acquisitions. This department 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 financial planning and corporate
recapitalizations.
PORTFOLIO MANAGEMENT SERVICES. Rodman Advisory Services, Inc., a wholly
owned subsidiary of the Company, provides investment advisory consulting
services to individuals, municipalities and employee benefit plans.
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. Further, the Company's recent
substantial losses have impeded its ability to compete in certain areas of its
business.
In addition, there is increasing competition from other sources, such as
commercial banks and insurance companies. Several leading commercial banks have
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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. 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 March 1, 1997, the Company employed approximately 267 full-time
employees. The following analysis demonstrates the changes in personnel
consistent with the restructuring the Company has undergone over the past 3
years:
<TABLE>
<CAPTION>
MARCH 1994 MARCH 1996 MARCH 1997
---------- ---------- ----------
<S> <C> <C> <C>
Retail securities representatives 70 52 58
Institutional equity sales and trading reps. 3 48 50
Institutional fixed income sales and trading reps. 50 32 2
Investment banking representatives 13 19 15
Research analysts 1 27 22
Commodities associated persons 37 4 1
---- --- ---
Total producers 174 182 148
Administrative and Clerical 290 161 119
---- --- ---
Total 464 343 267
==== ==== ===
</TABLE>
None of the Company's employees are covered by a collective bargaining
agreement. 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 (the "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, National Futures Association and
national securities and commodities exchanges. The NYSE and the National Futures
Association 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, 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, or 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.
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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. In 1996 the
SIPC assessment was $150. As Rodman's clearing broker, CSC provides Rodman
customers, through a private insurer, with protection of between $4.5 million
and $49.5 million in excess of available SIPC limits, depending on the type of
account and subject to certain limitations. 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. 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. At December 31, 1995,
these rules required 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. As a result of
the conversion to clear its customer business through CSC, in February, 1996,
Rodman's net capital requirement pursuant to these rules was reduced to the
greater of $250,000 or 4% of the funds required to be segregated for
commodities customers. See Note 10 to the Consolidated Financial Statements.
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. See Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources.
ITEM 2. PROPERTIES
The headquarters of the Company are located at 233 South Wacker Drive,
Suite 4500, Chicago, Illinois. Other offices are located in New York, San
Francisco, Dallas and Boston. All of the offices are leased on a long-term
basis under leases which expire at various dates from 1997 to 2010. See Note 11
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, 1996.
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, as well as in civil actions by former
employees. 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 legal counsel, the ultimate
resolution of pending litigation will not have a material adverse effect on the
Company's financial condition.
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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, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The common stock of Rodman & Renshaw Capital Group, Inc. is listed on the NYSE.
The trading symbol is RR. At March 1, 1997, the approximate number of
stockholders of record was 183. Information with respect to the price range of
the common stock is presented in the table below.
DIVIDENDS
The Company has declared no dividends during the past three years. See Note 8
to the Company's Consolidated Financial Statements for a discussion of
potential restrictions on the payment of dividends and for a discussion of
dividends on preferred stock.
SUPPLEMENTARY FINANCIAL DATA
QUARTERLY DATA (UNAUDITED)
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INCOME (LOSS)
BEFORE
TAXES AND
CUMULATIVE
EFFECT OF STOCK PRICE
ACCOUNTING FOR INCOME RANGE
INCOME NET INCOME (LOSS) -----------
REVENUES EXPENSES TAXES (LOSS) PER SHARE HIGH LOW
-------- --------- -------------- ---------- --------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1996
Quarter Ended:
3/31/96 $ 14,972 $ 20,223 $ (5,251) $ (5,251) $ (.79) $1.750 $1.500
6/30/96 19,774 21,464 (1,690) (1,690) (.25) 2.000 1.375
9/30/96 11,979 18,350 (6,371) (6,371) (.96) 1.375 1.125
12/31/96 13,849 22,328 (8,479) (8,479) (1.28) 1.500 1.125
-------- -------- --------- --------- ---------
TOTAL: $ 60,574 $ 82,365 $ (21,791) $ (21,791) $ (3.28)
======== ======== ========= ========= =========
1995
Quarter Ended:
03/31/95 $ 17,479 $ 20,702 $ (3,223) $ (2,206) $ (.37) $4.750 $3.375
06/30/95 20,525 24,530 (4,005) (4,005) (.60) 5.000 3.875
09/30/95 19,103 25,691 (6,588) (8,208) (1.24) 4.250 2.750
12/31/95 15,418 28,618 (13,200) (15,563) (2.42) 3.000 1.375
-------- -------- --------- --------- ---------
TOTAL: $ 72,525 $ 99,541 $ (27,016) $ (29,982) $ (4.63)
======== ======== ========= ========= =========
Transition Period
Quarter Ended:
09/30/94 $ 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
03/25/94 14,593 17,707 (3,114) (2,088) (.46) 7.875 5.750
06/24/94 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)
======== ======== ========= ========= =========
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA
(In Thousands of dollars except per share data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED LAST FRIDAY IN JUNE
--------------------------------------
YEAR ENDED YEAR ENDED TRANSITION
12/31/96 12/31/95 PERIOD 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues (1) $60,574 $72,525 $32,194 $77,317 $87,309 $84,378
Expenses (1) 82,365 99,541 38,526 94,748 86,761 81,175
---------- ---------- ---------- ---------- ---------- ----------
Income(loss) before
income taxes (21,791) (27,016) (6,332) (17,431) 548 3,203
Net income (loss) (21,791) (29,982) (4,164) (16,501) 256 1,989
Net income (loss)
per common share (3.28) (4.63) (0.91) (3.69) 0.06 0.46
Cash dividends per share -0- -0- -0- -0- -0- -0-
BALANCE SHEET DATA
Total assets (1) $43,783 $119,333 $454,331 $300,664 $310,198 $321,890
Total liabilities (1) 51,631 117,890 424,032 263,325 271,288 282,772
Liabilities
subordinated to the claims of
general creditors 23,500 -0- 3,874 6,750 8,000 8,500
Total stockholders'
equity (7,848) 1,443 26,425 30,589 30,910 30,618
Book value
per common share (2) (1.18) .22 5.77 6.68 7.07 7.01
Book value
per common share assuming
conversion at 12/31/94 (2) --- --- 3.98 --- --- ---
</TABLE>
(1) See Item 7, Management's discussion and analysis of financial condition
and results of operations - certain accounting matters.
(2) Effective June 24, 1994, the Company issued to Abaco for an aggregate
price of $15 million, 150 shares of Series A 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
Series A preferred stock held by Abaco were converted into a total of
2,068,965 shares of common stock. In December 1995, the Company issued to
Abaco for an aggregate price of $5 million, 50 shares of Series B
non-voting preferred stock convertible into common stock upon the
commencement of a rights offering to all stockholders. In the conversion,
the $5 million would be divided by the book value per common share as of
the end of the previous month to determine the number of common shares to
be issued to Abaco. In March and April 1996 Abaco provided $5 million and
$4.5 million, respectively, to the Company in exchange for 50 shares of
Series C non-voting preferred stock and 45 shares of Series D non-voting
preferred stock, respectively, at a price per share of $100,000. The terms
of such shares are substantially identical to those of the Series B
non-voting preferred stock. In addition, the Company's balance sheet at
September 30, 1996 reflected the issuance of 30 shares of Series E
non-voting preferred stock, which also were sold to Abaco at a price per
share of $100,000. The terms of such shares are substantially identical to
those of the Series B non-voting preferred stock except that conversion may
only be made if the conversion receives stockholder approval or if the
conversion is made in connection with a rights offering to all
stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS ENVIRONMENT
Like other securities brokerage and investment banking firms, the Company
conducts its businesses in highly volatile markets. Consequently, the Company's
results of operations are affected by many factors, including general market
9
<PAGE> 10
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 fixed. As a result, revenues and net earnings can vary
significantly from quarter to quarter and year to year.
1996 was a profitable year for the securities industry generally.
Nonetheless, Rodman experienced a significant loss. The loss was due in part to
capital constraints and to costs related to the downsizing of the Company's
commodities and institutional fixed income businesses, the continued
restructuring of its securities related businesses and the upgrading of its
infrastructure. The continuing losses also prompted certain customers and
counterparties to reevaluate and in some cases suspend their relationship with
Rodman, further impacting earnings.
OUTLOOK
Until the Company returns to profitability, it will have significant
difficulty obtaining credit, hiring and retaining talented employees and in
some areas attracting and retaining customers. The Company has already incurred
significant costs attributable to the Company's restructuring and is continuing
to implement measures to reduce the Company's costs further. In addition,
Parent has provided the Company with a letter agreeing to support it through
March 31, 1999. Such support may include, with previous receipt of requisite
approvals from Mexican governmental authorities, infusions of capital,
conversion of short-term debt to long-term debt or conversion of long-term debt
to equity, if required, to continue to sustain Rodman's operations in the
ordinary course. In February 1997, an additional $2,500,000 was borrowed by the
Company from Confia, S.A. (See "Liquidity and Capital Resources," below, and
Notes 7 and 16 to the Consolidated Financial Statements.) The Company
experienced a loss in the first quarter of 1997 and expects to report a loss
for 1997. The Company is seeking, however, to achieve profitability in terms
of income before interest and taxes by the fourth quarter of 1997 as a result
of the restructuring, the cost reductions and the support from Abaco. Actual
results for the year 1997 will depend upon a number of factors, including
financial market conditions generally and the market for new securities
issuances in particular, Rodman's ability to reinstate relationships with
institutional customers and counterparties, and its ability to attract and
retain qualified personnel.
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 end
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 years
ended December 31, 1996 and December 31, 1995, the Transition Period and the
fiscal year ended June 24, 1994 (dollar amounts in thousands):
<TABLE>
<CAPTION>
INCREASE (DECREASE)
1/1/96 - 12/31/96 1/1/95 - 12/31/95
VS. VS. TRANSITION PERIOD VS. FISCAL YEARS
1/1/95 - 12/31/95 1/1/94 - 12/31/94 06/26/93 - 12/31/93 1994 VS. 1993
------------------ ----------------- -------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Commissions $ (4,983) (20%) $ (404) (2%) $(3,8275) (25%) $(9,560) (25%)
Principal 2,557 10% 11,525 76% (12,211) (63%) (4,903) (15%)
Interest (8,104) (80%) (2,117) (17%) 3,042 63% (1,345) (13%)
Fee income (385) ( 5%) 2,577 47% (2,109) (35%) 4,453 142%
Other (1,036) (37%) 771 38% (1,990) (56%) 1,363 51%
------- ------ ------- ----- --------- ----- -------- ------
TOTAL: $(11,951) (16%) $12,352 21% $(17,143) (35%) $(9,992) (11%)
========= ====== ======= ===== ========= ===== ======== ======
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EXPENSES
Employee compen-
sation & benefits $(10,180) (18%) $14,467 33% $(6,650) (23%) $ (34) 0%
Commissions, floor
brokerage & clearing 471 12% (1,416) (26%) (1,720) (42%) (1,580) (18%)
Interest (5,647) (55%) 1,562 18% 2,942 98% (1,421) 20%)
Communication (3,234) (36%) 2,677 43% 125 4% (740) (11%)
Occupancy and
equipment (1,230) (15%) 2,345 39% 65 2% (512) (8%)
Professional fees (1,701) (35%) 1,794 59% (2,197) (74%) 2,517 93%
Other operating 4,345 80% (3,780) (29%) (1,606) (53%) 5,942 123%
Restructuring charge -0- -0- (3,815) (100%) -0- -0- 3,815 100%
--------- ----- -------- ------ -------- ------ ------ ----
TOTAL: $(17,176) (17%) $13,834 16% $(9,041) (19%) $7,987 9%
========= ===== ======== ====== ======== ====== ====== ====
</TABLE>
Revenues for the year ended December 31, 1996 totaled $60.6 million, a 16%
decrease from the twelve month period ended December 31, 1995. Revenues for
the year ended December 31, 1995 totaled $72.5 million, a 21% increase from the
twelve month period ended December 31, 1994. During the fiscal year ended June
24, 1994, the Company's revenues decreased approximately 11% from the fiscal
year ended June 25, 1993 to $77.3 million.
The Company recorded a net loss of $21.8 million or $3.28 per common share
for the year ended December 31, 1996, compared to a net loss of $30.0 million
or $4.63 per common share for the year ended December 31, 1995. The Company
recorded a net loss of $4.2 million or $.91 per common share for the Transition
Period. The Company recorded a net loss for fiscal 1994 of $16.5 million, or
$3.69 per common share, compared with fiscal 1993 net income of $0.3 million,
or $.06 per common share.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
REVENUES
Revenues for the year ended December 31, 1996 were $60.6 million as
compared to $72.5 million for the prior year, a decrease of 16.4%. The revenue
decline reflected decreases in each major revenue category except principal
transactions. The net loss for the year was $21.8 million, or $8.2 million
better than the previous year, primarily reflecting the impact of management's
planned cost reduction program. Correspondingly, net loss per common share of
stock was $3.28 for the year ended December 31, 1996 as compared to a loss of
$4.63 for the same 1995 period.
Total commission revenue decreased 20% in 1996, largely reflecting the
$5.9 million decrease in commodities revenue stemming from the downsizing of
that area. Total principal revenue increased 9.6% in 1996 and significantly
exceeded commission revenue. Principal revenue from institutional credits
decreased sharply in 1996 while that from retail credits rose slightly. The
decrease in institutional credits primarily resulted from a dramatic decline in
bond credits, which fell from $12.6 million in 1995 to $15,000 in 1996.
Institutional credit revenue from equity and debt underwritings decreased 21.8%
while that from over the counter stocks rose 101%. Retail credits rose slightly
in 1996. A dramatic 430% increase in retail credits for over the counter stocks
to $10.9 million more than offset a 98.3% decrease in retail credits from
equity and debt underwritings, which fell from $6.9 million to $113,000. In
addition, there were strong results in the trading of corporate fixed income
and zero coupon bonds. Revenues in 1996 were $7.5 million compared to a
negative $0.4 million in 1995. Such fixed income results are unlikely to
continue in 1997, inasmuch as the Company significantly downsized its fixed
income effort in late 1996 and certain additional fixed income personnel
resigned in early 1997. Total fee income in 1996 decreased slightly, as a 41%
decrease in corporate
11
<PAGE> 12
and municipal finance fees to $2.8 million was offset by a 64% increase in
advisory service fee revenue to $4.9 million.
Interest income in 1996 declined significantly from 1995 as the Company
reduced its securities inventory positions and converted to a non-clearing
broker- dealer and futures commission merchant. Other income in both the 1996
and 1995 periods included the sale of certain exchange seats.
EXPENSES
Expense levels for the year ended December 31, 1996 were $82.4 million or
$17.2 million (or 17%) below the 1995 level. Expense reductions were achieved
in almost every expense category reflecting management's cost reduction
program. As of December, 1996 the Company had realized a 20% reduction in
total employees versus December, 1995. The resultant expense reductions were
partly offset by higher compensation levels for key research and investment
banking hires.
Interest expense declined significantly versus 1995 primarily reflecting
the decrease in securities inventory positions consistent with the change in
business mix.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO TWELVE MONTHS ENDED DECEMBER 31, 1994
REVENUES
Commission revenue for the year ended December 31, 1995, decreased 2% to
$24.9 million compared to the twelve month period ended December 31, 1994. This
decrease is comprised of a significant decrease of commodities commission
revenues (estimated to be approximately $18.0 million on an annualized basis)
resulting from the decision to divest a majority of the Company's commodities
business, offset by a significant increase in securities commission revenues.
The increase in securities commission revenues results from the hiring of more
productive retail securities representatives and the addition of the
institutional equity department.
Revenues from principal transactions, which include realized and
unrealized gains and losses on securities held for resale to customers,
increased 76% to $26.6 million as compared to $15.1 million during the twelve
month period ended December 31, 1994. This increase is primarily due to market
conditions.
Interest income decreased 17% to $10.1 million for the year ended December
31, 1995. This is due in part to the decline in commodities business and the
corresponding decrease in commodities customers' cash balances. In addition,
due to decreases in regulatory capital and working capital during the year, the
Company significantly reduced its securities inventory positions in 1995, as
compared to 1994.
Fee income was also positively impacted by the hiring of the majority of
the investment banking personnel from Mabon Securities Corp. The Company's fee
income rose 47% to $8.1 million for the year ended December 31, 1995.
Other revenue increased to $2.8 million for the year ended December 31,
1995, primarily due to a $1.2 million gain on the sale of commodities exchange
memberships.
12
<PAGE> 13
EXPENSES
Employee compensation and benefit expense increased 33% from the previous
twelve month period ended December 31, 1994. This increase results primarily
from the hiring of the institutional equities, investment banking and research
department personnel of Mabon Securities Corp. as discussed above. During 1995,
the Company effectively incurred nine months of fixed expenses, yet realized
approximately six months of revenues due to a lag in revenue production caused
by the transition of customer accounts and relationships.
Commissions, floor brokerage and clearing expenses decreased 26% to $4.0
million compared to the twelve month period ended December 31, 1994,
commensurate with the shift to a non-clearing futures commission merchant.
Interest expense increased 18% to $10.2 million for the year ended
December 31, 1995 from $8.7 million for the comparable period one year ago.
This increase is due primarily to the increase in short term borrowings from
Confia, S.A. at the dollar interest rates prevailing in Mexico, as compared to
the lower U.S. bank rates.
For the year ended December 31, 1995, occupancy and equipment expense
increased 39% to $8.4 million, reflecting the absorption of the Mabon
Securities Corp. personnel in Boston, San Francisco and New York and the
relocation of Rodman's New York and Chicago offices.
Professional fees increased 59% for the year ended December 31, 1995 to
$4.8 million. The Company incurred several nonrecurring professional expenses
during 1995 as part of the restructuring of its business and upgrading of its
infrastructure. The expenses included consulting fees, legal fees and
employment agency fees.
Other expenses decreased 58% to $5.4 million for the year ended December
31, 1995. The previous twelve month period included certain significant
non-recurring expenses and losses as discussed below.
TAX ISSUE
The Company recorded a provision for income taxes as it increased the
valuation allowance due to the uncertainty of realizing the benefit of recorded
deferred tax assets. See Note 13 to the Consolidated Financial Statements.
The Company will periodically review the achievement of its business goals
and evaluate its 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.
The Company's net operating loss carryforward expires between the years
2008 and 2010. 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.
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 $11.9 million, 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 $7.0 million,
primarily due to market conditions. The Company aggressively hired experienced
traders and salespersons in the institutional fixed income department during
the Transition Period.
During the Transition Period, interest income increased 63% from the
comparable six month period in 1993 to $7.9 million. The increase was due to
higher interest rates earned on increased balances of securities inventories
and increased
13
<PAGE> 14
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
$3.9 million. 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 $1.5 million. The Company realized a $0.7 million gain on the sale of a
Chicago Board of Trade exchange membership during the Transition Period. The
Company realized nonrecurring gains of $2.6 million 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 $21.9 million.
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 $2.3 million, commensurate with the
decrease in commission revenues.
Interest expense increased 98% from the comparable six month period in
1993 to $5.9 million due to higher interest rates on increased securities
inventory balances and the effect of increased short-term borrowings from
Abaco.
Professional fees decreased 74% from the comparable six month period in
1993 to $0.8 million. The Company paid approximately $1.6 million 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 $1.4
million, primarily related to a significant decrease in errors, bad debt and
legal settlements.
The Company recorded an income tax benefit of $2.2 million for the
Transition Period as management believed that this benefit will be realized in
connection with the Company's intended tax strategies and projected future
income.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
REVENUES
Commission revenue decreased 25% in fiscal 1994 to $29.2 million, largely
a function of the reduced volume in the securities and futures markets and
losses of revenue producing personnel.
Revenues from principal transactions, which include realized and
unrealized gains and losses on securities held for resale, decreased 15% to
$27.3 million in fiscal 1994 primarily due to losses incurred as a result of
volatility in the debt markets.
Interest income decreased 13% in fiscal 1994 to $9.2 million 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 $7.6 million. 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 seven during fiscal 1993.
14
<PAGE> 15
The Company realized nonrecurring net gains of $2.6 million 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 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>
<TABLE>
<CAPTION>
The components of the $6.4 million incurred in the ownership change transaction
are as follows:
<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 recorded a restructuring charge totaling approximately $3.8
million related to office relocations in Chicago and New York during 1995. This
figure includes the costs of abandoning certain leasehold improvements (a net
noncash charge of approximately $0.5 million) 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 $3.4 million 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 $1.2 million
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 $3.5 million 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 $3.5 million
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. A restructuring charge liability of $0.8 million was paid
in 1996.
15
<PAGE> 16
Total Expenses. Total expenses increased $8.0 million to $94.7 million in
fiscal 1994, following an increase of $5.6 million in fiscal 1993. The
following discussion focuses on the changes in expenses by financial statement
line item after excluding the nonrecurring expenses discussed above. The
nonrecurring expenses were summarized above by transaction type, not by
financial statement line item.
Employee compensation and benefit expense, excluding nonrecurring expenses
totaling $5.4 million as discussed above, totaled $44.7 million, a decrease of
$5.4 million, 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 $7.1
million in fiscal 1994, commensurate with the decrease in commission revenues.
Interest expense decreased 20% to $5.7 million in fiscal 1994 from $7.1
million 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.
Communication expense decreased 11% to $6.0 million from $6.8 million 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.
Occupancy and equipment expense decreased 8% to $5.9 million in fiscal
1994, primarily due to the sale of the London futures and option operations in
August 1993.
Professional fees, excluding the certain nonrecurring expenses of $3.4
million, as discussed above, decreased 32% to $1.8 million in fiscal 1994 due
to a reduction in consulting projects.
Other operating expenses, excluding certain nonrecurring expenses of $5.8
million, as discussed above, increased 3% to $5.0 million in fiscal 1994.
The Company recorded a net tax benefit of $0.9 million for fiscal 1994. An
additional benefit of $4.5 million, 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 $2.5 million and $2.6 million, 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. In February 1996, Rodman's net capital
requirement was reduced as a result of its shift from clearing to non-clearing
status. See Note 10 to the Consolidated Financial Statements. At December 31,
1996, Rodman's net capital was $2.5 million, which was $2.2 million in excess
of the minimum required net capital. At December 31, 1995, Rodman's net capital
was $15.4 million, which was $14.3 million in excess of the minimum required
net capital. At December 31, 1994, Rodman's net capital was $16.6 million,
which was $11.0 million in excess of the minimum required net capital.
The Company's assets are substantially comprised of cash and cash
equivalents and securities inventory, both of which are highly liquid. The
principal sources of financing are stockholders' equity, customer payables, and
other payables. Additionally, Rodman maintains lines of credit with large
financial institutions which include letters of credit and reverse repurchase
agreements. All of these lines of credit require collateral to be pledged, and
none of the borrowings can exceed the value of the collateral. Certain Rodman
lines of credit with financial institutions other than Confia, S.A. have been
terminated or significantly reduced because of the Company's continuing losses.
16
<PAGE> 17
On June 22, 1994, the Company borrowed $10.0 million from Confia, S.A.
During 1995, the Company obtained additional loans from Confia, S.A. in an
aggregate amount of $16.5 million. The Company required the additional loans in
order to continue to conduct its business because its losses were eroding its
net capital. On December 4, 1995, the Company paid all interest due on the
loans and consolidated the principal amounts, totaling $26.5 million, into a
note due June 3, 1996 and bearing interest at an annual rate of 12%. The loan
was renewed on June 3, 1996 for a six month term ending December 3, 1996 at an
annual interest rate of 12% and was further renewed in December 1996 to June 3,
1997 for $23.5 million at an annual interest rate of 12%. Based upon the
letter of support that the Company received from Parent, management believes
that it is the intention of Confia, S.A. to renew the loan when it becomes due
or to convert all or a portion of the loan to equity pursuant to the Note
Conversion Agreement discussed below, subject to receipt of requisite
approvals from Mexican government authorities. A renewal may be on different
terms than the original loan, depending upon market conditions and Confia,
S.A.'s internal lending policies at the time of renewal.
The Company entered into a Note Conversion Agreement with Confia, S.A.
dated September 29, 1995 and amended November 10, 1995, pursuant to which
Confia, S.A. has the right to convert all or a portion of the Company's
outstanding indebtedness to equity in the Company. The number of shares of
common stock to be issued upon a conversion would be determined by dividing the
amount of indebtedness to be converted by the book value per share of common
stock as of the end of the Company's most recent fiscal quarter (provided,
however, that if such book value per share were equal to or less than $.09,
which is the par value per share of the common stock, the denominator would be
$.09). Indebtedness is convertible only if the conversion receives stockholder
approval or if the conversion is made in connection with a rights offering to
all stockholders at the same effective per share price for a number of shares
proportional to the number to be issued upon the conversion. Confia, S.A. may
transfer the conversion right to Abaco or another corporation within the Abaco
group of affiliated companies.
In addition, in December 1995, the Company issued to Abaco 50 shares of
non-voting preferred stock at a price per share of $0.1 million, which shares
are convertible into Company common stock. In a conversion, the $5.0 million
preferred stock purchase price would be divided by the book value per share of
common stock as of the end of the most recent month to determine the number of
shares of common stock to be issued (provided, however, that if such book value
per share were equal to or less than $.09, which is the par value per share of
the common stock, the denominator would be $.09). The preferred stock is
convertible only in connection with a rights offering to all stockholders at
the same effective per share price for a number of shares proportional to the
number to be issued upon conversion at a price per share equal to such book
value per share or par value, as the case may be. Accordingly, in the event of
such a rights offering, each stockholder would have the opportunity to purchase
a sufficient number of shares at the offering price to maintain his or her
percentage ownership of the Company.
On February 9, 1996, the Company also received a letter from Parent
whereby Parent agreed to continue to unconditionally support the Company and
Rodman for the next year, up to and including March 31, 1997. Such support may
include, with previous receipt of requisite approvals from Mexican governmental
authorities, infusions of capital, conversion of short-term debt to long-term
debt or conversion of short or long-term debt to equity, if required, to
continue to sustain Rodman's operations and allow it to maintain the required
net capital pursuant to the SEC's Uniform Net Capital Rule 15c3-1. In February
1997 the Company received a new support letter from Abaco covering the period
up to and including March 31, 1999. Such letter states that it is the
intention of Parent and Abaco to continue to unconditionally support the
company and Rodman for losses incurred in the ordinary course of business
during such period and that such support may include, with prior receipt of
requisite approvals from Mexican governmental authorities, infusions of
capital, conversion of short term debt to long term debt or conversion of short
or long term debt to equity.
Parent agreed to provide the Company with a total of $9.5 million in
equity capital in March and April, 1996. On March 29, 1996, it provided $5.0
million of that total through the purchase by Abaco of 50 additional shares of
non-voting preferred stock at a price per share of $0.1 million. The terms of
such shares are identical to those of the preferred stock issued in December
1995, as discussed above. On April 30, 1996, Abaco provided the remaining $4.5
million through the purchase of 45 additional shares of non-voting preferred
stock at a price per share of $0.1 million. The terms of such shares are
substantially identical to those of the preferred stock issued in December
1995, as discussed above.
The Company's balance sheet as of September 30, 1996 reflected the
issuance to Abaco of an additional 30 shares of non-voting preferred stock at a
price per share of $0.1 million for a total of $3 million pursuant to an
understanding with Abaco reached during the third quarter. The terms of such
shares are substantially
17
<PAGE> 18
identical to those of the Series B non-voting preferred stock except that
conversion may only be made if the conversion receives stockholder approval or
if the conversion is made in connection with a rights offering to all
stockholders. The cash consideration was received for such shares from Abaco on
November 14, 1996. At December 31, 1996, the book value per share of the
Company's common stock was negative, meaning that any conversion of the
Company's preferred stock held by Abaco would be at the $.09 per share par
value. Full conversion of the Company's preferred stock held by Abaco at such
price, assuming only Abaco's exercise of its conversion rights, would entail the
issuance of approximately 198 million shares of common stock. In the event that
the Company's outstanding indebtedness to Confia of $23.5 million also were
converted at such price, such conversion would entail the issuance of an
additional 260 million shares of common stock.
During the fourth quarter of 1995, the Company finalized an equipment
leasing arrangement for approximately $6.0 million in financing in order to
minimize the impact of its Chicago and New York office relocations on its
liquidity. Confia, S.A., issued a standby letter of credit for the account of
the Company in the amount of $6.0 million as additional security for the
financing. If the letter of credit were drawn down, the resulting $6.0 million
of indebtedness that the Company would owe Confia, S.A. would carry the same
conversion rights as the Company's current indebtedness to Confia, S.A.
described above.
As of February 28, 1997 the Company had subordinated loans outstanding to
Rodman, its broker dealer subsidiary, in an aggregate amount of $21.0 million.
The loans are funded by the Company's borrowing from Confia, S.A. discussed
above. To the extent that such subordinated borrowings are required for
Rodman's continued compliance with minimum net capital requirements, they may
not be repaid. In the event that the borrowing between the Company and Confia,
S.A. were not renewed or converted, Rodman would be required to curtail its
business activities substantially, then would seek regulatory approval to repay
its subordinated debt to the Company. See Notes 7 and 10 to the Consolidated
Financial Statements. Rodman obtained regulatory approval to repay and repaid a
$2.5 million subordinated note from an unrelated party on October 2, 1995 with
proceeds from a subordinated loan from the Company which was funded by the
borrowings from Confia, S.A.
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 (the "debt/equity ratio"). At December 31,
1995, Rodman's debt/equity ratio was 78.2%. In January 1996, the Company and
Rodman converted $5 million from short-term to long-term subordinated debt,
which is treated as equity for purposes of the Uniform Net Capital Rule,
thereby reducing the debt/equity ratio to 60%. At December 31, 1996, Rodman's
debt/equity ratio was 75%. In mid-February 1997, Rodman repaid $5 million of
its revolving subordinated indebtedness to the Company and the Company
correspondingly made a $5 million contribution to Rodman's capital. Also in
February 1997, Rodman received an additional capital contribution of $0.3
million from the Company and borrowed an additional $2.5 million under the
revolving subordinated credit facility with the Company. At the end of February
1997 Rodman's net capital was $1.8 million and its debt-equity ratio was 58%.
The Company does not anticipate any material capital expenditures during
1997. Future capital expenditures, if any, are expected to be funded by cash
generated from operations and other traditional means of financing.
CASH FLOWS
Operating Activities. Operating activities generated $17.9 million in net
cash in 1996, primarily as a result of receivable collections. Due to a
reclassification from operating activities to investing activities, restated
operating activities used $27.8 million in net cash in 1995. In the Transition
Period, the Company used $0.2 million in net cash. In fiscal 1994, the Company
generated net cash of $3.2 million.
18
<PAGE> 19
Investing Activities. In 1996, the Company used $3.4 million in net cash
from investing activities, primarily as a result of an increase in securities
purchased under agreements to resell. Due to a reclassification from operating
activities, in 1995, the Company generated $35.9 million in net cash in
investing activities, primarily as a result of a decrease in securities
purchased under agreements to resell. In the Transition Period, the Company
used $21.6 million in net cash from investing activities primarily as a result
of an increase in securities purchased under agreements to resell. In fiscal
1994, the Company used $9.7 million in net cash from investing activities,
primarily as a result of an increase in securities purchased under agreements
to resell.
Financing Activities. In 1996, the Company used $21.2 million in net cash
from financing activities, which represents a reduction in short term
borrowings from banks. In 1995, the Company used $6.0 million in net cash in
financing activities, which represents the net effect of the reduction in short
term borrowings from banks and the increase in short term borrowings from
Confia, S.A. In the Transition Period, the Company generated $28.2 million in
net cash from financing activities, which represents the net effect of an
increase in short-term borrowings from banks of $31.1 million to finance
increased securities inventories and the payment of $2.9 million in
subordinated borrowings. In fiscal 1994, the Company generated $6.0 million in
net cash 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.
INFLATION
The Company's assets primarily consist of cash, securities inventory and
receivables. These assets are generally liquid, 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, occupancy and equipment, which may
not be readily recoverable in the price of its services.
CERTAIN ACCOUNTING MATTERS
During fiscal year 1993 Rodman implemented the following accounting
changes:
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. Rodman believes these accounting
changes better reflect the substance of the transactions.
2. Rodman adopted SFAS No. 109, "Accounting for Income Taxes." The
cumulative effect of this change was an $18,000 benefit.
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 14 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, beginning in 1995, the Company's
fiscal year is a calendar year.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FASB 123"). FASB 123, which becomes effective in 1996,
encourages the adoption of a fair value based method of accounting for
stock-based compensation plans. The Company has elected to continue to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Applying APB 25, the Company has not recognized
compensation expense because the exercise price of the Company's employee stock
options equals or exceeds the market price of the underlying stock on the date
of grant.
19
<PAGE> 20
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
NONE
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The following table sets forth each of the Company's current directors and
executive officers and his age, current positions with the Company, period of
service and business experience for the past five years.
Peter Boneparth Age 37; Director since 1995; Executive Vice
President and Senior 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. Mr. Boneparth also serves as a director of
Marissa Christina, Inc.
William C. Dennis, Jr.* Age 53; Director since June 20, 1996, Executive
Vice President and Chief Financial Officer of the
Company since May 9, 1996; Managing Director of
Market Imaging Systems, Inc. from 1989 to 1996;
Chief Financial Officer of the Capital Markets
Sector of Merrill Lynch & Co., a financial services
firm, prior to 1989.
Francis L. Kirby Age 52; Director since 1994; Senior Managing
Director of Retail Financial Services for Rodman
since November 1995; 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.
Joseph P. Shanahan Age 49; Director since 1993; President and Chief
Executive Officer of the Company and Rodman since
December 3, 1996; Executive Vice President and Chief
Operating Officer of Rodman from February 8, 1996 to
December 3, 1996; Director of Operations and
Administration for Rodman from January 2, 1996 to
February 8, 1996; President of Abaco International
Corp., a wholly-owned subsidiary of Abaco, from 1992
to 1996; Vice President of Rodman from January 1994
to April 1994; consultant to Excalibur Management,
Ltd. from 1990 to 1992.
Alexander C. Anderson Age 49; Director since 1994; Research Director of
Abaco since 1989.
Ernesto Arechavala Age 32; Director since 1995; Director of
Administration and Finance for Abaco since 1993;
Director of Operations for Abaco from 1991 to 1993.
Eduardo Camarena Legaspi Age 46; Director since 1993; Director of
International Affairs for Parent since 1987; Chief
Executive Officer of Abaco from 1991 to 1995;
Director of Abaco from 1985 to 1995; Director of
Parent since 1992 and Director of Confia, S.A. since
1991.
* Mr. Dennis has submitted his resignation from all his positions with the
Company effective as of April 30, 1997.
20
<PAGE> 21
Jorge Antonio Garcia Garza Age 35; Director since 1993; General Counsel,
Secretary of the Board of Directors of Parent since
1992; General Counsel of Abaco since 1985 and
Secretary of Abaco's Board of Directors since 1986;
General Counsel of Confia, S.A. since 1992,
Secretary of the Board of Directors of Confia, S.A.
since 1993 and Director of Confia, S.A. since 1991.
Jorge Lankenau Rocha Age 52; Chairman of the Board of the Company and
Director since 1993; Chairman of the Board of
Parent since 1992 and of Abaco since 1985; Chief
Executive Officer of Abaco from 1985 to 1991;
Chairman of the Board and Chief Executive Officer
of Confia, S.A since 1991.
Thomas E. Meade** Age 56; Director since 1994; Founder and President
of Private Capital Management, Inc., an investment
management and consulting firm, since 1993;
President of Fidelity Brokerage, a securities
brokerage firm, from 1992 to 1993; President of
Kemper Securities/Boettcher, a securities brokerage
firm, from 1988 to 1992.
Rodrigo Padilla Age 49; Director since 1995; Director of Parent
since April 1992; Director of Abaco since April
1992; Director of Confia, S.A., since April 1992.
Richard Pigott*** Age 56; Director since 1994; corporate merger and
acquisition advisor and private investor since
1988. Mr. Pigott also serves as a Director of
Ameriwood Industries International Corporation.
Federico Richardson Lamas Age 35; Director since 1995; National Sales Manager
of Abaco since 1995; investment advisor with Abaco
since 1986; Director of Confia, S.A. since 1995.
David S. Ruder Age 67; Director since 1993; Professor of Law,
Northwestern University School of Law since 1961;
partner with Baker & McKenzie, an international law
firm, from 1990 to 1994 and Senior Counsel since
1994; Chairman of the Securities and Exchange
Commission from 1987 to 1989. Member of the Board
of Governors of the National Association of
Securities Dealers, Inc., from 1990 to 1993. Mr.
Ruder also serves as a Director of Quixote
Corporation.
** Mr. Meade has submitted his resignation as a Director and from all other
positions with the Company effective as of April 15, 1997.
*** Mr. Pigott has submitted his resignation as a Director and from all other
positions with the Company effective as of April 15, 1997.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own more than 10% of
the Company's common stock to file initial stock ownership reports and reports
of changes in ownership with the SEC and the NYSE. The Company must also be
furnished with a copy of these reports. Based on Company records, no reporting
persons failed to file such required reports on a timely basis, except that
Francis L. Kirby, a director and executive officer of the Company, filed one
late report during 1995 with respect to one transaction. Rodrigo Padilla and
Ernesto Arechavala, directors of the Company, each filed one late Form 3 Initial
Statement of Beneficial Ownership of Securities. Edwin J. McGuinn, Jr., a
former director and executive officer of the Company, filed one late report
during 1996 with respect to one transaction in 1995. William C. Dennis, Jr.
filed a late Form 3 Statement of Beneficial Ownership of Securities in 1996.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation for
the year ended December 31, 1996, December 31, 1995, the Transition Period and
the fiscal year ended June 24, 1994 for the following persons (the "named
executive officers"):
21
<PAGE> 22
(i) the Company's chief executive officer, and (ii) the other four executive
officers at December 31, 1996 with the highest total salary and bonus for 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
SECURITIES ALL OTHER
OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION PERIOD SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) ($)(1)
- - --------------------------- ---------- --------- -------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Daggs III(2) 1996 287,500 600,000 -0- -0- -0-
President and Chief 1995 300,000 600,000 -0- -0- 924
Executive Officer Transition 150,000 -0- -0- -0- -0-
Period
1994 68,269 500,000 -0- 100,000 10,000
William C. Dennis, Jr.(3)
Chief Financial Officer
Executive Vice President 1996 98,000 100,000 -0- 100,000 -0-
Joseph P. Shanahan(4)
President and Chief
Executive Officer 1996 250,000 -0- -0- -0- -0-
Peter Boneparth(5) 1996 200,000 650,000 -0- -0- -0-
Executive Vice President 1995 153,846 650,000 -0- 20,000 -0-
F.L. Kirby(6) 1996 456,169 77,600 -0- -0- -0-
Executive Vice President 1995 352,989 -0- -0- -0- -0-
Gilbert R. Ott, Jr.(7) 1996 87,500 -0- -0- -0- -0-
Executive Vice President
General Counsel
</TABLE>
(1) Amounts included under "All Other Compensation" consist of (i) Company
matching funds under the Company's Retirement and Savings Plan and (ii) in
the case of Mr. Daggs, $10,000 in relocation expenses in fiscal 1994.
(2) Mr. Daggs joined the Company as President and Chief Executive Officer on
April 11, 1994. The figures in the Bonus column reflect amounts paid
pursuant to the terms of his employment agreement, discussed below. Mr.
Daggs left the Company on December 3, 1996.
(3) Mr. Dennis entered into an employment agreement with the Company in May
1996 and became its Chief Financial Officer on May 9, 1996. The amount
in the bonus column reflects an annualized amount due for 1996. For a
discussion of his employment agreement, see below.
(4) Mr. Shanahan became the Company's President and Chief Executive Officer on
December 3, 1996. Prior to that date he had been the Company's Chief
Operating Officer. Mr. Shanahan does not have an employment agreement with
the Company. He receives a salary at the annual rate of $250,000. Prior
to 1996, Mr. Shanahan was President of Abaco International Corp., a
wholly owned subsidiary of ABACO.
(5) Mr. Boneparth became an executive officer of the Company on March 28,
1995. The figure in the Bonus columns reflect a bonus for 1995 paid in
1996 and a bonus for 1996 paid in 1997 pursuant to the terms of his
employment agreement, discussed below.
(6) Mr. Kirby received a salary of $456,169 in 1996 which was comprised of
$93,749 base salary and $362,420 in commissions. He also received a bonus
for 1996 of $77,600. He does not have an employment agreement with the
Company, however, has an understanding with respect to his bonus, which is
based on results of the retail division.
22
<PAGE> 23
(7) Mr. Ott entered into an employment agreement with the Company in July
1996. He receives a salary at the annual rate of $175,000. For a
discussion of his employment agreement see below.
The following table presents information as to stock option awards to each
of the named executive officers during 1996. No stock appreciation rights
were granted.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM(1)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- - ---- ---------- --------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Daggs, III(3) - - - - - -
Peter Boneparth - - - - - -
F.L. Kirby - - - - - -
Joseph P. Shanahan - - - - - -
Gilbert R. Ott, Jr. - - - - - -
William C. Dennis, Jr. 100,000(2) 81.63 2.00 5/16/06 126,000 319,000
</TABLE>
(1) The dollar amounts in these columns project the amount that could be
earned if the common stock appreciates at the annual rates indicated from
the date of grant and if the options are held until the expiration dates
shown. These rates of appreciation are specified by the applicable rules
of the SEC and are not intended to forecast possible future actual
appreciation, if any, in the Company's stock prices.
(2) Options vest at 20% per year cumulatively and are exercisable upon vesting.
(3) No longer employed by the Company. Options have been cancelled.
The following table provides information as to the number and value of the
options held by each named executive officer at December 31, 1996. The Company
has not granted stock appreciation rights.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FY-END(#) FY-END($)(1)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- - ---- ----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
Charles W. Daggs III(2) - - -/100,000 -/-
Peter Boneparth - - -/20,000 -/-
F.L. Kirby - - -/27,000 -
Joseph R. Shanahan - - - -
Gilbert R. Ott, Jr. - - - -
William C. Dennis, Jr. - - -/100,000 -/-
</TABLE>
(1) All options listed in the table were out of the money at December 31,
1996, based on a closing stock price of $1.125 per share on such date.
(2) No longer employed by the Company. Options have been cancelled.
23
<PAGE> 24
REMUNERATION OF DIRECTORS
Directors who are not otherwise employed by Parent, Abaco, the Company or
a subsidiary of the Company are entitled to receive:
- $2,500 for each meeting of the Board of Directors attended in person;
- $500 for each meeting of the Board of Directors attended by telephone;
- $2,500 for each meeting of a committee of the Board of Directors
attended in person (unless such meeting is on the same day as a
meeting of the Board of Directors); and
- $500 for each meeting of a committee of the Board of Directors
attended by telephone;
provided that such directors receive a minimum remuneration of $25,000 per
fiscal year. Such directors also receive an automatic grant of 7,500 stock
options on July 1 of each year with an exercise price equal to the market price
of the Company's common stock on the date of grant. The options fully vest
after a period of one year and terminate when the grantee ceases to be a
director. Directors who are otherwise employed by Parent, Abaco, the Company
or a subsidiary of the Company are not entitled to any additional compensation
for serving as directors.
EMPLOYMENT AGREEMENTS
Charles W. Daggs, III, former President and Chief Executive Officer of the
Company, began his employment on April 11, 1994. Under the terms of his
agreement, Mr. Daggs was entitled to receive a base salary of $300,000 per year.
Also, under the terms of his agreement, Mr. Daggs received or was eligible to
receive performance-based compensation for each of the two twelve-month periods
commencing July 1, 1994 and July 1, 1995 based on the Company's income before
taxes ("IBT") for such periods. (At the time the Company and Mr. Daggs entered
into his agreement, these periods coincided with the Company's fiscal years.
The Company has since changed its fiscal year to a calendar year.) The
performance goal and the performance-based compensation are calculated as
follows:
<TABLE>
<CAPTION>
IBT PERFORMANCE-BASED COMPENSATION
(WITHOUT GIVING EFFECT TO PERFORMANCE-BASED
COMPENSATION)
<S> <C>
$0 - $5,000,000 5% of IBT
$5,000,000.01 - $10,000,000 $250,000 plus 7.5% of IBT exceeding $5,000,000
$10,000,000.01 - $15,000,000 $625,000 plus 10% of IBT exceeding $10,000,000
More than $15,000,000 $1,125,000 plus percentage of IBT exceeding
$15,000,000 to be determined by the Board
of Directors of the Company but not to exceed 5%
</TABLE>
Notwithstanding the foregoing, the performance-based compensation for each of
the two twelve-month periods was to be no less than $600,000. Mr. Daggs
received the $600,000 minimum for the twelve-month periods commencing July 1,
1994 and July 1, 1995. His performance goal was approved by the Company's
stockholders at its annual meeting held on June 1, 1994.
Pursuant to the terms of his agreement, the Company also granted to Mr.
Daggs options to purchase 100,000 shares of Common Stock at a price of $6.50
per share, the fair market value of the Common Stock on his first day of
employment. 50% of such options became exercisable on June 30, 1996, and the
remaining 50% would have become
24
<PAGE> 25
exercisable on June 30, 1997, if Mr. Daggs had been employed by the Company on
such date. Mr. Daggs left the Company on December 3, 1996.
Mr. Daggs' employment agreement expired on June 30, 1996. He continued to
be employed and to receive salary at the annual rate of $300,000 until his
resignation on December 3, 1996.
Rodman entered into a three-year employment agreement with Peter Boneparth
effective March 28, 1995, pursuant to which Mr. Boneparth became head of
Rodman's investment banking group. Under the terms of the agreement, Mr.
Boneparth received a $650,000 bonus paid in February, 1996. Mr. Boneparth
receives a guaranteed base salary of $200,000 per year. In addition, for 1996
and 1997 he received and will receive, respectively a guaranteed bonus equal to
the greater of (i) $650,000 or (ii) 14% of the total pre-tax profit (as defined
in the agreement) (the "Profit Bonus") of Rodman's investment banking group
plus 25% of certain revenues generated by him and allocated to the investment
banking group. Each bonus to which Mr. Boneparth may be entitled for a partial
fiscal year shall be pro rated. In the event that Rodman terminates Mr.
Boneparth's employment upon a sale or change in control of Rodman, Rodman must
(i) continue to pay Mr. Boneparth's salary and any minimum guaranteed bonuses
to which he otherwise would have been entitled through the earlier of March 15,
1998, or the one-year anniversary of his death, and (ii) pay to Mr. Boneparth
any Profit Bonus to which he otherwise would have been entitled in respect of
the portion of the fiscal year completed prior to the sale or change of control.
On May 16, 1996, the Company entered into an employment agreement with
William C. Dennis pursuant to which Mr. Dennis assumed the position of Chief
Financial Officer of the Company effective May 9,1996. Under the agreement,
Mr. Dennis is to receive base salary at the annual rate of $150,000, a $100,000
bonus subject to one year of employment by the Company, a $150,000 interest
free loan forgivable over three years subject to continued employment by the
Company, and options to purchase 100,000 shares of Common Stock at $2.00 per
share. Mr. Dennis received the $100,000 bonus in 1996 as an advance and his
salary was raised to $250,000 in late December 1996.
In June 1996 the Company entered into an employment agreement with Gilbert
R. Ott, Jr. pursuant to which he assumed the position of General Counsel of the
Company. Under the agreement he receives a base salary at the annual rate of
$175,000 and is entitled to receive a discretionary bonus.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the sole members of the Company Compensation Committee were
Thomas E. Meade and Richard Pigott. Neither is or has been an officer or
employee of the Company or any of its subsidiaries.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 1, 1997 concerning
the beneficial ownership of the Company's Common Stock by (i) each stockholder
owning
25
<PAGE> 26
more than 5% of the outstanding Common Stock, (ii) each director of the
Company; (iii) each of the named executive officers (as listed in the Summary
Compensation Table in Item 11) and (iv) all current directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
IDENTITY OF HOLDER OWNERSHIP (1) OF CLASS (2)
- - ------------------ ------------- ------------
<S> <C> <C>
Abaco(3) 4,625,788 69.6%
Montes Rocallosos
505 Sur, Residential San Agustin, 66260
Garza Garcia, N.L. Mexico
The business address for each of the following persons is:
Rodman & Renshaw, Inc.
233 South Wacker Drive, Ste. 4500
Chicago, Illinois 60606
William C. Dennis, Jr. 0 --
Alexander C. Anderson(4) 0 --
Ernesto Arechavala(4) 0 --
Peter Boneparth 5,000 *
Eduardo Camarena Legaspi(4) 0 --
Jorge Antonio Garcia Garza(4) 0 --
Francis L. Kirby 1,000 *
Jorge Lankenau Rocha(4) 0 --
Thomas E. Meade 15,000 *
Gilbert R. Ott,Jr. 0 --
Rodrigo Padilla(4) 0 --
Richard Pigott 15,500 *
Federico Richardson Lamas(4) 0 --
David S. Ruder 25,000 *
Joseph P. Shanahan(4) 0 *
All current directors and executive
officers as a group (15 persons)(4) 61,500 *
</TABLE>
* Less than 1%
(1) Includes 25,700 shares of Common Stock subject to stock options vested
under the Company's 1994 Stock Option Plan or Non-Employee Director Stock
Option Plan exercisable within 60 days after March 8, 1996, as follows:
Mr. Meade, 7,500; Mr. Pigott, 7,500; Mr. Ruder, 7,500; Mr. Hague, 800.
(2) Pursuant to the requirements of Rule 13d-3(d)(1) promulgated under the
Securities Exchange Act of 1934, percentage ownership is calculated as if
the shares subject to stock options which are currently exercisable or
become exercisable within 60 days held by the persons identified in the
above table had been issued to them and were outstanding as of March 31,
1997.
(3) Abaco also has the right to acquire Common Stock from the Company if the
Company issues stock and the result is that Abaco beneficially owns less
than 51% of the total voting power of the Company's stock. Parent also is
deemed the beneficial owner of Abaco's Common Stock.
(4) Not included are shares held by Abaco, of which the referenced person is
a director and/or officer or with which the referenced person is otherwise
affiliated.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
26
<PAGE> 27
See Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations for a discussion of the Company's transactions with
Abaco and Confia, S.A. See Item 11. Executive Compensation -- Employment
Agreements for a discussion of employment agreements between the Company and
certain executive officers.
David S. Ruder, a Director of the Company, is Senior Counsel to Baker &
McKenzie. Baker & McKenzie performs legal services for the Company, Abaco and
Parent.
As a matter of policy, the Company does not intend to make any loans to
directors or executive officers of the Company other than in margin
transactions conducted in the ordinary course of the business or interest free
forgivable loans which are compensatory in nature and generally granted as an
inducement to accept or continue employment. By their terms, such forgivable
loans become repayable only if the employee does not remain in the employment
of the Company for a specified period. Certain directors and executive officers
of the Company may maintain margin accounts with Rodman pursuant to which
Rodman may make loans for the purchase of securities. All margin loans are made
in the ordinary course of business, on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons and do not involve more than the normal risk of
collectibility or present other unfavorable features.
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, 1996 and
December 31, 1995.
Consolidated Statements of Operations - Year Ended December 31, 1996, Year
Ended December 31, 1995, Transition Period ended December 31, 1994, and
Fiscal Year ended June 24, 1994.
Consolidated Statements of Stockholders' Equity - Year Ended December 31,
1996, Year Ended December 31, 1995, Transition Period ended December 31,
1994, and Fiscal Year ended June 24, 1994.
Consolidated Statements of Cash Flows - Year Ended December 31, 1996, Year
Ended December 31, 1995, Transition Period ended December 31, 1994, and
Fiscal Year ended June 24, 1994.
Notes to Consolidated Financial Statements.
Financial Statement Schedules - All schedules for which provision is made
in the applicable accounting regulations of the SEC are not required under
the related instructions or are applicable, and therefore have been
omitted.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
27
<PAGE> 28
(c) Exhibits - The following exhibits are included herein or are incorporated
by reference:
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession
2.1 Asset Purchase Agreement dated as of March 21, 1995
between the Company and Mabon Securities Corp. - Incorporated
by reference to Exhibit 2.1 of the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995.
(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.
(4) Instruments Defining the Rights of Security Holders
4.1 Certificate of Designations of Rights, Privileges
and Restrictions of Series B Non-Voting Convertible Preferred
Stock.
4.2 Certificate of Designations of Rights, Privileges
and Restrictions of Series C Non-Voting Convertible Preferred
Stock.
4.3 Certificate of Designation of Rights, Privileges
and Restrictions of Series D Non-Voting Convertible Preferred
Stock.
4.4 Certificate of Designation of Rights, Privileges
and Restrictions of Series E Non-Voting Convertible Preferred
Stock.
(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 December 21, 1995
between the Company and Abaco.
28
<PAGE> 29
10.9 Promissory Note from the Company to Confia, S.A.
dated December 4, 1995.
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 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 -
Incorporated by reference to Exhibit 10.14 of the Company's
Annual Report on Form 10-K for the Transition Period from June
25, 1995 through December 31, 1995.
10.15 First Amendment to the Rodman & Renshaw, Inc.
Supplemental Executive Retirement Plan - Incorporated by
reference to Exhibit 10.15 of the Company's Annual Report on
Form 10-K for the Transition Period from June 25, 1995 through
December 31, 1995.*
10.16 Form of Option Agreement executed by recipients of
options under the Rodman & Renshaw Capital Group, Inc.
Non-Employee Director Stock Option Plan.*
10.17 Form of Option Agreement executed by recipients of
options under the Rodman & Renshaw Capital Group, Inc. 1994
Stock Option Plan.*
10.18 Employment Agreement dated as of March 16, 1995
between Rodman & Renshaw, Inc. and Peter Boneparth -
Incorporated by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1995.*
10.19 Employment Agreement dated as of April 1, 1995
between Rodman & Renshaw, Inc. and Edwin J. McGuinn, Jr. -
Incorporated by reference to Exhibit 10.2 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1995.*
10.20 Master Lease Agreement dated May 31, 1995 between
the Company and Facility Capital Corporation and amendment
dated October 24, 1995.
10.21 Clearing Agreement dated September 15, 1995
between Rodman & Renshaw, Inc. and Correspondent Services
Corporation.
10.22 Note Conversion Agreement between the Company and
Confia, S.A. dated September 29, 1995 - Incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995.
10.23 Amendment No. 1, dated November 10, 1995, to Note
Conversion Agreement between the Company and Confia, S.A.
10.24 [Reserved}
29
<PAGE> 30
10.25 Stock Purchase Agreement dated April 30, 1996 between the Company
and Abaco Casa de Bolsa, S.A. de C.V., Abaco Grupo Financiero.
10.26 Promissory Notes from the Company to Confia, S.A. dated June 3,
1996.
10.27 Employment Agreement dated May 16, 1996 between the Company and
William C. Dennis, Jr., Executive Vice President and Chief
Financial Officer.*
10.28 Employment Agreement dated July 1, 1996 between the Company and
Gilbert R. Ott, Jr., Executive Vice President Secretary and General
Counsel.*
10.29 Stock Purchase Agreement dated as of September 30, 1996 between the
Company and Abaco Casa de Bolsa, S.A. de C.V., Abaco Grupo
Financiero.
(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.
30
<PAGE> 31
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/ Joseph P. Shanahan
-----------------------
Joseph P. Shanahan
President and Chief
Executive Officer
Date: April 15, 1997
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Joseph P. Shanahan President, Chief Executive
------------------------------ Officer, and Director
Joseph P. Shanahan (Principal Executive Officer) April 15, 1997
/s/ William C. Dennis, Jr Chief Financial Officer, April 15, 1997
------------------------------ and Director
William C. Dennis, Jr (Principal Financial Officer
and Accounting Officer)
/s/ Alexander C. Anderson Director April 15, 1997
------------------------------
Alexander C. Anderson
/s/ Ernesto Arechavala Director April 15, 1997
------------------------------
Ernesto Arechavala
/s/ Peter Boneparth Director April 15, 1997
------------------------------
Peter Boneparth
/s/ Eduardo Camarena Legaspi Director April 15, 1997
------------------------------
Eduardo Camarena Legaspi
/s/ Jorge Antonio Garcia Garza Director April 15, 1997
------------------------------
Jorge Antonio Garcia Garza
/s/ Francis L. Kirby Director April 15, 1997
------------------------------
Francis L. Kirby
/s/ Jorge Lankenau Rocha Director April 15, 1997
------------------------------
Jorge Lankenau Rocha
Director April 15, 1997
------------------------------
Thomas E. Meade
Director April 15, 1997
------------------------------
Rodrigo Padilla
Director April 15, 1997
------------------------------
Richard Pigott
Director April 15, 1997
------------------------------
Federico Richard Lamas
Director April 15, 1997
------------------------------
David S. Ruder
</TABLE>
31
<PAGE> 32
RODMAN & RENSHAW CAPITAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1996 AND DECEMBER 31, 1995,
AND FOR THE CALENDAR YEARS ENDED DECEMBER 31, 1996 AND
DECEMBER 31, 1995, THE SIX MONTH TRANSITION
PERIOD ENDED DECEMBER 31, 1994, AND FOR THE
FISCAL YEAR ENDED JUNE 24, 1994,
AND REPORT OF INDEPENDENT ACCOUNTANTS
<PAGE> 33
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
- - -----------------------------------------------------
<TABLE>
<CAPTION>
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> 34
REPORT OF INDEPENDENT ACCOUNTANTS
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 December 31,1996 and December 31, 1995,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for the years ended December 31, 1996 and December 31, 1995, and
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company and its subsidiaries as of December 31,1996 and December 31, 1995,
and the results of their consolidated operations and cash flows for the years
ended December 31, 1996 and December 31, 1995, and the six month transition
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
New York, New York
February 26, 1997
F-2
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Rodman & Renshaw Capital Group, Inc.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows 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 for the fiscal year 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 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, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of the Company and
its subsidiaries for the fiscal year in the period ended June 24, 1994, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
August 19, 1994
F-3
<PAGE> 36
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands except share amounts)
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS $ 2,243 $ 9,001
SECURITIES PURCHASED UNDER AGREEMENTS
TO RESELL 5,301 2,204
CASH AND SHORT-TERM INVESTMENTS REQUIRED
TO BE SEGREGATED UNDER FEDERAL
REGULATIONS 7,467 7,398
RECEIVABLES
Customers 25 49,544
Brokers, dealers, and clearing organizations 1,610 16,298
SECURITIES OWNED - At market 8,279 16,489
MEMBERSHIPS IN SECURITIES AND
COMMODITIES EXCHANGES -
At cost (market value: 1996 - $246;
1995 - $1,219) 122 272
FURNITURE, FIXTURES, AND
LEASEHOLD IMPROVEMENTS -
At cost, less accumulated depreciation and
amortization (1996 - $5,484; 1995 - $5,132) 7,431 8,560
PREPAID EXPENSES AND OTHER ASSETS 11,305 9,567
------- --------
TOTAL ASSETS $43,783 $119,333
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
SHORT-TERM BORROWINGS FROM BANKS $ - $ 30,672
SHORT-TERM NOTE PAYABLE TO AFFILIATE 23,500 26,500
PAYABLES:
Customers 8,290 18,914
Brokers, dealers, and clearing organizations 1,294 13,549
SECURITIES SOLD BUT NOT YET
PURCHASED - At market 782 4,964
ACCRUED COMMISSIONS 1,995 2,155
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 15,770 21,136
------- --------
TOTAL LIABILITIES 51,631 117,890
COMMITMENTS AND CONTINGENCIES (NOTE 13)
STOCKHOLDERS' EQUITY:
Convertible non-voting preferred stock
$.01 par value, 5,000,000 shares authorized;
shares issued:1996 - 30 shares Series E,
45 shares Series D, and 50 shares Series C; - -
1995 - 50 shares Series B
Common stock, $.09 par value; 20,000,000
shares authorized; shares
issued: 1996 - 6,646,000; 1995 - 6,646,000 598 598
Additional paid-in capital 48,249 35,749
Accumulated deficit (56,695) (34,904)
------- --------
(7,848) 1,443
------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $43,783 $119,333
======= ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 37
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Month Transition Fiscal Year
Year Ended Year Ended Period Ended Ended
December 31, December 31, December 31, June 24,
1996 1995 1994 1994
<S> <C> <C> <C> <C>
REVENUES:
Commissions $ 19,896 $ 24,879 $ 11,870 $ 29,158
Principal 29,185 26,628 7,033 27,313
Interest 2,033 10,137 7,872 9,213
Fee income 7,680 8,065 3,876 7,598
Other 1,780 2,816 1,543 4,035
--------- --------- ---------- ---------
Total revenues 60,574 72,525 32,194 77,317
EXPENSES:
Employee compensation and benefits 47,692 57,872 21,886 50,054
Commissions, floor brokerage, and clearing 4,475 4,004 2,328 7,141
Interest 4,570 10,217 5,933 5,714
Communications 5,631 8,865 3,180 6,063
Occupancy and equipment 7,130 8,360 2,993 5,949
Professional fees 3,124 4,825 763 5,227
Other operating expenses 9,743 5,398 1,443 10,785
Restructuring charge - - - 3,815
--------- --------- ---------- ---------
Total expenses 82,365 99,541 38,526 94,748
--------- --------- ---------- ---------
LOSS BEFORE INCOME TAXES
(21,791) (27,016) (6,332) (17,431)
INCOME TAX EXPENSE (BENEFIT) 0 2,966 (2,168) (930)
--------- --------- ---------- ---------
NET LOSS $ (21,791) $ (29,982) $ (4,164) $ (16,501)
========= ========= ========== =========
NET LOSS PER COMMON SHARE $ (3.28) $ (4.63) $ (0.91) $ (3.69)
========= ========= ========== =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 6,646,000 6,470,000 4,577,000 4,472,000
========= ========= ========== =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 38
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, 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 412 30,935 (4,922) 26,425
Net loss for the year (29,982) (29,982)
Conversion of 150 shares of convertible
non-voting preferred stock, Series A,
$.01 par value to 2,068,965
shares of common stock 186 (186)
Proceeds from issuance of 50 shares of
convertible non-voting preferred
stock, Series B, $.01 par value 5,000 5,000
------------- ----------- ------------ ----------- ----------
BALANCE, DECEMBER 31, 1995 598 35,749 (34,904) 1,443
Net loss for the year (21,791) (21,791)
Proceeds from issuance of 50 shares of
convertible non-voting preferred stock,
Series C, $.01 par value 5,000 5,000
Proceeds from issuance of 45 shares of
convertible non-voting preferred stock,
Series D, $.01 par value 4,500 4,500
Proceeds from issuance of 30 shares of
convertible non-voting preferred stock,
Series E, $.01 par value 3,000 3,000
------------- ----------- ------------ ----------- ----------
BALANCE, DECEMBER 31, 1996 $ - $ 598 $ 48,249 $ (56,695) $ (7,848)
============= =========== ============ =========== ==========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE> 39
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Month Transition Fiscal Year
Year Ended Year Ended Period Ended Ended
December 31, December 31, December 31, June 24,
1996 1995 1994 1994
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(21,791) $(29,982) $ (4,164) $(16,501)
Adjustments to reconcile net loss to net cash flows
provided by (used in) operating activities:
Equity in earnings in limited partnerships (1,192)
Reserve on loans advanced to limited partnerships 428
Write-off of furniture, fixtures and leasehold improvements 748
Loss on sale of furniture, fixtures and leasehold improvements 219
Gain on sale of exchange memberships and related assets (1,135) (1,183) (696) (2,551)
Deferred income taxes 2,760 (2,182) (171)
Depreciation and amortization 1,473 1,362 378 988
Net changes in operating assets and liabilities:
Cash and short-term investments required to be
segregated under federal regulations (69) 31,817 (2,378) 25,962
Receivables from and payables to customers, brokers,
dealers, and clearing organizations 41,327 (78,964) 36,812 (9,575)
Securities owned 8,974 128,011 (103,564) 75
Prepaid expenses and other assets (453) 6,253 (5,037) 2,168
Recoverable income taxes and income taxes payable 1,379 600 (1,617)
Securities sold but not yet purchased (4,182) (92,880) 84,056 (1,963)
Accrued commissions (160) 89 351 (679)
Accounts payable and accrued expenses (5,365) 3,272 (4,333) 6,304
-------- -------- --------- --------
Net cash flows provided by (used in) operating activities 17,855 (27,847) (157) 3,188
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities purchased under agreements to resell (3,097) 32,850 (21,631) (13,423)
Purchases of furniture, fixtures, and leasehold improvements (344) (1,922) (689) (438)
Sales of furniture, fixtures and leasehold improvements 181 324
Sales of commodity exchange memberships and related assets 4,761 700 3,846
-------- -------- --------- --------
Net cash flows provided by (used in) investing activities (3,441) 35,870 (21,620) (9,691)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings from banks (30,672) (23,659) 31,089 (18,973)
Net increase (decrease) in short-term note payable to affiliate (3,000) 16,500 10,000
Payments of notes subordinated to claims of general creditors (3,874) (2,876) (1,250)
Proceeds from issuance of common stock in connection with
stock option plan 1,180
Proceeds from issuance of convertible non-voting preferred stock 12,500 5,000 15,000
-------- -------- --------- --------
Net cash flows provided by (used in) financing activities (21,172) (6,033) 28,213 5,957
-------- -------- --------- --------
Net increase (decrease) in cash and cash equivalents (6,758) 1,990 6,436 (546)
Cash and cash equivalents - Beginning of period 9,001 7,011 575 1,121
-------- -------- --------- --------
Cash and cash equivalents - End of period $ 2,243 $ 9,001 $ 7,011 $ 575
======== ======== ========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 3,750 $ 10,453 $ 4,939 $ 5,720
======== ======== ========= ========
Cash paid for income taxes - $ 26 $ 15 $ 824
======== ======== ========= ========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITY:
In 1995, a capital lease obligation of $6,102 was incurred when the Company
entered into a lease to acquire new furniture and equipment.
See notes to consolidated financial statements.
F-7
<PAGE> 40
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995,
TRANSITION PERIOD ENDED DECEMBER 31, 1994,
AND THE FISCAL YEAR ENDED JUNE 24, 1994
- - -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL INFORMATION
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.
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. Investment banking revenue is recorded as follows:
management fees on offering date, sales concessions on settlement date, and
underwriting fees at the time the underwriting is completed.
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- Securities purchased under agreements to
resell are financing transactions which are collateralized by negotiable
securities and are carried at the amounts at which the securities will be
subsequently resold, 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 as compared to the contract amounts of the resale or 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.
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 fifteen years.
F-8
<PAGE> 41
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. The Company accounts for income taxes under the
provisions of the Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), which requires that an asset
and liability approach be applied and that deferred tax assets be adjusted
currently using tax rates expected to be in effect when taxes are estimated
to be paid or recovered on the reversal of timing differences.
LOSS PER SHARE - 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.
MANAGEMENT ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets, liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
In January 1996, Rodman changed its business operation from a clearing
broker to a non-clearing broker whereby Rodman's customer accounts are now
introduced and cleared by a contracted clearing broker on a fully disclosed
basis. As a result of this conversion, Rodman is not required to perform a
reserve requirement calculation as required by the Securities and Exchange
Commission ("SEC") Rule 15c3-3 under the exemptive provisions of that rule.
On August 30, 1996, Rodman transferred substantially all futures related
activity to an affiliate, Rodman & Renshaw Futures, Inc. ("RRFI"), a
futures commission merchant. As of December 31, 1996, Rodman conducted a
limited number of commodity futures transactions, solely on an
introducing-broker basis.
2. 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 a 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 1994 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, 1995, included $817,000 for lease termination
costs payable in 1996.
F-9
<PAGE> 42
3. SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
Rodman is a party to reverse repurchase agreements with various financial
institutions.
At December 31, 1996, the reverse repurchase agreement of $5,301,000 earned
interest at a rate of 5.25%, and is collateralized by a U.S. Treasury note
with an approximate market value of $5,303,000. The investment represents
12% of the Company's total assets at December 31, 1996. At December 31,
1995, the reverse repurchase agreement of $2,204,000 earned interest at a
rate of 7.50%, and was collateralized by a U.S. Treasury note with an
approximate market value of $2,205,000.
4. ASSETS SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS
RRFI 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. As of December 31,1996, RRFI
placed into a segregated safekeeping account $1,047,000 of securities
owned by commodites customers. As of December 31, 1995, Rodman placed into
a segregated safekeeping account $1,664,000 of securities owned by
commodities customers. These securities are not included in the statement
of financial condition. At December 31, 1996, Rodman was in compliance
with the segregation requirements of the Commodity Exchange Act and has
excess segregated funds of $311,000.
5. SECURITIES
Securities owned and securities sold but not yet purchased are recorded at
market value, except for limited partnerships, and are comprised of:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------
Sold But Sold But
Not Yet Not Yet
Owned Purchased Owned Purchased
<S> <C> <C> <C> <C>
Bank notes $ - $ - $ - $ 22,000
Corporate debt securities 832,000 132,000 2,864,000 1,071,000
Equity securities 4,767,000 645,000 3,532,000 1,625,000
State and municipal obligations 69,000 5,000 9,452,000 46,000
United States and Canadian
government and agency
obligations 2,027,000 - 1,009,000 2,200,000
Limited partnerships 584,000 - (368,000) -
---------- -------- ----------- ----------
Total $8,279,000 $782,000 $16,489,000 $4,964,000
========== ======== =========== ==========
</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-10
<PAGE> 43
6. SHORT-TERM BORROWINGS FROM BANKS
At December 31, 1995, Rodman borrowed from commercial banks to finance the
purchase of securities by customers on margin and purchases for its own
account. Interest on the borrowings was paid at or below the broker call
rate, which at December 31, 1995 was 7.25%. At December 31, 1995, total
borrowings of $30,672,000 were collateralized by approximately $15,190,000
of Rodman-owned securities and $37,853,000 of customer-owned securities.
The weighted average interest rate on short-term borrowings, including the
short-term note payable to affiliate, as of December 31, 1995 was 8.9%.
7. SHORT-TERM NOTE PAYABLE TO AFFILIATE
During 1994, the Company entered into two successive six-month note
agreements with Confia, S.A., Institucion de Banca Multiple, Abaco Grupo
Financiero ("Confia"), a wholly owned subsidiary of Abaco Grupo, for
$10,000,000 with an interest rate of 11.5% for the six month period ended
December 19, 1994, and 13.5% for the six month period ended June 19, 1995.
During 1995, the Company entered into additional six month note agreements
with Confia. These agreements and the $10,000,000 agreement discussed
above were aggregated into a single note agreement on December 4, 1995, for
$26,500,000 with an interest rate of 12% and a maturity date of June 3,
1996. In September 1995, the Company entered into a note conversion
agreement with Confia pursuant to which Confia has the right to convert all
or a portion of this debt to equity. The number of shares to be issued
upon conversion would be determined by dividing the amount of debt to be
converted by the book value per share of the common stock as of the end of
the Company's most recent fiscal quarter. The conversion is allowable only
with stockholder approval or in conjunction with a rights offering to all
stockholders.
On June 3, 1996, the note agreement was renewed for one year with all terms
and conditions remaining the same. During the fourth quarter, the Company
paid $4,608,000 to Confia consisting of $3,000,000 of principal and
$1,608,000 of interest.
Interest expense on these borrowings totaled $3,211,000 for the year ended
December 31, 1996, and $2,200,000 for the year ended December 31, 1995.
At December 31, 1996, Rodman has the following subordinated notes
outstanding with the Company:
<TABLE>
<CAPTION>
<S> <C>
Subordinated revolving note, interest payable
semi-annually at 9% per annum (the "Revolving Notes") $13,500,000
Subordinated note, interest payable semi-annually at 9%
per annum, due November 30, 1998 5,000,000
-----------
Subordinated note, interest payable semi-annually at 9%
per annum, due January 31, 1999 5,000,000
-----------
Total $23,500,000
===========
</TABLE>
F-11
<PAGE> 44
All of the Rodman borrowings are covered by agreements approved by the New
York Stock Exchange, Inc. (the "NYSE"), and the National Futures
Association, 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 borrowings are required
for Rodman's continued compliance with minimum net capital requirements,
they may not be repaid. The rights of the Company to receive any payment
from Rodman under the terms of the borrowings are subordinated to the
claims of all present and future creditors of Rodman which arise prior to
maturity.
Rodman has obtained a senior subordinated revolving credit facility,
amended November 10, 1995, with the Company, which terminates on June 15,
1997, aggregating $25,000,000 pursuant to which the Revolving Notes have
been executed. The facility requires that all indebtedness thereunder be
repaid by June 15, 1998. As of December 31, 1996, $13,500,000 has been
borrowed under this facility. This facility includes covenants that
require, among other things, that Rodman maintain capital and financial
requirements, as defined in the agreement.
In January 1996, Rodman converted $5,000,000 of the Revolving Notes to the
subordinated note due January 1999.
8. 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 "Series A Stock") at
$100,000 per share to Abaco. On January 31, 1995, upon the approval by the
stockholders of the Company, the Series A 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.
On December 22, 1995, the Company issued 50 shares of Series B Non-Voting
Convertible Preferred Stock (the "Series B Stock") at $100,000 per share to
Abaco. The Series B Stock will automatically convert into common stock
upon the Company's commencement of a rights offering to all stockholders.
In a conversion, the $5,000,000 aggregate purchase price of the Series B
Stock will be divided by the book value per share of common stock as of the
end of the previous month to determine the number of common shares to be
issued to Abaco (provided, however, that if such book value per share were
equal to or less than $.09, which is the par value per share of the common
stock, the denominator would be $.09). After September 30, 1996, if the
conversion has not occurred, each share of Series B Stock will pay
quarterly cash dividends at a rate based on the Prime Rate plus two percent
per annum.
Dividends on the Series B 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.
During 1996, the Company issued to Abaco 50 shares of Series C Non-Voting
Convertible Preferred Stock, 45 shares of Series D Non-Voting Convertible
Preferred Stock, and 30 shares of Series E Non-Voting Convertible Preferred
Stock. The terms of such shares, including a price per share of $100,000,
are substantially identical to those of the Preferred Stock issued in
December 1995, except that the Series E is convertible only upon
shareholder approval or in connection with a rights offering to all
stockholders.
F-12
<PAGE> 45
9. 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 25, 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 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
Granted 797,000 2.00 - 2.00 47,500 4.13 - 4.50
Canceled (82,985) 5.00 - 5.13 (69,105) 5.00 - 5.63
--------- -------
Outstanding at
December 31, 1995 853,960 2.00 - 6.00 235,190 4.13 - 6.50
Granted 22,500 2.00 - 2.00 122,500 1.38 - 2.00
Canceled (441,460) 2.00 - 5.65 (145,040) 4.13 - 5.65
-------- --------
Outstanding at
December 31, 1996 435,000 2.00 - 5.65 212,650 1.38 - 5.65
======== =======
</TABLE>
Options outstanding at December 31, 1996, are exercisable at an average
price of $2.43.
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 22,500
qualified and 100,000 nonqualified stock options granted under this plan
during the year ended December 31, 1996. As of December 31, 1996, there
were 453,000 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 year ended December 31, 1996, and 332,000 unoptioned shares
reserved and available for grant as of December 31, 1996. Options granted
under this plan expire ten years from the date of grant.
F-13
<PAGE> 46
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.
The Company has adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("FASB 123"). FASB 123
encourages the adoption of a fair value based method of accounting for
stock-based compensation plans. Applying FASB 123, the Company has not
recognized compensation expense because the exercise price of the Company's
employee stock options equals or exceeds the market price of the underlying
stock on the date of grant.
10. 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
Commodity Futures Trading Commission ("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 4% of funds required to be segregated
for commodities customers or $250,000.
At December 31, 1996, Rodman's net capital, as defined, was $2,531,000,
which was $2,281,000 in excess of the required net capital.
11. COMMITMENTS AND CONTINGENCIES
The Company and Rodman lease office space and certain equipment under
operating and financing leases. Leases for office facilities are subject to
escalation factors based on the operating experience of the lessor. The
capitalized lease obligation is included in accounts payable and accrued
expenses in the consolidated statement of financial condition. This
obligation is collateralized by a letter of credit provided by Confia.
At December 31, 1996, future minimum lease payments under noncancelable
operating and financing leases with terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 3,618,000
1998 3,587,000
1999 3,424,000
2000 3,028,000
2001 1,750,000
2002 and thereafter 12,456,000
-----------
Total minimum lease payments $27,863,000
===========
</TABLE>
The aggregate annual rentals charged to operations were $4,922,000 in the
year ended December 31,1996, $3,232,000 in the year ended December 31,
1995, $1,011,000 in the transition period ended December 31, 1994, and
$2,656,000 in fiscal 1994.
At December 31, 1996, Rodman has a $1,500,000 letter of credit issued by a
bank which satisfies a guarantee for rent payments due on a lease for
office space. The letter of credit is collateralized by firm securities
having a market value of $1,842,000.
F-14
<PAGE> 47
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
business. position. Although the ultimate outcome of these matters cannot
be ascertained at this time, it is the opinion of management of the
Company, after consultation with legal counsel, that the resolution of
these matters will not have any material adverse effect on the Company's
financial position of results of operations.
12. BENEFIT PLANS
Rodman established a defined-contribution Retirement Savings Plan (the
"Savings Plan") on July 1, 1990, available to employees with one year and a
minimum of 1,000 hours of service. Under the Savings Plan, Rodman matches
employee contributions up to 25 percent of an employee's before-tax
contributions. Rodman's matching contributions were $189,000 in the year
ended December 31, 1996, $214,000 in the year ended December 31, 1995,
$66,000 in the transition period ended December 31, 1994 and $153,000
in fiscal 1994.
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% of base compensation and 100% 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
annuity products. There were no contributions to the SERP during the years
ended December 31, 1996 and December 31, 1995, the six month transition
period ended December 31, 1994 and the fiscal year ended June 24, 1994.
13. INCOME TAXES
The components of the income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Six Month
Transition Period Fiscal
Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994 1994
<S> <C> <C> <C> <C>
Current:
Federal $ - $ 63,000 $ - $ (942,000)
State - 143,000 15,000 183,000
Deferred-principally federal - 2,760,000 (2,183,000) (171,000)
----------------- ----------------- ----------------- ------------
Total income tax
expense (benefit) $ - $ 2,966,000 $ (2,168,000) $ (930,000)
================= ================= ================= ============
</TABLE>
Due to net losses for the year, the Company was not liable for federal
income taxes. State and local income taxes, based on minimum taxes due,
resulted in nominal amounts due and are included in other operating
expenses. 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
and net operating losses.
F-15
<PAGE> 48
Following is a summary of the significant components of the Company's
deferred tax assets and liabilities at December 31, 1996 and December 31,
1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 23,680,000 $ 15,036,000
Restructuring charges - 278,000
Employee compensation and benefits 120,000 44,000
Allowance for bad debts 347,000 176,000
Interest 447,000 748,000
Foreign tax credit 125,000 125,000
Alternative minimum tax 104,000 104,000
Other 710,000 1,323,000
------------ ------------
Total assets 25,533,000 17,834,000
------------ ------------
Deferred tax liabilities:
Fixed assets (424,000)
Investment interests (1,013,000) (683,000)
Prepaid insurance (48,000) (92,000)
------------ ------------
Total liabilities (1,485,000) (775,000)
------------ ------------
Net deferred tax asset 24,048,000 17,059,000
Valuation allowance (24,048,000) (17,059,000)
------------ ------------
Deferred income taxes $ 0 $ 0
============ ============
</TABLE>
The valuation allowance has been recognized due to the uncertainty of
realizing the benefit of the loss carryforwards and temporary differences.
The Company has federal and state net operating loss carryforwards of
approximately $69,647,000 and $46,363,000, respectively, which will expire
between the years 2008 and 2011. Differences between statutory and
effective income tax rates arise from state taxes and valuation allowances
established in connection with net operating losses and from permanent
differences between tax and financial reporting, including tax-exempt
interest income.
F-16
<PAGE> 49
A reconciliation of the effective income tax rate to the statutory federal
income tax rate is as follows:
<TABLE>
<CAPTION>
DECEMBER DECEMBER DECEMBER JUNE
1996 1995 1994 1994
<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 Citiy 0.2 0.2 0.5
Other 0.2 0.2
Goodwill amortization
Nondeductible interest 0.1 0.2 0.3 0.2
Tax-emempt interest (0.3) (0.3) 0.7 (0.8)
Net cash surrender value of
keyman life insurance (0.2) (0.4) (0.5)
Political contributions 0.1
Meals and entertainment 0.2 0.5 0.7 0.2
Valuations allowance 43.7 25.9
Other (0.2) 0.7 (1.5) 2.9
------ ----- ------ -----
Effective rate (34.2)% 11.0% (34.0)% (5.3)%
====== ===== ====== =====
</TABLE>
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK INSTRUMENTS AND
CONCENTRATION OF CREDIT RISK
As a securities broker/dealer, Rodman is engaged in various trading and
brokerage activities on a principal and agency basis. Rodman's exposure
to credit risk occurs in the event that the customer, clearing agent or
counterparties do not fulfill their obligations of the transaction.
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. These financial instruments involve varying degrees of
off-balance sheet market 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.
In the normal course of business, Rodman enters into transactions in
securities sold, but not yet purchased. These financial instruments
contain off-balance sheet risk whereby changes in market value may be in
excess of amounts recognized in the statement of financial condition.
Substantially all of Rodman's cash and securities positions are held by a
custodian broker. Rodman's custodian broker is a member of major
securities exchanges.
15. 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
F-17
<PAGE> 50
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.
16. SUBSEQUENT EVENTS
ABACO COMMITMENT
In February 1997, the Company received a letter from Abaco Grupo, the
parent company of the majority stockholder, Abaco, whereby Abaco Grupo
stated that it would unconditionally support the Company and Rodman, for
the next two years, up to and including March 31, 1999. Such support may
include, with previous receipt of requisite approvals from Mexican
governmental authorities, infusions of capital, conversion of short-term
debt to long-term debt or conversion of short or long-term debt to equity,
if required, to continue to sustain Rodman's operations and allow it to
maintain the required net capital pursuant to the SEC's Uniform Net Capital
Rule 15c3-1.
SHORT-TERM NOTE PAYABLE TO AFFILIATE
In February 1997, the Company entered into an additional one month
agreement with Confia for $2,500,000 with an interest rate of 12% and a
maturity date of March 26, 1997. At maturity, the company paid $2,525,000
to Confia consisting of principal and interest. Subsequently, the Company
entered into a three month agreement with Confia for $3,000,000 with an
interest rate of 12% and a maturity date of June 26, 1997.
CAPITAL CONTRIBUTION AND SUBORDINATED DEBT
In February 1997, Rodman converted $5,000,000 of the Revolving Notes to a
capital contribution from the Company. Along with the capital infusion,
an additional $2,500,000 was borrowed by Rodman under the senior
subordinated revolving credit facility with the Company.
17. 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-18
<PAGE> 51
18. QUARTERLY OPERATING RESULTS (UNAUDITED)
(amounts in thousands except per share amounts)
<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>
Quarter ended:
03/31/96 $14,972 $ (5,251) $ (5,251) $ (.79)
06/30/96 19,774 (1,690) (1,690) (.25)
09/30/96 11,979 (6,371) (6,371) (.96)
12/31/96 13,849 (8,479) (8,479) (1.28)
------- -------- -------- ------
TOTAL $60,574 $(21,791) $(21,791) $(3.28)
======= ======== ======== ======
Quarter ended:
03/31/95 $17,479 $(3,223) $(2,206) $(.37)
06/30/95 20,525 (4,005) (4,005) (.60)
09/30/95 19,103 (6,588) (8,208) (1.24)
12/31/95 15,418 (13,200) (15,563) (2.42)
------- -------- -------- ------
TOTAL $72,525 $(27,016) $(29,982) $(4.63)
======= ======== ======== ======
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)
======= ======== ======== ======
</TABLE>
During the fourth quarter of 1995, an expense adjustment of $1,906,000 was
made for items previously accounted for during the year as a deferred
asset.
F-19
<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 26, 1996, on our audit of the consolidated financial
statements of Rodman & Renshaw Capital Group, Inc. as of December 31, 1996 and
December 31, 1995 and for the years ended December 31, 1996 and December 31,
1995, and for the Transition Period from June 25, 1994 through December 31,
1994, which report is included in this Annual Report on Form 10-K.
/s/Coopers & Lybrand L.L.P.
Chicago, Illinois
April 15, 1997
<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 Annual Report
on Form 10-K of Rodman & Renshaw Capital Group, Inc. for the year ended
December 31, 1996.
/s/Deloitte & Touche LLP
Chicago, Illinois
April 15, 1997
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 9,710,000
<RECEIVABLES> 1,635,000
<SECURITIES-RESALE> 5,301,000
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<PP&E> 7,431,000
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<SHORT-TERM> 23,500,000
<PAYABLES> 27,349,000
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
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<COMMON> 598,000
0
0
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<INCOME-PRETAX> (21,791,000)
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<NET-INCOME> (21,791,000)
<EPS-PRIMARY> (3.28)
<EPS-DILUTED> (3.28)
</TABLE>
