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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 13E-3 (SS.240.13E-3) THEREUNDER)
RODMAN & RENSHAW CAPITAL GROUP, INC.
(NAME OF ISSUER)
ABACO GRUPO FINANCIERO, S.A. DE C.V.
ABACO CASA DE BOLSA, S.A. DE C.V., ABACO GRUPO FINANCIERO
R & R CAPITAL HOLDINGS, INC.
R & R CAPITAL ACQUISITION CORP.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, $.09 PAR VALUE PER SHARE
(TITLE OF CLASS OF SECURITIES)
774877 10 4
(CUSIP NUMBER OF CLASS OF SECURITIES)
LIC. JORGE ANTONIO GARCIA GARZA
ABACO GRUPO FINANCIERO, S.A. DE C.V.
AVE. SAN JERONIMO 999 PTE.
COLONIA SAN JERONIMO
MONTERREY, N.L. MEXICO 64640
011-52-8-399-6121
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications
on Behalf of Person(s) Filing Statement)
WITH COPY TO:
M. RIDGWAY BARKER, ESQ.
KELLEY DRYE AND WARREN LLP
TWO STAMFORD PLAZA
281 TRESSER BOULEVARD
STAMFORD, CT 06901
(203) 324-1400
This statement is filed in connection with (check the appropriate box):
a. |X| The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under
the Securities Exchange Act of 1934.
b. |_| The filing of a registration statement under the Securities Act
of 1933.
c. |_| A tender offer.
d. |_| None of the above.
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<PAGE>
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies: |X|
CALCULATION OF FILING FEE
- - -------------------------------------------------------------------------------
Transaction valuation* Amount of filing fee
$600,000 $120
- - -------------------------------------------------------------------------------
* For purposes of calculating fee only. This amount assumes that, by virtue
of the merger described herein, 1,997,914 shares of Common Stock, $.09 par
value per share, shall be converted into the right to receive
approximately $600,000 in cash ($.30 per share), without interest. The
amount of the filing fee, calculated in accordance with Regulation
240.0-11 under the Securities Exchange Act of 1934, as amended, equals
one-fiftieth of one percent of the value of the transaction.
|_| Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
This Rule 13e-3 Transaction Statement on Schedule 13E-3 (the
"Transaction Statement") is being filed by Abaco Grupo Financiero, S.A. de C.V.,
a Mexican corporation ("Parent"), Abaco Casa de Bolsa, S.A. de C.V., Abaco Grupo
Financiero, a Mexican corporation ("Abaco"), R & R Capital Holdings, Inc., a
Delaware corporation ("Holdings") and R & R Capital Acquisition Corp., a
Delaware corporation ("Acquisition Sub"). With the exception of certain
information contained in Items 2(e) and (f) contained in the Cross Reference
Sheet below, the information required by Items 1 through 16 of Schedule 13E-3 is
expressly incorporated in this Transaction Statement by reference to the Notice
and Information Statement to be furnished in connection with a series of
transactions to be effected by Abaco which will result in Rodman & Renshaw
Capital Group, Inc. becoming a wholly owned subsidiary of Holdings. (the
"Information Statement"), a preliminary copy of which is being filed with the
Securities and Exchange Commission simultaneously with this Transaction
Statement. The location in the Information Statement of such information is set
forth in the following Cross Reference Sheet. If any item of this Transaction
Statement is inapplicable or the answer thereto is in the negative and is
omitted from the Information Statement, a statement to that effect has been
included in the Cross Reference Sheet below.
CROSS REFERENCE SHEET
Pursuant to General Instruction F. to Schedule 13E-3
ITEM IN SCHEDULE 13E-3 LOCATION IN INFORMATION STATEMENT
Item 1. Issuer and Class of
Security Subject to the
Transaction
(a) COVER PAGE and "CERTAIN INFORMATION
CONCERNING THE COMPANY"
(b) COVER PAGE; "GENERAL" and "MARKET
INFORMATION AND RELATED
STOCKHOLDER MATTERS -- Outstanding Shares
of Common Stock"
(c) "MARKET INFORMATION AND RELATED
STOCKHOLDER MATTERS -- Market
Information"
(d) "MARKET INFORMATION AND RELATED
STOCKHOLDER MATTERS -- Dividends"
(e) Not Applicable
(f) "SPECIAL FACTORS -- Background"
<PAGE>
Item 2. Identity and Background
This Transaction Statement is being filed by the Parent,
Abaco, Holdings and Acquisition Sub. Parent is a Mexican corporation with its
principal office located at Ave. San Jeronimo 999 Pte., Colonia San Jeronimo,
Monterrey, N.L., Mexico 64640. It is a financial services holding company whose
principal subsidiaries are Abaco and Confia, S.A., Institucion de Basca
Multiple, Abaco Grupo Financiero. Parent's other material subsidiaries provide
leasing, automobile financing and casualty insurance services. Parent's shares
of capital stock are traded on Bolsa Mexicana de Valores (the Mexican Stock
Exchange) under the symbols: ABACOGF (for Parent's class A shares) and ABACOGF B
(for Parent's class B shares).
Abaco is a Mexican corporation, 99.99% of whose outstanding shares are
owned by Parent. Abaco provides brokerage, asset management, money market,
investment banking, investment advisory and other related services through eight
offices located in Monterrey, Guadalajara, Queretaro, San Luis Potosi, Leon and
Mexico City in Mexico. Its principal office is located at Montes Rocallosos 505
Sur, Residencial San Agustin, Garza Garcia, N.L., Mexico 66260.
Holdings is a wholly-owned subsidiary of Abaco with its principal
office located at Ave. San Jeronimo 999 Pte., Colonia San Jeronimo, Monterrey,
N.L., Mexico 64640. It is an intermediate holding company whose principal
subsidiary is R & R Capital Acquisition Sub
The principal office of Acquisition Sub is located at Ave. San
Jeronimo 999 Pte., Colonia San Jeronimo, Monterrey, N.L., Mexico 64640.
Acquisition Sub is a wholly-owned subsidiary of Holdings which has been formed
for the purpose of holding shares of Common Stock and merging with the Company.
(a) through (d) and (g) "INFORMATION ABOUT PARENT, ABACO,
HOLDINGS AND ACQUISITION SUB" AND
ANNEX VI
<PAGE>
(e) and (f) During the last five years, neither Parent,
Abaco, Holdings nor Acquisition Sub, nor, to
the best knowledge of Parent, Abaco, Holdings
and Acquisition Sub, their respective
executive officers and directors, (i) has
been convicted in a criminal proceeding
(excluding traffic violations or similar
misdemeanors) or (ii) was a party to a civil
proceeding of a judicial or administrative
body of competent jurisdiction and as a result
of such proceeding was or is subject to a
judgment, decree or final order enjoining
further violations of, or prohibiting
activities subject to, federal or state
securities laws or finding any violation of
such laws.
Item 3. Past Contacts,
Transactions or
Negotiations
(a)(1) "SPECIAL FACTORS -- Background" and
"SPECIAL FACTORS -- Past Contacts,
Transactions or Negotiations"
(a)(2) "SPECIAL FACTORS -- Background"
(b) "SPECIAL FACTORS -- Background and
"SPECIAL FACTORS -- Reasons for the Merger;
Fairness of the Merger"
Item 4. Terms of the
Transaction
(a) and (b) "GENERAL," "THE CONVERSION AND OPEN
MARKET PURCHASES," "THE MERGER" and
ANNEX I of EXHIBIT D
Item 5. Plans or Proposals of
the Issuer or Affiliate
(a) through (e) "SPECIAL FACTORS -- Plans for the Company
after the Transactions" and "THE MERGER --
Principal Effects of the Merger"
(f) and (g) "THE MERGER -- Principal Effects of the
Merger" and "ADDITIONAL INFORMATION --
Delisting and Deregistration"
Item 6. Source and Amount of
Funds and Other
Consideration
<PAGE>
(a) "THE MERGER -- Sources of Funds"
(b) "THE MERGER -- Costs and Expenses of the
Merger"
(c) Not Applicable
(d) Not Applicable
Item 7. Purpose(s), Alternatives,
Reasons and Effects
(a) "SPECIAL FACTORS -- Background," "SPECIAL
FACTORS -- Evaluation of Going-Private
Transaction," "Background -- Reasons for the
Merger; Fairness of the Merger" and
"Background -- Purpose, Structure and
Benefits of the Transactions"
(b) "SPECIAL FACTORS -- Reasons for the Merger;
Fairness of the Merger"
(c) "SPECIAL FACTORS -- Background," "SPECIAL
FACTORS -- Evaluation of Going-Private
Transaction," "SPECIAL FACTORS -- Purpose,
Structure and Benefits of the Transactions"
and "SPECIAL FACTORS -- Effects and Timing"
(d) "GENERAL," "SPECIAL FACTORS -- Effects and
Timing," "SPECIAL FACTORS -- Reasons for the
Merger; Fairness of the Merger," "THE MERGER
-- Principal Effects of the Merger" and
"FEDERAL INCOME TAX CONSEQUENCES"
Item 8. Fairness of the
Transaction
(a) "SPECIAL FACTORS -- Reasons for the Merger;
Fairness of the Merger"
(b) "SPECIAL FACTORS -- Background," "SPECIAL
FACTORS -- Reasons for the Merger; Fairness of
the Merger" and "SPECIAL FACTORS -- Valuation
of the Company"
(c) "GENERAL," "THE CONVERSION AND OPEN
MARKET PURCHASES" and "THE MERGER"
(d) "SPECIAL FACTORS -- Reasons for the Merger;
Fairness of the Merger"
<PAGE>
(e) "SPECIAL FACTORS -- Position of the Company
with Respect to the Merger"
(f) "SPECIAL FACTORS -- Reasons for the Merger;
Fairness of the Merger"
Item 9. Reports, Opinions,
Appraisals and Certain
Negotiations
(a) through (c) "SPECIAL FACTORS -- Valuation of the
Company," and EXHIBIT B
Item 10. Interest in Securities
of the Issuer
(a) "GENERAL," "Special Factors -- Background,"
"SPECIAL FACTORS -- Past Contacts,
Transactions or Negotiations" and "THE MERGER
-- Beneficial Ownership"
(b) Not Applicable
Item 11. Contracts, Arrangements "GENERAL," "Special Factors -- Background" and
or Understandings with "SPECIAL FACTORS -- Past Contacts,
Respect to the Issuer's Transactions or Negotiations"
Securities
Item 12. Present Intention and
Recommendation of
Certain Persons with
Regard to the
Transaction
(a) "GENERAL," "THE CONVERSION AND OPEN
MARKET PURCHASES" and "THE MERGER"
(b) Not Applicable
Item 13. Other Provisions of the
Transaction
(a) RIGHTS OF DISSENTING STOCKHOLDERS"
and ANNEX II of EXHIBIT D
(b) None
(c) Not Applicable
Item 14. Financial Information
<PAGE>
(a) "CERTAIN INFORMATION ABOUT THE
COMPANY -- Selected Consolidated Financial
Information" and ANNEXES IV and V of EXHIBIT
D
(b) Not Applicable
Item 15. Persons and Assets
Employed, Retained or
Utilized
(a) and (b) Not Applicable
Item 16. Additional Information Additional
information concerning the Rule 13e-3
transaction is set forth in the Information
Statement attached hereto as Exhibit (d),
which is incorporated herein by reference in
its entirety
Item 17. Material to be Field as
Exhibits
(a) None
(b) Valuation Report of Murray Devine & Co.
(c) None
(d) Notice and Information Statement
(e) Section 262 of the General Corporation Law of
the State of Delaware is incorporated by
reference to Annex II of Exhibit C to the
Information Statement included herein as
Exhibit (d))
(f) Not applicable
<PAGE>
SIGNATURES
After due inquiry and to the best of its knowledge and belief each of the
undersigned certifies, that the information set forth in this statement is true,
complete and correct.
Dated: February 4, 1997
R & R CAPITAL ACQUISITION CORP.
By: /S/ JORGE LANKENAU ROCHA
Name: Jorge Lankenau Rocha
Title: President
R & R CAPITAL HOLDINGS, INC.
By: /S/ JORGE LANKENAU ROCHA
Name: Jorge Lankenau Rocha
Title: President
ABACO CASA DE BOLSA, SA.DE C.V.,
ABACO GRUPO FINANCIERO
By: /S/ FRANCISCO E. QUINTANILLA
Name: Francisco E. Quintanilla
Title: Director of Financial Controls
ABACO GRUPO FINANCIERO, S.A. DE C.V.
By: /S/ FRANCISCO E. QUINTANILLA
Name: Francisco E. Quintanilla
Title: Director of Financial Controls
<PAGE>
CONFORMED COPY
January 31, 1997
ABACO CASA de BOLSA, S.A. de C.V.,
ABACO GRUPO FINANCIERO
Montes Rocallosos
505 Sur
Residencial San Agustin
66260 Garza Garcia,
N.L. Mexico
Gentlemen:
The enclosed is a valuation of the fair value of the common stock of Rodman
& Renshaw Captial Group, Inc. (the "Company"), as of December 31, 1996. The
purpose of this valuation is to assist Abaco Casa de Bolsa, S.A. de C.V., Abaco
Grupo Financiero ("Abaco" or the "Parent") in determining a fair value of the
Company's common stock in conjunction with a going private transaction.
In this report, fair market value is defined as:
A price that a reasonable seller, under all the circumstances, would
regard as within a range of fair value; one that such a seller could
reasonably accept.
This valuation report contains:
this letter which identifies the business enterprise under investigation,
describes the purpose and basis of our valuation and summarizes our opinion
of value; and
a report containing descriptive data on the Company, a discussion of the
valuation methodologies, the application of those methodologies to the
valuation and the conclusions attained through this analysis.
All data received from the Company for our use in this analysis has been
accepted as accurate and reflective of anticipated business operations and
conditions.
Based upon the valuation procedures described in the accompanying report, it is
our opinion that the value of the common stock of the Company as of December 31,
1996, would be reasonably stated between:
ZERO
($0)
AND
ONE MILLION EIGHT HUNDRED AND TEN THOUSAND DOLLARS
($1,810,000)
OR
ZERO CENTS
PER SHARE
($0.00)
AND
TWENTY SEVEN CENTS
PER SHARE
($0.27)
This valuation included discussions with representatives and counsel of
Abaco in which certain members of management of the Company particpated to
obtain an understanding of the Company's customer base, current and potential
competitors and overall market conditions and outlook. Furthermore, MD&Co.'s
valuation on a going concern basis, assumes that the Company will obtain such
financing as is necessary to remedy any current working capital shortfall.
We have made no investigation of, and assume no responsibility for, the title to
or encumbrances against the securities valued. Neither Murray, Devine & Co.,
Inc. or any of its employees or affiliated entities have any present or
contemplated financial interest in the Company. We further certify that the
compensation received for this study is not contingent upon the conclusions
reached. Our valuation is subject to the assumptions and limiting conditions
statement that can be found in Appendix A of the report.
Very truly yours,
/s/ MURRAY, DEVINE & CO., INC.
<PAGE>
FAIR MARKET VALUE OF THE COMMON STOCK
OF
RODMAN & RENSHAW CAPITAL GROUP, INC.
As of
December 31, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
I. INTRODUCTION.............................................. 1
PURPOSE OF THE VALUATION.................................. 1
DATE OF THE VALUATION..................................... 1
SHARES OUTSTANDING........................................ 1
DEFINITION OF FAIR VALUE.................................. 1
VALUATION PROCESS......................................... 2
II. DESCRIPTION OF THE COMPANY AND ITS OPERATIONS............. 4
COMPARATIVE COMPANY ANALYSIS.............................. 4
HISTORICAL ANALYSIS....................................... 5
III. VALUATION METHODS......................................... 6
Cost Approach.................................... 6
Market Approach.................................. 6
Income Approach.................................. 6
COMPARABLE COMPANIES...................................... 7
MULTIPLE OF NET REVENUE................................... 9
EBT MULTIPLE.............................................. 9
MULTIPLE OF BOOK VALUE OF COMMON EQUITY................... 9
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
RISK ADJUSTMENTS - MULTIPLE METHODS...................... 10
BLACK-SCHOLES FORMULA.................................... 10
DISCOUNTED CASH FLOW..................................... 11
COMPARABLE TRANSACTIONS.................................. 12
IV. VALUATION ANALYSIS....................................... 13
ADJUSTED NET REVENUE MULTIPLE............................ 13
ADJUSTED EBT MULTIPLE.................................... 14
ADJUSTED BV MULTIPLE .................................... 14
BLACK-SCHOLES FORMULA ................................... 15
V. VALUATION SUMMARY........................................ 17
CONCLUSION............................................... 17
VI. APPENDICES
APPENDIX A - ASSUMPTIONS AND LIMITING CONDITIONS
APPENDIX B - QUALIFICATIONS OF APPRAISERS
VII. EXHIBITS
<PAGE>
I. INTRODUCTION
PURPOSE OF THE VALUATION
This valuation is made to express an opinion of the Fair Value
("FV") of the common stock of Rodman & Renshaw Capital Group,
Inc. (the "Company"). The purpose of this valuation is to assist
Abaco Casa de Bolsa, S.A. de C.V., Abaco Grupo Financiero ("Abaco"
or the "Parent") in determining a FV of the Company's common stock
in conjunction with a going private transaction.
DATE OF THE VALUATION
The date of the valuation is as of December 31, 1996.
SHARES OUTSTANDING
For purposes of this valuation the number of common shares outstanding,
6,645,802 (par value $598,122 ), was derived from the Company's 10Q,
dated September 30, 1996.
DEFINITION OF FAIR VALUE
In this report, Fair Value shall be defined as:
A price that a reasonable seller, under all the
circumstances, would regard as within a range of fair value;
one that such a seller could reasonably accept.
Before proceeding with the valuation study, it is necessary to
establish the appropriate premise of value. The general concept of
value is separated into two fundamental categories:
1. Value-in-exchange
2. Value-in-use
Value-in-exchange is the value at which a company would sell on a
piecemeal basis. Value-in-use is the value of a company as a continuing
business, and reflects the extent to which the underlying operating
assets contribute to the profitability of the enterprise. Adopting one
of these two premises over the other can have a marked effect on the
valuation of a company.
In the case of this valuation, the common stock is being valued as a
going concern, therefore, the premise of value-in-use is the basis for
our determination of the FV of the common stock.
VALUATION PROCESS
The following factors were taken into consideration in the
valuation of the Company:
o The history of the Company, nature of the business, and its
growth opportunities.
o The general economic outlook.
o The economic outlook for the industry in which the Company
operates.
o The historical trends of earnings and expenses, various financial
ratios and the Company's capital structure.
o The current market value of publicly-traded companies in the same
or similar industry, and comparable financial ratios.
o The risks associated with the Company's operating earnings
stability, capital structure, competition, power of suppliers,
barriers to entry and exit from the industry and potential
competitors.
Our historical financial review consisted of the analysis of the past
three fiscal years' balance sheets, statements of income, cash flow and
shareholders equity. These statements were audited by Deloitte &
Touche, LLP, for periods ended prior to and including June 24, 1994,
and by Coopers & Lybrand for periods subsequent to June 24, 1994. In
addition, unaudited financial statements included in the Company's
quarterly reports (10-Qs) filed with the Securities and Exchange
Commission for the three periods ended March 31, 1996, June 30, 1996
and September 30, 1996, were reviewed.
Murray, Devine & Co., Inc. ("MD&Co.") personnel was in contact with
Kelley Drye & Warren, counsel for the Parent, to obtain information
necessary for the valuation. In addition, MD&Co. conducted various
discussions in which certain members of management of the Company
participated, to discuss the Company's operations, financial position,
customer base, current and potential competitors and overall market
conditions and outlook.
Market data on publicly-traded comparable companies (the "Comparable
Companies") was derived from their respective 10Ks and 10Qs and the
Value Line Investment Survey. This information was used to develop
pertinent ratios and industry risk indices which were needed to utilize
the valuation methods employed. Competitor data and the general
economic and industry economic outlooks were derived from independent
sources such as the Value Line Investment Survey, and Moody's Investor
Service.
<PAGE>
II. DESCRIPTION OF THE COMPANY AND ITS OPERATIONS
The Company is a full service securities broker-dealer and investment
banking firm 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, other
securities and commodities dealers, and individual investors.
MD&Co. assessed the financial condition of the Company on both a
comparative and a historical basis.
COMPARATIVE COMPANY ANALYSIS
The Company's historical financial performance (please see Exhibit A
for a summary of the Company's historical statements of income and
balance sheets) lags substantially behind that of the Comparable
Companies. To assess the Company's financial results, MD&Co. performed
an analysis of certain operating results of the Company and each of the
Comparable Companies, as well as a comparative ratio analysis of the
Company's operating results and capitalization (please see Exhibit B)
relative to that of the Comparable Companies.
The principal conclusions drawn from the above described analysis are
that the Company's profitability, as measured by earnings before taxes
("EBT") as a percentage of net sales (gross revenues less interest
expense), has not only lagged behind the Comparable Company average for
every period considered, but has been substantially negative for each
of these periods. Furthermore, the Company's compensation expense as a
percentage of net sales, a common measure of productivity in the
securities industry, was in excess of 92% for fiscal 1995. The average
of the Comparable Companies was 56% for the same period.
As a result of the Company's recurring losses since fiscal 1994, its
capital base, as of September 30, 1996, has been significantly eroded
relative to the Comparable Companies. This erosion of capital during
the last three years is a poignant indicator of the Company's weak
operating performance, particularly in light of the relatively strong
results for the securities industry in general over the last two years.
The Company's capital structure, relative to the Comparable Companies,
indicates a low book value to total assets ratio, a high level of
dependence on short term debt, and an overall high degree of leverage.
Additionally, the Company has difficulty obtaining credit without the
express written support of the Parent.
HISTORICAL ANALYSIS
The Company has incurred net losses since fiscal 1994 (the Company's
fiscal year end was changed from June to December during the 1994
calendar year; the Company recorded a six month transition period
ending December 31, 1994 (the "Transition Period"); fiscal 1994 refers
to the 12 month period ending on June 24, 1994). The decline in
profitability for the Company during fiscal 1994 was in part
attributable to adverse market volatility, particularly in the fixed
income arena of the brokerage industry, but mostly attributable to
significant organizational and management changes occurring subsequent
to the Companies change in ownership.
During fiscal 1994, the Company redirected its strategic plan and
incurred certain one time charges in excess of $18 million. These
charges were associated with the Company's acquisition by the Parent,
restructuring costs from office relocations, certain litigation
settlements, various employee costs related to the severance of old and
the hiring of new employees (including the replacement of the
management team), and the elimination of its high yield fixed income
business and portfolio. In addition, the Company's productivity
generally suffered from the employee turnover and disruptions
associated with the replacement of senior management and the
redirection of corporate strategy, and continued to impact the
Company's operations throughout the Transition Period.
During fiscal 1995, management of the Company made a strategic decision
to exit the commodities business. Although this decision had an adverse
impact on commission revenue derived from this business, the loss of
revenue associated with the commodities business was more than offset
by income generated from principal transactions and securities related
business areas. Despite an overall improvement in revenues, however,
the Company continued to incur substantial losses. This was mostly
attributable to increased costs resulting from the Company's expansion
of equities and research capabilities through the Mabon Securities
acquisition, as well as from continuing costs associated with ongoing
restructuring. Finally, increased short term borrowing also led to
higher interest expenses for fiscal 1995.
In the nine month period ended September 30, 1996, the Company's
financial condition showed no improvement over the same period in
fiscal 1995. Revenues further declined as a result of the absence of
any commodities business and interest income deteriorated due to the
Company's reduction in securities inventory. The above deterioration in
revenues, however, was generally offset by improvements in the
Company's expense structure, largely attributable to the change in
business line mix. The net loss incurred for the nine month period in
1996, therefore, was approximately equivalent to the loss in 1995.
<PAGE>
III. VALUATION METHODS
Common methods used in valuing a business enterprise include the Cost,
Market and Income Approaches. A brief description of each of these
valuation approaches follows:
Cost Approach
The Cost Approach primarily focuses on the time, materials,
and facilities that would be required to redevelop the
business enterprise. It should be noted that cost is only one
indication of potential value. Value may be higher or lower
depending on the specific circumstances. For example, a great
deal of time and effort may have been spent on product
development. However, if the product is unsuccessful in the
marketplace, this effort may be of little value. Conversely,
little time or cost may have been required to develop a
business enterprise of considerable value.
Market Approach
The Market Approach identifies companies in similar businesses
that are publicly-traded or that have recently been sold.
Through the Market Approach, comparable factors of these
companies or transactions are identified and related to the
business under investigation.
Income Approach
The Income Approach is the principal approach to the valuation
of business enterprises. This approach can take a variety of
forms, such as the discounted free cash flow or capitalization
of free cash flow methods.
Under ideal circumstances, all of the above approaches may be
applicable to the valuation of a business enterprise. For certain types
of enterprises, one or more value concepts may be inappropriate. In
certain instances, results indicated by one approach may widely differ
from the other approaches. The appraiser must discern the reasons for
this difference and select those methods that best represent the
considerations of a willing and knowledgeable buyer and seller.
In valuing a business enterprise, primary consideration is usually
given to the Market and Income Approaches. The Cost Approach normally
has less relevance since investors are primarily concerned with the
company's income potential from operations rather than the cost
associated with recreating the business.
COMPARABLE COMPANIES
The Market and Income Approaches rely on market value information of
publicly-traded companies that are comparable to the business that is
being valued. As previously explained, this information was derived
from the Comparable Companies' 10Ks and 10Qs, and from the Value Line
Investment Survey. The following publicly-traded companies were
selected from within the securities industry as appropriate companies
from which to obtain the necessary comparable information to be
utilized in the valuation of the Company:
McDonald & Company Investments, Inc. - operates a regional
investment banking and brokerage business. The company's
activities include the origination, underwriting,
distribution, trading and brokerage of fixed income and equity
securities, investment advisory services, and investment
research and other related services. It serves institutional
customers located throughout the United States and in Canada,
Europe and the Far East, while the company's retail operation
is principally located in Ohio, Michigan, and Indiana.
The Advest Group, Inc. - is a financial services holding
company engaged, with its operating subsidiaries, in
securities brokerage, trading, investment banking, consumer
lending, asset management, trust and related financial
services. Specific services include retail brokerage,
institutional sales, origination of and participation in
underwritings and distribution of corporate and municipal
securities, market making and trading activities in corporate
securities and municipal bonds, research, custody and money
management.
First Albany Companies, Inc. - conducts an investment banking
business with brokerage activity centered in New York and New
England. The primary business includes securities brokerage
for individual and institutional customers, and market-making
and trading of corporate, government, and municipal
securities. In addition, the company underwrites and
distributes municipal and corporate securities, provides
securities clearance activities for other brokerage firms, and
offers financial advisory services to its customers. Through
one of its subsidiaries, the company also offers asset
management services to institutional and individual customers.
Scott & Stringfellow Financial, Inc. - is a regional
brokerage, investment banking, and financial services firm
headquartered in Virginia. The company operates twenty eight
offices in principal locations throughout the Mid-Atlantic and
Southeastern United States. Its primary activity is retail
securities brokerage. Other significant activities include
institutional securities brokerage, management of and
participation in the underwriting of corporate and municipal
securities, investment management services, corporate and
municipal finance, trading of taxable and tax-exempt fixed
income and equity securities, equity research, money market
accounts, retirement accounts, and the distribution of mutual
fund and insurance products.
Stifel Financial Corporation - offers securities related
financial services through its wholly owned operating
subsidiaries. These subsidiaries provide brokerage, trading,
investment banking, investment advisory, and related financial
services primarily to customers throughout the United States.
The company's customers include individuals, corporations,
municipalities and institutions. Although the company has
customers throughout the United States, its major geographic
concentration is in the Midwest.
JW Charles Financial Services, Inc. - primarily through three
principal subsidiaries, the company operates a full serivce
securities brokerage and investment banking firm and provides
securities transaction processing and other related services.
Its primary business is providing a wide range of securities
brokerage and investment services to a diversified client
base, delivering a broad range of clearing services to
affiliated and independent broker-dealers, including
affiliates of commercial banks, and providing investment
banking services to corporate clients.
First of Michigan Capital Corporation - is a securities
broker-dealer and investment banker, and engages in brokerage
of listed securities and principal and agency transactions in
unlisted securities, and the underwriting and distribution of
securities. Securities dealt in include equity and debt
securities of industrial and financial companies and
institutions, mutual funds, and governmental entities. The
company is a member of the NYSE, as well as other stock and
option exchanges, and the NASD.
Please see Exhibit C for a summary of various operating information of
the above companies, including net revenue, EBT and book value
multiples applied in the valuation of the Company. Using information
from the Comparable Companies, the following valuation methods were
employed to determine the value of the common equity of the Company
("Equity Value").
1) Multiple of Net Revenue
2) Multiple of EBT
3) Multiple of the book value of common equity
4) The Black-Scholes Formula
MULTIPLE OF NET REVENUE
Value under this method is determined by multiplying the Company's net
revenues by a factor equal to the ratio of the Comparable Companies'
Equity Values to their respective net revenues (the "Net Revenue
Multiples"). When analyzing certain types of financial service
institutions it is common to incorporate net, rather than gross,
revenues into financial ratios involving sales. Gross revenues may
overstate results if the subject company incurs excessive amounts of
interest expense in its operations.
EBT MULTIPLE
Value under this method is determined by multiplying the Company's EBT
by a factor derived from the Comparable Companies' ratios of Equity
Values to their respective EBTs (the "EBT Multiples"). Applying this
factor to the Company's EBT will yield an estimate of the fair value of
the Company's equity.
MULTIPLE OF BOOK VALUE OF COMMON EQUITY
For each of the Comparable Companies described above, a multiple of
Equity Value to book value of common equity (the "BV Multiples") was
calculated. Multiples derived from the Comparable Companies were
applied to the Company's common equity book value (the Company's book
value for each of the relevant periods was adjusted for the value of
preferred stock included in the Company's book value) to arrive at a
valuation estimate of the Company's common equity.
RISK ADJUSTMENTS - MULTIPLE METHODS
The multiples derived under each of the preceding methods were adjusted
to reflect the risks associated with small capitalization stocks and
specific risks associated with the Company's performance. It is typical
to adjust comparable company multiples for small stock risk and company
specific risk to compensate investors for the additional uncertainty
that these types of investments carry. These adjustments are discussed
further in the Valuation Analysis section of this report.
BLACK SCHOLES FORMULA
Ownership of a company's common equity can be viewed as a call option
on the value of that company's assets after all other liabilities have
been satisfied. Therefore, option pricing methodology may be used to
value the common equity of a company in a distressed situation. The
theory is based on the premise that claims on a company's assets are
divided among two principal providers of capital to an organization,
creditors and shareholders. Since creditors and preferred shareholders
have a senior claim on a company's assets ("Creditor Claims"), common
equity holders are entitled only to the residual value of a company's
assets after all Creditor Claims have been satisfied. The equity
holders of a company, therefore, are paying for the right to acquire
the company's assets at a strike price equivalent to the face value of
all Creditor Claims. To the extent that the value of the company
exceeds such Creditor Claims, shareholders would retain the remaining
balance of the company's total asset value.
The Black-Scholes Model is a widely used option valuation formula in
use today and can be applied to estimate the Equity Value of the
Company. The Equity Value of the Company derived from employing the
Black-Scholes Formula is directly dependent on the estimated current
value of the company's assets ("Current Value"), the estimated time to
maturity of the Creditor Claims, the riskless rate of interest, and the
volatility of the Company's Current Value. An increase/decrease in any
of these variables will result in an increase/decrease in the Equity
Value derived. Additionally, the Equity Value conclusion is inversely
related to the face value of the Creditor Claims.
The Black-Scholes Formula can be applied to the Company as follows:
C0 = S0N(d1) - Ee-rtN(d2)
where,
C0 = the Company's Equity Value;
S0 = the Company's Current Value;
E = the face value of Creditor Claims
e = the base of natural logarithms = 2.7128;
r = the continuously compounded annual riskless rate
of interest (so that the end-of-year value of $1
invested in a riskless asset is er, and not
(1 + r) as in the discrete-compounding case);
t = the time remaining to the expiration of the
option, expressed in years.
N(d1) and N(d2) are the values of the cumulative normal
distribution at points d1 and d2 respectively, where;
d1 = ln(S/E) + (r + 1/2 s2)t
[GRAPHIC OMITTED]t s
[GRAPHIC OMITTED]t d2 = ln(S/E) + (r -1/2s2)t = d1 - s
[GRAPHIC OMITTED]t s
and,
s = the standard deviation of the continuously
compounded annual rate of return, representing
the volatility of the Current Value of the
Company (as estimated by the volatility of its
stock price).
DISCOUNTED CASH FLOW
Studies have been conducted that demonstrate that the market values of
stocks are set by investors who evaluate the future cash generation
potential of a company and then discount these cash flows at a risk
adjusted discount rate to determine their present value, or the
enterprise value of the company.
It is always useful to analyze and value a company based on
management's financial projections of the future operations of the
business. This is especially true in turnaround situations, such as
exists for the Company, where the accuracy of valuations based on
historical financial results is diminished and complicated by the
frequent changes and disruptions associated with operating a distressed
company. As a result of the recent change in management of the Company
(the Company appointed a new CEO in December, 1996), however, and the
Company's continuing realignment of its principal lines of business, no
current financial projections were available on which to base such a
discounted cash flow analysis and thus no such analysis was performed.
Management of the Company did provide 1996 financial results adjusted
for anticipated changes in corporate strategy and expenses, and
expressed its opinion that the Company should achieve break even
results in fiscal 1997.
COMPARABLE TRANSACTIONS
MD&Co. performed an industry search for acquisitions over the last two
years which, by comparison to the Company, may have served as
indicators of fair value for the Common Stock. These searches yielded
19 transactions which met the broad parameters of MD&Co.'s original
search. Upon further review of each of these acquisitions, however,
none were believed to be comparable to the Company. Transactions from
the initial search results were eliminated primarily due to the fact
that the acquired targets were determined not to be in substantially
similar lines of business as the Company. Therefore, MD&Co. did not
rely on comparable transactions for purposes of valuing the Company's
common equity.
<PAGE>
IV. VALUATION ANALYSIS
As mentioned above, due to the Company's weak operating performance
over the last several years, and in the absence of a cash flow
projection from the Company's management, MD&Co. has principally relied
on a market multiple approach and the Black-Scholes model to arrive at
a conclusion of value of the Company's common stock.
Exhibit C computes the multiples of equity market value to net revenues
for each of the Comparable Companies described above. In each case, the
multiples were computed based on the prior fiscal year's ("PY") revenue
as well as the trailing 12 months ("LTM") revenue. These multiples were
adjusted for small stock (if applicable) and Company specific risks,
which are explained below.
Comparable company multiples were adjusted for small stock risk, if
applicable. A micro-capitalization stock such as the Company, for
example, is defined in the Ibbotson Associates Study on rates of return
as a company with an equity market capitalization of under $171
million. Ibbotson indicates that historically, micro capitalization
stocks have, on average, returned 3.6% more per year than large
capitalization stocks (those stocks with market capitalization in
excess of $3.0 billion). This additional return is known as the small
stock premium, which compensates investors for the risks inherent in
investing in smaller capitalization stocks relative to the comparable
companies. Since all but one of the Comparable Companies, McDonald &
Co., were micro-capitalization stocks, only one adjustment for
differences in market capitalization was necessary.
In addition to small stock risk, it was also necessary to adjust the
multiples derived from the Comparable Companies for specific risks
associated with investing in the Company. Specific risks include, (i)
the Company's transient business strategy, (ii) its recent change in
management, (iii) its weak financial position as a result of recurring
poor operating results, and (iv) the general diseconomies arising from
operating as a distressed company, such as a lack of management focus
on business operations, poor employee morale, and customer and
counterparty skepticism, resulting in a further decline in business.
Based upon these factors, a 10% specific risk premium was believed to
be reasonable and used to adjust the Comparable Company multiples (each
of the Net Revenue, EBT and BV Multiples on an adjusted basis are
hereafter referred to as the "Adjusted Multiples").
ADJUSTED NET REVENUE MULTIPLE
The resulting Adjusted Net Revenue Multiples for the Comparable
Companies for the PY and LTM ranged from .11 to .63, and from .17 to
.62, respectively. An average of the middle five multiples was
calculated for each range specified above. The average multiples were
.24 for the PY and .24 for the LTM. Due to the Company's poor operating
performance over the last several years, the lowest of the Comparable
Company multiples ("LCM") were deemed to be the most appropriate
yardsticks for determining the Company's Equity Value.
The results of applying each of the Adjusted Multiples to the Company's
financial results are summarized in Exhibit D. The Adjusted Net Revenue
and Adjusted EBT Multiple results had to be further adjusted in order
to account for the fair value of the Company's preferred stock
obligations. Since the Equity Value multiples derived from the
Comparable Companies were based solely on their respective values of
common equity (Comparable Companies had no preferred equity), the
Company's preferred stock obligations must be deducted from the values
calculated by the multiples in order to arrive at a common Equity Value
for the Company.
Once adjusted for the fair value of the Company's preferred stock, the
Equity Values of the Company derived from the Adjusted Net Revenue
Multiples were negative.
ADJUSTED EBT MULTIPLE
The Adjusted EBT Multiples of the Comparable Companies, based on their
PY and LTM results, can be found in Exhibit C. Due to the fact that the
Company's operating results have been substantially negative for the
last several years, however, any valuation result derived from these
multiples was also negative.
MD&Co. investigated the possibility of using 1996 operating results
adjusted for various anticipated cost reductions and planned operating
improvements as estimated by management. Despite these improvements,
the adjusted 1996 EBT figure was still negative.
ADJUSTED BV MULTIPLE
Finally, the Adjusted BV Multiples of the Comparable Companies, based
on their PY and LTM results, can be also be found in Exhibit C.
However, due to the Company's recurring negative operating results, its
common book value (book value adjusted for the face value of the
preferred stock obligations) at December 31, 1995, and at September 30,
1996 is substantially negative. As was the case in each of the prior
methods, therefore, the Equity Value derived from the Adjusted BV
Multiple was also negative.
BLACK-SCHOLES FORMULA
Based on the results derived from the above described multiple
approaches and on MD&Co.'s overall review of the financial condition
and historical operations of the Company, MD&Co. preliminarily
determined that there was little to no equity value intrinsic to the
Company's existing operations. For this reason, MD&Co. employed option
pricing methodology, in addition to the Comparable Company analysis, to
derive an additional estimate of Equity Value for the Company. This
derivation can be found in Exhibit E.
In applying the Black-Scholes valuation model, three critical variables
of the formula had to be determined in order to achieve a reasonable
valuation result. These variables were S0, s, and t.
S0, representing the Current Value, was derived by discounting the
value of obligations senior to the common equity, the Company's
preferred stock and notes payable to Confia, based on market rates for
distressed securities. The underlying theory in applying this
methodology is that since MD&Co. does not believe the Company to have
any intrinsic equity value, the Current Value of the Company must be
limited to the fair value of the Creditor Claims. Since no cash flow is
readily identifiable to repay these obligations, it was assumed that
these obligations would trade at a substantial discount from their face
value. Discounted, therefore, at a distressed market rate of 50% and
65% of face value for each of the time periods described below,
respectively, the Current Value of the Company, based on $26.5 million
in notes payable and $17.5 million in preferred stock currently
outstanding, was determined to be between $22.2 million and $28.7
million.
The variability of the Current Value of the Company, s, was estimated
based on the historical volatility of the Company's stock price, on a
monthly basis, for the last three years. This figure was then
annualized and incorporated into the Black-Scholes model (see page 2 of
Exhibit E). The historical volatility of the Company's stock was
determined to be relatively high when compared to the volatility of the
Comparable Companies. This was attributable to the fact that the
Company's stock price has continuously declined over the last three
years. Nevertheless, this measure of volatility was deemed as the most
appropriate, since any recovery in the Company's performance should
provide additional upside potential for the Company's value relative to
its peers. .488 was computed as an appropriate measure of s.
The time to maturity of the Creditor Claims, t, was assumed to be
between one to two years. This range was based on the belief that the
Company is presently substantially dependent on the financial support
of its Parent, and that this support would not likely extend beyond two
years, a time frame viewed to be adequate in order for the Parent to
assess the viability of its investment under the control of new
management.
E represents the face value of the Company's Creditor Claims, e is
2.7128 by definition, and r is represented by the approximate yield of
the one and two year treasury notes at December 31, 1996.
Given the above parameters, the calculation of C0, the Company's Equity
Value based on the Black-Scholes Formula, was estimated to be between
$686,532 and $1,809,697.
<PAGE>
V. VALUATION SUMMARY
The following table is a summary of the estimates of Equity Value of
the Company derived from the various methods described above.
Valuation Method PY or 1 Yr. Period LTM or 2 Yr. Period
Adjusted Net Revenue
Multiple negative negative
Adjusted EBT Multiple negative negative
Adjusted BV Multiple negative negative
Black-Scholes Formula $687,000 $1,810,000
CONCLUSION
In rendering its valuation opinion, MD&Co. reviewed such factors as the
Company's historical operating results and its overall financial
condition. Among other things, MD&Co. also considered the Company's
imminent need for financing of the payment of bonuses to avoid the
departure of critical personnel, its lack of success in establishing a
recognized equities capability, the divestiture of various segments of
its business and the Company's inability to establish sound creditor
and business relationships without the continued express written
support of Abaco. Furthermore, MD&Co.'s valuation on a going concern
basis, assumes that the Company will obtain such financing as is
necessary to remedy any current working capital shortfall.
As indicated by the table above, the valuation results derived from the
various methods employed were widely divergent. This is largely
attributable to the fact that the Company's operating performance is
highly inconsistent with industry or Comparable Company averages. As a
result, the estimates of the Company's Equity Value derived from the
Adjusted Multiple Approaches were not believed to be particularly
meaningful.
In a distressed situation, it is often difficult to apply typical
valuation methods to arrive at meaningful valuation results. It is
MD&Co.'s opinion that in light of the Company's specific circumstances,
such methods would likely lead to a zero value conclusion for the
Company, particularly in the absence of financial projections provided
by management. On a going concern basis, however, equity value is
rarely determined to be zero. It is MD&Co.'s opinion, therefore, that
despite the Company's clear operational difficulties, there is value
inherent in the Company's common equity, and that this value is best
approximated through the Black-Scholes option pricing methodology
described above.
Accordingly, it is our opinion that the Fair Value of the Common Stock
of the Company as of December 31, 1996 would be reasonably between:
ZERO
($0)
AND
ONE MILLION EIGHT HUNDRED AND TEN THOUSAND DOLLARS
($1,810,000)
OR
ZERO DOLLARS
PER SHARE
($0.00)
AND
TWENTY SEVEN CENTS
PER SHARE
($0.27)
<PAGE>
APPENDICES
<PAGE>
APPENDIX A - ASSUMPTIONS AND LIMITING CONDITIONS
This valuation is subject to the following assumptions and
limiting conditions:
1. Information, estimates, and opinions contained in this report are
obtained from sources considered to be reliable. However, Murray,
Devine & Co. ("MD&Co.") assumes no liability for such sources.
2. Information supplied by management of the Company and Abaco
and its counsel has been accepted as correct without
further verification, and MD&Co. expresses no opinion
on that information.
3. Possession of this report, or a copy thereof, does not carry with
it the right of publication of all or part of it, nor may it be
used for any purpose by anyone but the client without the
previous written consent of the client or us, and in any event
only with proper attribution.
4. MD&Co. is not required to give testimony in court, or be in
attendance during any hearings or depositions, with reference to
the company being valued, unless previous arrangements have been
made.
5. The various estimates of value presented in this report apply to
this valuation only and may not be used out of the context
presented herein. This valuation is valid only for the purpose or
purposes specified herein.
6. This valuation reflects facts and conditions existing at the
valuation date. Subsequent events have not been considered, and
we have no obligation to update our report for such events and
conditions.
7. MD&Co. has made no investigation of, and assumes no
responsibility for, the title to or encumbrances against the
assets valued.
8. Neither MD&Co., nor any of its employees or affiliated entities
has any present or contemplated interest in the assets appraised.
MD&Co.'s compensation is not contingent on an action or event
resulting from the analyses, opinions, or conclusions in, or the
use of, this report.
<PAGE>
APPENDIX B - QUALIFICATIONS OF APPRAISERS
Murray, Devine & Co., Inc. ("MD&Co.") is a firm specializing in
the valuation of businesses and their underlying assets. MD&Co.
conducts valuation studies of both publicly-held and privately-held
business enterprises for various purposes including mergers and
acquisitions, solvency issues, gift and estate tax, ESOP's, and other
cases involving litigation. MD&Co. also provides expert witness
testimony for litigation involving valuation issues.
Patrick W. Frisch
Patrick Frisch is a Senior Associate of Murray, Devine & Co.
whose responsibilities include the financial analysis, computer
modeling and overall due diligence necessary in providing financial
opinions. Additionally, Mr. Frisch conducts industry and company
research and performs business enterprise and intangible asset
valuations.
Mr. Frisch was formerly an employee of Deutsche Bank AG's New
York Branch, where he participated in a comprehensive 2 year analyst
training program. Throughout this period he worked in Deutsche Bank's
Credit Department as well as in a number of industry groups within the
bank's Corporate Finance Division. Subsequent to the successful
completion of the training program, Mr. Frisch served as the Executive
Assistant to Deutsche Bank's Country Manager in Mexico, where he
played an integral part in the establishment of the bank's operations
and the formulation of its strategy for the Mexican market in the post
NAFTA era. Immediately prior to joining Murray, Devine and Co., Mr.
Frisch worked as an Associate in the bank's Financial Institutions
Division, where his responsibilities included the financial analysis
of M&A transactions in the investment management industry, and the
marketing of banking products to asset management companies.
Mr. Frisch has a Bachelor of Science Degree from the Wharton
School at the University of Pennsylvania, where he studied Finance and
Entrepreneurial Management.
Thomas J. Kenny
Thomas J. Kenny is a Vice President of Murray, Devine & Co. Mr.
Kenny is responsible for the management of the daily activities of the
engagement. He has extensive experience in preparing business
enterprise and intangible asset valuations, fairness opinion and
acquisition due diligence procedures. He has managed engagements of
both publicly-held and privately-held companies, with operations on
both a national and multinational level.
Mr. Kenny was formerly Manager of Treasury Analysis for Campbell
Soup Company. Mr. Kenny's responsibilities included capital market
reviews, acquisition analysis, capital structure analysis and risk
management. Prior to Campbell Soup, he was a senior financial analyst
with Ramada Inns, responsible for the preparation of a major
division's operating and capital budget and operational analysis.
Mr. Kenny is a Certified Public Accountant, Certified Management
Accountant and holds a Masters of Business Administration degree with
a concentration in Finance from Temple University, and is enrolled in
the Chartered Financial Analyst certification program and has
successfully completed levels I and II of the program. He was an
Assistant Professor of Accounting and Finance at Rowan College of New
Jersey where he taught upper level undergraduate accounting and
finance courses. He has also taught corporate finance at Rutgers
University.
Francis X. Devine
Francis X. Devine is a Principal and Director of Murray, Devine &
Co. Mr. Devine's responsibilities include engagement management,
technical review, business development and new services.
Mr. Devine is directly involved in and supervises the valuation,
due diligence and analyses required in connection with matters
relating to financial valuations and solvency opinions. He has
testified as an expert witness relating to various valuation issues.
Previously, Mr. Devine, both a Chartered Financial Analyst and a
Certified Public Accountant, was a Senior Manager with Price
Waterhouse's National Reorganization and Bankruptcy Specialty Group.
Mr. Devine's experience included reorganization and bankruptcy
research and consultation; quantitative and qualitative analysis of
various troubled companies in determining their financial viability as
a going concern; review of projections for plans of reorganization;
preparation of liquidation analysis; and analysis of fraudulent
conveyance issues.
<PAGE>
EXHIBITS
<PAGE>
<PAGE>
<TABLE>
R O D M A N & R E N S H A W C A P I T A L G R O U P , I N C. EXHIBIT A
V A L U A T I O N A N A L Y S I S Page 1 of 2
- - -----------------------------------------------------------------------------------------------------------------------------------
HISTORICAL STATEMENTS OF INCOME
- - -------------------------------
($000)
<CAPTION>
June June June 6 month December 9 Months 9 Months LTM
REVENUE: FYE 1992 FYE 1993 FYE 1994 FYE 1994 FYE 1995 9/30/96 9/30/95 Sept. 1996
<S> <C> <C> <C> <C> <C> <C>
COMMISSIONS ..................... $ 41,241 $ 38,718 $ 29,158 $ 11,870 $ 24,879 $ 15,370 $ 19,973 $ 20,276
PRINCIPAL ....................... 25,640 32,216 27,313 7,033 26,628 22,938 19,241 $ 30,325
INTEREST ........................ 10,848 10,558 9,213 7,872 10,137 1,788 9,051 $ 2,874
FEE INCOME ...................... 4,728 3,145 7,598 3,876 8,065 6,276 6,252 $ 8,089
OTHER INCOME .................... 1,921 2,672 4,035 1,543 2,816 354 2,590 $ 580
TOTAL REVENUE ..................... 84,378 87,309 77,317 32,194 72,525 46,726 57,107 62,144
NET REVENUE .................... 77,413 80,174 71,603 26,261 62,308 43,220 48,957 56,571
EXPENSES:
EMPLOYEE COMPENSATION AND
BENEFITS ...................... 47,366 50,088 50,054 21,886 57,872 36,701 40,958 $ 53,615
COMMISSIONS, FLOOR BROKERAGE
AND CLEARANCE 8,372 8,721 7,141 2,328 4,004 3,235 3,280 $ 3,959
INTEREST ........................ 6,965 7,135 5,714 5,933 10,217 3,506 8,150 $ 5,573
COMMUNICATIONS .................. 6,357 6,803 6,063 3,180 8,865 4,301 6,508 $ 6,658
OCCUPANCY AND EQUIPMENT ......... 6,076 6,461 5,949 2,993 8,360 4,846 5,484 $ 7,722
PROFESSIONAL FEES ............... 1,801 2,710 5,227 763 4,825 2,094 3,256 $ 3,663
OTHER OPERATING ................. 4,238 4,843 14,600 1,443 5,398 5,355 3,289 $ 7,464
TOTAL EXPENSES .................... 81,175 86,761 94,748 38,526 99,541 60,038 70,925 88,654
EARNINGS BEFORE INCOME TAXES ...... 3,203 548 (17,431) (6,332) (27,016) (13,312) (13,818) (26,510)
INCOME TAXES ...................... 1,214 310 (930) (2,168) 2,966 0 601 3,567
NET INCOME ........................ $ 1,989 $ 238 ($16,501) ($ 4,164) ($29,982) ($13,312) ($14,419) ($30,077)
</TABLE>
<PAGE>
<TABLE>
R O D M A N & R E N S H A W C A P I T A L G R O U P , I N C. EXHIBIT A
V A L U A T I O N A N A L Y S I S Page 2 of 2
- - ----------------------------------------------------------------------------------------------------------------------------------
HISTORICAL BALANCE SHEETS
- - -------------------------
($000)
<CAPTION>
12/31/94 12/31/95 9/30/96
-------- -------- -------
<S> <C> <C> <C>
CASH AND EQUIVALENTS ................................................... $ 7,011 $ 9,001 $ 8,746
SECURITIES PURCHASED UNDER AGREEMENT TO RESELL ......................... 35,054 2,204 0
SEGREGATED CASH AND SHORT TERM INVESTMENTS ............................. 39,215 7,398 8,784
RECEIVABLES ............................................................ 202,444 65,842 5,160
SECURITIES OWNED ....................................................... 144,500 16,489 7,371
FURNITURE, FIXTURES AND IMPROVEMENTS ................................... 2,298 8,560 7,904
PREPAID EXPENSES AND OTHER ASSETS ...................................... 23,809 9,839 15,038
TOTAL ASSETS ........................................................... $454,331 $119,333 $ 53,003
SHORT TERM BORROWINGS FROM BANKS ....................................... $ 54,331 $ 30,672 $ 0
SHORT TERM NOTE TO AFFILIATE ........................................... 10,000 26,500 26,500
PAYABLES ............................................................... 248,029 32,463 8,560
SECURITIES SOLD BUT NOT YET PURCHASED .................................. 97,844 4,964 1,127
ACCRUED COMMISSIONS .................................................... 2,066 2,155 1,852
ACCOUNTS PAYABLE AND ACCRUED EXPENSES .................................. 11,762 21,136 14,333
OTHER LIABILTIES ....................................................... 3,874 0 0
TOTAL LIABILITIES ...................................................... 427,906 117,890 52,372
TOTAL STOCKHOLDERS' EQUITY ............................................. 26,425 1,443 631
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................. $454,331 $119,333 $ 53,003
</TABLE>
<PAGE>
<TABLE>
R O D M A N & R E N S H A W C A P I T A L G R O U P , I N C. EXHIBIT B
V A L U A T I O N A N A L Y S I S Page 1 of 2
- - ----------------------------------------------------------------------------------------------------------------------------------
OPERATING AND BALANCE SHEET ANALYSIS
- - ------------------------------------
($ IN MILLIONS)
<CAPTION>
MCDONALD FIRST STIFEL JW
& CO. ADVEST ALBANY SCOTT & FINANCIAL CHARLES FIRST OF RODMAN &
INVESTMENTS GROUP COMPANIES STRINGFELLOW CORPORATION FINANCIAL MI CAPITAL RENSHAW
OPERATING STATISTICS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FISCAL YEAR SALES ................. $ 220.6 $ 232.6 $ 123.1 $ 73.2 $ 95.4 $ 80.0 $ 71.7 $ 72.5
PRIOR PERIOD SALES ................ 105.5) (171.5) (94.3) (17.7) (70.7) (58.3) 0.0 (57.1)
CURRENT PERIOD SALES .............. 126.9 199.6 120.5 17.9 78.3 67.9 0.0 46.7
TRAILING 12 MONTHS SALES .......... $ 242.1 $ 260.7 $ 149.3 $ 73.5 $ 103.0 $ 89.6 $ 71.7 $ 62.1
FISCAL YEAR INTEREST EXPENSE ...... $ 7.6 $ 30.6 $ 19.9 $ 2.3 $ 8.3 $ 3.1 $ 2.9 $ 10.2
PRIOR PERIOD INTEREST EXPENSE ..... (3.6) (22.9) (15.4) (0.6) (6.0) (1.9) 0.0 (8.2)
CURRENT PERIOD INTEREST EXPENSE ... 4.3 22.0 16.1 0.6 6.1 2.9 0.0 3.5
TRAILING 12 MONTHS INTEREST EXPENSE $ 8.4 $ 29.7 $ 20.6 $ 2.3 $ 8.4 $ 4.1 $ 2.9 $ 5.6
FISCAL YEAR NET SALES ............. $ 213.0 $ 202.1 $ 103.2 $ 70.9 $ 87.0 $ 77.0 $ 68.8 $ 62.3
PRIOR PERIOD NET SALES ............ 101.9) (148.6) (78.9) (17.1) (64.7) (56.4) 0.0 (49.0)
CURRENT PERIOD NET SALES .......... 122.6 177.6 104.4 17.3 72.2 65.0 0.0 43.2
TRAILING 12 MONTHS NET SALES ...... $ 233.7 $ 231.1 $ 128.6 $ 71.1 $ 94.6 $ 85.5 $ 68.8 $ 56.6
% OF LTM GROSS SALES ........... 96.5% 88.6% 86.2% 96.8% 91.8% 95.4% 96.0% 91.0%
FISCAL YEAR EBT ................... $ 30.8 $ 11.8 $ 5.2 $ 6.6 $ 1.3 $ 6.3 $ 2.7 ($ 27.0)
PRIOR PERIOD EBT .................. (14.1) (8.0) (3.9) (1.9) (0.8) (4.0) 0.0 13.8
CURRENT PERIOD EBT ................ 18.3 17.7 7.0 1.3 3.3 6.2 0.0 (13.3)
TRAILING 12 MONTHS EBT ............ $ 35.0 $ 21.4 $ 8.3 $ 6.0 $ 3.8 $ 8.5 $ 2.7 ($ 26.5)
% OF LTM NET SALES ............. 15.0% 9.3% 6.5% 8.4% 4.0% 10.0% 4.0% -46.9%
EMPLOYEE COMPENSATION ( PY) ....... $ 127.1 $ 121.6 $ 71.1 $ 47.0 $ 57.2 $ 13.8 $ 40.7 $ 57.9
% OF PY NET SALES .............. 59.7% 60.2% 68.9% 66.3% 65.7% 18.0% 59.1% 92.9%
FISCAL YEAR EBIT .................. $ 38.4 $ 42.3 $ 25.1 $ 8.8 $ 9.6 $ 9.3 $ 5.6 ($ 16.8)
PRIOR PERIOD EBIT ................. (17.7) (30.9) (19.3) (2.5) (6.8) (5.8) 0.0 5.7
CURRENT PERIOD EBIT ............... 22.7 39.7 23.1 2.0 9.4 9.1 0.0 (9.8)
TRAILING 12 MONTHS EBIT ........... $ 43.4 $ 51.1 $ 29.0 $ 8.4 $ 12.2 $ 12.6 $ 5.6 ($ 20.9)
% OF LTM NET SALES ............. 18.6% 22.1% 22.5% 11.8% 12.9% 14.8% 8.2% -37.0%
BALANCE SHEET STATISTICS
BOOK VALUE ........................ $ 140.2 $ 87.6 $ 40.9 $ 26.0 $ 36.8 $ 13.3 $ 29.9 $ 0.6
TOTAL ASSETS ...................... 588.7 947.2 805.1 110.3 231.6 121.0 101.6 53.0
LONG TERM DEBT .................... 25.0 19.3 4.9 0.0 10.2 8.9 1.0 0.0
SUBORDINATED DEBT ................. 0.0 20.6 5.0 0.0 0.0 0.0 0.0 0.0
SHORT TERM DEBT ................... 72.8 69.4 101.6 1.0 50.2 10.9 18.5 26.5
OTHER LIABILITIES ................. 350.6 750.3 652.8 83.3 134.5 87.9 52.2 25.9
OPERATING RATIOS
FISCAL YEAR NET SALES/GROSS SALES . 96.5% 86.9% 83.8% 96.9% 91.3% 96.2% 96.0% 85.9%
PRIOR PERIOD NET SALES/GROSS SALES 96.6% 86.6% 83.7% 96.8% 91.5% 96.8% N/A 85.7%
CURRENT NET SALES/GROSS SALES ..... 96.6% 89.0% 86.6% 96.5% 92.2% 95.7% N/A 92.5%
LTM NET SALES / GROSS SALES ....... 96.5% 88.6% 86.2% 96.8% 91.8% 95.4% 96.0% 91.0%
FISCAL YEAR EBT/NET SALES ......... 14.4% 5.8% 5.1% 9.3% 1.5% 8.2% 4.0% -43.4%
PRIOR PERIOD EBT/NET SALES ........ 13.8% 5.4% 5.0% 11.1% 1.2% 7.0% N/A -28.2%
CURRENT PERIOD EBT/NET SALES ...... 15.0% 10.0% 6.7% 7.8% 4.5% 9.6% N/A -30.8%
TRAILING 12 MONTHS EBT/NET SALES .. 15.0% 9.3% 6.5% 8.4% 4.0% 10.0% 4.0% -46.9%
COMPENSATION / NET SALES (PY) ..... 59.7% 60.2% 68.9% 66.3% 65.7% 18.0% 59.1% 92.9%
CAPITALIZTION RATIOS
BOOK VALUE / TOTAL ASSETS ......... 23.8% 9.3% 5.1% 23.6% 15.9% 11.0% 29.4% 1.2%
LONG TERM DEBT* / TOTAL ASSETS .... 4.2% 4.2% 1.2% 0.0% 4.4% 7.3% 1.0% 0.0%
SHORT TERM DEBT / TOTAL ASSETS .... 12.4% 7.3% 12.6% 0.9% 21.7% 9.0% 18.2% 50.0%
TOTAL DEBT** / TOTAL ASSETS ....... 16.6% 11.5% 13.8% 0.9% 26.1% 16.3% 19.2% 50.0%
OTHER LIABILITIES / TOTAL ASSETS .. 59.6% 79.2% 81.1% 75.5% 58.1% 72.7% 51.4% 48.8%
LONG TERM DEBT* /LONG TERM CAPITAL 15.1% 31.2% 19.5% 0.0% 21.6% 40.0% 3.2% 0.0%
SHORT TERM DEBT / TOTAL DEBT ...... 74.4% 63.5% 91.1% 100.0% 83.2% 55.1% 94.9% 100.0%
* Note: Includes Subordinated Debt
**Note: Includes Long Term Debt and Short Term Debt
</TABLE>
<PAGE>
R O D M A N & R E N S H A W C A P I T A L G R O U P , I N C. EXHIBIT C
V A L U A T I O N A N A L Y S I S
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY VALUE ANALYSIS
SELECTED COMPARABLE PUBLICLY-TRADED COMPANIES
($ IN MILLIONS EXCEPT FOR PER SHARE AMOUNTS)
- - -------------------------------------------------------------------------------
MCDONALD FIRST STIFEL JW
& CO. ADVEST ALBANY SCOTT & FINANCIAL CHARLES FIRST OF RODMAN &
STOCK EXCHANGE INVESTMENTS GROUP COMPANIES STRINGFELLOW CORPORATION FINANCIAL MI CAPITAL RENSHAW
<S> <C> <C> <C> <C> <C> <C>
MARKET PRICE PER COMMON SHARE
(12/31/96) $ 34.38 $ 10.75 $ 10.13 $ 19.25 $ 8.75 $ 12.75 $ 8.00 $ 1.00
SHARES OUTSTANDING ................. 8.916 8.449 4.735 2.008 4.452 2.002 2.614 6.646
MARKET VALUE OF COMMON EQUITY ...... $ 306.5 $ 90.8 $ 47.9 $ 38.6 $ 39.0 $ 25.5 $ 20.9 $ 6.6
MARKET VALUE OF PREFERRED EQUITY ... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
LONG-TERM DEBT ..................... NA NA NA NA NA NA NA NA
LESS: EXCESS CASH/NON-OPERATING
INVESTMENTS ........ 0.0 0 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL EQUITY VALUE .... $ 306.5 $ 90.8 $ 47.9 $ 38.6 $ 39.0 $ 25.5 $ 20.9 $ 6.6
OPERATING DATA
PRIOR FISCAL YEAR NET SALES ...... $ 213.0 $ 202.1 $ 103.2 $ 70.9 $ 87.0 $ 77.0 $ 68.8 $ 62.3
TRAILING 12 MONTHS NET SALES ..... 233.7 231.1 128.6 71.1 94.6 85.5 68.8 56.6
AVERAGE OF TRAILING AND FISCAL
NET YEAR SAL 223.3 216.6 115.9 71.0 90.8 81.3 68.8 59.4
PRIOR FISCAL YEAR EBT ............ $ 30.8 $ 11.8 $ 5.2 $ 6.6 $ 1.3 $ 6.3 $ 2.7 ($ 27.0)
TRAILING 12 MONTHS EBT ........... 35.0 21.4 8.3 6.0 3.8 8.5 2.7 (26.5)
AVERAGE OF TRAILING AND FISCAL
YEAR EBT ......... 32.9 16.6 6.8 6.3 2.6 7.4 2.7 (26.8)
PRIOR FISCAL YEAR EBT MARGIN (NET) 14.4% 5.8% 5.1% 9.3% 1.5% 8.2% 4.0% -43.4%
TRAILING 12 MONTHS EBT MARGIN (NET) 15.0% 9.3% 6.5% 8.4% 4.0% 10.0% 4.0% -46.9%
EBT OVER BOOK VALUE ............... 25.0% 24.5% 20.4% 23.1% 10.4% 64.3% 9.2% -4201.3%
SALES MULTIPLES ..................... TIMES TIMES TIMES TIMES TIMES TIMES TIMES AVERAGE
PRIOR FISCAL YEAR NET SALES ....... 1.44 0.45 0.46 0.55 0.45 0.33 0.30 0.57
TRAILING 12 MONTHS NET SALES ...... 1.31 0.39 0.37 0.54 0.41 0.30 0.30 0.52
AVERAGE OF TRAILING AND FISCAL
YEAR NET SALE S1.37 0.42 0.41 0.54 0.43 0.31 0.30 0.54
EBT MULTIPLES ....................... TIMES TIMES TIMES TIMES TIMES TIMES TIMES AVERAGE
PRIOR FISCAL YEAR ................. 9.96 7.72 9.18 5.88 29.81 4.06 7.63 10.61
TRAILING 12 MONTHS ................ 8.75 4.24 5.76 6.43 10.19 2.99 7.63 6.57
AVERAGE OF TRAILING AND
FISCAL YEAR EBT ......... 9.32 5.47 7.08 6.15 15.18 3.44 7.63 7.75
SMALL CAPITALIZATION/SPECIFIC RISK
ADJUSTED
SPECIFIC RISK PREMIUM ................ 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
PRE-TAX SMALL CAP PREMIUM ............ 2.8% 0.0% 0.0% 0.0% 0.0% 0 0.0% AVERAGEMIDDLE FIVE
PRIOR FISCAL YEAR NET SALES ........ 0.63 0.25 0.24 0.34 0.112 0.24 0.17 0.28 0.237
TRAILING 12 MONTHS NET SALES ....... 0.62 0.28 0.24 0.33 0.20 0.23 0.172 0.30 0.244
AVERAGE OF TRAILING AND FISCAL YEAR
NET SALES 0.63 0.26 0.24 0.34 0.16 0.23 0.17 0.29
PRIOR FISCAL YEAR EBT .............. 4.38 4.36 4.79 3.70 7.49 2.888 4.33 4.56 4.311
TRAILING 12 MONTHS EBT ............. 4.13 2.98 3.66 3.91 5.05 2.300 4.33 3.76 3.800
AVERAGE OF TRAILING AND FISCAL
YEAR EBT ........ 4.25 3.54 4.15 3.81 6.03 2.56 4.33 4.09
BALANCE SHEET MULTIPLES .............. AVERAGE MIDDLE FIVE
BOOK VALUE ........................... 140.2 87.6 40.9 26.0 36.8 13.3 29.9
BOOK VALUE AS % OF TOTAL ASSETS ...... 23.8% 9.3% 5.1% 23.6% 15.9% 11.0% 29.4% 16.9%
MARKET VALUE AS MULTIPLE OF
BOOK VALUE .......... 2.19 1.04 1.17 1.49 1.06 1.92 0.70 1.37
SIZE/SPECIFIC RISK ADJUSTED
MULTIPLE
OF BV ...... 1.03 0.73 0.74 0.90 0.53 1.48 0.397 0.83 0.786
Note: LCMs are indicated in bold for each of the Adjusted Multiples.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
R O D M A N & R E N S H A W C A P I T A L G R O U P , I N C. EXHIBIT D
V A L U A T I O N A N A L Y S I S
- - ----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
EQUITY VALUE BASED ON ADJUSTED MULTIPLE METHODS
NET REVENUE, EBT AND BOOK VALUE MULTIPLES
- - -----------------------------------------------------------------------------------------------
(000's except per share amounts)
<CAPTION>
PY LTM
VALUATION VALUATION AVERAGE
<S> <C> <C> <C>
MULTIPLES OF NET REVENUE
NET REVENUE $62,308 $56,571
NET REVENUE MULTIPLE 0.112 0.172
UNADJUSTED EQUITY VALUE 7,005 9,747
LESS PREFERRED EQUITY 9,800 9,800
FREELY TRADED COMMON EQUITY VALUE (2,795) (53) ($1,424)
VALUE PER SHARE ($0.42) ($0.01) ($0.21)
MULTIPLES OF EBT
EARNINGS BEFORE TAXES ($27,016) ($26,510)
EBT MULTIPLE 2.888 2.300
UNADJUSTED EQUITY VALUE (78,010) (60,973)
LESS PREFERRED EQUITY 9,800 9,800
FREELY TRADED COMMON EQUITY VALUE (87,810) (70,773) ($79,292)
VALUE PER SHARE ($13.21) ($10.65) ($11.93)
MULTIPLES OF BOOK VALUE
COMMON BOOK VALUE AS OF 12/31/95 AND 9/30/96 ($3,557) ($16,869)
COMMON BOOK VALUE MULTIPLE 0.397 0.397
FREELY TRADED COMMON EQUITY VALUE (1,413) (6,700) ($4,056)
VALUE PER SHARE ($0.21) ($1.01) ($0.61)
Note: All of the above based on 6,645,8shares outstanding.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
R O D M A N & R E N S H A W C A P I T A L G R O U P , I N C. EXHIBIT E
V A L U A T I O N A N A L Y S I S Page 1 of 2
- - -----------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------
Black-Scholes Valuation Formula
- - ------------------------------------------------
(Based on 6,645,802 shares outstanding)
1 Year 2 Year
1 Year 2 Year Per Share Per Share
Variables Variables Variables Variables
<S> <C> <C> <C> <C>
Current Value $ 22,219,$57 28,700,000 $3.34 $4.32
Creditor Claims 44,000,000 44,000,000 $6.62 $6.62
Error Term 2.7183 2.7183
Annual Risk-Free Rate 5.80% 5.90%
Assumed Maturity (years) 1.0 2.0
Standard Deviation 0.141 0.141
Annual Deviation 0.488 0.488
d1 = (1.03811) (1.03811)
d2 = (1.52581) (1.52581)
N(d1) = 0.1496 0.1496
N(d2) = 0.0635 0.0635
---------------------------------------------------------------------------------------
EQUITY VALUE $686,532 $1,809,697 $0.10 $0.27
---------------------------------------------------------------------------------------
Estimate of Current Value
1 Year 2 years
Estimated Fair Value of Creditor Claims
Value of the Confia Notes $13,429,864 $17,414,286
Value of the Preferred Stock 8,789,593 11,285,714
Weighted Average BE Value $22,219,457 $28,700,000
% of Face Value 50% 65%
</TABLE>
<TABLE>
<CAPTION>
R O D M A N & R E N S H A W C A P I T A L G R O U P , I N C. EXHIBIT E
V A L U A T I O N A N A L Y S I S Page 2 of 2
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------
Distressed Value of Creditor Claims and
Company's Monthly Stock Price History
- - -------------------------------------------------------------
st = Stock Prices
ln = Log Normal
(St-(St-1))/
Month Stock Price ln(St/St-1) (St-1)
<S> <C> <C> <C>
Jan-94 6.63
Feb-94 7.38 0.10725 0.11321
Mar-94 6.63 (0.10725) (0.10169)
Apr-94 5.63 (0.16363) (0.15094)
May-94 5.50 (0.02247) (0.02222)
Jun-94 5.13 (0.07062) (0.06818)
Jul-94 5.00 (0.02469) (0.02439)
Aug-94 5.38 0.07232 0.07500
Sep-94 5.63 0.04546 0.04651
Oct-94 4.50 (0.22314) (0.20000)
Nov-94 4.13 (0.08701) (0.08333)
Dec-94 3.88 (0.06252) (0.06061)
Jan-95 3.75 (0.03279) (0.03226)
Feb-95 3.75 0.00000 0.00000
Mar-95 4.75 0.23639 0.26667
Apr-95 4.75 0.00000 0.00000
May-95 4.50 (0.05407) (0.05263)
Jun-95 4.13 (0.08701) (0.08333)
Jul-95 4.13 0.00000 0.00000
Aug-95 4.00 (0.03077) (0.03030)
Sep-95 2.88 (0.33024) (0.28125)
Oct-95 2.13 (0.30228) (0.26087)
Nov-95 1.75 (0.19416) (0.17647)
Dec-95 1.75 0.00000 0.00000
Jan-96 1.75 0.00000 0.00000
Feb-96 1.63 (0.07411) (0.07143)
Mar-96 1.50 (0.08004) (0.07692)
Apr-96 1.63 0.08004 0.08333
May-96 2.00 0.20764 0.23077
Jun-96 1.38 (0.37469) (0.31250)
Jul-96 1.13 (0.20067) (0.18182)
Aug-96 1.25 0.10536 0.11111
Sep-96 1.38 0.09531 0.10000
Oct-96 1.50 0.08701 0.09091
Nov-96 1.50 0.00000 0.00000
Dec-96 1.13 (0.28768) (0.25000)
-----------
0.14079 0.13201
-----------
Calculation of Current Value
Based on Discounted Creditor Claims
Subordinated Notes Preferred Stock
26,500,000 Discount 17,500,000 Discount
12.00% 121.0% 11.00% 121.0%
Payments for 1 Year
1 29,680,000 13,429,864 19,425,000 8,789,593
2 0 0 0 0
-----------------------------------------------------------------
Present Value $13,429,864 $8,789,593
-----------------------------------------------------------------
Discount Discount
40.0% 40.0%
Payments for 2 Years
1 3,180,000 2,271,429 1,925,000 1,375,000
2 29,680,000 15,142,857 19,425,000 9,910,714
-----------------------------------------------------------------
Present Value $17,414,286 $11,285,714
------------------------------------------------------------------
------------------------------------------------------------------------------
Source: Standard & Poor's Monthly Stock Guides and America Online. All prices are split adjusted.
</TABLE>
-----------------------------------------
NOTICE AND INFORMATION STATEMENT
-----------------------------------------
Stockholders of Rodman & Renshaw Capital Group, Inc., a Delaware
corporation (the "Company"), are hereby notified that Abaco Casa de Bolsa, S.A.
de C.V., Abaco Grupo Financiero, a Mexican corporation ("Abaco") and a 99.99%
owned subsidiary of Abaco Grupo Financiero, S.A. de C.V., a Mexican corporation
("Parent"), intends to effect a series of transactions which will result in the
Company becoming an indirect wholly owned subsidiary of Abaco.
R & R Capital Acquisition Corp., a Delaware corporation and an
indirect wholly owned subsidiary of Abaco ("Acquisition Sub") intends to
increase its ownership of shares of the Company's Common Stock, $.09 par value
per share (the "Common Stock"), to at least 90% of the issued and outstanding
shares of Common Stock ("90% Ownership"). Promptly following the obtaining of
90% Ownership, Acquisition Sub intends to effect a short-form merger (the
"Merger") of Acquisition Sub into the Company pursuant to Section 253 of the
General Corporation Law of the State of Delaware (the "DGCL") by filing the
Certificate of Merger (as defined herein) with the Secretary of State of
Delaware (the date of such filing being hereinafter called the "Effective
Date").
On the Effective Date, Acquisition Sub will be merged into the
Company, with the Company as the surviving corporation, and each share of Common
Stock issued and outstanding prior to the Merger, other than issued and
outstanding shares of Common Stock held by Acquisition Sub (the "Unaffiliated
Shares"), will, by virtue of the Merger, be converted into the right to receive
$.30 in cash, without interest (the "Merger Consideration"), subject to the
rights of holders of Unaffiliated Shares ("Unaffiliated Stockholders") to
perfect dissenters' rights in accordance with Delaware law ("Dissenters'
Rights"). On the Effective Date, the issued and outstanding shares of Common
Stock held by Acquisition Sub will be cancelled and the issued and outstanding
shares of capital stock of Acquisition Sub will be converted into an aggregate
of 50,000 shares of Common Stock. Accordingly, after the Merger, all of the
issued and outstanding shares of Common Stock will be indirectly owned by Abaco.
As permitted by Section 253 of the DGCL, the approval of stockholders other than
Acquisition Sub will not be required for the Merger to become effective and is
not being requested.
This Notice and Information Statement (this "Information Statement")
provides a detailed description of the transactions described herein and various
other matters. Please give it your careful attention.
The date of this Information Statement is February __, 1997.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND
US A PROXY.
- - -------------------------------------------------------------------------------
Stockholders with inquiries relating to the matters outlined in this Information
Statement may direct such inquiries to Paul Shulman at (800) 932-8481.
- - -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE NO.
GENERAL.................................................................... 1
SPECIAL FACTORS............................................................ 3
Background........................................................... 3
Evaluation of Going-Private Transaction.............................. 5
Reasons for the Merger; Fairness of the Merger....................... 6
Position of the Company with Respect to the Merger................... 8
Valuation of the Company............................................. 8
Purpose, Structure and Benefits of the Transactions.................. 13
Effects and Timing................................................... 14
Past Contacts, Transactions or Negotiations.......................... 14
Plans for the Company after the Transactions......................... 15
THE CONVERSION AND OPEN MARKET PURCHASES................................... 16
General.............................................................. 16
Insufficient Shares; Open Market Purchases;
Amending the Certificate of Incorporation............................ 17
THE MERGER................................................................. 18
Principal Effects of the Merger...................................... 18
Payment for Shares................................................... 18
Treatment of Stock Options........................................... 19
Certain Terms of the Merger.......................................... 19
Costs and Expenses of the Merger..................................... 20
Sources of Funds..................................................... 20
Regulatory Requirements.............................................. 20
Beneficial Ownership................................................. 20
INFORMATION ABOUT PARENT, ABACO, HOLDINGS AND ACQUISITION SUB.............. 21
CERTAIN INFORMATION CONCERNING THE COMPANY................................. 21
Description of the Business.......................................... 21
Description of Property.............................................. 21
Financial Information ............................................... 22
Description of Legal Proceedings..................................... 22
Management's Discussion and Analysis of
Financial Condition and Results of Operations........................ 22
Cost Reduction Activities of the Company............................. 22
i
<PAGE>
MARKET INFORMATION AND RELATED STOCKHOLDER MATTERS......................... 23
Market Information................................................... 23
Outstanding Shares of Common Stock................................... 23
Dividends............................................................ 23
RATIO OF EARNINGS TO FIXED CHARGES......................................... 23
RIGHTS OF DISSENTING STOCKHOLDERS.......................................... 24
FEDERAL INCOME TAX CONSEQUENCES............................................ 26
General.............................................................. 26
Tax Consequences to the Company...................................... 27
Tax Consequences to Acquisition Sub and Holdings..................... 27
Tax Consequences to Holders of Unaffiliated Shares................... 27
ADDITIONAL INFORMATION..................................................... 27
Current Information.................................................. 27
Delisting and Deregistration......................................... 28
Annex I - Form of Certificate of Ownership and Merger
AnnexII - Copy of Section 262 of the Delaware General Corporation Law of the
State of Delaware
AnnexIII - Certificate of Designations of Rights, Preferences, Privileges and
Restrictions establishing the Series E Stock
Annex IV - Annual Report on Form 10-K of the Company for the fiscal year ended
December 31, 1995
AnnexV - Quarterly Report on Form 10-Q for the Company for the period ended
September 30, 1996
AnnexVI- List of Officers and Directors of Parent, Abaco, Holdings and
Acquisition Sub
ii
<PAGE>
<PAGE>
GENERAL
According to the Company's Form 10-Q for the quarter ended September
30, 1996 (the "Form 10-Q"), there were 6,645,802 issued and outstanding shares
of Common Stock as of September 30, 1996. Abaco currently owns 4,625,788 issued
and outstanding shares of Common Stock, which represents 69.6% of the issued and
outstanding shares of Common Stock, and all of the issued and outstanding shares
of the Company's Preferred Stock, consisting of 50 issued and outstanding shares
of Series B Non-Voting Convertible Preferred Stock, $.01 par value per share
(the "Series B Stock"), 50 issued and outstanding shares of Series C Non-Voting
Convertible Preferred Stock, $.01 par value per share (the "Series C Stock"), 45
issued and outstanding shares of Series D Non-Voting Convertible Preferred
Stock, $.01 par value per share (the "Series D Stock"), and 30 issued and
outstanding shares of Series E Non-Voting Convertible Preferred Stock, $.01 par
value per share (the "Series E Stock," and, together with the Series B Stock,
the Series C Stock and Series D Stock, the "Preferred Stock").
Abaco intends to contribute to the capital of a wholly owned
subsidiary, R & R Capital Holdings, Inc., a Delaware corporation ("Holdings"),
all of the shares of Common Stock and Preferred Stock owned by it. Holdings, in
turn, intends to contribute such shares to the capital of Acquisition Sub, which
is a wholly owned subsidiary of Holdings.
Thereafter, Acquisition Sub intends to acquire 90% Ownership and to
effect the Merger pursuant to Section 253 of the DGCL. Acquisition Sub intends
to obtain 90% Ownership by converting 12 shares of the Series E Stock to be held
by it into approximately 13,333,333 shares of Common Stock in accordance with
the terms applicable to the Series E Stock. Following this conversion,
Acquisition Sub will hold approximately 89.9% of the issued and outstanding
shares of Common Stock. Since the Company does not have a sufficient number of
shares of Common Stock currently authorized under its Restated Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), to permit the
full conversion of additional shares of Series E Stock into shares of Common
Stock in accordance with the terms applicable to the Series E Stock, Acquisition
Sub intends to purchase at least 22,101 shares of Common Stock in the open
market at prevailing prices in order to obtain 90% Ownership. The amount and
timing of any of such open market purchases will depend on market conditions,
share prices and other factors. If Acquisition Sub is successful in obtaining
90% Ownership through the purchase of shares of Common Stock in the open market,
it will proceed to effect the Merger as described herein. See "The Conversion
and Open Market Purchases."
If Acquisition Sub is not successful in obtaining 90% Ownership
through the purchase of shares of Common Stock in the open market, Acquisition
Sub intends to enforce its rights under the terms applicable to the Series E
Stock and require the Company to amend the Certificate of Incorporation to
increase the number of authorized shares of Common Stock to permit the
conversion of additional shares of Series E Stock into shares of Common Stock.
Such amendment to the Certificate of Incorporation would require the approval of
the Company's Board of Directors (the "Board") and stockholders. Acquisition Sub
believes that it would be able to obtain approval of the Board since the Board
previously approved the issuance of the Series E Stock which, by its terms,
obligates the Company to reserve sufficient shares of Common Stock to provide
for the conversion of all issued and outstanding shares of Series E Stock. Since
Acquisition Sub will hold more than 50% of the issued and outstanding shares of
Common Stock, stockholder approval would be assured.
<PAGE>
Promptly following the obtaining of 90% Ownership, Acquisition Sub
intends to effect the Merger by filing the Certificate of Ownership and Merger
in substantially the form attached hereto as Annex I (the "Certificate of
Merger") with the Secretary of State of Delaware.
On the Effective Date, Acquisition Sub will be merged into the
Company, with the Company as the surviving corporation, and each Unaffiliated
Share will, by virtue of the Merger, be converted into the right to receive the
Merger Consideration, subject to the rights of Unaffiliated Stockholders to
perfect Dissenters' Rights. On the Effective Date, the issued and outstanding
shares of Common Stock held by Acquisition Sub will be cancelled and the issued
and outstanding shares of capital stock of Acquisition Sub held by Holdings will
be converted into an aggregate of 50,000 shares of Common Stock. Accordingly,
after the Merger, all of the issued and outstanding shares of Common Stock will
be owned by Holdings. As permitted by Section 253 of the DGCL, the approval of
stockholders other than Acquisition Sub will not be required for the Merger to
become effective and is not being requested. See "The Merger."
The conversion of shares of Series E Stock, the purchase of issued
and outstanding shares of Common Stock in the open market, the amendment of the
Certificate of Incorporation (if required) and the Merger are hereinafter
collectively referred to as the "Transactions." It is expected that the
Transactions will be consummated on or after 20 days following the date of this
Information Statement.
The Board has not reviewed the terms of the Transactions and has not
made a determination as to whether the Transactions are fair to the Unaffiliated
Stockholders.
Following the Effective Date, Unaffiliated Stockholders who have not
exercised Dissenters' Rights will receive a Letter of Transmittal and
instructions for use by Unaffiliated Stockholders in surrendering to Continental
Stock Transfer & Trust Co., the paying agent for the Merger (the "Paying
Agent"), the stock certificate(s) which prior to the consummation of the Merger
represent Unaffiliated Shares. Payment of the Merger Consideration will be made
following the consummation of the Merger and upon surrender to the Paying Agent
of such stock certificates together with a duly executed Letter of Transmittal.
See "The Merger Agreement -- Payment for Shares."
This Information Statement also constitutes notice to Unaffiliated
Stockholders pursuant to Section 262(d)(2) of the DGCL that appraisal
proceedings are available for Unaffiliated Stockholders who choose to exercise
Dissenters' Rights. Unaffiliated Stockholders who comply with the requirements
of Section 262 of the DGCL will have the right to seek an appraisal of their
Unaffiliated Shares in accordance with Delaware law. Under Section 262 of the
DGCL, Unaffiliated Stockholders have 20 days from the date of this Information
Statement to deliver to the Company written evidence of their intention to
exercise Dissenters' Rights. Reference should be made to the discussion herein
under "Rights of Dissenting Stockholders" and to Annex II attached hereto (which
sets forth the text of Section 262 of the DGCL) for a description of the
procedures which must be followed to exercise Dissenters' Rights.
As a result of the Transactions, it is expected that the Company
will take steps to have the Common Stock delisted from the New York Stock
Exchange ("NYSE") and to
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deregister the Common Stock under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Following such delisting and deregistration, the
Company will no longer be subject to the reporting requirements of the NYSE or
the Exchange Act. See "Additional Information -- Delisting and Deregistration."
The record date for determining stockholders entitled to receive a
copy of this Information Statement is February 4, 1997.
SPECIAL FACTORS
BACKGROUND
On December 22, 1993, Abaco purchased, in connection with a tender
offer (the "Tender Offer"), approximately 54% of the then issued and outstanding
shares of Common Stock (after giving effect to vested employee stock options)
for an aggregate purchase price of approximately $26 million. At the time of the
Tender Offer, the Company was experiencing significant financial and managerial
difficulties. In connection with the acquisition of its controlling interest,
Abaco stated its intention to conduct a thorough review of the Company and its
assets, businesses, financial condition, capitalization, corporate structure,
policies, management and personnel.
With the support of the Company's independent directors, Abaco
assisted the Company in retaining new professional management. This new
management was requested to develop, refine and implement a new business plan
for the Company in order to "turn the Company around." The efforts of management
in implementing a new business plan, however, were not successful. In December
1996, Joseph P. Shanahan, the Company's then Executive Vice President and Chief
Operating Officer, was elected President and Chief Executive Officer. See
"Certain Information About the Company -- Cost Reduction Activities of the
Company."
Since the Tender Offer, Abaco and its affiliates have also provided
significant financial assistance to the Company. On June 24, 1994, the Company
borrowed $10 million in cash from Confia, S.A., Institucion de Banca Multiple,
Abaco Grupo Financiero, a Mexican banking institution and a 99.99% owned
subsidiary of Parent ("Confia"). At the same time, the Company issued and sold
to Abaco 150 shares of Series A Non-Voting Convertible Preferred Stock, $.01 par
value per share (the "Series A Stock"), for a total cash purchase price of $15
million.
During 1995, the Company obtained additional cash loans from Confia
in the aggregate amount of $16.5 million. On December 4, 1995, the Company paid
all interest due on the loans from Confia and consolidated the principal
amounts, totalling $26.5 million, into a single note due June 3, 1996 bearing an
interest rate of 12%. On December 21, 1995, the Company issued and sold to Abaco
50 shares of Series B Stock for a cash purchase price of $5 million. In
connection with an equipment leasing arrangement made during the fourth quarter
of 1995, Confia issued a standby letter of credit for the account of the Company
in the amount of $6 million. If the letter of credit is drawn down, the
resulting $6 million of indebtedness that
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the Company would owe Confia would carry the same conversion rights as the
Company's current indebtedness to Confia. See "-- Past Contacts, Transactions
and Negotiations."
In connection with the preparation of the Company's audited
consolidated financial statements for 1995, Parent was requested by the Company
to indicate its continued support for the Company in order to prevent the
Company's independent accountants from issuing a "going concern" qualification
to their report on those financial statements. In February 1996, the Company
received a letter from Parent whereby Parent agreed to continue to
unconditionally support the Company and its principal subsidiary, Rodman &
Renshaw, Inc. ("Rodman"), for the next year, up to and including March 31, 1997
(the "1996 Letter of Support"). In March 1996, Abaco purchased 50 shares of
Series C Stock for a total cash purchase price of $5 million. In April 1996,
Abaco purchased 45 shares of Series D Stock for a total cash purchase price of
$4.5 million. On June 3, 1996, Confia agreed to extend its outstanding loan to
the Company for a six month term ending December 3, 1996. Furthermore, in
November 1996, the Company issued and sold to Abaco 30 shares of Series E Stock,
for a total cash purchase price of $3 million, the proceeds of which were used
to repay a portion of the loan provided by Confia. See "The Conversion and Open
Market Purchases." On December 3, 1996, Confia agreed to extend the Company's
outstanding loan to June 3, 1997.
In the aggregate, since Abaco acquired a controlling interest in the
Company in 1993, it has made cash capital contributions to the Company of $32.5
million and Confia has made loans to the Company of $26.5 million (plus provided
an additional $6 million of credit support in the form of a letter of credit as
described above). The Company has used substantially all of the cash proceeds of
such financings to make subordinated loans to and capital infusions in Rodman to
enable Rodman to maintain required net capital pursuant to the net capital rules
promulgated by the Securities and Exchange Commission (the "Commission"). Except
as expressed in the 1996 Letter of Support, Confia has no obligation to extend
the term of its loan after the maturity thereof. If not extended, the loan will
become immediately due. Abaco believes that the Company does not have the
resources to repay this loan, but would have to seek such resources from Rodman,
and that to provide such resources, Rodman would be required to severely curtail
its business activities in order to reduce its minimum net capital requirements
and then to seek regulatory approval to repay its subordinated debt to the
Company. In light of the continuing losses incurred by Rodman, it is unlikely
that Rodman could generate sufficient resources to repay the loan. Failure to
repay the loan, if it became due, could result in the commencement of
foreclosure or involuntary bankruptcy proceedings by Confia.
Abaco believes that the foregoing financings were made available on
at least as favorable terms as could have been obtained from third parties and
that, during the latter portion of that period of time, similar financing was
not available from any other source in light of the Company's continuing losses.
Despite this assistance, the Company has been unable to achieve
profitability and its financial condition has continued to decline. According to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995 (the "Form 10-K"), the Company sustained net operating losses of $16.5
million for the fiscal year ending June 24, 1994 and approximately $30 million
for the fiscal year ending December 31, 1995. According to the
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Form 10-Q, the Company sustained net operating losses of approximately $13.3
million for the nine months ended September 30, 1996, or an aggregate of
approximately $60 million for these combined periods. Substantially all of such
losses resulted from Rodman's operations.
In January 1997, Parent was requested by the Company to indicate its
continued support for the Company by issuing a letter of support similar to the
1996 Letter of Support in order to prevent the Company's independent accountants
from issuing a "going concern" qualification to their report on the Company's
audited consolidated financial statements for 1996. Also in January 1997, Parent
was requested to provide additional financial support to the Company aggregating
approximately $7 million. Parent has agreed to extend its commitment to
unconditionally support the Company for the next two years (through March 31,
1999). Such support may include (subject to receipt of requisite approvals of
Mexican governmental authorities) guarantees, infusions of capital, conversion
of short-term debt to long-term debt or conversion of short-term or long-term
debt to equity, if required, to continue to sustain Rodman's operations and
allow it to maintain required net capital. Parent expects to provide such
requested support in connection with the implementation of the Transactions.
EVALUATION OF GOING-PRIVATE TRANSACTION.
In connection with the Tender Offer, Abaco agreed that it would not
effect a "going-private" transaction within two years after the Tender
Offer was consummated. That two-year period expired on December 23, 1995.
In light of the continuing losses of the Company and the perceived
difficulties in seeking to change the Company's financial performance under its
existing management and corporate structure, in early 1996, Jorge Lankenau
Rocha, Chairman of the Board of Directors of Parent and Abaco, Chief Executive
Officer of Confia and Chairman of the Board of Directors of the Company,
requested Jorge Antonio Garcia Garza, General Counsel and Secretary of the Board
of Directors of Abaco and a director of the Company, in their capacities as
officers and directors of Abaco, to examine the possibility of a transaction in
which Abaco or its affiliates could acquire the entire equity interest in the
Company. Such a possibility was evaluated in a relatively cursory way, primarily
from the point of view of applicable legal requirements. Thereafter, such
possibility and certain of the legal issues were from time to time similarly
discussed internally by Abaco personnel and by the Board of Directors of Abaco.
No decisions were made and no action was taken in connection therewith by Abaco
at such time, and Abaco and its affiliates continued to provide the financing
described above.
In October 1996, as a result of the Company's continuing losses and
recurrent need for additional financing, Mr. Garcia and other senior executives
of Abaco began a more in-depth evaluation of several possible "going-private"
transactions. In November 1996, Murray Devine & Co. ("MD&Co."), a valuation and
financial advisory firm located in Philadelphia, Pennsylvania, was retained to
prepare a valuation of the Company for Abaco. The purpose of this valuation was
to determine the Company's total business enterprise value and shareholder
equity value on a going concern basis.
On January 30, 1997, a meeting of the Board of Directors of Abaco
was held, at which time it considered and discussed the Company's requests for
additional financial
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assistance. At this meeting, the Board of Directors of Abaco considered, among
other things, an oral report that MD&Co. had concluded that the total enterprise
value of the Company as of December 31, 1996 would be reasonably stated between
$0.00 and $1,810,000 and, as a result, that the fair value of the issued and
outstanding shares of Common Stock as of December 31, 1996 was between $0.00 and
$.27 per share, in each case assuming that the additional financing requested by
the Company was provided and excluding any discount for minority interest or
lack of liquidity. This oral report was confirmed in MD&Co.'s written report
dated January 31, 1997. See "-- Valuation" for a summary of MD&Co.'s written
report. After a thorough discussion of the proposed Transactions and other
relevant factors, the Board of Directors of Abaco concluded that the
Transactions were in the best interests of the Company and were fair to the
Unaffiliated Stockholders and voted to approve the Transactions. See "-- Reasons
for the Merger; Fairness of the Merger."
REASONS FOR THE MERGER; FAIRNESS OF THE MERGER
In connection with evaluating and approving the Transactions, Abaco
considered a number of factors as described below. In particular, it considered
the fact that, according to the Form 10-K, management of the Company believes
that, until the Company returns to profitability, it will have significant
difficulties in obtaining credit, hiring and retaining talented employees and,
in some areas, attracting and retaining customers. Abaco believes that the
Company can only return to profitability with continued financial support
provided by Abaco and its affiliates. Abaco chose to effect the Transactions in
light of its belief that no alterative sources of financing exist or will exist
in the near future in light of the Company's current financial condition and
recent financial performance and its decision not to provide additional support
without owning all of the equity of the Company.
In addition, Abaco also considered the fact that the Company is a
reporting company under the Exchange Act and, as such, Abaco believes that the
Company incurs significant legal and accounting fees relative to its sales and
earnings and the Company's executives expend a substantial amount of time
complying with various requirements under the Exchange Act. Abaco examined the
financial costs and benefits of operating the Company as a public company and
concluded that the reporting and other compliance requirements of the Exchange
Act impose a substantial financial and administrative burden on the Company
which outweigh any economic benefits resulting from operating as a public
company.
Furthermore, Abaco believes that the consummation of the
Transactions will permit it to avoid any potential conflicts of interest (or
allegations of the same) arising out of future financings provided by Abaco or
its affiliates and provide opportunities for the Company to focus its efforts on
long-term growth and to engage in transactions free from the constraints of
public ownership, which Abaco believes often places undue emphasis on a
company's short-term earnings. Furthermore, Abaco believes that the Transactions
will provide management of the Company greater flexibility to consider taking
risks than might otherwise be considered with the presence of a diverse minority
interest.
Abaco also considered the following factors, among others:
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(i) information with respect to (a) the financial condition of the
Company, (b) the results of operations of the Company, (c) the
business and prospects of the Company and the industry in which it
operates in general and (d) the past and anticipated future
financing needs of the Company;
(ii) current and historical market prices and recent trading
activity in the Common Stock, including the fact that the average
sale price for the Common Stock on the NYSE was $1.44 between
December 29, 1995 and December 31, 1996 (see "Market Information and
Related Stockholder Matters -- Market Information");
(iii) the written report of MD&Co. described under "-- Valuation";
(iv) the fact that the Company has declared no dividends since at
least December 31, 1993, based on information in the Form 10-K and
Form 10-Q;
(v) the fact that the book value per share of Common Stock at
September 30, 1996 was $.09, based solely on information in the Form
10-Q;
(vi) the potential effects of foreclosure, bankruptcy or liquidation
on the Company, its employees and customers and the various debt and
equity investments in the Company, some of which are described
below;
(vii) the fact that the structure of the Merger permits Unaffiliated
Stockholders to exercise Dissenters' Rights under Delaware law (see
"Rights of Dissenting Stockholders"); and
(viii) the possibility that the NYSE could commence delisting
procedures against the Company in light of the failure of the
Company to meet certain requirements relating to aggregate market
value of the Common Stock and the Company's average net income after
taxes and net tangible assets available to holders of Common Stock.
Abaco did not consider either causing the Company to sell all or any
substantial portion of the Company's assets and thereafter liquidating it, in
whole or in part, or causing the Company to enter into a business combination
with a party unaffiliated with Abaco, or any other alternatives, since Abaco
intends to maintain a controlling interest in the Company and to continue the
operation of the business of the Company. Abaco did not solicit and, except as
described in this Information Statement, is not aware of any offers for the
merger or consolidation of the Company with any other party, the sale or
transfer of all or any substantial part of the assets of the Company or the sale
of securities of the Company which would enable the holder thereof to exercise
control of the Company.
Abaco also took into consideration the fact that consummation of the
Merger would preclude holders of Unaffiliated Shares from participating in the
future growth prospects of the Company. Accordingly, in reaching its conclusion
to approve the Merger Consideration,
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Abaco relied on the report of MD&Co. in reaching its determination that the
future prospects of the Company are adequately reflected in the Merger
Consideration. See "-- Valuation."
In addition, Abaco concluded that, without additional financial
support from Abaco or its affiliates, the Company faced imminent foreclosure,
liquidation or bankruptcy, that there were no transactions available (other than
the Merger) which presented a viable alternative to foreclosure, liquidation or
bankruptcy, that it was extremely unlikely that Unaffiliated Stockholders would
retain any ownership interest in the Company or would receive any value for
their existing ownership interests in the Company in the event of bankruptcy
(even if the Company was reorganized in bankruptcy proceedings) or liquidation,
that there is substantial uncertainty the Company would emerge from a
reorganization in bankruptcy at all (in which case the Company would be
liquidated) or with equity ownership materially different, or in a financial
condition and with financial prospects materially better, than those expected to
result from the Merger and that foreclosure, liquidation or bankruptcy would
materially impair the Company's operations and prospects.
In view of the wide variety of factors considered in connection with
its evaluation and approval of the Transactions, Abaco did not find it
practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its decision. Furthermore, in view
of such factors, and the engagement of MD&Co., Abaco did not believe that it was
necessary to, and accordingly did not, retain an unaffiliated representative to
act solely on behalf of Unaffiliated Stockholders.
POSITION OF THE COMPANY WITH RESPECT TO THE MERGER
The Board of Directors of the Company is not required to review the
terms of the Transactions (unless the amendment of the Certificate of
Incorporation becomes necessary), has not done so and has not made a
determination as to whether the Transactions are fair to the Unaffiliated
Stockholders.
VALUATION OF THE COMPANY
MD&Co. was retained to determine and prepare a valuation of the
Company for Abaco. MD&Co. is a valuation and financial advisory firm
specializing in the valuation of businesses and their underlying assets. MD&Co
conducts valuation studies of both publicly-held and privately-held business
enterprises for various purposes, including mergers and acquisitions, leveraged
buyouts, recapitalizations, bankruptcies, gift and estate taxes, employee stock
ownership plans, and restructurings. In requesting MD&Co.'s valuation, no
special instructions were given to MD&Co. and no limitations upon the scope of
the investigation or procedures were imposed, except that contacts between
MD&Co. and the Company were restricted to maintain confidentiality of any
possible "going-private" transaction.
Pursuant to an engagement letter dated as of November 5, 1996,
MD&Co. will be paid a fee of $65,000 for its services, of which $20,000 was
payable upon commencement of the engagement and $45,000 was payable upon
delivery of MD&Co.'s valuation report. MD&Co.'s compensation is not contingent
upon the valuation result reached or upon the completion of the Transactions.
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On January 30, 1997, MD&Co. advised Abaco that the Equity Value (as
defined herein) of the Company as of December 31, 1996 was between $0.00 and
$1,810,000 and, as a result, that the fair value of the issued and outstanding
shares of Common Stock as of December 31, 1996 was between $0.00 and $0.27 per
share, in each case assuming that the additional financing requested by the
Company was provided and excluding any discount for minority interest or lack of
liquidity.
MD&Co.'s valuation is based on stock prices and economic and other
conditions and circumstances as existed or were in effect on, and the
information made available to it as of, December 31, 1996. MD&Co. expresses no
opinion as to what the actual value of the issued and outstanding shares of
Common Stock will be on the Effective Date or as to the fairness of the Merger
Consideration. The amount of the Merger Consideration was determined by Abaco,
not by MD&Co.
In reaching its conclusion, MD&Co., among other things: (i) reviewed
certain publicly available audited financial statements of the Company and
certain other publicly available information of the Company; (ii) reviewed
certain internal information, primarily financial in nature, of the Company
provided by Abaco, which had been made available to directors of the Company,
including directors of the Company who were employees of Abaco or its
affiliates, and which is described herein; (iii) reviewed stock market data
relating to the Company; (iv) reviewed certain publicly available financial and
stock market data relating to selected public companies that MD&Co. considered
relevant to its valuation; and (v) reviewed or conducted such other financial
studies, analyses and investigations and considered such other information as
MD&Co. deemed necessary or appropriate.
In connection with its review, MD&Co. assumed and relied upon the
accuracy and completeness of all financial and other information supplied to it
by Abaco and all publicly available information, and did not independently
verify such information.
MD&Co. was not requested to make, and did not make, an independent
appraisal or evaluation of the assets, properties, facilities or liabilities of
the Company and was not furnished with any such appraisal or evaluation.
Estimates of values of companies and assets do not purport to be appraisals or
necessarily reflect the prices at which companies and assets may actually be
sold. MD&Co. was not authorized to solicit, and did not solicit, indications of
interest from any third party with respect to an acquisition of the Company or
its assets or any part thereof. Furthermore, MD&Co. did not consider the range
of possible tax consequences facing individual stockholders, and the valuation
determined by MD&Co. was derived prior to any tax impact on individual
stockholders.
In connection with rendering its valuation, MD&Co. performed a
variety of financial analyses, certain of which are summarized below. The
summary of such analyses set forth below does not purport to be a complete
description of the analyses performed and factors considered by MD&Co. in
arriving at its valuation. MD&Co. believes that its analysis must be considered
in whole and that selecting portions of its analyses or of the factors
considered by it, without considering all analyses and factors, would create a
misleading view of the processes underlying its opinion. The preparation of a
valuation is a complex process and it is not necessarily susceptible to a
partial analysis or summary description.
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The following is a summary of the principal financial and valuation
analyses performed by MD&Co. in connection with the preparation of its report.
This summary does not purport to be a complete description of MD&Co.'s valuation
and is qualified in its entirety by the written report of MD&Co., which is
contained as an exhibit to the Transaction Statement on Schedule 13E-3 described
under "Additional Information." A copy of this report may be obtained by any
Unaffiliated Stockholder or a representative of such person who has been so
designated in writing, at the principal executive offices of Abaco (See
"Information About Parent, Abaco, Holdings and Acquisition Sub") and may be
obtained in the manner described under "Additional Information."
COMPARABLE COMPANIES ANALYSIS
MD&Co. compared the relevant historical and current financial and
operating results of the Company with the operating results of selected publicly
traded companies that in MD&Co.'s judgment are and would be comparable to the
Company (collectively, the "Comparable Companies"). The Comparable Companies
were selected by MD&Co. based on general business, operating and financial
characteristics representative of companies in the industry in which the Company
operates. No company or business used in the Comparable Companies analysis is
identical to the Company. Accordingly, an analysis of the results of the
comparison is not entirely mathematical; rather, it involved considerations and
judgments concerning differences in financial and operating characteristics and
other factors that could affect the public trading value of either any of the
Comparable Companies or the Company. Therefore, the resulting multiples relied
upon for this analysis are subject to interpretation. MD&Co. recognized that
each of the Comparable Companies is and would be distinguishable from the
Company in certain respects. For the purposes of this analysis, the Comparable
Companies selected by MD&Co. were the following companies in the securities
industry: McDonald & Co. Investments, Inc., The Advest Group, Inc., First Albany
Companies, Inc., Scott & Stringfellow Financial, Inc., Stifel Financial
Corporation, Inc., J.W. Charles Financial Services, Inc. and First Michigan
Capital Corporation.
In performing its analysis, MD&Co. examined the aggregate equity
value of the issued and outstanding common equity (defined as the number of
outstanding shares times the current price per share as of December 31, 1996 and
hereafter called the "Equity Value") of the Comparable Companies. Using each
Comparable Company's Equity Value, MD&Co. calculated multiples of each
Comparable Company's latest twelve month's ("LTM") net revenue (defined as each
company's gross revenues minus interest expense) and prior year's ("PY") net
revenue (such multiples being hereafter called the "Net Revenue Multiples"), PY
and LTM earnings before taxes ("EBT") (hereafter, the "EBT Multiples"), and the
Company's book value as of December 31, 1995 and September 30, 1996 (hereafter,
the "BV Multiples" and the Net Revenue Multiples, EBT Multiples and BV Multiples
being hereafter collectively called the "Equity Multiples").
MD&Co. made certain adjustments to the Equity Multiples derived from the
Comparable Companies in order to account for differences in size between the
Comparable Companies and the Company as well as to adjust for certain other
factors relating to the Company's current operating situation. Such factors
include the Company's transient business strategy, recent changes in its senior
management, its weak financial position as a result of recurrent poor operating
results and the general diseconomies arising from operating as a distressed
company, such as a lack of management focus on business operations, poor
employee morale, and customer and counterparty skepticism resulting
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in a further decline in business (each of the above defined multiples on an
adjusted basis being hereafter called the "Adjusted" multiples).
In using the Comparable Companies analysis to value the Company, MD&Co.
analyzed financial information and calculated certain financial ratios of the
Company and the Comparable Companies. This information included, among other
things: (i) revenues; (ii) interest expense; (iii) operating performance; (iv)
earnings ratios; and (v) capitalization ratios. MD&Co. noted that the Company's
recent performance had been significantly below average relative to the
Comparable Companies.
ADJUSTED EBT MULTIPLE: The Company has recorded net losses for both the
LTM and PY periods. In addition, the Company's EBT results have also been
substantially negative in those periods. As a result, any valuation derived from
applying the Adjusted EBT Multiples to the Company's LTM and PY earnings before
taxes were significantly negative. MD&Co. investigated the possibility of using
1996 operating results adjusted for various anticipated cost reductions and
planned operating improvements as estimated by management of the Company and
provided by Abaco. Despite incorporating these improvements, adjusted 1996 EBT
figures were still negative. In conjunction with MD&Co.'s review of the
historical results of the Company's performance, MD&Co. interpreted the
valuation results based on the Adjusted EBT Multiples as a general indication of
there being little to no Equity Value inherent in the Company's operations. No
specific Equity Value conclusion was derived from the Adjusted EBT Multiple
valuation.
ADJUSTED NET REVENUE MULTIPLE: The Adjusted Net Revenue Multiples derived
from the Comparable Companies for the PY and LTM ranged from .11 to .63 and from
.17 to .62, respectively. An average of the middle five multiples was calculated
for each range specified above. The averages of these multiples were .24 for the
PY period, and .24 for the LTM period. Due to the Company's poor historical
operating performance in recent years relative to the Comparable Companies, the
Lowest Comparable Company Multiples ("LCMs") were deemed to be the most
appropriate yardstick for determining the Company's Equity Value. Based on the
LCMs of the Adjusted Net Revenue Multiples, MD&Co. calculated values of $7.0
million based on the PY and $9.7 million based on the LTM. After an adjustment
for the value of the obligations relative to the Preferred Stock, the Equity
Value of the Common Stock was determined to be significantly negative. As was
the case under the Adjusted EBT Multiple method, therefore, valuation results
from the Adjusted Net Revenue Multiples were not believed to be particularly
meaningful.
ADJUSTED BOOK VALUE MULTIPLE: The Adjusted Book Value Multiples derived
from the Comparable Companies ranged from .40 to 1.48. An average of the middle
five multiples was calculated to be .786. As was the case with the Company's
EBT, however, the book value of the Common Stock was substantially negative
after adjusting shareholder's equity for the obligations relative to the
Preferred Stock. As a result, applying this negative number to the LCMs resulted
in a significantly negative Equity Value conclusion for the Company which was
again not believed to be meaningful.
DISCOUNTED CASH FLOW ANALYSIS
A common method for determining a company's business enterprise value ("BE
Value") or its Equity Value is to discount the projected future cash flows of
the Company at a risk adjusted
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discount rate to determine their present value. This method is especially useful
in distressed business or turnaround situations, such as exists for the Company,
where the accuracy of valuations based on historical financial results is
diminished and complicated by the frequent changes and disruptions typically
associated with operating a distressed company. As a result of the recent change
in management at the Company, however, as well as due to the Company's
continuing realignment of its principal lines of business, no current financial
projections were available to MD&Co. and no discounted cash flow analysis was
performed.
COMPARABLE TRANSACTIONS
MD&Co. performed an industry search for acquisitions over the last two
years which, by comparison to the Company, may have served as indicators of fair
value for the Common Stock. These searches yielded 19 transactions which met the
broad parameters of MD&Co.'s original search. Upon further review of each of
these acquisitions, however, none were believed to be comparable to the Company.
Transactions from the initial search results were eliminated primarily due to
the fact that the acquired targets were determined not to be in substantially
similar lines of business as the Company.
BLACK-SCHOLES ANALYSIS
Based on the results derived from the above described multiple approaches,
on information provided by Abaco and on the overall review of the financial
condition and historical operations of the Company, MD&Co. preliminarily
determined that there was little to no equity value intrinsic to the Company's
existing operations. For this reason, MD&Co. employed option pricing
methodology, in addition to the Comparable Company Analysis described above, to
derive an additional estimate of Equity Value for the Company.
Ownership of a company's common equity can be viewed as a call option on
the value of that company's assets after all other liabilities have been
satisfied. Therefore, option pricing methodology may be used to value the common
equity of a company. The theory is based on the premise that claims on a
company's assets are divided among the two principal providers of capital to an
organization: creditors and shareholders. Since creditors have a senior claim on
a company's assets ("Creditor Claims"), common equity holders are entitled only
to the residual value of a company's assets after all Creditor Claims have been
satisfied. The equity holders of a company, therefore, are paying for the right
to acquire the company's assets at a strike price equivalent to the face value
of all Creditor Claims. To the extent that the value of the company exceeds such
Creditor Claims, shareholders would retain the remaining balance of the
company's total asset value.
The Black-Scholes Formula is a widely used option valuation formula in use
today and can be applied to estimate the Equity Value of the Company. The Equity
Value of the Company derived from employing the Black-Scholes Formula is
directly dependent on the current estimated value of the Company's assets
("Current Value"), the estimated time to maturity of the Creditor Claims, the
riskless rate of interest, and the volatility of the Company's value. An
increase/decrease in any of these variables will result in an increase/decrease
in the Equity Value derived. Additionally, the Equity Value conclusion is
inversely related to the face value of the Creditor Claims.
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Based on the above variables, the Black-Scholes calculation resulted in a
range of estimated total common Equity Value between zero and $1,810,000. This
translates into a common equity value up to $.27 per share.
OTHER FACTORS
Among other things, MD&Co. considered the Company's imminent need for
financing of the payment of bonuses to avoid the departure of critical
personnel, the Company's lack of success in establishing a recognized equities
capability, the divestiture of portions or all of the Company's fixed income and
commodities businesses, and the Company's inability to establish sound creditor
and business relationships without the continued support of Parent, Abaco and
Confia.
VALUE CONCLUSION
In a distressed company situation, it is often difficult to apply typical
valuation methods to arrive at meaningful valuation results. It is MD&Co.'s
opinion that, in light of the Company's specific circumstances, such methods
would likely lead to a zero value conclusion for the Company, particularly in
the absence of financial projections provided by management. On a going concern
basis, however, equity value is rarely determined to be zero. It is MD&Co.'s
opinion, therefore, that, despite the Company's clear operational difficulties,
there is value inherent in the Company's common equity and that this value is
best approximated through the option pricing methodology described above.
MD&Co., therefore, believes that the fair value of the Common Stock as of
December 31, 1996, would be reasonably stated between $0.00 and $0.27 per share.
PURPOSE, STRUCTURE AND BENEFITS OF THE TRANSACTIONS
The purpose of the Transactions is to enable Acquisition Sub to acquire
complete ownership of all of the equity interests of the Company. Following the
obtaining of 90% Ownership, Acquisition Sub will be able to effect the Merger
solely with the approval of its Board of Directors and stockholder in a
"short-form" merger under the DGCL, without the vote of the Unaffiliated
Stockholders. See "The Conversion and Open Market Purchases."
The primary benefit of the Transactions to the Unaffiliated Stockholders
is that such stockholders are being afforded an opportunity to sell shares of
Common Stock at a price which, in the opinion of Abaco, will enable the
Unaffiliated Stockholders to dispose of their investment at fair value.
The primary benefit of the Transactions to the Company consists of the
additional financial support which the Company will receive from Abaco and its
affiliates. Additional benefits include the elimination of its current reporting
obligations and, as a result, a significant reduction of substantial legal and
accounting fees and the amount of time the Company's executives currently devote
to comply with such obligations. In addition, the Transactions will provide the
Company with the opportunity to focus its efforts on long-term growth and to
engage in transactions free from the constraints of public ownership, which
often places undue emphasis on short-term earnings and other factors not related
to its long-term interests. Furthermore, management will have greater
flexibility to consider taking acceptable risks than might otherwise be
considered with the presence of public ownership.
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The primary benefit of the Transactions for Abaco is the increased ability
to directly impact the operations of the Company, with a view towards enabling
the Company to become profitable and thereby enable it to repay its loans from
Confia and generate distributable cash flow and equity appreciation for Abaco.
EFFECTS AND TIMING
The Transactions have been structured so as to enable the Acquisition Sub
to obtain 90% Ownership and thereafter effect a "short-form" merger without a
vote or approval of the Unaffiliated Stockholders. As a result of the Merger,
the issued and outstanding shares of Common Stock held by the Unaffiliated
Stockholders will be converted into the right to receive the Merger
Consideration and the Unaffiliated Stockholders will no longer have an equity
interest in the Company, and, therefore, will not share in its future earnings
and growth or the risks associated therewith. Upon consummation of the Merger,
the Company will be indirectly wholly owned by affiliates of Abaco, which will,
in the aggregate, have all of the equity interests of the Company.
In connection with the Tender Offer, Parent and Abaco agreed, for a period
of two years from the date of the closing of the Tender Offer, not to take any
action which would cause the Company to engage in any "going-private"
transaction (as defined in Rule 13e-3 under the Exchange Act) or to cause the
Common Stock to cease to be registered under Section 12 of the Exchange Act or
to be delisted from the NYSE unless such actions were approved by a majority of
directors unaffiliated with Parent or Abaco. Despite the expiration of this
waiting period, Abaco and Confia continued to provide financial support in order
to afford the Company additional time to become profitable. See "-- Background."
Abaco believes that the current time is appropriate for the Transaction because
of its decision to no longer support the Company without owning all of the
equity interests of the Company and that, without such financing, the Company
will shortly become bankrupt and cease operations.
PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS
In addition to the support described above under "-- Background," Abaco
International Corporation, a wholly owned subsidiary of Abaco ("AIC"), subleases
from the Company a portion of the New York office space leased by the Company.
Under the sublease, AIC is required to pay annual rent to the Company in an
amount that is a percentage of the total rent that the Company pays under its
lease equal to the percentage of the Company's total space occupied by AIC.
Under the sublease, AIC is also required to pay operating expenses and other
payments charged to the Company by the landlord under the Company's lease. The
sublease expires on May 31, 1998.
On January 31, 1995, Abaco converted all issued and outstanding shares of
Series A Stock into a total of 2,068,965 shares of Common Stock. In addition,
the Company entered into a Note Conversion Agreement with Confia dated as of
September 29, 1995, as amended (the "Note Conversion Agreement"), pursuant to
which Confia has the right to convert all or a portion of its outstanding loans
to the Company into equity of the Company. The number of shares of Common Stock
to be issued upon conversion of such loans would be determined by dividing the
amount of unpaid principal and accrued interest to be converted by the book
value per share of Common Stock as of the end of the Company's most recent
fiscal quarter. Pursuant to the terms of the Note Conversion Agreement, such
loans are convertible only if the conversion receives approval from the
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Company's stockholders or if the conversion is made in connection with a rights
offering to all stockholders at the same effective price per share for a number
of shares proportional to the number to be issued upon the conversion (the
"Rights Offering").
The Series B Stock, Series C Stock and Series D Stock bear a floating
annual dividend rate equal to the prime rate as published in the WALL STREET
JOURNAL plus two percentage points. The number of shares of Common Stock to be
issued upon conversion of each share of such series of Preferred Stock would
generally be determined by dividing the subscription price of $100,000 per share
plus any accrued but unpaid dividends by the book value per share of Common
Stock as of the end of the Company's most recent month. The Series B Stock,
Series C Stock and Series D Stock are only convertible if the conversion
receives approval from the Company's stockholders or if the conversion is made
in connection with a Rights Offering.
In June 1996, Constructora Maiz Mier, S.A. de C.V., the landlord of
Confia's principal office building in Monterrey, Mexico, entered into a
structured financing transaction pursuant to which bonds were issued by a trust
supported by Confia's payment obligations under the office lease. The Chairman
of the Board and the General Manager of the landlord are directors of Parent,
Abaco and Confia and the Chairman of the Board of the landlord owns
approximately 4.8% of the outstanding capital stock of Parent. Rodman received a
placement fee of $440,000 in connection with such transaction. Pursuant to a
prior fee-splitting understanding between Rodman and Abaco, half of the fee was
paid to Abaco because Abaco had referred the business to Rodman.
Abaco has been contacted from time to time with regard to a possible
business combination involving the Company. Abaco has not pursued these
indications of interest because it does not desire to relinquish control of the
Company. On November 27, 1996, Abaco received an unsolicited letter from an
investment banking firm located in New York City, suggesting, among other
things, that the Company terminate certain employment agreements and be placed
in bankruptcy in order to relieve the Company of its debt obligations and to
enable it to renegotiate certain of its leases. In addition, this letter
proposed (i) that Abaco enter into a management agreement with this investment
banking firm, (ii) an acquisition of a 50% ownership interest in the Company by
this investment banking firm pursuant to an investment of $3 to $5 million in
the form of a security with superior rights and protections to common
stockholders, (iii) a purchase by Abaco of $3 to $5 million of this investment
banking firm's common stock in the open market and (iv) an option of this
investment banking firm to purchase Abaco's remaining interest in the Company.
In light of the adverse effect Abaco believes that the termination of such
employment agreements would have on employee morale and the fact that the debt
and equity investments by Abaco and its affiliates constitute a significant
portion of the Company's capitalization and have guaranteed certain of the
Company's leases, Abaco did not pursue this indication of interest because it
was not willing to destabilize employee morale or incur the significant losses
which would result from such proposal.
PLANS FOR THE COMPANY AFTER THE TRANSACTIONS
Following the consummation of the Transactions, Abaco will consider
various ways in which to assist the Company in implementing its strategic plans
to reduce costs. See "Certain Information About the Company -- Cost Reduction
Activities of the Company." Abaco may consolidate the operations of the Company
or its subsidiaries with affiliated companies of Abaco, including AIC. Until the
third quarter of 1996, AIC was a broker-dealer registered with the National
Association of
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Securities Dealers, Inc. based in New York, New York. Other than the foregoing,
Abaco has no current plans or proposals that would relate to, or result in, any
extraordinary corporate transaction involving the Company after the
Transactions, such as merger, reorganization or liquidation involving the
Company or any of its subsidiaries, a sale or transfer of a material amount of
assets of the Company or any of its subsidiaries, or any other material change
in the Company's business, corporate structure, personnel or policies regarding
the payment of dividends. While Abaco does not have any further present
intention to sell or transfer any material amount of assets of the Company,
Abaco's plans may change at any time, and Abaco may in the future elect to cause
the Company to sell, transfer or otherwise dispose of all or any portion of the
assets of the Company to Abaco or any one or more of its affiliates or to any
other parties as warranted by future conditions. Abaco may also, as warranted in
light of future conditions, cause changes to the Company's dividend policy,
indebtedness or capitalization, including the payment of dividends and repayment
of indebtedness to Confia or other affiliates.
THE CONVERSION AND OPEN MARKET PURCHASES
THE INFORMATION CONTAINED IN THIS INFORMATION STATEMENT WITH RESPECT TO
THE CONVERSION OF THE SERIES E STOCK IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE COMPLETE TEXT OF THE CERTIFICATE OF DESIGNATIONS, A COPY OF WHICH IS
ATTACHED AS ANNEX III OF THIS INFORMATION STATEMENT.
GENERAL
Abaco intends to contribute to the capital of Holdings all of the shares
of Common Stock and Preferred Stock owned by it. Holdings, in turn, intends to
contribute such shares to the capital of Acquisition Sub. Thereafter,
Acquisition Sub intends to acquire 90% Ownership and to effect the Merger
pursuant to Section 253 of the DGCL. Acquisition Sub intends to obtain 90%
Ownership by converting 12 shares of the Series E Stock to be held by it into
approximately 13,333,333 shares of Common Stock in accordance with the terms
applicable to the Series E Stock. Following such conversion, Acquisition Sub
will hold approximately 89.9% of the issued and outstanding shares of Common
Stock.
The conversion terms of the Series E Stock are identical to the terms
contained in the Note Conversion Agreement. Shares of Series E Stock are
convertible at any time at the option of the holder into fully paid and
nonassessable shares of Common Stock, subject to certain conditions set forth in
the Certificate of Designations of Rights, Preferences, Privileges and
Restrictions establishing the Series E Stock (the "Certificate of
Designations"). The number of shares of Common Stock to be issued upon a
conversion of a share of Series E Stock is determined by dividing the sum of the
subscription price of such share ($100,000) plus any dividends on such share
which the holder is entitled to receive, but has not yet received, by the
conversion price. The conversion price is the book value per share of the Common
Stock determined by the Company as of the close of the full month immediately
preceding such conversion; provided, however, that if such book value per share
is less than $.09, which is the par value per share of the Common Stock, the
conversion price is $.09. The Certificate of Designations provides that, so long
as the NYSE stockholder approval requirements are applicable, shares of Series E
Stock may be converted only if approved by the stockholders of the Company, if
so required; provided that no stockholder approval is required for any
conversion of shares of Series E Stock made in connection with a Rights
Offering.
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Abaco, as majority stockholder of the Company, has executed and delivered
to the Company a written consent approving such conversion of the Series E Stock
to be held by Acquisition Sub.
The terms of the Certificate of Designations permit the holder of Series E
Stock on one or more occasions to require the Company (i) to call a special
meeting of stockholders as soon as practicable upon request to approve the
conversion of any share of Series E Preferred Stock, (ii) include such approval
on the agenda for an annual meeting of stockholders or (iii) conduct a Rights
Offering as soon as practicable upon request. In the event that any shares of
Series E Preferred Stock are converted and clause (iii) is not elected in
connection therewith, a Rights Offering is required to be made within one year
after the conversion of any shares of Series E Stock to the stockholders of
record at the time of such Rights Offering at a price per share equal to the
conversion price used in such conversion. Abaco expects that any such Rights
Offering in connection with its conversion of the Series E Stock would be made
after the Effective Date and, as a result, would only be made to Holdings, as
the sole stockholder of the Company. In addition, Abaco anticipates that the
Certificate of Designations will be amended to eliminate any such requirement to
conduct a Rights Offering.
INSUFFICIENT SHARES; OPEN MARKET PURCHASES; AMENDING THE CERTIFICATE OF
INCORPORATION
Pursuant to the Certification of Designations, the Company has covenanted
to reserve at all times, so long as any shares of Series E Preferred Stock
remain outstanding, sufficient shares of Common Stock to provide for the
conversion of all outstanding shares of Series E Stock. According to the
financial statements contained in the Form 10-Q, the book value of a share of
Common Stock was $.09 per share at September 30, 1996. The Company has advised
Abaco that it has incurred additional operating losses since such time and that
the book value of a share of Common Stock is now less than $.09 Accordingly,
pursuant to the terms of the Certificate of Designations, the conversion price
is $.09. As a result, since the subscription price of the Series E Stock totaled
$3 million, the shares of Series E Stock are convertible into 33,333,333 shares
of Common Stock. The Company, however, has only 13,354,198 shares of authorized
and unissued Common Stock.
Acquisition Sub intends to obtain 90% Ownership by converting 12 shares of
the Series E Stock into approximately 13,333,333 shares of Common Stock in
accordance with the terms applicable to the Series E Stock. Following this
conversion, Acquisition Sub will hold approximately 89.9% of the issued and
outstanding shares of Common Stock and will still need to acquire additional
shares to increase its ownership of shares of Common Stock to obtain 90%
Ownership in order to effect the Merger pursuant to Section 253 of the DGCL.
Acquisition Sub anticipates purchasing at least 22,101 shares of Common Stock in
the open market at prevailing prices in accordance with Section 10b-18
promulgated under the Exchange Act. The amount and timing of any of such open
market purchases will depend on market conditions, share prices and other
factors.
If Acquisition Sub is not successful in purchasing the issued and
outstanding shares of Common Stock in the open market, Acquisition Sub intends
to enforce its rights under the Certificate of Designations and require the
Company to amend the Certificate of Incorporation to increase the number of
authorized shares of Common Stock to permit the conversion of additional shares
of Series E Stock into shares of Common Stock. Such amendment to the Certificate
of Incorporation would require the approval of the Board and stockholders.
Acquisition Sub believes that it would be able to obtain approval of the Board
since the Board previously approved the issuance of the Series E Stock which, by
its terms, obligates that Company to reserve sufficient shares of Common Stock
to
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provide for the conversion of all issued and outstanding shares of Series E
Stock. Since Acquisition Sub would hold more than 50% of the issued and
outstanding shares of Common Stock, stockholder approval would be assured.
It is expected that the Transactions will be consummated on or after 20
days following the date of this Information Statement.
THE MERGER
THE INFORMATION CONTAINED IN THIS INFORMATION STATEMENT WITH RESPECT TO
THE MERGER IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE CERTIFICATE OF
MERGER, A COPY OF WHICH IS ATTACHED TO THIS INFORMATION STATEMENT AS ANNEX I.
PRINCIPAL EFFECTS OF THE MERGER
As of the Effective Date, Unaffiliated Stockholders will have no further
ownership interest in the Company and will be entitled only (i) to receive the
Merger Consideration or (ii) to any rights they may have upon exercise of
Dissenters' Rights. Upon consummation of the Merger, the issued and outstanding
shares of Common Stock to be held by Acquisition Sub will be cancelled and the
issued and outstanding shares of capital stock of Acquisition Sub will be
converted into an aggregate of 50,000 shares of Common Stock. Accordingly, after
the Merger, all of the issued and outstanding shares of Common Stock will be
owned by Holdings.
As a result of the Transactions, it is expected that the Company will take
steps to have the Common Stock delisted from the NYSE and to deregister the
Common Stock under the Exchange Act. Such termination will cause the Company to
no longer be subject to the reporting requirements of the NYSE or the Exchange
Act. See "Additional Information -- Delisting and Deregistration."
Pursuant to the terms of the Certificate of Merger, the Bylaws of the
Company will be replaced with the Bylaws of Acquisition Sub. As a result,
certain classifications and required composition of the Board will be
eliminated. In addition, Abaco anticipates that the Certificate of Designations
will be amended to eliminate any requirement to conduct a Rights Offering in
connection with the conversion thereof. See "The Conversion; Open Market
Purchases; Amending the Certificate of Incorporation."
Following the Effective Date, it is expected that only the directors of
the Company affiliated with Abaco immediately prior to the Merger will continue
to serve as directors of the Company. The officers of the Company immediately
prior to the Merger will be the officers of the Company.
The Transactions will have not effect on any then issued and outstanding
shares of Preferred Stock or any of the Company's outstanding debt obligations.
PAYMENT FOR SHARES
Promptly after the Effective Date, each Unaffiliated Stockholder (other
than Unaffiliated Stockholders who properly exercise Dissenters' Rights) will
receive a Letter of Transmittal for use
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in effecting the surrender of stock certificates for payment. Each holder of
record of Unaffiliated Shares at the Effective Date (other than Unaffiliated
Stockholders who properly exercise Dissenters' Rights) will be entitled after
the Effective Date to receive the Merger Consideration, subject to the proper
delivery to the Paying Agent after the Effective Date of the stock certificates
formerly representing such Unaffiliated Shares, together with a properly
completed and duly executed Letter Transmittal and any other required documents.
As soon as practicable after the Effective Date, and upon such proper delivery,
the Paying Agent will promptly deliver to the holders the funds to which they
are entitled as a result of the Merger. Unaffiliated Stockholders should
surrender stock certificates for shares of Common Stock to the Paying Agent only
after the Effective Date and only with a completed Letter of Transmittal.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES TO THE COMPANY.
If any payment is to be made to a person other than the person in whose
name the certificate representing the Unaffiliated Shares surrendered in
exchange therefor is registered, a condition of payment is that such stock
certificate be properly endorsed or otherwise in proper form for transfer and
that the person requesting such payment either pay any transfer and other taxes
required by reason of the payment to a person other than the registered holder
of such certificate, or establish to the satisfaction of the Company that such
taxes have been paid or are otherwise not applicable.
From and after the Effective Date, holders of stock certificates formerly
representing Unaffiliated Shares (other than holders of Unaffiliated Shares who
properly exercise Dissenters' Rights) shall cease to have any rights as
stockholders of the Company except as provided in the Certificate of Merger or
by law. Until properly surrendered, each stock certificate formerly representing
such Unaffiliated Shares will represent for all purposes only the right to
receive the Merger Consideration. No interest will be paid to the holder of any
unsurrendered stock certificate representing Unaffiliated Shares. Any funds
remaining with the Paying Agent six months after the Effective Date shall be
released and repaid by the Paying Agent to the Company, after which time persons
entitled thereto may look, subject to applicable escheat and other similar laws,
only to the Company from payment thereof.
TREATMENT OF STOCK OPTIONS
According to the Form 10-K, as of December 31, 1995, there were, in the
aggregate, 1,089,150 qualified and nonqualified options to purchase shares of
Common Stock pursuant to the Company's stock option plans, exercisable at an
average price of $2.95. In accordance with the terms of these stock option
plans, it is expected that the Board will approve the payment of the Merger
Consideration to each holder of options outstanding under these stock option
plans upon exercise thereof in accordance with their terms.
CERTAIN TERMS OF THE MERGER
The Merger may be abandoned and the terms of the Merger may be changed at
any time prior to the Effective Date by action of the Board of Directors of
Acquisition Sub, provided that no change may be effected, including any change
in the Merger Consideration, which is not permitted by the DGCL.
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Pursuant to the terms of the Certificate of Merger, the Bylaws of the
Company will be replaced with the Bylaws of Acquisition Sub. As a result,
certain classification and required composition of the Board will be eliminated.
Following the Merger, it is expected that only the directors of the
Company affiliated with Abaco immediately prior to the Merger will continue to
serve as directors of the Company. The officers of the Company immediately prior
to the Merger will be the officers of the Company.
COSTS AND EXPENSES OF THE MERGER
The expenses expected to be incurred in connection with the Merger are
estimated to be as follows:
Filing Fees ................................... $ 120
Legal Fees and Expenses............................ 250,000
Accounting Fees and Expenses....................... 20,000
Fees and Expenses of Valuation .................... 65,000
Transfer Agent Fees and Expenses............ 10,000
Paying Agent Fees and Expenses.............. 10,000
Printing and Mailing Costs.......................... 125,000
Miscellaneous.................................. 44,880
----------
Total.......................................... $ 525,000
==========
SOURCES OF FUNDS
The funds to be used for the Merger Consideration (approximately $600,000)
and to pay the expenses set forth above under "Costs and Expenses of the Merger"
will be paid by Abaco or affiliated companies from its or their existing funds
and resources or loaned by them from such resources to Acquisition Sub to enable
it, or after the Merger, the Company to make such payments.
REGULATORY REQUIREMENTS
Except for the filing of the Certificate of Merger with the Secretary of
State of Delaware pursuant to the DGCL and compliance with federal and state
securities laws, Abaco is not aware of any material federal, state or foreign
governmental regulatory requirement necessary to be complied with or approval
that must be obtained in connection with the Merger.
BENEFICIAL OWNERSHIP
Abaco is the beneficial holder of 4,625,788 issued and outstanding shares
of Common Stock. Parent is also deemed the beneficial owner of the Common Stock
held by Abaco.
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INFORMATION ABOUT PARENT, ABACO, HOLDINGS AND ACQUISITION SUB
Abaco is a brokerage firm which is 99.99% owned by Parent, a financial
services holding company based in Monterrey, Mexico. In addition to Abaco,
Parent owns 99.99% of Confia, a bank with diverse Mexican and international
operations, subsidiaries engaged in leasing, factoring, property and casualty
insurance and a joint venture with GMAC engaged in automobile financing, all
based in Mexico. Abaco's shares are traded on the Mexican Stock Exchange. The
principal offices of Parent are located at Ave. San Jeronimo 999 Pte, Colonia
San Jeronimo, 64640, Monterrey, N.L. Mexico (telephone number (52) (8)
399-6030). The principal offices of Abaco are located at Montes Roccallosos 505
Sur, 66250 Garza Garcia, N.L., Mexico (telephone number (52) (8) 363-2040).
Acquisition Sub and Holdings are newly formed Delaware corporations with
principal offices located at Ave. San Jeronimo 999 Pte, Colonia San Jeronimo,
64640, Monterrey, N.L. Mexico (telephone number (52) (8) 399-6030). Acquisition
Sub and Holdings have been formed for the purpose of participating in the
Transactions and related activities. Acquisition Sub will not engage in any
other material business or activities other than as described herein. Prior to
the Merger, Holdings will not engage in any material business or activity other
than in connection with the Transactions and related activities.
The names, residences or business addresses, present principal occupations
or employment and citizenship of each executive officer and director of Parent,
Abaco, Holdings and Acquisition Sub are set forth in Annex VI attached hereto.
CERTAIN INFORMATION CONCERNING THE COMPANY
According to the Form 10-K, the Company, through Rodman, is a full service
securities broker-dealer and commodities futures commission merchant with
memberships on the NYSE and other principal exchanges. 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.
The principal executive offices of the Company are located at Two World
Financial Center, Tower B, 30th Floor, New York, New York 10281 (telephone (212)
416-425-0360). The Form 10-K and the Form 10-Q, each as filed with the
Commission, are attached to this Information Statement as Annexes IV and V,
respectively.
DESCRIPTION OF THE BUSINESS
For a description of the business of the Company, see "Item 1. BUSINESS"
in Annex IV hereto.
DESCRIPTION OF PROPERTY
For a description of the property of the Company, see "Item 2. PROPERTIES"
in Annex IV hereto.
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FINANCIAL INFORMATION
For Financial Information of the Company, see "Item 6. SELECTED FINANCIAL
DATA" in Annex IV hereto and "Item 1. Financial Information" in Annex V hereto.
DESCRIPTION OF LEGAL PROCEEDINGS
For a description of the Company's legal proceedings, see "Item 3. LEGAL
PROCEEDINGS in Annex IV hereto.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
For management's discussion and analysis of financial condition and
results of operations, see "Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in Annex IV hereto and "Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" in Annex V hereto.
COST REDUCTION ACTIVITIES OF THE COMPANY
The Company does not generally publicly disclose internal plans, estimates
or pro forma forecasts as to earnings, cash flows or other financial
information. The information summarized below was prepared by management of the
Company and furnished to directors of the Company, including directors who are
employees of Abaco, and was considered by Abaco's Board of Directors in
approving the Transactions. The estimates and assumptions underlying pro forma
information involved judgments with respect to, among other things, economic,
competitive, regulatory and financial market conditions and business decisions
and are inherently subject to significant business, economic, competitive and
regulatory uncertainties, all of which are difficult to predict and many of
which are beyond the control of the Company. In light of the uncertainties
inherent in pro forma information of any kind, the inclusion of this information
should not be regarded as a representation of the Company, Abaco or its
affiliates or any other person that these results could have been achieved.
This information was not prepared with a view to public disclosure or
compliance with the published guidelines of the Commission regarding pro forma
financial information and was not prepared in accordance with the guidelines
established by the American Institute of Certified Public Accountants for
preparation and presentation of pro forma financial forecasts. The information
set forth below does not purport to present results of operations in accordance
with generally accepted accounting principles and has not been audited, compiled
or otherwise examined by any independent accountants.
Neither Abaco nor its affiliates intends to update or otherwise revise the
information presented below.
In December 1996, Mr. Shanahan developed a cost reduction plan (the "Cost
Cutting Plan"). The Cost Cutting Plan contemplates significant reduction of
expenses, including fixed compensation, guaranteed bonuses, professional fees
and miscellaneous other expenses. The Cost Cutting Plan does
22
<PAGE>
not take into account any cost reductions relating to the Transactions. If the
Cost Cutting Plan had been in effect for all of 1996, the Cost Cutting Plan
indicates that the Company's losses would have been reduced from $18.8 million
to approximately $4 million.
MARKET INFORMATION AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Common Stock is listed on the NYSE under the symbol "RR". The closing
price for the Common Stock on the NYSE on February 3, 1997, the last trading day
before the public announcement of the Transactions was $1 1/4 per share. The
following table sets forth for the periods indicated the quarterly high and low
sales prices of the Common Stock as reported on the NYSE composite transaction
tape:
1995 1996 1997
SALES PRICES SALES PRICES SALES PRICES(1)
HIGH LOW HIGH LOW HIGH LOW
First Quarter............ 43/4 3 3/8 21/4 11/4 11/4 7/8
Second Quarter........... 5 33/4 21/2 1 1/8
Third Quarter............ 41/2 23/4 1 5/8 7/8
Fourth Quarter........... 3 1 3/8 13/4 7/8
- - ------------------
(1) Through February 3, 1997
OUTSTANDING SHARES OF COMMON STOCK
According to the Form 10-K, the approximate number of record holders of
the issued and outstanding shares of Common Stock as of December 31, 1996 was
170. As of such date, Abaco believes there were 6,645,802 issued and outstanding
shares of Common Stock.
DIVIDENDS
According to the Form 10-K, the Company has declared no dividends since at
least December 31, 1993. In addition, according to the Form 10-K, as a
registered broker-dealer and futures commission merchant, Rodman is subject to
the minimum net capital rules of the NYSE and other regulatory entities. The
NYSE may prohibit a member firm such as Rodman from paying dividends, among
other things, to the Company if certain net capital requirements are not
satisfied. This restriction, in turn, may prevent the Company from declaring and
issuing dividends.
RATIO OF EARNINGS TO FIXED CHARGES
Information as to the ratio of earnings to fixed charges of the Company
has been omitted because earnings have been insufficient to cover fixed charges.
23
<PAGE>
RIGHTS OF DISSENTING STOCKHOLDERS
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the DGCL and is qualified in its entirety by the full
text of Section 262, which is reprinted in its entirety as Annex II attached
hereto. All references in Section 262 and in this summary to a "stockholder"
refer to the record holder of the Unaffiliated Shares as to which Dissenters'
Rights are exercised. As used herein under "Rights of Dissenting Stockholders,"
"Surviving Corporation" means the Company, which will be the corporation
surviving the Merger.
Under the DGCL, Unaffiliated Stockholders who do not wish to accept the
Merger Consideration as provided in the Certificate of Merger and who follow the
procedures set forth in Section 262 will be entitled to have their Unaffiliated
Shares appraised by the Delaware Court of Chancery and to receive payment in
cash for the "fair value" of such Unaffiliated Shares, exclusive of any element
of value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, if any, as determined by such court.
Under Section 262, Unaffiliated Stockholder must be notified of his or her
Dissenters' Rights and a copy of Section 262 must be included in such notice .
This Information Statement shall constitute such notice to the holders of
Unaffiliated Shares and the applicable statutory provisions of the DGCL are
attached hereto as Annex II. Any Unaffiliated Stockholder who wishes to exercise
Dissenters' Rights, or who wishes to preserve the right to do so, should review
the following discussion and Annex II attached hereto carefully because failure
to timely and properly comply with the procedures specified will result in the
loss of appraisal rights under the DGCL.
An Unaffiliated Stockholder wishing to exercise Dissenters' Rights must
deliver, prior to the Effective Date, to the Secretary of the Company a written
demand for appraisal of such Unaffiliated Shares and must not tender such
Unaffiliated Shares to the Paying Agent. Failing to tender such Unaffiliated
Shares will not constitute a written demand for appraisal within the meaning of
Section 262. In addition, an Unaffiliated Stockholder wishing to exercise
Dissenters' Rights must hold of record such Unaffiliated Shares on the date the
written demand for appraisal is made and must continue to hold such Unaffiliated
Shares until the Effective Date.
Only a holder of Unaffiliated Shares of record is entitled to assert
Dissenters' Rights for the Unaffiliated Shares registered in his or her name. A
demand for appraisal should be executed by or on behalf of the holder of
Unaffiliated Shares of record, fully and correctly, as such name appears on the
stock certificates. If the Unaffiliated Shares are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the demand should be made in that capacity, and if the Unaffiliated Shares are
owned of record by more than one person, as in a joint tenancy or tenancy in
common, the demand should be executed by or on behalf of all joint owners. An
authorized agent, including one or more joint owners, may execute a demand for
appraisal on behalf of a holder of Unaffiliated Shares of record; however, the
agent must identify the record holder or holders and expressly disclose the fact
that, in executing the demand, the agent is agent for such owner or owners. A
record holder such as a broker who holds Unaffiliated Shares as nominee for
several beneficial owners may exercise appraisal rights with respect to any or
all of such Unaffiliated Shares for any or all of the beneficial owners. In such
case, the written demand should set forth the number of Unaffiliated Shares as
to which appraisal is sought and, when no number of Unaffiliated Shares is
expressly mentioned, the demand will be presumed to cover all Unaffiliated
Shares held in
24
<PAGE>
the name of the record holder. Beneficial owners of Unaffiliated Shares who hold
their Unaffiliated Shares in brokerage accounts or other nominee forms and who
wish to exercise appraisal rights are urged to consult with their broker or
other nominee to determine the appropriate procedures for the making of a demand
for appraisal by such a nominee. All written demands for appraisal should be
delivered to Gilbert R. Ott, Jr., Secretary of the Company, either in person or
by mail (certified mail, return receipt requested, being the recommended form of
transmittal) addressed to him at Rodman & Renshaw Capital Group, Inc., Two World
Financial Center, Tower B, 30th Floor, New York, New York 10281.
Within ten days after the Effective Date, the Surviving Corporation must
send a notice of the approval of the Merger and statement that appraisal rights
are available to each former stockholder who has made such a written demand for
appraisal and who has not tendered his or her shares to the Paying Agent. Within
120 days after the Effective Date, but not thereafter, the Surviving
Corporation, or any stockholder who is entitled to appraisal rights under
Section 262 and has complied with the requirements of Section 262, may file a
petition in the Delaware Court of Chancery demanding a determination of the fair
value of his or her shares. The Surviving Corporation is under no obligation to
file a petition with respect to the appraisal of the fair value of the shares.
Within 120 days after the Effective Date, any stockholder who has complied
with the requirements under Section 262 for exercise of Dissenters' Rights will
be entitled, upon written request, to receive from the Surviving Corporation a
statement setting forth the aggregate number of shares with respect to which
demands for appraisal have been received and which have not been tendered to the
Paying Agent, and the aggregate number of holders of record of such shares. Such
statements must be mailed within ten days after a written request therefor has
been received by the Surviving Corporation.
If a petition for appraisal is duly filed by a stockholder and a copy
thereof is delivered to the Surviving Corporation, the Surviving Corporation
will then be obligated within 20 days to provide the Delaware Court of Chancery
with a duly verified list containing the names and addresses of all stockholders
who have demanded appraisal of their shares. After notice to such stockholders,
the Delaware Court of Chancery is empowered to conduct a hearing upon the
petition to determine those stockholders who have complied with Section 262 and
who have become entitled to appraisal rights under Section 262. The Delaware
Court of Chancery may require the stockholders who have demanded payment for
their shares to submit their stock certificates to the Register in Chancery for
a notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Delaware Court of Chancery
may dismiss the proceedings as to such stockholder.
After determining the stockholders entitled to an appraisal, the Delaware
Court of Chancery will appraise the "fair value" of their shares, exclusive of
any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. Stockholders considering seeking
appraisal should be aware that the fair value of their shares as determined
under Section 262 could be more than, the same or less than the Merger
Consideration. The Delaware Supreme Court has stated that "proof of value by any
techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in the
appraisal proceedings.
25
<PAGE>
In addition, Delaware courts have decided that the statutory appraisal remedy,
depending on factual circumstances, may or may not be a dissenter's exclusive
remedy. The Delaware Court of Chancery will also determine the amount of
interest, if any, to be paid upon the amounts to be received by persons whose
shares have been appraised. The cost of the action may be determined by the
Delaware Court of Chancery and taxed upon the parties as the Court deems
equitable. The Delaware Court of Chancery may also order that all or a portion
of the expenses incurred by any stockholder in connection with an appraisal,
including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts utilized in the appraisal proceeding, be charged pro rata
against the value of all of the shares of Common Stock entitled to appraisal.
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Date, be entitled to vote the shares
subject to the appraisal demand for any purpose or be entitled to the payment of
dividends or other distributions on those shares (except dividends or other
distributions, other than the Merger Consideration, payable to holders of record
of shares as of a date prior to the Effective Date).
If any stockholder who demands appraisal of shares under Section 262 fails
to perfect, or effectively withdraws or loses, the right to appraisal as
provided in the DGCL, the shares held by such stockholder will be converted into
the right to receive the Merger Consideration in accordance with the Certificate
of Merger. A stockholder will fail to perfect, or effectively lose or withdraw,
the right to appraisal if no petition for appraisal is filed within 120 days
after the Effective Date or if the stockholder delivers to the Company a written
withdrawal of his or her demand for appraisal and an acceptance of the Merger
Consideration, except that any such attempt to withdraw made more than 60 days
after the Effective Date will require the written approval of the Surviving
Corporation.
Failure to follow the steps required by Section 262 of the DGCL for
exercising Dissenters' Rights may result in the loss thereof.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
Set forth below is a summary of the anticipated federal income tax
consequences of the Merger to the Company, Acquisition Sub, Holdings and the
Unaffiliated Stockholders. This summary does not constitute tax advice or a
complete description of the federal income tax consequences of the Merger. This
summary is based upon the Internal Revenue Code of 1986, as amended (the "Code")
and the rules and regulations promulgated thereunder, in each case, as presently
in effect, current administrative interpretations and court decisions. The
discussion of federal income tax consequences set forth below is directed
primarily toward individual taxpayers who are citizens or residents of the
United States and who, on the date of disposition of shares of Common Stock,
hold them as capital assets. This summary does not address potential state or
local tax consequences or holders of Common Stock subject to special treatment
under federal income tax laws, such as life insurance companies, tax-exempt
organizations, S corporations and taxpayers subject to alternative minimum tax.
The discussion may not be applicable with respect to shares of Common Stock
received pursuant to the exercise of employee stock options or as compensation
or to payments received upon the cancellation of employee stock options. Due to
the complexities of
26
<PAGE>
federal, state and local income tax laws, it is recommended that Unaffiliated
Stockholders consult with their own tax advisors concerning the federal, state
and local consequences of the Merger to them.
TAX CONSEQUENCES TO THE COMPANY
The Merger will not have an adverse effect on the net operating loss
carryforwards of the Company, which will be available, subject to certain
limitations, to offset future taxable income, if any.
TAX CONSEQUENCES TO ACQUISITION SUB AND HOLDINGS
The receipt of shares of Common Stock by Holdings pursuant to the Merger
will not be a taxable transaction for federal income tax purposes.
TAX CONSEQUENCES TO HOLDERS OF UNAFFILIATED SHARES
An Unaffiliated Stockholder will realize gain or loss upon the surrender
of his or her Unaffiliated Shares pursuant to the Merger (or exercise of
Dissenters' Rights) in an amount equal to the difference, if any, between (i)
the sum of the amount of cash received and (ii) such holder's aggregate adjusted
tax basis in the Unaffiliated Shares sold or surrendered therefor. Any gains or
losses recognized by an Unaffiliated Stockholder in the Merger will be eligible
for capital gain or loss treatment. Any capital gain or loss recognized by
shareholders will be long-term capital gain or loss if the shares giving rise to
such recognized gain or loss have been held for more than one year; otherwise
such capital gain or loss will be short-term.
ADDITIONAL INFORMATION
CURRENT INFORMATION
The Company is subject to the information and reporting requirements of
the Exchange Act and in accordance therewith is obligated to file reports and
other information with the Commission relating to its business, financial
condition, and other matters. Such reports, proxy statements and other
information should be available for inspection and copying at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C 20549, and at the Commission's regional offices at the Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, Suite 1300, New York, 10048. Copies may be obtained from the principal
office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Such information should also be available for inspection at
the offices of the NYSE, 20 Broad Street, New York, New York 10005.
Except as noted herein, the information concerning the Company contained
in this Information Statement has been taken from or based upon publicly
available documents on file with the Commission and other publicly available
documents on file with the Commission and other publicly available information.
Although Parent, Abaco, Holdings and Acquisition Sub have no knowledge that any
such information is untrue, neither Parent, Abaco, Holdings nor Acquisition Sub
takes any
27
<PAGE>
responsibility for the accuracy or completeness of this information, or for any
failure by the Company to disclose events that may have occurred and that may
affect the significance or accuracy of any such information.
Parent, Abaco, Holdings and Acquisition Sub have filed with the Commission
a Rule 13e-3 Transaction Statement and (the "Schedule 13E-3") furnishing certain
additional information with respect to the Transactions. The Schedule 13E-3 and
all amendments thereto, including exhibits, can be inspected and copied at the
public reference facilities maintained by the Commission as set forth above.
DELISTING AND DEREGISTRATION
Following the Merger, it is anticipated that the Company will apply for
delisting on the NYSE and deregistration of the Common Stock pursuant to Section
12(g)(4) of the Exchange Act. The termination of such registration would mean
that certain provisions of the Exchange Act, including requirements that the
Company file periodic reports and furnish stockholders with proxy materials,
requirements that the Company's officers and directors and ten percent or more
stockholders file certain reports concerning ownership of the Company's
securities and provisions that any profit by such officers, directors and
stockholders through purchases and sales of the Company's equity securities
within a six month period are recoverable by the Company would cease to apply to
the Company.
28
<PAGE>
ANNEX I
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
R & R CAPITAL ACQUISITION CORP.
(A DELAWARE CORPORATION)
INTO
RODMAN & RENSHAW CAPITAL GROUP, INC.
(A DELAWARE CORPORATION)
*****
Pursuant to the provisions of Section 253 of the General Corporation Law of
the State of Delaware, the undersigned [TITLE] of R & R Capital Acquisition
Corp., a corporation organized and existing under the laws of the State of
Delaware (the "Corporation"), does hereby certify:
FIRST: That the Corporation was incorporated on the day of January, 1997,
pursuant to the General Corporation Law of the State of Delaware.
SECOND: That the Corporation owns [90%] of the outstanding shares (of each
class) of the stock of Rodman & Renshaw Capital Group, Inc., a corporation
incorporated on the 20th day of November, 1980, pursuant to the General
Corporation Law of the State of Delaware.
THIRD: That the Corporation, by the following resolutions of its
Board of Directors, duly adopted by the unanimous written consent of its members
on the ___ day of ________________, 1997, filed in the minute book of the
Corporation, determined to and did merge into said Rodman & Renshaw Capital
Group, Inc.:
RESOLVED, that R & R Capital Acquisition Corp. merge, and
it hereby does merge, into Rodman & Renshaw Capital Group,
Inc. (the "Merger"); and be it further
RESOLVED, that the Merger shall be effective upon the date of filing
a Certificate of Ownership and Merger with the Secretary of State of
the State of Delaware; and be it further
RESOLVED, that the terms and conditions of the Merger, as set forth
in the Plan of Merger, attached hereto as Exhibit A, be, and they
hereby are, adopted; and be it further
<PAGE>
RESOLVED, that notice of and consent for the proposed Merger shall
be submitted to the stockholders of the Corporation via written
consent, in lieu of a meeting, mailed to the address of each such
stockholder as it appears in the records of the Corporation; and
upon receiving the consent of the holders of at least a majority of
the outstanding stock entitled to vote thereon of the Corporation,
the Merger shall be approved; and be it further
RESOLVED, that the proper officers of the Corporation be, and they
hereby are, directed to notify each stockholder of record of said
Rodman & Renshaw Capital Group, Inc. entitled to notice, within 10
days after the effective date of the filing of the Certificate of
Ownership and Merger, that said Certificate of Ownership and Merger
has become effective; and be it further
RESOLVED, that the proper officer of the Corporation be, and he or
she hereby is, directed to make and execute a Certificate of
Ownership and Merger setting forth a copy of the resolutions to
merge into said Rodman & Renshaw Capital Group, Inc., and the date
of adoption thereof, and to cause the same to be filed with the
Secretary of State of the State of Delaware and to do all acts and
things whatsoever, whether within or without the State of Delaware,
which may be in anyway necessary or proper to effect said Merger.
FOURTH: That the Merger has been approved by the written consent of the
holders of at least a majority of the outstanding stock entitled to vote thereon
of the Corporation.
IN WITNESS WHEREOF, said R & R Capital Acquisition Corp. has caused
this Certificate to be signed this day of _______________, 1997.
R & R CAPITAL ACQUISITION CORP.
By:
Name:
Title:
## CT01/DUPOW/89756.34
2
<PAGE>
EXHIBIT A
PLAN OF MERGER
This PLAN OF MERGER (this "Plan of Merger"), dated as of , 1997, relates to
the merger of R & R Capital Acquisition Corp., a Delaware corporation
("Acquisition Corp."), with and into Rodman & Renshaw Capital Group, Inc. a
Delaware corporation (the "Company").
I. THE MERGER
A. ACQUISITION CORP. CAPITALIZATION. The authorized capital stock of
Acquisition Corp. consists of 1,000 shares of common stock, par value $.01 per
share ("Acquisition Corp. Stock"), of which 1,000 shares are issued and
outstanding on the date hereof and all of such shares are owned of record and
beneficially by R & R Capital Holdings, Inc., a Delaware corporation
("Holdings").
B. COMPANY CAPITALIZATION. The authorized capital stock of the Company
consists of 20,000,000 shares of common stock, par value $.09 per share
("Company Common Stock"), of which [6,645,802] shares are issued and outstanding
on the date hereof and _________ shares of which are owned of record and
beneficially by Acquisition Corp. and 5,000,000 shares of preferred stock, par
value $.01 per share, of which 50 shares of Series B Non-Voting Convertible
Preferred Stock (the "Series B Stock"), 50 shares of Series C Non-Voting
Convertible Preferred Stock (the "Series C Stock"), 45 shares of Series D
Non-Voting Convertible Preferred Stock (the "Series D Stock") and 30 shares of
Series E Non-Voting Convertible Preferred Stock (the "Series E Stock" and,
together with the Series B Stock, the Series C Stock and the Series D Stock, the
"Company Preferred Stock") are issued and outstanding on the date hereof and are
owned of record and beneficially by Acquisition Corp.
C. THE MERGER. The Board of Directors of Acquisition Corp. (the "Board")
deems it in the best interests of Acquisition Corp., the Company and their
stockholders that Acquisition Corp. be merged with and into the Company, with
the Company being the surviving corporation (the "Merger"), and the Board has
approved this Plan of Merger and has authorized its execution and delivery and
the sole stockholder of Acquisition Corp. has approved the Merger by written
consent in accordance with Section 228 of the Delaware General Corporation Law
(the "DGCL").
D. FORM OF MERGER. Because Acquisition Corp. owns at least ninety percent
(90%) of the outstanding shares of Company Common Stock, the Merger will
constitute a "short-form" Merger under Section 253 of the DGCL and, therefore,
no stockholder vote is required with respect to the Merger.
<PAGE>
E. EFFECTIVE TIME OF THE MERGER. A Certificate of Ownership and Merger (the
"Certificate of Merger") shall be duly prepared and executed by Acquisition
Corp. and thereafter delivered to the Secretary of State of the State of
Delaware for filing as provided in Section 253 of the DGCL. The Merger shall
become effective upon the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware (the "Effective Time").
F. EFFECTS OF THE MERGER. (a) At the Effective Time, (i) the separate
existence of Acquisition Corp. shall cease and Acquisition Corp. shall be merged
with and into the Company as provided in Section 253 of the DGCL (Acquisition
Corp. and the Company are sometimes referred to herein as the "Constituent
Corporations" and the Company after the Merger is sometimes referred to herein
as the "Surviving Corporation"); (ii) the Certificate of Incorporation of the
Company in effect at the Effective time shall be the Certificate of
Incorporation of the Surviving Corporation; (iii) the by-laws shall be amended
to read in their entirety as set forth in as Exhibit A attached hereto and, as
so amended, shall be the by-laws of the Surviving Corporation; and (iv) the
members of the Board of Directors and the officers of the Company in place as of
the Effective Time shall be the members of the Board of Directors and officers
of the Surviving Corporation.
(b) The Merger shall have the effects set forth in Section 259 of the DGCL.
II. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS
A. EFFECT ON COMPANY COMMON STOCK HELD BY CERTAIN STOCKHOLDERS. As of the
Effective Time, by virtue of the Merger and without any action by or on the part
of the stockholders of the Company or any other party:
(a) CONVERSION OR CANCELLATION OF COMPANY COMMON STOCK. Each issued and
outstanding share of Company Common Stock shall be converted into the right to
receive $.30 per share, following surrender by any stockholder, other than
Acquisition Corp. or any other entities controlling, controlled by or under
common control with Acquisition Corp. (an "Affiliate"), of a duly endorsed stock
certificate of the Company. Each share of Company Common Stock issued and
outstanding in the name of Acquisition Corp. or any of its Affiliates shall be
cancelled.
(b) EFFECT ON ACQUISITION CORP. STOCK HELD BY HOLDINGS. Each share of
Acquisition Corp. Stock issued and outstanding in the name of Holdings shall be
converted into 50 shares of common stock of the Surviving Corporation.
(c) CANCELLATION OF COMPANY COMMON STOCK. All shares of Company Common
Stock issued and outstanding immediately prior to the Effective Time shall no
longer be outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each stockholder shall cease to have any rights with respect
to his, her or its Company Common Stock, except the right to receive $.30 per
share of Company Common
<PAGE>
Stock pursuant to Section 2.1(a) hereof. Any options or other rights to purchase
or subscribe to Company Common Stock shall be entitled to receive $.30 per share
of Company Common Stock issuable upon the exercise of such options or other
rights. All shares of preferred stock of any class or series of the Company
which remain outstanding at the Effective Time shall remain issued and
outstanding after the Merger.
(d) EXCHANGE OF COMPANY PREFERRED STOCK. All shares of Company Preferred
Stock issued and outstanding immediately prior to the Effective Time shall be
exchanged for identical shares of such Company Preferred Stock issued in the
name of Holdings.
III. BOARD OF DIRECTORS' RIGHT TO TERMINATE OR AMEND
At any time prior to the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware, the implementation of this Plan
of Merger may be terminated, or the Plan may be amended, by the Board in its
sole discretion.
IV. APPRAISAL RIGHTS
The stockholders of the Company, prior to the Effective Time, shall
have appraisal rights as set forth in Section 262 of the DGCL.
* * * * *
<PAGE>
EXHIBIT A
RODMAN & RENSHAW CAPITAL GROUP, INC.
Incorporated Under the Laws of the State
of Delaware
BY-LAWS
As Adopted _______________, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings......................... 1
Section 2. Annual Meeting............................ 1
Section 3. Special Meetings.......................... 1
Section 4. Notice of Meetings and Waiver............. 1
Section 5. List of Stockholders...................... 2
Section 6. Quorum and Manner of Acting............... 2
Section 7. Record Date............................... 3
Section 8. Order of Business, Voting and Proxies..... 3
Section 9. Inspectors of Election.................... 3
ARTICLE II
BOARD OF DIRECTORS
Section 1. Powers, Qualifications, Number, Term
and Election ........................... 4
Section 2. Compensation.............................. 4
Section 3. Place of Meetings......................... 4
Section 4. First Meeting After Annual Meeting........ 5
Section 5. Regular Meetings.......................... 5
Section 6. Special Meetings, Notice and Waiver....... 5
Section 7. Quorum, Adjournment and Manner of Acting.. 5
Section 8. Removal................................... 6
Section 9. Vacancies................................. 6
Section 10. Reliance on Reports....................... 6
Section 11. Committees................................ 6
ARTICLE III
OFFICERS
Section 1. Number and Qualifications................. 7
Section 2. Election and Term of Office............... 7
Section 3. Subordinate Officers, Etc................. 7
Section 4. Removal................................... 7
Section 5. Vacancies................................. 7
Section 6. Chairman of the Board..................... 7
Section 7. President................................. 7
Section 8. Vice Presidents........................... 8
Section 9. Treasurer................................. 8
<PAGE>
Section 10. Secretary................................. 8
Section 11. Salaries.................................. 9
ARTICLE IV
RESIGNATIONS
Section 1. Resignations.............................. 9
ARTICLE V
CONTRACTS AND BANK ACCOUNTS
Section 1. Execution of Contracts.................... 9
Section 2. Checks, Drafts, Etc....................... 9
Section 3. Deposits.................................. 9
ARTICLE VI
STOCK, DIVIDENDS AND EXCHANGE APPROVAL
Section 1. Stock Certificate......................... 10
Section 2. Lost Certificates......................... 10
Section 3. Transfers................................. 10
Section 4. Dividends................................. 10
ARTICLE VII
OFFICES, BOOKS, ETC.
Section 1. Offices................................... 11
Section 2. Books and Records......................... 11
Section 3. Seal...................................... 11
Section 4. Fiscal Year............................... 11
Section 5. Indemnity................................. 11
ARTICLE VIII
AMENDMENTS TO BY-LAWS
Section 1. Amendments................................ 12
<PAGE>
BY-LAWS
OF
RODMAN & RENSHAW CAPITAL GROUP, INC.
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. All meetings of stockholders of RODMAN &
RENSHAW CAPITAL GROUP, INC.(the "Corporation") may be held at the registered
office of the Corporation or at such other place within or without the State of
Delaware as shall be specified in the notice of such meeting given as
hereinafter provided.
Section 2. ANNUAL MEETING. An annual meeting of the stockholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly come before the meeting shall be held on the 1st
Wednesday of March each year, or at such other time as may be fixed by the Board
of Directors of the Corporation (the "Board"), and at such place and hour as
shall be designated in the notice thereof.
Section 3. SPECIAL MEETINGS. Special meetings of the stockholders, unless
otherwise prescribed by statute, may be called at any time by the Board, the
President of the Corporation or by the Chairman of the Board, should a chairman
be appointed as provided in these By-laws, or by the holder or holders on the
date of the call of not less than a majority of the issued and outstanding
shares of stock entitled to vote at such special meeting.
Section 4. NOTICE OF MEETINGS AND WAIVER. Whenever stockholders of the
Corporation are required or permitted to take any action at a meeting, a written
notice of the meeting shall be given which shall state the place, date and hour
of the meeting, and, in the case of a special meeting, the purpose or purposes
for which the meeting is called. The written notice of any meeting shall be
given not less than ten nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. If mailed, notice is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his or her address as it appears on the records of the
Corporation. A written waiver of notice signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting, unless these By-laws otherwise require, if the
time and place thereof are announced at the meeting at which the adjournment is
<PAGE>
taken. At the adjourned meeting, the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 5. LIST OF STOCKHOLDERS. It shall be the duty of the Secretary of
the Corporation to prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 6. QUORUM AND MANNER OF ACTING. A majority of the shares of stock
entitled to vote, represented at any meeting of the stockholders, either in
person or by proxy, shall constitute a quorum for the purpose of such meeting,
PROVIDED THAT, when a specified item of business is required to be voted on by a
class or series of stock, voting as a class or series, the holders of a majority
of the shares of such class or series shall constitute a quorum for the
transaction of such specified item of business. Unless otherwise provided by
statute or in the Certificate of Incorporation of the Corporation, each
stockholder shall be entitled to one vote for each share of the Corporation's
common stock held by such stockholder. Except as otherwise provided by statute
or in the Certificate of Incorporation, any action of the stockholders shall be
decided by a majority of the votes cast by the holders of the outstanding shares
of the Corporation's stock present in person or represented by proxy and
entitled to vote thereon at a meeting duly called and held.
Any action required to be taken or which may be taken at any annual or
special meeting of the stockholders may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
Each stockholder entitled to vote at a meeting of stockholders, or to
express consent or dissent to corporate action in writing without a meeting, may
authorize another person or persons to act for him or her by proxy, but no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period.
Section 7. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or
<PAGE>
entitled to receive payment of any dividend or other distribution or allotment
of any rights or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board may fix, in advance, a record date, which shall not be more than 60
nor less than ten days before the date of such meeting nor more than 60 days
prior to any other action. If no record date is fixed: (i) the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (ii) the record
date for determining stockholders entitled to express consent to corporate
action in writing without a meeting, when no prior action by the Board is
necessary, shall be the day on which the first written consent is expressed; and
(iii) the record date for determining stockholders for any other purpose shall
be at the close of business on the day on which the Board adopts the resolution
relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
PROVIDED, HOWEVER, that the Board may fix a new record date for the adjourned
meeting.
Section 8. ORDER OF BUSINESS, VOTING AND PROXIES. The order of business at
all meetings of the stockholders shall be as determined by the chairman of the
meeting. All elections of directors shall be by written ballot. Except in the
case of a vote for the election of directors, unless demanded by a stockholder
present in person or represented by proxy at any meeting of the stockholders and
entitled to vote or so directed by the chairman of the meeting, the vote on any
question need not be by ballot. Upon a demand by any such stockholder for a vote
by ballot on any question or at the direction of the chairman of the meeting
that a vote by ballot be taken on any question, the vote shall be so taken. On a
vote by ballot, each ballot shall be signed by the stockholder voting, or in his
or her name by his or her proxy, if there be a proxy, and it shall show the
number of shares voted by such person. Except as otherwise required by statute
or by these By-laws, all voting may be VIVA VOCE.
Section 9. INSPECTORS OF ELECTION. At each meeting of the stockholders the
chairman of the meeting may, and at the request of a stockholder present in
person or represented by proxy and entitled to vote at the meeting shall,
appoint two inspectors of election to act at the meeting. No director or
candidate for the office of director shall be appointed such an inspector.
Inspectors of election need not be stockholders. Each inspector of election so
appointed, before entering upon the discharge of his or her duties, shall take
and sign an oath faithfully to execute the duties of inspection at the meeting
with strict impartiality and according to the best of his or her ability. Such
inspectors of election shall determine the number of shares of stock outstanding
and the voting power of each, the number of shares of stock represented at the
meeting, the existence of a quorum, the validity and effect of proxies and shall
receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the chairman of the meeting or any stockholder entitled to vote at the meeting,
the inspectors shall make a report in writing of any challenge, request or
matter determined by them and shall execute a certificate of any fact found by
them.
<PAGE>
ARTICLE II
BOARD OF DIRECTORS
Section 1. POWERS, QUALIFICATIONS, NUMBER, TERM AND ELECTION. The business
and affairs of the Corporation shall be managed by or under the direction of the
Board. The Board may exercise all the authority and powers of the Corporation
and do all lawful acts and things which are not by statute or the Certificate of
Incorporation of the Corporation or these By-laws directed or required to be
exercised or done by the stockholders. If any such provision is made in the
Certificate of Incorporation, the powers and duties conferred or imposed upon
the Board shall be exercised or performed to such extent and by such person or
persons as shall be provided in the Certificate of Incorporation. Each director
shall be at least 21 years of age. A director need not be a resident of the
State of Delaware or a stockholder. The Board shall consist of one or more
members elected at the last annual meeting of stockholders, which number shall
not be more than five directors. The number of directors, if more than one, may
be decreased at any time by the stockholders to any number not less than one
director or increased at any time by the stockholders or the Board to any number
not exceeding five directors. The term of office of each director shall be from
the time of his or her election and qualification until his or her successor
shall have been duly elected at the next annual meeting of the stockholders and
shall have qualified, or until such person's earlier death, resignation or
removal, as provided in these By-laws. At all elections of directors by the
stockholders, the persons receiving a plurality of the votes cast shall be the
directors.
Section 2. COMPENSATION. Directors as such shall not receive any
compensation for their services, although the Board shall have the authority to
fix by resolution the compensation of directors. Expenses, if any, of attendance
at any meeting may be allowed each director. Nothing contained in these By-laws
shall be construed to preclude a director from serving the Corporation in any
other capacity as an officer, employee, agent or otherwise and receiving
compensation therefor.
Section 3. PLACE OF MEETINGS. The Board may hold its meetings at the place
or places within or without the State of Delaware as it may from time to time by
resolution determine or as shall be specified or fixed in the respective notices
or waivers of notice thereof.
Section 4. FIRST MEETING AFTER ANNUAL MEETING. The Board shall meet for the
purpose of organization, election of officers, appointment of committees, if
any, and the transaction of other business as soon as practicable after each
annual meeting of the stockholders.
Section 5. REGULAR MEETINGS. Each regular meeting of the Board shall be
held at the time and place specified in a resolution adopted by the Board then
in effect, or, if there is not any such resolution then in effect, as specified
in a notice of the meeting, given as provided in these By-laws for notices of
special meetings of the Board, or as specified in a waiver of notice thereof
signed by all the directors of the Corporation then in office. If at the time
any regular meeting of the Board is to be held, the time and place of holding
regular
<PAGE>
meetings of the Board shall have been fixed by resolution of the Board then in
effect, notice of the regular meeting need not be given except as may otherwise
be provided by statute.
Section 6. SPECIAL MEETINGS, NOTICE AND WAIVER. Special meetings of the
Board shall be held whenever called by the President or the Secretary of the
Corporation, or by the Chairman of the Board, should a chairman be appointed as
provided in these By-Laws. Except as otherwise provided by statute, a notice of
each special meeting, which shall state the time and place of the meeting, shall
be mailed to each director addressed to him or her at his or her residence or
usual place of business at least five days before the day on which the meeting
is to be held, or shall be sent addressed to such person at his or her usual
place of business by telegraph, facsimile or delivered personally or by
telephone not later than two days before the day on which the meeting is to be
held. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the director at his or her residence address or the
address of such person's usual place of business. A written waiver of notice of
a Board meeting, signed by the director, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a director at a
Board meeting shall constitute a waiver of notice of such meeting, except when
the director attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Board need be
specified in any written waiver of notice. Any meeting of the Board shall be a
legal meeting without any notice having been given if all the directors of the
Corporation then in office shall have waived notice or shall have attended the
meeting without any director having protested, prior thereto or at its
commencement, the lack of notice.
Section 7. QUORUM, ADJOURNMENT AND MANNER OF ACTING. At each meeting of the
Board, the presence of a majority of the total number of directors then in
office shall constitute a quorum and be sufficient for the transaction of
business. Any vote of a majority of the directors present at a meeting at which
there is a quorum present at the time of the vote shall be the act of the Board,
except as may be otherwise specifically provided by statute or in the
Certificate of Incorporation of the Corporation or these By-laws. Any meeting of
the Board may be adjourned by a majority vote of the directors present at the
meeting. In the absence of a quorum at any meeting, a majority of the directors
present may adjourn the meeting to another time and place until a quorum is
present. Notice of any adjourned meeting need not be given. The directors shall
act only as a Board and the individual directors shall have no power as such.
Any action required or permitted to be taken at any meeting of the Board may be
taken without a meeting if all members of the Board consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board. Members of the Board may participate in a meeting of the Board by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and participation
in a meeting pursuant to this By-law provision shall constitute presence in
person at such meeting.
Section 8. REMOVAL. Any director or the entire Board of the Corporation may
be removed from office at any time with or without cause by the holders of a
majority of the outstanding shares of the Corporation's capital stock then
entitled to vote at an election of directors.
<PAGE>
Section 9. VACANCIES. A vacancy in the Board caused by a removal as
provided in these By-laws may be filled by the stockholders at the meeting at
which the director is removed. Vacancies due to death, resignation, removal
(when not otherwise filled by the stockholders at the meeting at which the
director was removed) and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director.
Section 10. RELIANCE ON REPORTS. A member of the Board shall, in the
performance of his or her duties, be fully protected in relying in good faith
upon the books of account or reports made to the Corporation by any of its
officers, by an independent certified public accountant or by an appraiser
selected with reasonable care by the Board, or in relying in good faith upon
other records of the Corporation.
Section 11. COMMITTEES. The Board may, by resolution passed by a majority
of the whole Board, designate one or more committees, each committee to consist
of one or more of the directors of the Corporation. The Board may designate one
or more directors as alternate members of any committee who may replace any
absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
person or persons constitute a quorum, may unanimously appoint another member of
the Board to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board, shall have and may exercise all the powers and authority of the Board in
the management of the business and affairs of the Corporation and may authorize
the seal of the Corporation to be affixed to all papers which may require it,
but no such committee shall have the power or authority to amend the Certificate
of Incorporation, adopt an agreement of merger or consolidation, recommend to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommend to the stockholders a dissolution
of the Corporation or a revocation of a dissolution, amend the By-laws of the
Corporation, declare a dividend or authorize the issuance of stock.
ARTICLE III
OFFICERS
Section 1. NUMBER AND QUALIFICATIONS. The officers of the Corporation shall
be the President and Secretary. The Board may also appoint, in accordance with
the provisions of these By-laws, a Chairman of the Board (who shall be a member
of the Board), one or more Vice Presidents, one or more of whom may be
designated an Executive Vice President or a Senior Vice President, a Treasurer,
a Controller and subordinate officers, agents and employees, with such duties as
the Board shall determine or as otherwise provided in these By-laws. Any number
of offices may be held by the same person.
Section 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be elected from time to time by the Board, each to hold office until the
meeting of the Board after the next annual meeting of the stockholders and his
or her successor
<PAGE>
shall have been duly elected and shall have qualified, or until such person's
earlier death, resignation or removal, as provided in these By-laws.
Section 3. SUBORDINATE OFFICERS, ETC. The Board may from time to time
appoint such subordinate officers, agents or employees as the Board may consider
to be necessary or advisable, including one or more Assistant Treasurers and one
or more Assistant Secretaries, each of whom shall hold office for the period and
have the authority and perform the duties as provided in these By-laws or as the
Board may from time to time determine.
Section 4. REMOVAL. Any officer, agent or employee of the Corporation may
be removed at any time with or without cause by vote of a majority of the entire
Board.
Section 5. VACANCIES. In case the office of the Chairman of the Board, the
President, any Vice President, Secretary, Treasurer or of a subordinate officer,
agent or employee of the Corporation becomes vacant due to death, resignation,
removal or a newly created office, the directors then in office, although less
than a quorum of the Board, by a majority vote, may elect or appoint a successor
to fill the vacancy and hold office for the unexpired term.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is
appointed and if present, shall preside at all meetings of stockholders and of
the Board. Such person shall perform such other duties as may from time to time
be assigned by these By-laws or by the Board.
Section 7. PRESIDENT. The President shall be the chief executive officer of
the Corporation and shall have general supervision over the business of the
Corporation, subject to the control of the Board. The President shall preside at
each meeting of the stockholders of the Corporation and of the Board, unless
these duties shall have been assigned to a Chairman of the Board. The President
shall see that all orders and resolutions of the Board are carried into effect.
Such person may sign, with the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, certificates for shares of the capital
stock of the Corporation; and such person may sign, execute and deliver in the
name of the Corporation all deeds, mortgages, bonds, contracts or other
instruments authorized by the Board, except in cases where the signing,
execution or delivery of the instrument shall be expressly delegated by the
Board or by these By-laws to some other officer or agent of the Corporation or
shall be required by statute otherwise to be signed, executed and delivered, and
he or she may affix the seal of the Corporation to any instrument which requires
a seal. In general the President shall perform all duties incident to the office
of president and other duties assigned to him or her from time to time by these
By-laws or by the Board.
Section 8. VICE PRESIDENTS. Each Vice President shall perform the duties
assigned to him or her from time to time by the Board or the President. Any Vice
President may sign, with the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, certificates for shares of the capital
stock of the Corporation.
<PAGE>
Section 9. TREASURER. The Treasurer shall have charge and custody of, and
be responsible for, all the funds and securities of the Corporation, shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the Corporation, and shall deposit all moneys and other valuable effects in the
name of and to the credit of the Corporation in the banks or other depositaries
designated by the Board. The Treasurer shall disburse the funds of the
Corporation as ordered by the Board, taking proper vouchers for disbursements,
and shall render to the President, and to the directors at the meetings of the
Board, a statement of all of his or her transactions as Treasurer and an account
of the financial condition of the Corporation. In general, the Treasurer shall
perform all the duties incident to the office of treasurer and other duties
assigned to him or her from time to time by the Board or the President. Such
person may sign, with the President or a Vice President, certificates for shares
of the capital stock of the Corporation.
Section 10. SECRETARY. The Secretary shall act as secretary of, and record
the proceedings of, meetings of the Board and of the stockholders in a book to
be kept for that purpose. Such person shall cause to be given notice of meetings
of the stockholders and directors; shall be custodian of the seal of the
Corporation and shall affix the seal, or cause it to be affixed, to certificates
for shares of the capital stock of the Corporation and to documents the
execution of which on behalf of the Corporation under its seal shall have been
specifically or generally authorized by the Board; and shall have charge of the
record of stockholders and also of the other books, records and papers of the
Corporation which relate to its organization as a corporation and shall see that
the reports, statements and other documents required by statute are properly
kept or filed. In general the Secretary shall perform all the duties incident to
the office of secretary and other duties assigned to him or her from time to
time by the Board or the President. Such person may sign, with the President or
a Vice President, certificates for shares of the capital stock of the
Corporation.
Section 11. SALARIES. Salaries of officers of the Corporation, if any,
shall be fixed from time to time by, or with the authority of, the Board. An
officer shall not be prevented from receiving a salary by reason of the fact
that he or she is also a member of the Board, but an officer who is also a
member of the Board shall have no vote in the determination of the amount of the
salary that shall be paid to him or her.
ARTICLE IV
RESIGNATIONS
Section 1. RESIGNATIONS. Any director, officer or any subordinate officer
agent or employee of the Corporation appointed by the Board, may resign his or
her office at any time by giving written notice of his or her resignation to the
President or the Secretary. Any such resignation shall take effect at the time
specified therein or, if no time is specified, at the time of its receipt by the
Corporation, and acceptance shall not be necessary to make the resignation
effective.
ARTICLE V
<PAGE>
CONTRACTS AND BANK ACCOUNTS
Section 1. EXECUTION OF CONTRACTS. Except as these By-laws may otherwise
provide, the Board may authorize any officer, subordinate officer, agent or
employee, in the name of and on behalf of the Corporation, to enter into any
contract or execute and deliver any instrument. Such authority may be general or
confined to specific instances. Unless so authorized by the Board or expressly
authorized by these By-laws, no officer, subordinate officer, agent or employee
shall have any power or authority to bind the Corporation by any contract or
engagement or to pledge its credit or render it pecuniarily liable for any
purpose or to any amount.
Section 2. CHECKS, DRAFTS, ETC. All checks, drafts and other orders for the
payment of moneys out of the funds of the Corporation and all notes or other
evidences of indebtedness of the Corporation shall be signed on behalf of the
Corporation in the manner authorized from time to time by the Board.
Section 3. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in the
banks, trust companies or other depositaries selected by the Board or by an
officer, subordinate officer, agent or employee of the Corporation to whom such
authority may from time to time be delegated by the Board. Any officer,
subordinate officer, agent or employee of the Corporation to whom authority to
make such a deposit may be delegated by the Board may endorse, assign and
deliver checks, drafts and other orders for the payment of moneys which are
payable to the order of the Corporation.
ARTICLE VI
STOCK, DIVIDENDS AND EXCHANGE APPROVAL
Section 1. STOCK CERTIFICATE. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by or in the name of the
Corporation by the Chairman of the Board or the President or a Vice President,
and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Corporation. Any of or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he or she were such officer, transfer agent or registrar at the date of
issue. Certificates for shares of capital stock of the Corporation shall be in
the form approved by the Board, be issued and signed as provided in these
By-laws and sealed with the seal of the Corporation. The seal may be a
facsimile.
Section 2. LOST CERTIFICATES. The Corporation may issue a new certificate
of stock, in the place of any certificate theretofore issued by it, alleged to
have been lost, stolen or destroyed, and the Corporation may require the owner
of the lost, stolen or destroyed certificate, or such person's legal
representative, to give the Corporation a bond
<PAGE>
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
Section 3. TRANSFERS. Transfers of stock shall be made on the stock ledger
of the Corporation only upon authorization by the registered holder of the
shares in person or by his or her duly authorized attorney or legal
representative, upon surrender and cancellation of the certificates duly
endorsed or accompanied by duly executed stock powers for a like number of
shares and upon payment of all taxes thereon. The person in whose name stock
shall stand on the stock ledger of the Corporation shall be deemed the owner
thereof for all purposes with regard to the Corporation, and the stock ledger
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list of stockholders entitled to vote at a meeting, the
books of the Corporation or to vote in person or by proxy at any meeting of
stockholders. The Board may make additional rules and regulations and take any
action it considers to be expedient, not inconsistent with the Certificate of
Incorporation of the Corporation or these By-laws, concerning the issue,
transfer and registration of stock certificates of the Corporation or the issue
of certificates in lieu of certificates claimed to have been lost, stolen or
destroyed.
Section 4. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation of the Corporation and to the extent permitted by statute, the
Board may declare dividends on the shares of the Corporation's capital stock at
the times and in the amounts as, in its opinion, the condition of the business
of the Corporation renders advisable. Before payment of any dividend or making
any distribution of the Corporation's property to stockholders, the Board may
set aside out of the surplus or net profits of the Corporation any sum or sums
which the Board from time to time, in its absolute discretion, considers to be
proper as a reserve fund to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for other
purposes considered by the Board to be in the best interests of the Corporation.
If the dividend is to be paid in shares of the Corporation's theretofore
unissued capital stock, the Board shall, by resolution, direct that there be
transferred from surplus to the capital account in respect of such shares an
amount which is not less than the aggregate par value of par value shares being
declared as a dividend and, in the case of shares without par value being
declared as a dividend, such amount as shall be determined by the Board. No
transfer from surplus to capital shall be necessary if shares are being
distributed by the Corporation pursuant to a split-up or division of its stock
rather than as payment of a dividend declared payable in stock of the
Corporation.
ARTICLE VII
OFFICES, BOOKS, ETC.
Section 1. OFFICES. The registered office of the Corporation shall be at
1209 Orange Street, Wilmington, Delaware or as may otherwise be provided from
time to time in the Certificate of Incorporation. The Board may from time to
time and at any time
<PAGE>
establish other offices and branches of the Corporation's business at whatever
place or places seem to it expedient.
Section 2. BOOKS AND RECORDS. There shall be kept correct and complete
books and records of account of all the business and transactions of the
Corporation. There shall also be kept by the Corporation a record which shall
contain the names and addresses of all stockholders of the Corporation, the
number of shares held by each and the date when each became the owner of record.
Section 3. SEAL. The seal of the Corporation shall be circular in form and
contain the name of the Corporation and the words "Incorporated Delaware".
Section 4. FISCAL YEAR. The fiscal year of the Corporation shall be fixed
from time to time by resolution of the Board.
Section 5. INDEMNITY. On the terms, to the extent and subject to the
conditions prescribed by statute and by rule and regulations, not inconsistent
with statute, imposed by the Board in its discretion in general or particular
cases or classes of cases, the Corporation shall indemnify any person who was or
is a party, or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of the
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding, or any appeal thereof, PROVIDED
THAT, such person acted (i) in good faith and (ii) in a manner he or she
reasonably believed to be in the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful. The Corporation may pay, in advance of the
final disposition of the action, suit or proceeding, expenses incurred by the
person which may be indemnified as provided herein.
ARTICLE VIII
AMENDMENTS TO BY-LAWS
Section 1. AMENDMENTS. These By-laws may be amended or repealed, or new
By-laws may be adopted, by a majority vote of the whole Board, PROVIDED THAT,
the proposed action in respect thereof shall be stated in the notice of the
meeting, subject to the power of the holders of a majority of the outstanding
shares of stock of the Corporation entitled to vote with respect thereto, by
their vote given at an annual or special meeting or taken by consent in writing
as provided in these By-laws, to amend or repeal any By-law made by the Board.
* * * * *
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ANNEX II
DELAWARE GENERAL CORPORATION LAW
SECTION 262 APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant to subsection (d)
of this section with respect to such shares, who continuously holds such shares
though the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in favor
of the merger or consolidation nor consented thereto in writing pursuant to
ss228 of this title shall be entitled to an appraisal by the Court of Chancery
of the fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any
class or series of stock of a consistent corporation in a merger or
consolidation to be effected pursuant to ss251 (other than a merger effected
pursuant to subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of
this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the
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agreement of merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or (ii) held of record by more than 2,000 holders; and further provided
that no appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require for its
approval the vote of the holders of the surviving corporation as provided in
subsection (f) of ss251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant to
ss ss251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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d. Any combination of the shares of stock, depository
receipts, and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. b. and c. of this
paragraph.
(3) In the event of the stock of a subsidiary Delaware
corporation party to a merger effected under ss.253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable. (d) Appraisals
rights shall be perfected as follows: (1) If a proposed merger or consolidation
for which appraisal rights are provided under this section is to be submitted
for approval at a meeting of stockholders, the corporation, not less than 20
days prior to the meeting, shall notify each of its stockholders who was such on
the record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that appraisal
rights are available for any or all of the shares of the constituent
corporations, and shall include in such notice a copy of this section. Each
stockholder electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be
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sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
his shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do so
by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has compiled with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to ss.228 or
ss.253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such notice
shall be given by the surviving or resulting corporation to all such holders of
any class or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective date
of the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within twenty days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of such holder's shares.
If such
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notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a second
notice before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send such a
second notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be sent
to such stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the notice is given;
provided that, if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
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withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or resulting
corporation, which shall within 20 days after such service file in the office of
the Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded payment
for their shares and with whom agreements as to the value of their shares have
not been reached by the surviving or resulting corporation. If the petition
shall be filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall given notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilimington, Delaware or such publication
as the Court deems advisable. The forms of the
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notices by mail and by publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine
the stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining their fair value
exclusive of any element of value arising from the accomplishment or expectation
of the merger or consolidation, together with a fair rate of interest if any, to
be paid upon the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in
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all proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court
and taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights as provided
in subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
his demand for an appraisal and an
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acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e) of
this section or thereafter with the written approval of the corporation, then
the right of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such approval may
be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been converted had
they assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
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ANNEX III
CERTIFICATE OF DESIGNATIONS
OF
RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS
OF SERIES E NON-VOTING CONVERTIBLE PREFERRED STOCK
OF
RODMAN & RENSHAW CAPITAL GROUP, INC.
A Delaware Corporation
Charles W. Daggs, III and Gilbert R. Ott, Jr. certify that: A. They are the
duly elected and acting President and Corporate Secretary, respectively, of
Rodman & Renshaw Capital Group, Inc., a Delaware corporation (the
"Corporation"). B. Pursuant to the authority given by the Corporation's
Certificate of Incorporation, the Board of Directors of the Corporation has duly
adopted the following recitals and resolutions:
WHEREAS, the Certificate of Incorporation of the Corporation
provides for a class of shares known as Preferred Stock
consisting of five million (5,000,000) shares issuable from
time to time in one or more series; and
WHEREAS, the Board of Directors of the Corporation is
authorized to fix by resolution or resolutions the
rights, preferences, privileges and restrictions granted to
or imposed upon the Preferred Stock or any series thereof;
and
WHEREAS, the Board of Directors desires, pursuant to its
authority as aforesaid to designate thirty (30) shares
of the Preferred Stock as "Series E Non-Voting Convertible
Preferred Stock" and to fix the rights, preferences,
privileges and restrictions relating to such series of
Preferred Stock;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors
hereby fixes the designation and the number of shares
constituting, and the
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rights, preferences, privileges and restrictions
relating to, the Series E Non-Voting Convertible Preferred
Stock:
1. DESIGNATION. This series of Preferred Stock shall be
designated "Series E Non-Voting Convertible Preferred Stock"
(the "Series E Preferred Stock").
2. NUMBER OF SHARES AND PAR VALUE. The number of shares
constituting the Series E Preferred Stock shall be thirty
(30). Each share of the Series E Preferred Stock shall have
a par value of one cent ($.01).
3. CERTAIN DEFINITIONS. Unless the context otherwise
requires, the terms defined in this paragraph 3 shall have,
for all purposes of this resolution, the meanings herein
specified.
COMMON STOCK. The term "Common Stock" shall mean all
shares now or hereafter authorized of any class of Common
Stock of the Corporation and any other stock of the
Corporation, howsoever designated, authorized after the
Issue Date, which has the right (subject always to prior
rights of any class or series of preferred stock) to
participate in the distribution of the assets and earnings
of the Corporation without limit as to per share amounts.
CONVERSION DATE. The term "Conversion Date" shall have
the meaning set forth in subparagraph 6(d) below.
CONVERSION PRICE. The term "Conversion Price" shall
mean the price per share of Common Stock used to determine
the number of shares of Common Stock deliverable upon
conversion of a share of the Series E Preferred Stock, which
price shall be determined pursuant to subparagraph 6(b)
below, subject to adjustment in accordance with the
provisions of subparagraph 6(g) below.
CURRENT MARKET PRICE. The term "Current Market Price"
shall have the meaning set forth in subparagraph 6(h) below.
DIVIDEND PAYMENT DATE. The term "Dividend Payment Date"
shall have the meaning set forth in subparagraph 4(a) below.
DIVIDEND PERIOD. The term "Dividend Period" shall have
the meaning set forth in subparagraph 4(a) below.
ISSUE DATE. The term "Issue Date" shall mean the date
that shares of Series E Preferred Stock are first issued by
the Corporation.
JUNIOR STOCK. The term "Junior Stock" shall mean, for
purposes of paragraphs 4, 5 and 8 below, the Common Stock
and any other class
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or series of stock of the Corporation issued after the
Issue Date not entitled to receive any dividends in any
Dividend Period unless all dividends required to have been
paid or declared and set apart for payment on the Series E
Preferred Stock shall have been so paid or declared and set
apart for payment and, for purposes of paragraphs 5 and 8
below, any class or series of stock of the Corporation
issued after the Issue Date not entitled to receive any
assets upon the liquidation, dissolution or winding up of
the affairs of the Corporation until the Series E Preferred
Stock shall have received the entire amount to which such
stock is entitled upon such liquidation, dissolution or
winding up.
PARITY STOCK. The term "Parity Stock" shall mean, for
purposes of paragraphs 4, 5, 7 and 8 below, any other class
or series of stock of the Corporation issued after the Issue
Date entitled to receive payment of dividends on a parity
with the Series E Preferred Stock and, for purposes of
paragraphs 4 and 8 below, any other class or series of stock
of the Corporation issued after the Issue Date entitled to
receive assets upon the liquidation, dissolution or winding
up of the affairs of the Corporation on a parity with the
Series E Preferred Stock.
SENIOR STOCK. The term "Senior Stock" shall mean, for
purposes of paragraphs 4, 5, 7 and 8 below, any class or
series of stock of the Corporation issued after the Issue
Date ranking senior to the Series E Preferred Stock in
respect of the rights to receive dividends, and, for
purposes of paragraphs 4 and 8 below, any class or series of
stock of the Corporation issued after the Issue Date ranking
senior to the Series E Preferred Stock in respect of the
right to receive assets upon the liquidation, dissolution or
winding up of the affairs of the Corporation.
SUBSCRIPTION PRICE. The term "Subscription Price" shall
mean $100,000 per share.
SUBSIDIARY. The term "Subsidiary" shall mean any
corporation of which shares of stock possessing at least a
majority of the general voting power in electing the board
of directors are, at the time as of which any determination
is being made, owned by the Corporation, whether directly or
indirectly through one or more Subsidiaries.
4. DIVIDENDS.
(a) Subject to the prior preferences and other rights
of any Senior Stock and restrictions imposed by the terms of
any indebtedness of the Corporation, the holders of Series E
Preferred Stock shall be entitled to receive out of funds
legally available for the purpose, cash dividends at a per
annum rate applied to the Subscription Price as determined
daily during each Dividend Period equal to the then most
recent "Prime Rate," as published in THE WALL STREET JOURNAL
(or any successor publication) as
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the base rate on corporate U.S. Dollar loans posted by
at least 75% of the nation's 30 largest banks (or any
publicly published comparable rate as determined by the
Board of Directors) plus two percent per annum; such rate to
change as and when such "Prime Rate" changes and such rate
to be determined on the basis of a 365 day year and the
actual days elapsed during a Dividend Period. Such dividends
shall be cumulative from the Issue Date, and shall be
payable in arrears, when and as declared by the Board of
Directors, on March 31, June 30, September 30, and December
31 of each year (each such date being herein referred to as
a "Dividend Payment Date"), commencing on March 31, 1997.
The period from the Issue Date through March 31, 1997, and
each quarterly period between consecutive Dividend Payment
Dates thereafter shall hereinafter be refereed to as a
"Dividend Period". Each such dividend shall be paid to the
holders of record of the Series E Preferred Stock as their
names appear on the share register of the Corporation on the
corresponding Record Date. As used above, the term "Record
Date" means, with respect to the dividend payment on March
31, June 30, September 30 and December 31, respectively, of
each year, the preceding March 30, June 29, September 29 and
December 30, or such other record date designated by the
Board of Directors of the Corporation with respect to the
dividend payable on such respective Dividend Payment Date.
Dividends on account of arrears for any past Dividend
Periods may be declared and paid at any time, without
reference to any Dividend Payment Date, to holders of record
on such date, not exceeding 50 days preceding the payment
date thereof, as may be fixed by the Board of Directors. No
dividends shall be payable in respect of any period less
than a full Dividend Period.
(b) In the event that full cash dividends are not paid
or made available to the holders of all outstanding shares
of Series E Preferred Stock and of any Parity Stock, and
funds available shall be insufficient to permit payment in
full in cash to all such holders of the preferential amounts
to which they are then entitled, the entire amount available
for payment of cash dividends shall be distributed among the
holders of the Series E Preferred Stock and of any Parity
Stock ratably in proportion to the full amount to which they
would otherwise be respectively entitled, and any remainder
not paid in cash to the holders of the Series E Preferred
Stock shall cumulate as provided in subparagraph 4(c) below,
(c) If, on any Dividend Payment Date, the holders of
the Series E Preferred Stock shall not have received the
full dividends provided for in the other provisions of this
paragraph 4, then such dividends shall cumulate, whether or
not earned or declared, with additional dividends thereon
for each succeeding full Dividend Period during which such
dividends shall remain unpaid. Unpaid dividends for any
period less than a full Dividend Period shall cumulate on a
day-to-day basis and shall be computed on the basis of a 365
day year.
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(d) So long as any shares of Series E Preferred Stock
shall be outstanding, the Corporation shall not declare or
pay on any Junior Stock any dividend whatsoever, whether in
cash, property or otherwise (other than dividends payable in
shares of the class or series upon which such dividends are
declared or paid, or payable in shares of Common Stock with
respect to Junior Stock other than Common Stock, together
with cash in lieu of fractional shares), nor shall the
Corporation make any distribution on any Junior Stock, nor
shall any monies be paid or made available for a sinking
fund for the purchase or redemption of any Junior Stock,
unless all dividends to which the holders of Series E
Preferred Stock shall have been entitled for all previous
Dividend Periods shall have been paid or declared and a sum
of money sufficient for the payment thereof set apart.
5. DISTRIBUTIONS UPON LIQUIDATION DISSOLUTION OR
WINDING UP. In the event of any voluntary or involuntary
liquidation, dissolution or other winding up of the affairs
of the Corporation, subject to the prior preferences and
other rights of any Senior Stock, but before any
distribution or payment shall be made to the holders of
Junior Stock, the holders of the Series E Preferred Stock
shall be entitled to be paid the Subscription Price of all
outstanding shares of Series E Preferred Stock as of the
date of such liquidation or dissolution or such other
winding up, plus any accrued and unpaid dividends thereon to
such date, and no more, in cash or in property taken at its
fair value as determined by the Board of Directors. If such
payment shall have been made in full to the holders of the
Series E Preferred Stock, and if payment shall have been
made in full to the holders of any Senior Stock and Parity
Stock of all amounts to which such holders shall be
entitled, the remaining assets and funds of the Corporation
shall be distributed among the holders of Junior Stock,
according to their respective shares and priorities. If,
upon any such liquidation, dissolution or other winding up
of the affairs of the Corporation, the net assets of the
Corporation distributable among the holders of all
outstanding shares of the Series E Preferred Stock and of
any Parity Stock shall be insufficient to permit the payment
in full to such holders of the preferential amounts to which
they are entitled, then the entire net assets of the
Corporation remaining after the distributions to holders of
any Senior Stock of the full amounts to which they may be
entitled shall be distributed among the holders of the
Series E Preferred Stock and of any Parity Stock ratably in
proportion to the full amounts to which they would otherwise
be respectively entitled. Neither the consolidation or
merger of the Corporation into or with another corporation
or corporations, nor the sale of all or substantially all of
the assets of the Corporation to another corporation or
corporations shall be deemed a liquidation, dissolution or
winding up of the affairs of the corporation within the
meaning of this paragraph 5.
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6. CONVERSION RIGHTS. The Series E Preferred Stock
shall be convertible into Common Stock as follows:
(a) CONVERSION. Upon and after satisfaction of the
condition set forth in subparagraph 6(c), if applicable, any
outstanding share of Series E Preferred Stock may be
converted, at the option of a holder, at any time, in
accordance with subparagraph 6(d) and 6(c), into fully paid
and nonassessable shares of Common Stock.
(b) CONVERSION PRICE. The number of shares of Common
Stock into which a share of Series E Preferred Stock shall
be converted shall be determined by dividing (i) the sum of
(A) the Subscription Price plus (B) any dividends on such
share of Series E Preferred Stock which such holder is
entitled to receive, but has not yet received, by (ii) the
Conversion Price in effect on the Conversion Date. The
Conversion Price at which shares of Common Stock shall
initially be issuable upon conversion of the shares of
Series E Preferred Stock shall be determined on a floating
basis and shall equal the book value per share of Common
Stock determined in accordance with generally accepted
accounting principles from the Corporation's financial
records as at the close of the full month immediately
preceding the Conversion Date, provided that: (i) if it is
not practicable to determine such book value on a
sufficiently timely basis, then the Conversion Price shall
be so determined at the close of the full month second
preceding the Conversion Date; and (ii) if the applicable
book value per share is less than $0.09, then the Conversion
Price shall be $.09. The determination of book value shall
be made by the independent auditors of the Company based on
a review of the financial records of the Company but without
an audit. The Conversion Price shall be subject to
adjustment as set forth in subparagraph 6(g). No payment or
adjustment shall be made for any dividends on the Common
Stock issuable upon such conversion.
(c) CONVERSION CONDITION. So long as the New York Stock
Exchange ("NYSE") stockholder approval requirements shall be
applicable, Series E Preferred Stock shall be convertible
only to the extent that such conversion is approved by the
stockholders of the Corporation, if so required. No
stockholder approval shall be required for any conversion of
the Series E Preferred Stock made in connection with a
rights offering to all stockholders at a per share cash
price equal to the Conversion Price pursuant to which the
stockholders (other than the holder of a share of Series E
Preferred Stock whose rights to purchase shares in the
offering would be deemed exercised and consummated by a
conversion) could purchase the number of shares proportional
to the number of shares issued upon conversion ("Rights
Offering").
(d) NOTICE OF CONVERSION. Before a holder shall be
entitled to convert any share of Series E Preferred Stock
into shares of Common
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Stock, such holder shall give written notice to the
Corporation at the principal corporate office of the
Corporation of the election to convert such share of Series
E Preferred Stock pursuant to subparagraph (6)(a), shall
surrender the certificate or certificates representing such
share of Series E Preferred Stock to be converted to the
Corporation or its transfer agent, and shall designate in
writing the name or names in which the certificate or
certificates for shares of Common Stock are to be issued.
Such conversion shall be deemed to have been made
immediately upon the date of surrender of a share of Series
E Preferred Stock (the "Conversion Date"). As promptly as
practicable after the Conversion Date, the Corporation shall
at its expense issue and deliver to or upon the written
order of such holder a certificate or certificates for the
number of full shares of Common Stock to which such holder
is entitled and a check or cash with respect to any
fractional interest in a share of Common Stock as provided
in subparagraph 6(e). The person in whose name the
certificate or certificates for Common Stock are to be
issued shall be deemed to have become a holder of record of
such Common Stock on the applicable Conversion Date for all
purposes. If less than the entire outstanding portion of the
certificate representing the shares of Series E Preferred
Stock held by such holder is converted, then the Corporation
at its expense will deliver to the holder, together with the
certificate or certificates for such Common Stock, a
replacement certificate representing the shares of Series E
Preferred Stock not surrendered for conversion by the
holder.
(e) FRACTIONAL SHARES. No fractional shares of Common
Stock or script shall be issued upon conversion of shares of
Series E. Preferred Stock. Instead of any fractional shares
of Common Stock which would otherwise be issuable upon
conversion of any shares of Series E. Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to that fractional
interest of the then Current Market Price.
(f) STOCKHOLDER APPROVAL/RIGHTS OFFERING. On one or
more occasions, any holder of a share of Series E Preferred
Stock may at its election require the Corporation (i) to
call a special meeting of its stockholders as soon as
practicable after such request to approve the conversion of
any share of Series E Preferred Stock into shares of Common
Stock in accordance with the terms hereof, (ii) include such
approval on the agenda of the next annual meeting of
stockholders, (iii) conduct a Rights Offering as soon as
practicable after such request and/or in any such case to
promptly cause the shares issued upon conversion to be
listed on the NYSE. In the case of clauses (i) or (ii)
above, a holder of Series E Preferred Stock who also holds
shares of Common Stock shall vote and shall cause all
affiliated persons or entities to vote all shares of the
Corporation held by it or them for such approval. In the
event that any shares of Series E Preferred Stock are
converted and clause (iii) is not
<PAGE>
elected in connection therewith, a Rights Offering will
be made within one year after the conversion of any shares
of Series E Preferred Stock to the stockholders of record at
the time of such Rights Offering at a price per share equal
to the Conversion Price used in such conversion.
(g) CONVERSION PRICE ADJUSTMENTS. The Conversion Price
shall be subject to adjustment from time to time as follows:
(i) CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE.
In case of any consolidation with or merger of the
Corporation with or into another corporation, or in case of
any sale, lease or conveyance to another corporation of the
assets of the Corporation as an entirety or substantially as
an entirety, each share of Series E Preferred Stock shall
after the date of such consolidation, merger, sale, lease or
conveyance be convertible into the number of shares of stock
or other securities or property (including cash) to which
the Common Stock issuable (at the time of such
consolidation, merger, sale, lease or conveyance) upon
conversion of such share of Series E Preferred Stock would
have been entitled upon such consolidation, merger, sale,
lease or conveyance; and in any such case, if necessary, the
provisions set forth herein with respect to the rights and
interests thereafter of the holders of the shares of Series
E Preferred Stock shall be appropriately adjusted so as to
be applicable, as nearly as may reasonably be possible, to
any shares of stock or other securities or property
thereafter deliverable on the conversion of the shares of
Series E Preferred Stock.
(ii) ROUNDING OF CALCULATIONS; MINIMUM ADJUSTMENT. All
calculations under this subparagraph (g) shall be made to
the nearest cent or to the nearest one hundredth (1/100th)
of a share, as the case may be. Any provision of this
paragraph 6 to the contrary notwithstanding, no adjustment
in the Conversion Price shall be made if the amount of such
adjustment would be less than $0.01, but any such amount
shall be carried forward and an adjustment with respect
thereto shall be made at the time of and together with any
subsequent adjustment which, together with such amount and
any other amount or amounts so carried forward, shall
aggregate $0.01 or more.
(iii) TIMING OF ISSUANCE OF ADDITIONAL COMMON STOCK
UPON CERTAIN ADJUSTMENTS. In any case in which the
provisions of this subparagraph (g) shall require that an
adjustment shall become effective immediately after a record
date for an event, the Corporation may defer until the
occurrence of such event (A) issuing to the holder of any
share of Series E Preferred Stock converted after such
record date and before the occurrence of such event the
additional shares of Common Stock issuable upon such
conversion by reason of the adjustment required by such
event over and above the shares of Common Stock issuable
upon such conversion before giving effect to such adjustment
and (B) paying to
<PAGE>
such holder any amount of cash in lieu of a fractional
share of Common Stock pursuant to subparagraph (c) of this
paragraph 6; provided that the Corporation upon request
shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such
additional shares, and such cash, upon the occurrence of the
event requiring such adjustment.
(h) CURRENT MARKET PRICE. The Current Market Price at
any date shall mean, in the event the Common Stock is
publicly traded, the average of the daily closing prices per
share of Common Stock for 30 consecutive trading days ending
no more than 15 business days before such date (as adjusted
for any stock dividend, split, combination or
reclassification that took effect during such 30 business
day period). The closing price for each day shall be the
last reported sale price regular way or, in case no such
reported sale takes place on such day, the average of the
last closing bid and asked prices regular way, in either
case on the principal national securities exchange on which
the Common Stock is listed or admitted to trading, or if not
listed or admitted to trading on any national securities
exchange, the closing sale price for such day reported by
NASDAQ, if the Common Stock is traded over-the-counter and
quoted in the National Market System, or if the Common Stock
is so traded, but not so quoted, the average of the closing
reported bid and asked prices of the Common Stock as
reported by NASDAQ or any comparable system or, if the
Common Stock is not listed on NASDAQ or any comparable
system, the average of the closing bid and asked prices as
furnished by two members of the National Association of
Securities Dealers, Inc. selected from time to time by the
Corporation for that purpose. If the Common Stock is not
traded in such manner that the quotations referred to above
are available for the period required hereunder, Current
Market Price per share of Common Stock shall be deemed to be
the fair value as determined by the Board of Directors,
irrespective of any accounting treatment.
(i) STATEMENT REGARDING ADJUSTMENTS. Whenever the
Conversion Price shall be adjusted as provided in
subparagraph 6(g), the Corporation shall forthwith file, at
the office of any transfer agent for the Series E Preferred
Stock and at the principal office of the Corporation, a
statement showing in detail the facts requiring such
adjustment and the Conversion Price that shall be in effect
after such adjustment, and the Corporation shall also cause
a copy of such statement to be sent by mail, first class
postage prepaid, to each holder of shares of Series E
Preferred Stock at its address appearing on the
Corporation's records.
(j) COSTS. The Corporation shall pay all documentary,
stamp, transfer or other transactional taxes attributable to
the issuance or delivery of shares of Common Stock upon
conversion of any shares of Series E Preferred Stock;
provided that the Corporation shall not be required to pay
<PAGE>
any taxes which may be payable in respect of any
transfer involved in the issuance or delivery of any
certificate for such shares in a name other than that of the
holder of the shares of Series E Preferred Stock in respect
of which such shares are being issued.
(k) RESERVATION OF SHARES. The Corporation shall
reserve at all times so long as any shares of Series E
Preferred remain outstanding, free from preemptive rights,
out of its treasury stock (if applicable) or its authorized
but unissued shares of common Stock, or both, solely for the
purpose of effecting the conversion of the shares of Series
E Preferred Stock, sufficient shares of Common Stock to
provide for the conversion of all outstanding shares of
Series E Preferred Stock.
(l) APPROVALS. If any shares of Common Stock to be
reserved for the purpose of conversion of shares of Series E
Preferred Stock require registration with or approval of any
governmental authority under any federal or state law before
such shares may be validly issued or delivered upon
conversion, then the Corporation will in good faith and as
expeditiously as possible endeavor to secure such
registration or approval, as the case may be. If so long as,
any Common Stock into which the shares of Series E Preferred
Stock are then convertible is listed on any national
securities exchange, the Corporation will, contemporaneously
with the conversion, cause to be listed and thereafter to
keep listed on such exchange, upon official notice of
issuance, all shares of such Common Stock issuable upon
conversion.
(m) VALID ISSUANCE. All shares of Common Stock which
may be issued upon conversion of the shares of Series E
Preferred Stock will upon issuance by the Corporation be
duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the
issuance thereof, and the Corporation shall take no action
which will cause a contrary result (including without
limitation, any action which would cause the Conversion
Price to be less than the value, if any, of the Common
Stock).
7. VOTING RIGHTS.
(a) The holders of the issued and outstanding shares of
Series E Preferred Stock have no voting rights except as set
forth herein and as required by law.
(b) Without the consent of the holders of at least
(i) a majority of the shares of Series E Preferred
Stock then outstanding, given in writing or by vote at a
meeting of holders of Series E Preferred Stock called for
such purpose, the Corporation will not (A) increase the
authorized amount of Series E Preferred Stock or (B)
<PAGE>
create any other class of Parity Stock or Senior Stock
or increase the authorized amount of any such other class;
and
(ii) a majority of the shares of Series E Preferred
Stock then outstanding, given in writing or by vote at a
meeting of holders of Series E Preferred Stock called for
such purpose, the Corporation will not (A) other than as set
forth in (i) above, amend, alter or repeal any provision of
the Certificate of Incorporation or this Certificate so as
to adversely affect the rights, preferences or privileges of
the Series E Preferred Stock or (B) merge or consolidate
with or into any other person, or sell substantially all of
its assets or business to any other person, except that the
Corporation may merge with any person if the Corporation is
the entity surviving such merger and such merger does not
adversely affect the rights, preferences and privileges of
the series E Preferred Stock.
8. COVENANTS. In addition to any other rights provided
by law, so long as any Series E Preferred Stock is
outstanding, the Corporation, without first obtaining the
affirmative vote or written consent of the holders of not
less than a majority of such outstanding shares of Series E
Preferred Stock, will not:
(a) amend or repeal any provision of, or add any
provision to, the Corporation's Certificate of Incorporation
or By-Laws or to these resolutions if such action would
alter adversely or change the preferences, rights,
privileges or powers of, or the restrictions provided for
the benefit of, any Series E Preferred Stock authorized
hereby;
(b) authorize or issue shares of any class or series of
stock not expressly authorized herein having any preference
or priority as to dividends, assets or other rights superior
to or on a parity with any such preference or priority of
the Series E Preferred Stock, or authorize or issue shares
of stock of any class or any bonds, debentures, notes or
other obligations convertible into or exchangeable for, or
having option rights to purchase, any shares of stock of the
Corporation having any preference or priority as to
dividends, assets or other rights superior to or on a parity
with any such preference or priority of the Series E
Preferred Stock;
(c) reclassify any class or series of any Junior Stock
into Parity Stock or Senior Stock or reclassify any series
of Parity Stock into Senior Stock; or
(d) pay or declare any dividend on any Junior Stock
(other than dividends payable in shares of the class or
series upon which such dividends are declared or paid, or
payable in shares of Common Stock with respect to Junior
Stock other than Common Stock, together with cash in lieu of
fractional shares and dividends not in excess of dividends
paid to the Series E Preferred Stock) while the Series E
Preferred Stock
<PAGE>
remains outstanding, or apply any of its assets to the
redemption, retirement, purchase or acquisition, directly or
indirectly, through subsidiaries or otherwise, of any Junior
Stock, except from employees of the Corporation upon
termination of employment or otherwise pursuant to the terms
of stock purchase or option agreements providing for the
repurchase of, or right of first refusal with respect to,
such Junior Stock entered into with such employees.
9. EXCLUSION OF OTHER RIGHTS. Except as may otherwise
be required by law, the Series E Preferred Stock shall not
have any preferences or relative participating, optional or
other special rights, other than those specifically set
forth in this resolution (as such resolution may be amended
from time to time) and in the Corporation's Certificate of
Incorporation. The shares of Series E Preferred Stock shall
have no preemptive or subscription rights. The Series E
Preferred Stock shall not be subject to redemption or the
operation of a retirement or sinking fund.
10. HEADINGS OF SUBDIVISIONS. The headings of the
various subdivisions hereof are for convenience of reference
only and shall not affect the interpretation of any of the
provisions hereof.
11. SEVERABILITY OF PROVISIONS. If any right,
preference or limitation of the Series E Preferred Stock set
forth in this resolution (as such resolution may be amended
from time to time) is invalid, unlawful or incapable of
being enforced by reason of any rule of law or public
policy, all other rights, preferences and limitations set
forth in this resolution (as so amended) which can be given
effect without the invalid, unlawful or unenforceable right,
preference or limitation shall, nevertheless, remain in full
force and effect, and no right, preference or limitation
herein set forth shall be deemed dependent upon any other
such right, preferences or limitation unless so expressed
herein.
12. STATUS OF REACQUIRED SHARES. Shares of Series E
Preferred Stock which have been issued and converted or
reacquired in any manner shall (upon compliance with any
applicable provisions of the laws of the State of Delaware)
have the status of authorized and unissued shares of
Preferred Stock issuable in series undesignated as to series
and may be redesignated and reissued.
C. The authorized number of shares of Preferred Stock of the Corporation is
5,000,000 and the number of shares constituting the Series E Non-Voting
Convertible Preferred Stock, consisting of the shares authorized hereby, is 30.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this certificate as of
November 14, 1996, on behalf of the Corporation, and certify under penalty of
perjury that this is the act and deed of the Corporation, and that the facts
stated herein are true.
/S/ CHARLES W. DAGGS, III
--------------------------------
Charles W. Daggs, III, President
/S/ GILBERT R. OTT, JR.
--------------------------------
Gilbert R. Ott, Jr., Secretary
<PAGE>
ANNEX IV
<PAGE>
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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM __________________ TO
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 (312) 526-2000
----------------
area code
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of Each Class on which Registered
- - - - - - ------------------- -----------------------
Common Stock, par New York Stock Exchange
value $0.09 per share
Securities registered pursuant to Section 12(g)
of the Act: None
----------
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
<PAGE>
As of February 29, 1996, 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 29,
1996, which was $1.625) was $3,514,280.25.
- 2 -
<PAGE>
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, tax-exempt
entities, 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, municipality and other tax-exempt
entity financings, and private placements. Rodman provides financial
institutions, fiduciaries and other investors with research on over 240
companies within a broad range of industries. Rodman's equity and fixed income
departments provide 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, the Mexican brokerage firm Abaco Casa de Bolsa, S.A.
de C.V., Abaco Grupo Financiero ("Abaco"), acquired 54% of the Company's
outstanding shares through a tender offer. Abaco is a brokerage subsidiary of
Abaco Grupo Financiero, S.A. de C.V. ("Parent"), a multi-faceted financial
services holding company based in Monterrey, Mexico. In addition to Abaco,
Parent owns a commercial bank, Confia, S.A. Institucion de Banca Multiple, Abaco
Grupo Financiero ("Confia, S.A."), leasing company, foreign exchange house,
factoring firm and insurance company, all based in Mexico. Parent's shares are
traded on the Mexican Stock Exchange. During the period December 1993 through
December 1995, the Abaco group provided the Company with a total of $20,000,000
in additional equity capital and $26,500,000 in short-term debt. Abaco currently
owns 69.6% of the Company's outstanding common stock. See Item 7. Management's
Discussion and Analysis of Financial Condition, 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 futures business and substantially downsize
and refocus its fixed income 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.
- 3 -
<PAGE>
The Company's executive offices are located in the Sears Tower at 233 S.
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, Boston and Kansas City.
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 year ended
December 31, 1995, the transition period from June 25, 1994 to December 31, 1994
(the "Transition Period"), and the fiscal years ended June 24, 1994 and June 25,
1993. See Note 2 to the Consolidated Financial Statements enclosed herein for a
discussion of accounting changes in fiscal 1993.
(in thousands)
<TABLE>
<CAPTION>
Transition
Year Period Year Year
Ended (6/25/94- Ended Ended
12/31/95 12/31/94) 06/24/94 06/25/93
--------- --------- -------- --------
<S> <C> <C> <C> <C>
COMMISSIONS
Commodities $ 8,385 $ 8,279 $19,833 $26,031
Listed securities 11,457 1,915 6,080 9,386
Over-the-counter securities 4,161 1,360 2,446 2,387
Options 876 316 799 914
------- ------- ------- -------
TOTAL COMMISSIONS 24,879 11,870 29,158 38,718
PRINCIPAL
Institutional credits:
Bonds 12,624 4,494 13,117 17,382
Equity and debt underwritings 3,183 80 644 925
Over-the-counter stocks 3,342 1,101 575 202
------- ------- ------- -------
19,149 5,675 14,336 18,509
Retail credits:
Bonds 1,148 1,164 3,844 5,586
Equity and debt underwritings 6,898 1,068 2,724 3,479
Over-the-counter stocks 2,050 1,273 2,712 1,388
Mutual funds 1,167 627 1,811 1,533
------- ------- ------- -------
11,263 4,132 11,091 11,986
------- ------- ------- -------
Total Credits 30,412 9,807 25,427 30,495
Market-making and dealer
transactions:
Corporate fixed income and
government zero coupon bonds ( 423) (1,136) 500 408
Over-the-counter stocks (2,375) 231 1,600 1,211
Other ( 986) (1,869) (214) 102
------- -------- -------- -------
Total market-making and
dealer transactions (3,784) (2,774) 1,886 1,721
------- ------- ------- -------
TOTAL PRINCIPAL 26,628 7,033 27,313 32,216
</TABLE>
- 4 -
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
INTEREST
Market-making;
securities inventory 4,594 4,975 4,412 5,238
Margin accounts 3,951 1,362 2,420 3,452
Securities finder service 1,592 1,535 2,381 1,868
------- ------- ------- -------
TOTAL INTEREST 10,137 7,872 9,213 10,558
FEE INCOME
Corporate and municipal finance 4,648 3,723 7,269 2,410
Limited partnerships 424 78 95 415
Advisory services 2,993 75 234 320
------- ------- ------- -------
TOTAL FEE INCOME 8,065 3,876 7,598 3,145
OTHER 2,816 1,543 4,035 2,672
------- ------- ------- -------
TOTAL REVENUES $72,525 $32,194 $77,317 $87,309
======= ======= ======= =======
</TABLE>
COMMISSIONS
Commissions from securities and commodities brokerage activities
represented approximately 34% of the Company's revenue in 1995, 37% in the
Transition Period and 38% and 44% in the fiscal years ended June 24, 1994 and
June 25, 1993, respectively. Commissions on commodity brokerage represented
approximately 34% of the Company's total commission revenue for 1995, 70% for
the Transition Period and 68% and 67% in the fiscal years ended June 24, 1994
and June 25, 1993, respectively.
Rodman executes customer orders to buy and sell securities and commodity
futures contracts. Rodman charges commissions competitive within the industry.
PRINCIPAL TRANSACTIONS
Rodman acts as principal to effect transactions in the equity, fixed income
and over-the-counter markets for institutional and retail customers, as well as
for other broker-dealers. Principal transactions, including market making,
require the maintenance of inventories of securities for resale. These
inventories are valued at market, and accordingly, gains and losses are included
in the results of operations. Rodman monitors its inventory aging and turnover
and employs various hedging strategies which attempt to mitigate the 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 170 equity securities. Rodman maintains inventories of
over-the-counter stocks to facilitate sales, primarily for institutional and
individual customers. Rodman employs taxable and municipal bond traders and
salespersons and maintains inventories of taxable and municipal bonds to
facilitate transactions with its retail and institutional customers. See Note 7
to the Consolidated Financial Statements for the
- 5 -
<PAGE>
market value of the Company's long and short securities inventory positions at
December 31, 1995.
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 hedging utilizing these contracts is not
material to the Company's financial condition or results of operations. At
December 31, 1995, the Company had no long or short open futures positions and
no short option positions. See Note 16 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 an important
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 11% of the Company's total revenue for
1995. 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.
Municipal Finance. Rodman acts as a manager or co-manager of negotiated
public offerings and private placements of tax-exempt securities issued by state
and municipal governments, power agencies, industrial development and pollution
control financing authorities, sewer and water authorities and state and local
housing authorities.
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.
- 6 -
<PAGE>
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
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, 1996, the Company employed approximately 343 full-time
employees. The following analysis demonstrates the changes in personnel
consistent with the restructuring the Company has undergone in the past two
years:
<TABLE>
<CAPTION>
March 1994 March 1996
---------- ----------
<S> <C> <C>
Retail securities representatives 70 52
Institutional equity sales and trading reps. 3 48
Institutional fixed income sales and trading reps. 50 32
Investment banking reps. 13 23
Research analysts 1 27
Commodities associated persons 37 4
--- ---
Total producers 174 186
Administrative and Clerical 290 157
--- ---
Total 464 343
=== ===
</TABLE>
None of the Company's employees is 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 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
- 7 -
<PAGE>
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.
The Company is a member of the Securities Investor Protection Corporation
("SIPC"), which provides, in the event of the liquidation of a broker-dealer,
protection for customers' accounts held by the firm of up to $500,000 for each
customer, subject to a limitation of $100,000 for claims for cash balances. SIPC
is funded through assessments on registered broker-dealers, which assessments
may not exceed 1% of a broker-dealer's gross revenues. SIPC assessments
currently are .095% of Rodman s gross securities related revenues, as defined.
As Rodman's clearing broker, CSC provides Rodman customers, through a private
insurer, with protection of between $4.5 million and $20 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 18 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.
- 8 -
<PAGE>
ITEM 2. PROPERTIES
The headquarters of the Company are located at 233 South Wacker Drive,
Suite 4500, Chicago, Illinois. Branch offices are located in New York, San
Francisco, Dallas, Boston and Kansas City. All of the offices are leased on a
long-term basis under leases which expire at various dates from 1996 to 2010.
See Note 13 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, 1995.
ITEM 3. LEGAL PROCEEDINGS
Many aspects of the Company's business involve risks of liability. The
Company has been named as a defendant in civil actions arising in the ordinary
course of business out of its activities as a broker-dealer in securities and as
a futures commission merchant. The Company also may be required to contribute to
any adverse judgments or settlements in actions arising out of its participation
in various underwritten offerings of securities. The ultimate outcome of such
matters cannot be predicted with certainty. In the opinion of management of the
Company, however, after consultation with outside legal counsel, the ultimate
resolution of pending litigation will not have a material adverse effect on the
Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1995.
- 9 -
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
SUPPLEMENTARY FINANCIAL DATA
QUARTERLY DATA (UNAUDITED)
(in thousands of dollars except per share data)
<TABLE>
<CAPTION>
INCOME (LOSS)
BEFORE
TAXES AND
CUMULATIVE
EFFECT OF
ACCOUNTING FOR INCOME STOCK PRICE
INCOME NET INCOME (LOSS) RANGE
REVENUES EXPENSES TAXES (LOSS) PER SHARE HIGH LOW
-------- -------- ----- ------ --------- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal year 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>
The common stock of Rodman & Renshaw Capital Group, Inc. is listed on the NYSE.
The trading symbol is RR. At February 29, 1996, the approximate number of
stockholders of record was 190.
The Company has declared no dividends during the past three years. See Note 12
to the Company's Consolidated Financial Statements for a discussion of potential
restrictions on the payment of dividends and Note 10 for a discussion of
dividends on preferred stock.
- 10 -
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(in thousands of dollars except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended Last Friday in June
-------------------------------------
Year Ended Transition
12/31/95 Period 1994 1993 1992 1991
-------- ------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues (1) $ 72,525 $ 32,194 $ 77,317 $ 87,309 $ 84,378 $ 76,590
Expenses (1) 99,541 38,526 94,748 86,761 81,175 78,962
--------- --------- --------- -------- -------- ---------
Income(loss) before
income taxes (27,016) (6,332) (17,431) 548 3,203 (2,372)
Net income (loss) (29,982) (4,164) (16,501) 256 1,989 (1,595)
Net income (loss)
per common share (4.63) (.91) (3.69) 0.06 0.46 (0.37)
Cash dividends per share -0- -0- -0- -0- -0- -0-
BALANCE SHEET DATA
Total assets (1) $119,333 $454,331 $300,664 $310,198 $321,890 $242,563
Total
liabilities (1) 117,890 424,032 263,325 271,288 282,772 205,434
Liabilities
subordinated to the claims of
general creditors -0- 3,874 6,750 8,000 8,500 8,500
Total stockholders'
equity 1,443 26,425 30,589 30,910 30,618 28,629
Book value
per common share (2) .22 5.77 6.68 7.07 7.01 6.56
Book value
per common share assuming
conversion at 12/31/94 (2) --- 3.98 --- --- --- ---
</TABLE>
- - -------------
(1) See Note 2 to the Consolidated Financial Statements regarding accounting
changes.
(2) Effective June 24, 1994, the Company issued to Abaco for an aggregate
price of $15 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.
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
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.
The 1995 fiscal year was a profitable year for the securities industry
generally. Nonetheless, Rodman experienced a significant loss. The loss was due
in large part to capital constraints and to costs related to the downsizing of
the Company's commodities
- 11 -
<PAGE>
and institutional fixed income businesses, the 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. However, management of the Company
believes that the Company has already incurred the major costs attributable to
the Company's restructuring and that the Company now is focused on higher margin
businesses. Management continues to implement measures to reduce the Company's
costs further. In addition, Parent has provided the Company with a letter
agreeing to unconditionally support it through 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 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 15c-1. To that end, Parent has agreed to provide
the Company with a total of $9.5 million in equity capital in March and April,
1996. On March 29, 1996, Abaco provided $5 million of this equity infusion to
the Company. (See "Liquidity and Capital Resources," below, and Note 18 to the
Consolidated Financial Statements.) Therefore, while the Company will report a
loss for 1996 as a whole, it expects to achieve profitability by the fourth
quarter of 1996 as a result of these changes and the support from Abaco. Actual
results for the year 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 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 year ended December 31, 1995, the Transition Period and the
fiscal year ended June 24, 1994 (dollar amounts in thousands):
<TABLE>
<CAPTION>
Increase (Decrease)
1/1/95 - 12/31/95
vs. Transition Period vs. FISCAL YEARS
1/1/94 - 12/31/94 06/26/93 - 12/31/93 1994 vs. 1993
----------------- ------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Commissions $ (404) (2%) $ (3,875) (25%) $(9,560) (25%)
Principal 11,525 76% (12,211) (63%) (4,903) (15%)
Interest (2,117) (17%) 3,042 63% (1,345) (13%)
Fee income 2,577 47% (2,109) (35%) 4,453 142%
Other 771 38% (1,990) (56%) 1,363 51%
------- ----- -------- ----- -------- -----
TOTAL: $12,352 21% $(17,143) (35%) $(9,992) (11%)
======= ===== ========= ===== ======== =====
EXPENSES
Employee compensation
and benefits $14,467 33% $(6,650) (23%) $ (34) 0%
Commissions, floor
brokerage and clearing (1,416) (26%) (1,720) (42%) (1,580) (18%)
Interest 1,562 18% 2,942 98% (1,421) (20%)
Communication 2,677 43% 125 4% (740) (11%)
Occupancy and equipment 2,345 39% 65 2% (512) (8%)
Professional fees 1,794 59% (2,197) (74%) 2,517 93%
Other operating (3,780) (29%) (1,606) (53%) 5,942 123%
Restructuring charge (3,815) (100%) -0- -0- 3,815 100%
------- ------ -------- ----- ------- -----
TOTAL: $13,834 16% $(9,041) (19%) $7,987 9%
======= ====== ======== ===== ======= =====
</TABLE>
- 12 -
<PAGE>
Revenues for the year ended December 31, 1995 totaled $72.53 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% to
$77,317,000.
The Company recorded a net loss of $29.98 million or $4.63 per common share
for the year ended December 31, 1995. The Company recorded a net loss of
$4,164,000 or $.91 per common share for the Transition Period. The Company
recorded a net loss for fiscal 1994 of $16,501,000, or $3.69 per common share,
compared with fiscal 1993 net income of $256,000, or $.06 per common share.
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
$24.88 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 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 discussed above.
Revenues from principal transactions, which include realized and unrealized
gains and losses on securities held for resale to customers, increased 76% to
$26.63 million as compared to $15.10 million during the twelve month period
ended December 31, 1994. This increase is primarily due to market conditions.
Interest income decreased 17% to $10.14 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, as
discussed above, 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. In 1995, the
Company's fee income rose 47% to $8.07 million for the year ended December 31,
1995.
Other revenue increased to $2.82 million for the year ended December 31,
1995, primarily due to a $1.18 million gain on the sale of commodities exchange
memberships.
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 $10.22 million for the year ended
December 31, 1995 from $8.66 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.
- 13 -
<PAGE>
For the year ended December 31, 1995, occupancy and equipment expense
increased 39% to $8.36 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
$4.83 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 $5.40 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 15 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 $11,870,000, a function of the changes in
the number of revenue producing personnel and the lag in revenue production for
those employees who commenced employment during the Transition Period.
Revenues from principal transactions, which include realized and unrealized
gains and losses on securities held for resale to customers, decreased 63% from
the comparable six month period in 1993 to $7,033,000, primarily due to market
conditions. The Company aggressively hired experienced traders and salespersons
in the institutional fixed income department during the Transition Period.
During the Transition Period, interest income increased 63% from the
comparable six month period in 1993 to $7,872,000. The increase was due to
higher interest rates earned on increased balances of securities inventories and
increased commodities customers cash deposits. In addition, average securities
customers margin receivables began to increase in the Transition Period and the
Company increased its efforts in the stock loan and securities finders business.
Fee income decreased 35% from the comparable six month period in 1993 to
$3,876,000. The timing of revenue recognition on investment banking transactions
is a function of when the transactions are completed. The Company completed 3
and 11 investment banking transactions during the six month periods ended
December 31, 1994 and 1993, respectively.
- 14 -
<PAGE>
Other revenue decreased 56% from the comparable six month period in 1993 to
$1,543,000. The Company realized a $696,000 gain on the sale of a Chicago Board
of Trade exchange membership during the Transition Period. The Company realized
nonrecurring gains of $2,551,000 from the sale of businesses in the comparable
six month period ended December 31, 1993.
EXPENSES
During the Transition Period, employee compensation and benefits expense
decreased 23% from the comparable six month period in 1993 to $21,886,000. This
decrease is the net effect of reduced variable compensation related to the
decrease in commission revenues and an increase in fixed compensation expense
resulting from the employment of new management and producers with temporarily
enhanced commission payouts.
Commissions, floor brokerage, and clearing expenses decreased 42% from the
comparable six month period in 1993 to $2,328,000, commensurate with the
decrease in commission revenues.
Interest expense increased 98% from the comparable six month period in 1993
to $5,933,000 due to higher interest rates on increased securities inventory
balances and the effect of increased short-term borrowings from Abaco. See Note
9 to the Consolidated Financial Statements.
Professional fees decreased 74% from the comparable six month period in
1993 to $763,000. The Company paid approximately $1,600,000 in nonrecurring
professional fees related to the ownership change transaction during the period
ended December 31, 1993, as discussed below. Other operating expenses decreased
53% from the comparable six month period in 1993 to $1,443,000, primarily
related to a significant decrease in errors, bad debt and legal settlements.
The Company recorded an income tax benefit of $2,168,000 for the Transition
Period as management 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 $29,158,000, 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 $27,313,000 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 $9,213,000 due to a
decrease in average customer margin receivables and a reduction of firm
inventory carried for sale to customers.
Fee income increased 142% in fiscal 1994 to $7,598,000. The timing of
revenue recognition on investment banking transactions is a function of when the
transactions are completed. The Company completed 18 investment banking
transactions during fiscal 1994, as compared to 7 during fiscal 1993.
The Company realized nonrecurring net gains of $2,551,000 in fiscal 1994
from the sales of its London futures and option operations and its Chicago Stock
Exchange specialist operation. The London futures and options branch was sold
because of recurring losses.
- 15 -
<PAGE>
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>
The components of the $6,401,000 incurred in the ownership change transaction
are as follows:
<TABLE>
<S> <C>
Employee option tender $ 2,026,000
Professional fees 1,604,000
Employee costs (hiring
and severance) 2,231,000
Other 540,000
-----------
$ 6,401,000
===========
</TABLE>
The Company has recorded a restructuring charge totaling approximately
$3,815,000 related to 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 $450,000) and certain lease obligations for
space which management believes it will be unable to sublet after the moves. Any
sublease revenues realized in the future will be recorded as a reduction of
occupancy costs.
Rodman incurred expenses totaling $3,427,000 related to certain legal
settlements during the year ended June 24, 1994. This amount does not include
the costs of normal recurring litigation inherent in day-to-day operations.
Rodman incurred certain employee related expenses totaling $1,178,000
during fiscal 1994 in connection with the severance of certain employees,
employment fees and other costs associated with the new hirings.
Other nonrecurring expenses totaling $3,545,000 include expenses and
allowances incurred in connection with the termination of Rodman's high-yield
fixed income securities business and liquidation of the related portfolio.
Rodman terminated its high-yield fixed income business because it determined
that the earnings to be derived from such business were insufficient to justify
the costs and risks involved in conducting the business. In connection with the
termination of the business, Rodman made the decision to repurchase certain
high-yield bonds held in the accounts of certain of its customers or to reprice
high-yield bonds that such customers continued to hold by refunding to them part
of their initial purchase price. The expenses incurred in connection with the
termination of the business included $1.1 million attributable to these
repurchase and repricing transactions. The remainder of the $3,545,000 includes
professional and consulting fees and write-offs of certain deferred expenses and
receivables.
- 16 -
<PAGE>
Substantially all of the nonrecurring expenses discussed above were paid
during fiscal 1994. A restructuring charge liability of $817,000 will be paid in
1996.
Total Expenses. Total expenses increased $7,987,000 to $94,748,000 in
fiscal 1994, following an increase of $5,586,000 in fiscal 1993. The following
discussion 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 $5,358,000 as discussed above, totaled $44,696,000, a decrease of
$5,392,000, or 11%, from 1993 amounts. This decrease is the net effect of
reduced variable compensation related to the decrease in commission revenues and
an increase in fixed compensation expense resulting from the employment of new
management and producers.
Commissions, floor brokerage, and clearing expenses decreased 18% to
$7,141,000 in fiscal 1994, commensurate with the decrease in commission
revenues.
Interest expense decreased 20% to $5,714,000 in fiscal 1994 from $7,135,000
in 1993. This is a result of lower interest rates in the first half of fiscal
1994 when customer balances were relatively unchanged from the prior year and
decreased customer balances during the second half of the year.
Communication expense decreased 11% to $6,063,000 from $6,803,000 due to
the reduction in customer and market trading activity, the sale of the London
futures and option operations and negotiated reductions with certain
communication vendors.
Occupancy and equipment expense decreased 8% to $5,949,000 in fiscal 1994,
primarily due to the sale of the London futures and option operations in August
1993.
Professional fees, excluding the certain nonrecurring expenses of
$3,384,000, as discussed above, decreased 32% to $1,843,000 in fiscal 1994 due
to a reduction in consulting projects.
Other operating expenses, excluding certain nonrecurring expenses of
$5,809,000, as discussed above, increased 3% to $4,976,000 in fiscal 1994.
The Company recorded a net tax benefit of $930,000 for fiscal 1994. An
additional benefit of $4,518,000, was offset by a valuation allowance pursuant
to Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." This valuation allowance has been recognized due to the uncertainty of
realizing the tax benefit of loss carry forwards and temporary differences
totaling $2,469,000 and $2,627,000, respectively, at June 24, 1994.
LIQUIDITY AND CAPITAL RESOURCES
As a registered broker-dealer and futures commission merchant, Rodman is
required by the SEC and CFTC to maintain specified amounts of net capital to
meet its customer obligations. In February 1996, Rodman's net capital
requirement was reduced as a result of its shift from clearing to non-clearing
status. See Notes 12 and 18 to the Consolidated Financial Statements. At
December 31, 1995, Rodman's net capital was $15,402,000, which was $14,291,000
in excess of the minimum required net capital. At December 31, 1994, Rodman's
net capital was $16,644,000, which was $11,038,000 in excess of the minimum
required net capital.
The Company's assets are substantially comprised of customer-related
receivables and securities inventory, both of which are highly liquid. The
principal sources of financing are stockholders' equity, customer payables,
short-term loans from banks and Confia, S.A. and other payables. Additionally,
Rodman maintains lines of credit with large financial institutions which include
daily demand loans, letters of credit and reverse
- 17 -
<PAGE>
repurchase agreements to meet financing needs. 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. Management of the Company
believes that Rodman will establish new lines of credit and reestablish previous
lines once the Company receives additional capital and/or achieves
profitability.
On June 22, 1994, the Company borrowed $10 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 single note
due June 3, 1996 and bearing interest at an annual rate of 12%. Based upon the
letter of support that the Company received from Abaco, 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 $100,000, which shares are
convertible into Company common stock. In a conversion, the $5,000,000 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.
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. To that end,
Parent has 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 million of
that total through the purchase by Abaco of 50 additional shares of non-voting
preferred stock at a price per share of $100,000. The terms of such shares are
identical to those of the preferred stock issued in December, 1995, as discussed
above.
- 18 -
<PAGE>
In addition to Abaco's commitment, the Company's senior management is in
the process of exploring the possibility of investing up to $1 million in new
capital in the Company, and of permitting certain additional Rodman employees to
invest directly in the firm in the near future.
During the fourth quarter of 1995, the Company finalized an equipment
leasing arrangement for approximately $6 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 million as additional security for the
financing. If the letter of credit were drawn down, the resulting $6 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.
The Company currently has subordinated loans outstanding to Rodman, its
broker dealer subsidiary, in an aggregate amount of $26.5 million. The loans are
funded by the Company's borrowing from Confia, S.A. discussed above. It is the
intention of management of the Company and Rodman to extend these subordinated
borrowings through June, 1998. To the extent that such subordinated borrowings
are required for Rodman's continued compliance with minimum net capital
requirements, 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 in order to reduce its
minimum net capital requirements, then would seek regulatory approval to repay
its subordinated debt to the Company. See Notes 9 and 12 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%.
The Company does not anticipate any material capital expenditures during
1996. 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 $5 million in net cash
in 1995, primarily as a result of the decrease in securities inventory. In the
Transition Period, the Company used $157,000 in net cash, exclusive of the
increase in securities purchased under agreements to resell of $21,631,000, in
operating activities. In fiscal 1994, the Company generated net cash and cash
equivalents of $3,188,000, exclusive of the increase in securities purchased
under agreements to resell of $13,423,000, from operating activities.
Investing Activities. In 1995, the Company generated $3.02 million in net
cash in investing activities, which represents the net effect of the sale of
commodity exchange memberships and the purchase of furniture and fixtures
relating to the moves in Chicago and New York. In the Transition Period, the
Company generated $700,000 in net cash from investing activities related to the
sale of a Chicago Board of Trade exchange membership. In fiscal 1994, the
Company generated $3,732,000 in net cash from investing activities, primarily
the result of the sale of its London futures and option operations and its
Chicago Stock Exchange specialist operation.
- 19 -
<PAGE>
Financing Activities. In 1995, the Company used $6.03 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 $28,213,000 in net
cash from financing activities, which represents the net effect of an increase
in short-term borrowings from banks of $31,089,000 to finance increased
securities inventories and the payment of $2,876,000 in subordinated borrowings.
In fiscal 1994, the Company generated $5,957,000 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 are primarily monetary, consisting of cash, securities
inventory and receivables. These monetary assets are generally liquid and turn
over rapidly and, consequently, are not in general significantly affected by
inflation. However, the rate of inflation affects various expenses of the
Company, such as employee compensation and benefits, communications, 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 16 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.
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)
- 20 -
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required by Regulation S-K Item 304 was previously reported
in the Company's Proxy Statement dated December 27, 1994, pertaining to its
Special Meeting of Stockholders held on January 31, 1995.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
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.
Charles W. Daggs, III Age 48; Director, President and Chief
Executive Officer of the Company and President
of Rodman since April 11, 1994; Senior
Managing Director, Bear Stearns & Co.,
Incorporated, a financial services firm, from
1991 to 1994.
Peter Boneparth Age 36; 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.
John T. Hague Age 41; Executive Vice President and Chief
Financial Officer of the Company since June
28, 1994; Executive Vice President and
Director of Internal Audit of the Company from
April 11, 1994 to June 28, 1994; Senior
Manager with Deloitte & Touche, a certified
public accounting firm, from 1990 to April,
1994.
Francis L. Kirby Age 51; 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.
Edwin J. McGuinn, Jr. Age 44; Director since 1995; Senior Managing
Director of Fixed Income for Rodman since
February 1996; Executive Vice President and
Senior Managing Director of Equities for
Rodman since March 28, 1995; Managing Director
of Mabon Securities Corp., a financial
services firm, from 1992 to 1994; investment
banker with Lehman Bros. from 1981 to 1992
with final position of Managing Director.
- 21 -
<PAGE>
Keith F. Pinsoneault Age 48; Director since 1994; Executive Vice
President of the Company since 1994; Chief
Operating Officer of the Company from
September 1994 to January 1996; Director of
Capital Markets for Rodman since January 1996;
Senior Portfolio Manager for Harris Bretall
Sullivan & Smith from 1991 to 1994.
Joseph P. Shanahan Age 48; Director since 1993; Executive Vice
President and Chief Operating Officer of
Rodman since February 8, 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 47; Director since 1994;
Research Director of Abaco since 1989.
Ernesto Arechavala Age 31; 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 45; 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.
Jorge Antonio Garcia Garza Age 34; 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 51; 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 55; 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 48; 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 55; 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 34; Director since 1995;
National Sales Manager of Abaco since 1995;
investment advisor with Abaco since 1986;
Director of Confia, S.A. since 1995.
- 22 -
<PAGE>
David S. Ruder Age 66; 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.
STOCK OWNERSHIP AND TRADING REPORTS
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, 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
director and executive officer of the Company, filed one late report during 1996
with respect to one transaction in 1995.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation for
the year ended December 31, 1995, the Transition Period, the fiscal year ended
June 24, 1994 and the fiscal year ended June 25, 1993 for the following persons
(the "named executive officers"): (i) the Company's chief executive officer, and
(ii) the other four executive officers at December 31, 1995 with the highest
total salary and bonus for 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation 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) 1995 300,000 600,000 -0- -0- 924
President and Chief
Executive Officer Transition 150,000 -0- -0- -0- -0-
Period
1994 68,269 500,000 -0- 100,000 10,000
Peter Boneparth(3) 1995 153,846 650,000 -0- 20,000 -0-
Executive Vice President
Edwin J. McGuinn, Jr.(4) 1995 153,846 500,000 -0- 20,000 -0-
Executive Vice President
Keith F. Pinsoneault(5) 1995 150,000 100,000 -0- 20,000 924
Executive Vice President
Transition 75,000 50,000 -0- -0- -0-
Period
1994 13,077 8,718 -0- -0- -0-
</TABLE>
- 23 -
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
David H. Shulman(6) 1995 1,300,000 -0- 39,657 20,000 924
Executive Vice President
Transition 650,000 -0- 26,182 -0- -0-
Period
1994 299,363 -0- 1,031,263 5,000 873
</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.
(3) Mr. Boneparth became an executive officer of the Company on March 28, 1995.
The figure in the Bonus column reflects a bonus for 1995 paid in 1996
pursuant to the terms of his employment agreement, discussed below.
(4) Mr. McGuinn became an executive officer of the Company on March 28, 1995.
The figure in the Bonus column includes a $200,000 signing bonus paid in
1995 and a $300,000 bonus for 1995 paid in 1996, both pursuant to the terms
of his employment agreement, discussed below.
(5) Mr. Pinsoneault became an executive officer of the Company on May 31,
1994.
(6) Mr. Shulman became an executive officer of the Company on February 14,
1994. He resigned as an officer of the Company on January 29, 1996. The
figures in the Other Annual Compensation column include (i) the cash value
that he received in 1995 for a life insurance policy previously purchased
by the Company under a discontinued employee benefit plan, and (ii) for
previous periods, deferred compensation and commissions.
- 24 -
<PAGE>
The following table presents information as to stock option awards to
each of the named executive officers during 1995. No stock appreciation rights
were granted.
Option Grants in Last Fiscal Year
Individual Grants
-----------------
<TABLE>
<CAPTION>
Number of Potential Realized Value at
Securities % of Total Assumed Annual Rates of Stock
Underlying Options Granted Exercise Price Appreciation for Option
Options to Employees in Price Expiration Term (1)
Name Granted (#) Fiscal Year ($/SH) Date 5% ($) 10% ($)
---- ----------- ----------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Daggs, III - - - - - -
Peter Boneparth 20,000(2) 2.43 2.00 12/07/05 103,116 237,497
Edwin J. McGuinn, Jr. 20,000(2) 2.43 2.00 12/07/05 103,116 237,497
Keith F. Pinsoneault 20,000(2) 2.43 2.00 12/07/05 103,116 237,497
David H. Shulman(3) 20,000(2) 2.43 2.00 12/07/05 103,116 237,497
</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.
- 25 -
<PAGE>
The following table provides information as to the number and value of
the options held by each named executive officer at December 31, 1995. 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
Options at FY-End (#) at FY-End ($)(1)
Shares Acquired on Exercisable/ Exercisable/
Name Exercise (#) Value Realized ($) Unexercisable Unexercisable
---- ------------ ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Charles W. Daggs III - - -/100,000 -/-
Peter Boneparth - - -/20,000 -/-
Edwin J. McGuinn, Jr. - - -/20,000 -/-
Keith F. Pinsoneault - - -/20,000 -/-
David H. Shulman(2) - - 9,600/26,400 -/-
</TABLE>
(1) All options listed in the table were out of the money at December 31,
1995, based on a closing stock price of $1.75 per share on such date.
(2) No longer employed by the Company. Options have been cancelled.
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 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.
- 26 -
<PAGE>
EMPLOYMENT AGREEMENTS
Charles W. Daggs, III, President and Chief Executive Officer of the
Company, began his employment on April 11, 1994. Under the terms of his
agreement, Mr. Daggs is entitled to receive a base salary of $300,000 per year.
Also, under the terms of his agreement, Mr. Daggs received or will be 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 or will be no less than $600,000. Mr.
Daggs received the $600,000 minimum for the twelve-month period commencing July
1, 1994. Mr. Daggs will receive no portion of the performance-based compensation
for the twelve-month period commencing July 1, 1995 unless he is employed by the
Company on June 30, 1996. 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 will become exercisable on June 30, 1996, and the remaining
50% will become exercisable on June 30, 1997, in each case provided that Mr.
Daggs is employed by the Company on such dates.
Mr. Daggs' employment agreement will be in effect through June 30, 1996,
subject to extension by mutual agreement and subject to earlier termination by
the Company for cause or upon Mr. Daggs' death or disability.
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 will receive 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
- 27 -
<PAGE>
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.
Rodman entered into a two-year employment agreement with Edwin J. McGuinn,
Jr. effective April 1, 1995, pursuant to which Mr. McGuinn became Senior
Managing Director of Rodman's institutional equity department. Under the terms
of the agreement, Mr. McGuinn received a $200,000 signing bonus in 1995. Mr.
McGuinn receives a guaranteed base salary of $200,000 per year. In addition, in
February, 1996, he received a bonus of $300,000. By February 14, 1997, he will
be entitled to receive a bonus equal to the greater of (i) $300,000, or (ii) the
sum of 1.5% of certain revenues derived from equity commissions and public
offerings, 10% of the foregoing revenues less direct expenses and certain
allocated expenses (as defined in the agreement), 6% of certain revenues derived
from Rodman's investment banking group less direct expenses and certain
allocated expenses (as defined in the agreement), and 25% of any profit during
the first year of operation from any business group of the Company not in
existence at the time of execution of the agreement and brought into the Company
due to his efforts. Each bonus to which Mr. McGuinn may be entitled for a
partial fiscal year shall be pro rated. In the event that Rodman terminates Mr.
McGuinn's employment upon a sale or change in control of Rodman, Rodman must
continue to pay Mr. McGuinn's base salary and applicable bonuses through the
earlier of April 1, 1997, or the one-year anniversary of his death.
On February 14, 1994, Rodman entered into an employment agreement with
David H. Shulman, pursuant to which Mr. Shulman assumed the position of Managing
Director of the Fixed Income Group of Rodman. Under the agreement, Mr. Shulman
received fixed compensation of $1,300,000 per year and was entitled to
additional compensation equal to 15% of any net pretax profits of the Fixed
Income Group. The agreement was for a term of three years commencing February
14, 1994. However, Mr. Shulman resigned from Rodman on January 29, 1996,
therefore, Rodman's payment obligations under the contract have terminated.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, 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 8, 1996 concerning
the beneficial ownership of the Company's Common Stock by (i) each stockholder
owning 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.
- 28 -
<PAGE>
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Identity of Holder Ownership (1) of Class (2)
- - - - - - ------------------ ------------- ------------
<S> <C> <C>
Abaco(3) . . . . . . . . . . . . . . . . . . . . . . . . . . 4,431,968 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 West Wacker Drive, Ste. 4500
Chicago, Illinois 60606
Alexander C. Anderson(4) . . . . . . . . . . . . . . . . . 0 --
Ernesto Arechavala(4) . . . . . . . . . . . . . . . . . . . 0 --
Peter Boneparth . . . . . . . . . . . . . . . . . . . . . 5,000 *
Eduardo Camarena Legaspi(4) . . . . . . . . . . . . . . . . 0 --
Charles W. Daggs, III . . . . . . . . . . . . . . . . . . . 0 --
Jorge Antonio Garcia Garza(4) . . . . . . . . . . . . . . . 0 --
Francis L. Kirby . . . . . . . . . . . . . . . . . . . . . 1,000 *
Jorge Lankenau Rocha(4) . . . . . . . . . . . . . . . . . . 0 --
Edwin J. McGuinn, Jr. . . . . . . . . . . . . . . . . . . . 9,000 *
Thomas E. Meade . . . . . . . . . . . . . . . . . . . . . . 7,500 *
Rodrigo Padilla(4) . . . . . . . . . . . . . . . . . . . . 0 --
Richard Pigott . . . . . . . . . . . . . . . . . . . . . . 8,000 *
Keith F. Pinsoneault . . . . . . . . . . . . . . . . . . . 0 --
Federico Richardson Lamas(4) . . . . . . . . . . . . . . . 0 --
David S. Ruder . . . . . . . . . . . . . . . . . . . . . . 17,500 *
Joseph P. Shanahan(4) . . . . . . . . . . . . . . . . . . . 0 *
All current directors and executive
officers as a group (17 persons)(4) . . . . . . . . . . . 48,800 *
</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;
unnamed executive officer, 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 9, 1996.
(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.
- 29 -
<PAGE>
(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
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.
Abaco International Corporation, a wholly-owned subsidiary of Parent based
in New York ("AIC"), subleases from the Company a portion of the New York office
space leased by the Company. Under the sublease, AIC is required to pay annual
rent to the Company in an amount that is a percentage of the total rent that the
Company pays under its lease equal to the percentage of the Company's total
space occupied by AIC. AIC's total rent for 1995 was $275,312. Its total rent
for 1996 is expected to be $130,080. Under the sublease, AIC also is required to
pay operating expenses and other payments charged to the Company by the landlord
under the Company's lease. The sublease expires on May 31, 1998.
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. 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,
1995 and December 31, 1994.
Consolidated Statements of Operations - Year Ended December 31,
1995, Transition Period ended December 31, 1994, Fiscal Years
ended June 24, 1994 and June 25, 1993.
Consolidated Statements of Stockholders' Equity - Year Ended
December 31, 1995, Transition Period ended December 31, 1994,
Fiscal Years ended June 24, 1994 and June 25, 1993.
Consolidated Statements of Cash Flows - Year Ended December 31,
1995, Transition Period ended December 31, 1994, Fiscal Years
ended June 24, 1994 and June 25, 1993.
Notes to Consolidated Financial Statements.
- 30 -
<PAGE>
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.
(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.
(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.*
- 31 -
<PAGE>
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.
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.
- 32 -
<PAGE>
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.
(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.
- 33 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RODMAN & RENSHAW CAPITAL GROUP, INC.
By:/s/ Charles W. Daggs, III
-------------------------
Charles W. Daggs, III
President and Chief
Executive Officer
Date: March 28, 1996
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/ Charles W. Daggs, III President, Chief Executive Officer, and March 28, 1996
------------------------- Director (Principal Executive Officer)
Charles W. Daggs, III
/s/ John T. Hague Chief Financial Officer (Principal March 28, 1996
----------------- Financial Officer and Accounting
John T. Hague Officer)
/s/ Alexander C. Anderson Director March 28, 1996
-------------------------
Alexander C. Anderson
/s/ Ernesto Arechavala Director March 28, 1996
----------------------
Ernesto Arechavala
/s/ Peter Boneparth Director March 28, 1996
-------------------
Peter Boneparth
/s/ Eduardo Camarena Legaspi Director March 28, 1996
----------------------------
Eduardo Camarena Legaspi
/s/ Jorge Antonio Garcia Garza Director March 28, 1996
------------------------------
Jorge Antonio Garcia Garza
/s/ Francis L. Kirby Director March 28, 1996
--------------------
Francis L. Kirby
/s/ Jorge Lankenau Rocha Director March 28, 1996
------------------------
Jorge Lankenau Rocha
/s/ Edwin J. McGuinn, Jr. Director March 28, 1996
-------------------------
Edwin J. McGuinn
</TABLE>
- 34 -
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Thomas E. Meade Director March 28, 1996
-------------------
Thomas E. Meade
/s/ Rodrigo Padilla Director March 28, 1996
-------------------
Rodrigo Padilla
/s/ Richard Pigott Director March 28, 1996
------------------
Richard Pigott
/s/ Keith F. Pinsoneault Director March 28, 1996
------------------------
Keith F. Pinsoneault
/s/ Federico Richard Lamas Director March 28, 1996
--------------------------
Federico Richard Lamas
/s/ David S. Ruder Director March 28, 1996
------------------
David S. Ruder
/s/ Joseph P. Shanahan Director March 27, 1996
----------------------
Joseph P. Shanahan
</TABLE>
- 35 -
<PAGE>
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
- - - - - - ----------------------------------------------------------------------
PAGE
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
F-1
<PAGE>
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, 1995 and December 31, 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year ended 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, 1995 and December 31, 1994, and
the results of their consolidated operations and cash flows for the year ended
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.
Chicago, Illinois
February 26, 1996, except as to the information presented in Note 18, for which
the date is March 29, 1996
F-2
<PAGE>
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 each of the two fiscal years in the
period ended June 24, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of the Company and
its subsidiaries for each of the two fiscal years in the period ended June 24,
1994, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, in fiscal 1993,
the Company and its subsidiaries changed their methods of accounting for
commission revenues and expenses for commodity transactions executed for
introducing brokers and for income taxes.
/S/ Deloitte & Touche LLP
Chicago, Illinois
August 19, 1994
F-3
<PAGE>
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands except share amounts)
<TABLE>
<CAPTION>
- - - - - - ------------------------------------------------------------------------------------------------------------------------
December 31, December 31
1995 1994
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS $ 9,001 $ 7,011
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL 2,204 35,054
CASH AND SHORT-TERM INVESTMENTS REQUIRED TO BE SEGREGATED UNDER FEDERAL
REGULATIONS (including reverse repurchase agreements: 1994 - $35,200) 7,398 39,215
RECEIVABLES
Customers 49,544 47,036
Brokers, dealers, and clearing organizations 16,298 155,408
SECURITIES OWNED - At market 16,489 144,500
MEMBERSHIPS IN SECURITIES AND COMMODITIES EXCHANGES-
At cost (market value: 1995 - $1,219; 1994 - $6,227) 272 3,850
FURNITURE, FIXTURES, AND LEASEHOLD IMPROVEMENTS-
At cost, less accumulated depreciation and amortization (1995 - $5,132; 1994 - $5,554) 8,560 2,298
PREPAID EXPENSES AND OTHER ASSETS 9,567 15,820
RECOVERABLE INCOME TAXES - 1,379
DEFERRED INCOME TAXES (Net of valuation allowance: 1995 - $17,059; 1994 - $5,246) - 2,760
-------- --------
TOTAL ASSETS $ 119,333 $454,331
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
SHORT-TERM BORROWINGS FROM BANKS $ 30,672 $ 54,331
SHORT-TERM NOTE PAYABLE TO AFFILIATE 26,500 10,000
PAYABLES:
Customers 18,914 89,878
Brokers, dealers, and clearing organizations 13,549 158,151
SECURITIES SOLD BUT NOT YET PURCHASED - At market 4,964 97,844
2,155 2,066
ACCRUED COMMISSIONS 21,136 11,762
-------- --------
117,890 424,032
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
COMMITMENTS AND CONTINGENCIES (NOTE 13)
LIABILITIES SUBORDINATED TO THE CLAIMS OF GENERAL CREDITORS - 3,874
STOCKHOLDERS' EQUITY:
Convertible non-voting preferred stock $.01 par value, 5,000,000 shares authorized;
shares issued: 1995 - 50 shares Series B; 1994 - 150 shares Series A - -
Common stock, $.09 par value; 20,000,000 shares authorized;
shares issued: 1995 - 6,646,000; 1994 - 4,577,000 598 412
Additional paid-in capital 35,749 30,935
Accumulated deficit (34,904) (4,922)
-------- --------
1,443 26,425
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 119,333 $454,331
======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
- - - - - - ------------------------------------------------------------------------------------------------------------------
SIX MONTH TRANSITION
YEAR ENDED PERIOD ENDED FISCAL YEAR ENDED
DECEMBER 31, DECEMBER 31, JUNE 24, JUNE 25,
1995 1994 1994 1993
<S> <C> <C> <C> <C>
REVENUES:
Commissions $ 24,879 $ 11,870 $ 29,158 $ 38,718
Principal 26,628 7,033 27,313 32,216
Interest 10,137 7,872 9,213 10,558
Fee income 8,065 3,876 7,598 3,145
Other 2,816 1,543 4,035 2,672
---------- ---------- ---------- ----------
Total revenues 72,525 32,194 77,317 87,309
EXPENSES:
Employee compensation and benefits 57,872 21,886 50,054 50,088
Commissions, floor brokerage, and clearing 4,004 2,328 7,141 8,721
Interest 10,217 5,933 5,714 7,135
Communications 8,865 3,180 6,063 6,803
Occupancy and equipment 8,360 2,993 5,949 6,461
Professional fees 4,825 763 5,227 2,710
Other operating expenses 5,398 1,443 10,785 4,843
Restructuring charge - - 3,815 -
---------- ---------- ---------- ----------
Total expenses 99,541 38,526 94,748 86,761
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES (27,016) (6,332) (17,431) 548
INCOME TAX EXPENSE (BENEFIT) 2,966 (2,168) (930) 310
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
FOR INCOME TAXES (29,982) (4,164) (16,501) 238
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES - - - 18
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (29,982) $ (4,164) $ (16,501) $ 256
========== ========== ========== ==========
EARNINGS (LOSS) PER SHARE DATA:
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
FOR INCOME TAXES $ (4.63) $ (0.91) $ (3.69) $ 0.06
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES - - - -
---------- ---------- ---------- ----------
NET INCOME (LOSS) PER COMMON SHARE $ (4.63) $ (0.91) $ (3.69) $ 0.06
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 6,470,000 4,577,000 4,472,000 4,366,000
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
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 26, 1992 $ $ 393 $ 14,738 $ 15,487 $ 30,618
Net income for the year 256 256
Proceeds from issuance of
7,200 shares of common
stock in connection with
employee stock option plan 36 36
---------- --------- ---------- ---------- ---------
BALANCE, JUNE 25, 1993 393 14,774 15,743 30,910
Net loss for the year (16,501) (16,501)
Proceeds from issuance of
204,920 shares of common
stock in connection with
employee stock option plan 19 1,161 1,180
Proceeds from issuance of
150 shares of convertible
non-voting preferred
stock, Series A, $.01 par value 15,000 15,000
---------- --------- ---------- ---------- ---------
BALANCE, JUNE 24, 1994 412 30,935 (758) 30,589
Net loss for the transition period (4,164) (4,164)
---------- --------- ---------- ---------- ---------
BALANCE, DECEMBER 31, 1994 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
========== ========= ========== ========== =========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
- - - - - - --------------------------------------------------------------------------------------------------------------------------
SIX MONTH TRANSITION
YEAR ENDED PERIOD ENDED FISCAL YEAR ENDED
DECEMBER 31, DECEMBER 31, JUNE 24, JUNE 25,
1995 1994 1994 1993
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (29,982) $ (4,164) $(16,501) $ 256
Adjustment to reconcile net income (loss) to net cash flows
provided by (used in) operating activities:
Write-off of furniture, fixtures and leasehold improvements 748
Loss on sale of furniture, fixtures and leasehold improvements 219
Gain on sale of commodity exchange memberships and related assets (1,183) (696) (2,551) (172)
Deferred income taxes 2,760 (2,182) (171) (686)
Depreciation and amortization 1,362 378 988 1,093
Net changes in operating assets and liabilities:
Securities purchased under agreements to resell 32,850 (21,631) (13,423)
Cash and short-term investments required to be
segregated under federal regulations 31,817 (2,378) 25,962 (19,611)
Receivables from and payables to customers, brokers,
dealers and clearing organizations (78,964) 36,812 (9,575) 16,192
Securities owned 128,011 (103,564) 75 (7,032)
Prepaid expenses and other assets 6,253 (5,037) 2,168 (1,777)
Recoverable income taxes and income taxes payable 1,379 600 (1,617) (73)
Securities sold but not yet purchased (92,880) 84,056 (1,963) 5,448
Accrued commissions 89 351 (679) 64
Accounts payable and accrued expenses 3,272 (4,333) 6,304 (972)
--------- --------- -------- -------
Net cash flows provided by (used in) operating activities 5,003 (21,788) (10,235) (7,270)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture, fixtures, and leasehold improvements (1,922) (689) (438) (1,302)
Sales of furniture, fixtures and leasehold improvements 181 324
Purchases of memberships in security and commodity exchanges (11)
Sales of commodity exchange memberships and related assets 4,761 700 3,846 387
--------- --------- -------- -------
Net cash flows provided by (used in) investing activities 3,020 11 3,732 (926)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings from banks (23,659) 31,089 (18,973) 8,312
Increase in short-term note payable to affiliate 16,500 10,000
Proceeds from issuance of notes subordinated to claims of
general creditors 4,500
Payments of notes subordinatd to claims of general creditors (3,874) (2,876) (1,250) (5,000)
Proceeds from issuance of common stock in connection with
stock option plan 1,180 36
Proceeds from issuance of convertible non-voting preferred 5,000 15,000
stock --------- --------- -------- -------
Net cash flows provided by (used in) financing activities (6,033) 28,213 5,957 7,848
--------- --------- -------- -------
Net increase (decrease) in cash and cash equivalents 1,990 6,436 (546) (348)
Cash and cash equivalents - Beginning of period 7,011 575 1,121 1,469
--------- --------- -------- -------
Cash and cash equivalents - End of period $ 9,001 $ 7,011 $ 575 $ 1,121
========= ========= ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 10,453 $ 4,939 $ 5,720 $ 7,135
========= ========= ======== =======
Cash paid for income taxes $ 26 $ 15 $ 824 $ 1,006
========= ========= ======== =======
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITY:
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>
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995, TRANSITION PERIOD
ENDED DECEMBER 31, 1994, AND FISCAL YEARS ENDED
JUNE 24, 1994, AND JUNE 25, 1993
- - - - - - ----------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts and transactions of Rodman & Renshaw Capital Group, Inc. (the
"Company") and its subsidiaries, all of which are wholly owned, including Rodman
& Renshaw, Inc. ("Rodman"), the Company's principal subsidiary, which is a
registered broker-dealer and futures commission merchant. All significant
intercompany balances and transactions have been eliminated in consolidation.
The Company's majority stockholder, Abaco Casa de Bolsa, S.A. de C.V., Abaco
Grupo Financiero ("Abaco"), is a brokerage subsidiary of Abaco Grupo Financiero,
S.A. de C.V. ("Abaco Grupo"). Abaco Grupo is a multi-faceted financial services
holding company based in Monterrey, Mexico. Abaco acquired its majority interest
in the Company through a tender offer for common shares completed on December
22, 1993.
FISCAL YEAR - In 1994, the Company changed its fiscal year from the last Friday
in June to a calendar year end.
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 AND REPURCHASE AGREEMENTS - Securities purchased
under agreements to resell and securities sold under agreements to repurchase
are financing transactions which are collateralized by negotiable securities and
are carried at the amounts at which the securities will be subsequently resold
or repurchased, including accrued interest. The Company's policy is to take
possession of securities purchased under agreements to resell. The Company
monitors daily the market value of the underlying securities acquired or
delivered as compared to the contract amounts of the resale or repurchase
agreements including accrued interest. The Company requires the prompt transfer
of additional securities to mitigate any material collateral deficiencies.
SECURITIES OWNED - Securities owned and securities sold but not yet purchased
are recorded at market value. Unrealized gains and losses are included in
revenues.
F-8
<PAGE>
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. 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.
EARNINGS (LOSS) PER SHARE - Earnings (loss) per share of common stock
is based on the weighted average number of shares outstanding during
each respective period. The effect of common stock equivalents,
including stock options and convertible preferred stock, are
anti-dilutive.
RECLASSIFICATIONS - Certain reclassifications have been made to prior
years' amounts to conform with current year presentations.
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.
2. ACCOUNTING CHANGES
In the first quarter of fiscal 1993, the Company implemented the
accounting changes described below:
The Company changed its method of accounting for commission revenue and
expenses for commodity transactions executed for introducing brokers.
The net commission retained by the Company was recorded as revenue.
Previously, the entire amount of commission charged to customers on
introducing broker transactions was recognized as revenue, and amounts
rebated to introducing brokers were recorded as commission expense. The
Company believes that the change better reflects the economic services
provided in introducing brokers' activities. The change did not affect
net income.
The Company adopted SFAS 109 and recorded an $18,000 cumulative benefit
in 1993.
3. RESTRUCTURING CHARGE
In the fourth quarter of fiscal 1994, the Company recorded a
restructuring charge of $3,815,000 related to the Company's decision to
move from its office space at its Chicago and New York premises. This
nonrecurring charge includes 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 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, include $817,000 for lease
termination costs payable in 1996.
F-9
<PAGE>
4. SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
Rodman is a party to reverse repurchase agreements with various financial
institutions to enhance yields on amounts required to be segregated under
federal regulations or to meet the financing needs of certain securities
sold but not yet purchased transactions.
At December 31, 1995, the reverse repurchase agreement of $2,204,000 earns
interest at a rate of 7.50%, and is collateralized by a U.S. Treasury note
with an approximate market value of $2,205,000. At December 31, 1994,
reverse repurchase agreements of $35,054,000, earned interest at rates
ranging from 4.50% to 5.25%, and were collateralized by U.S. Treasury notes
with an approximate market value of $35,081,000.
5. ASSETS SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS
Rodman is required under the Commodity Exchange Act and the Securities
Exchange Act of 1934 (the "Acts") to account for and segregate all customer
related assets, as defined by the Acts, in connection with regulated
commodities and securities transactions. Rodman has placed into a segregated
safekeeping account $1,664,000 and $83,370,000 of securities owned by
commodities customers as of December 31, 1995 and December 31, 1994,
respectively. These securities are not included in the statement of
financial condition. At December 31, 1995, Rodman was in compliance with the
segregation requirements of the Commodity Exchange Act and has excess
segregated funds of $436,000.
At December 31, 1994, reverse repurchase agreements totaling $35,200,000
earned interest at rates ranging from 5.30% to 5.50%, were collateralized by
U.S. Treasury notes and bonds with an approximate market value of
$35,213,000, and were held in a designated safekeeping account pursuant to
Commodity Futures Trading Commission (the "CFTC") segregation requirements.
6. RECEIVABLES FROM AND PAYABLES TO BROKERS, DEALERS, AND CLEARING
ORGANIZATIONS
The components of receivables from and payables to brokers, dealers, and
clearing organizations, are as follows:
<TABLE>
<S> <C> <C>
1995 1994
Receivables:
Receivables from brokers and dealers
(net trade date accrual) $ 0 $ 63,813,000
Securities borrowed 4,988,000 46,510,000
Securities failed to deliver 3,253,000 6,490,000
Clearing organizations
and commodity carrying brokers 7,669,000 38,595,000
Other 388,000 0
----------- ------------
Total $16,298,000 $155,408,000
=========== ============
Payables:
Payables to brokers and
dealers (net trade date accrual) $ 2,469,000 $ 0
Securities loaned 8,443,000 151,802,000
Securities failed to receive 2,632,000 6,243,000
Clearing organizations 5,000 106,000
----------- ------------
Total $13,549,000 $158,151,000
=========== ============
</TABLE>
F-10
<PAGE>
7. 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>
1995 1994
Sold But Sold But
Not Yet Not Yet
Owned Purchased Owned Purchased
<S> <C> <C> <C> <C>
Bank notes $ 0 $ 22,000 $ 1,926,000 $ 22,000
Corporate debt securities 2,864,000 1,071,000 50,861,000 14,488,000
Equity securities 3,532,000 1,625,000 10,752,000 1,949,000
State and municipal
obligations 9,452,000 46,000 5,847,000 87,000
United States and Canadian
government and agency 1,009,000 2,200,000 75,498,000 81,298,000
obligations
Limited partnerships (368,000) (384,000)
------------- ------------ ------------ -----------
Total $ 16,489,000 $4,964,000 $ 144,500,000 $97,844,000
============ ========== ============= ===========
</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.
8. SHORT-TERM BORROWINGS FROM BANKS
To finance the purchase of securities by customers on margin and
purchases for its own account, Rodman borrows from commercial banks.
Interest on the borrowings is paid at or below the broker call rate,
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. At December 31, 1994, total borrowings of
$54,331,000 were collateralized by approximately $39,232,000 of
Rodman-owned securities, $23,996,000 of customer-owned securities and
$4,372,000 of other assets. The weighted average interest rate on
short-term borrowings, including the short-term note payable to
affiliate, as of December 31, 1995 and December 31, 1994 was 8.9% and
8.0%, respectively.
9. 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.
F-11
<PAGE>
Interest expense on these borrowings totaled $2,200,000 and $607,000
for the year ended December 31, 1995, and the transition period ended
December 31, 1994, respectively.
The aggregate amount was loaned by the Company to Rodman under a
subordinated revolving credit facility and subordinated note agreement
as follows:
Subordinated revolving note, interest
payable semi-annually at 9% per annum
(the "Revolving Notes") $21,500,000
Subordinated note, interest payable
semi-annually at 9% per annum
(the "Subordinated Note") 5,000,000
-----------
Total $26,500,000
===========
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, 1995,
$21,500,000 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.
The Subordinated Note is due on November 30, 1998.
In January 1996, Rodman converted $5,000,000 borrowed under the senior
subordinated revolving credit facility to a subordinated note with a
stated maturity date of January 31, 1999.
10. 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
F-12
<PAGE>
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.
11. STOCK OPTIONS
The Company's stock option plans provide for the granting of options
to officers, directors, nonemployee directors, and employees to
purchase shares of common stock at not less than market value on the
date of grant. All options expire no later than ten years from the
date of grant. Prior to June 24, 1993, the Company had also granted
non-qualified stock options. A summary of stock option activity
follows:
<TABLE>
<CAPTION>
Qualified Nonqualified
------------------- --------------------
Number Per Share Number Per Share
of Option of Option
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding at
June 26, 1992 997,440 $5.00-$8.00 42,800 $5.00-$7.50
Granted 311,775 5.00- 6.38 71,275 5.00- 6.38
Canceled (194,300) 5.00- 8.00 (37,400) 5.00- 7.50
Exercised (7,200) 5.00- 5.00 -
---------- --------
Outstanding at
June 25, 1993 1,107,715 5.00- 7.00 76,675 5.00- 6.38
Granted 121,500 5.00- 6.92 166,050 5.63- 5.63
Canceled (692,770) 5.00- 7.00 (83,780) 5.00- 6.13
Exercised (204,820) 5.00- 6.38 (100) 5.00- 5.00
---------- --------
Outstanding at
June 24, 1994 331,625 5.00- 6.50 158,845 5.00- 6.38
Granted - 38,500 5.13- 5.38
Canceled (91,680) 5.00- 6.18 (40,550) 5.00- 6.38
Reclassified (100,000) 6.50- 6.50 100,000 6.50- 6.50
--------- --------
Outstanding at
December 31, 1994 139,945 5.00- 6.00 256,795 5.00- 6.50
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
======== =======
</TABLE>
Options outstanding at December 31, 1995, are exercisable at an
average price of $2.95.
F-13
<PAGE>
Effective June 30, 1993, the Company granted an aggregate of 166,050
nonqualified stock options to certain employees, 42,050 of which
remained outstanding at December 31, 1995. These nonqualified options
were not granted pursuant to a stock option plan.
In the fiscal year ended June 24, 1994, the Company's Board of
Directors and stockholders approved the 1994 Stock Option Plan,
pursuant to which the Company may issue nonqualified or qualified
options. There were 797,000 qualified and 25,000 nonqualified stock
options granted under this plan during the year ended December 31,
1995. As of December 31, 1995, there were 62,000 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, 1995, and 355,000
unoptioned shares reserved and available for grant as of December 31,
1995. Options granted under this plan expire ten years from the date
of grant.
Pursuant to the Acquisition Agreement with Abaco, certain employees
canceled stock options which were exercisable prior to the Tender
Closing Date in consideration of the payment by the Company of an
amount equal to the excess of $10.50 over the per share exercise price
of such options, multiplied by the number of options exercisable. The
cancellation of 445,240 shares of stock options resulted in the
payment of $2,027,000 which was recorded as employee compensation
expense in the fiscal year ended June 24, 1994.
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.
12. NET CAPITAL REQUIREMENTS AND DIVIDEND RESTRICTIONS
As a registered broker-dealer and futures commission merchant, Rodman
is subject to the minimum net capital rules of the SEC (Rodman has
elected to use the alternative net capital method permitted by these
rules), the CFTC, and the NYSE, of which Rodman is a member. These
rules require that Rodman maintain minimum net capital, as defined,
equal to the greater of 2% of aggregate debits arising from securities
customer transactions or $1,000,000, or 4% of the funds required to be
segregated for commodities customers pursuant to the Commodity
Exchange Act. The NYSE may require a member firm to reduce its
business if its net capital is less than the greater of $125,000 or 6%
of the funds required to be segregated and may prohibit a member firm
from expanding its business or paying cash dividends if resulting net
capital would be less than the greater of $150,000 or 7% of the funds
required to be segregated.
At December 31, 1995, Rodman's net capital, as defined, was
$15,402,000, which was $14,291,000 in excess of the required net
capital.
In February 1996, Rodman's net capital requirement pursuant to these
rules will be reduced to the greater of $250,000 or 4% of the funds
required to be segregated for commodities customers. See Note 18.
F-14
<PAGE>
13. 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, 1995, future minimum lease payments under
noncancelable operating and financing leases with terms in excess of
one year are as follows:
1996 $3,684,000
1997 3,527,000
1998 3,484,000
1999 3,327,000
2000 3,029,000
2001 and thereafter 14,210,000
----------
Total minimum lease payments $31,261,000
===========
The aggregate annual rentals charged to operations were $3,232,000 in
the year ended December 31, 1995, $1,011,000 in the transition period
ended December 31, 1994, $2,656,000 in fiscal 1994, and $2,527,000 in
fiscal 1993.
At December 31, 1995, Rodman has a $2,250,000 letter of credit issued
by a bank which satisfies exchange margin requirements and is
collateralized by customer-owned securities with a market value of
$3,520,000. In February 1996, this letter of credit was cancelled.
Rodman, together with various other broker-dealers, corporations, and
individuals, has been named as a defendant in several class action
lawsuits that allege violations of federal and state securities laws,
and claim substantial damages. Rodman is also a defendant in other
pending civil actions, arbitration proceedings and claims incidental
to its securities and commodities business. The ultimate outcome of
these matters cannot be predicted with certainty. In the opinion of
management of the Company, after consultation with outside legal
counsel, the ultimate resolution of these matters will not have a
material adverse effect on the Company's financial position.
14. 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 $214,000 in the year ended December 31, 1995, $66,000 in the
transition period ended December 31, 1994, $153,000 in fiscal 1994,
and $145,000 in fiscal 1993.
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.
F-15
<PAGE>
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 year ended December 31, 1995, the
six month transition period ended December 31, 1994 and the fiscal
year ended June 24, 1994. During the fiscal year ended June 25, 1993,
contributions totaled $580,813.
15. INCOME TAXES
The components of the income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Six Month
Transition Period
Year Ended Ended Fiscal Year Ended
December 31, 1995 December 31, 1994 1994 1993
<S> <C> <C> <C> <C>
Current:
Federal $ 63,000 $ 0 $ (942,000) $ 193,000
State 143,000 15,000 183,000 214,000
Deferred-principally
federal 2,760,000 (2,183,000) (171,000) (97,000)
----------------- ---------------- --------------- ------------
Total income tax
expense (benefit) $ 2,966,000 $ (2,168,000) $ (930,000) $ 310,000
================== =============== =============== ===========
</TABLE>
The income tax provision was recorded in 1995 to adjust the valuation
allowance. 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.
Following is a summary of the significant components of the Company's
deferred tax assets and liabilities at December 31, 1995 and December
31, 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 15,036,000 $ 5,139,000
Restructuring charges 278,000 1,107,000
Employee compensation and benefits 44,000 1,019,000
Allowance for bad debts 176,000 139,000
Interest 748,000
Foreign tax credit 125,000
Alternative minimum tax 104,000
Other 1,323,000 1,191,000
------------ -----------
Total assets 17,834,000 8,595,000
------------ -----------
Deferred tax liabilities:
Investment interests (683,000) (527,000)
Prepaid insurance (92,000) (62,000)
------------- -----------
Total liabilities (775,000) (589,000)
------------- -----------
Net deferred tax asset 17,059,000 8,006,000
Valuation allowance (17,059,000) (5,246,000)
------------- ------------
Deferred income taxes $ 0 $ 2,760,000
============ ===========
</TABLE>
F-16
<PAGE>
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 $43,400,000 and $37,000,000,
respectively, which will expire between the years 2008 and 2010.
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.
A reconciliation of the effective income tax rate to the statutory
federal income tax rate is as follows:
<TABLE>
<CAPTION>
DECEMBER DECEMBER JUNE JUNE
1995 1994 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Statutory rate (34.0)% (34.0)% (34.0)% 34.0%
City and state income taxes, net of federal benefit:
New York City 0.2 0.2 0.5 15.2
Other 0.2 0.2 10.6
Goodwill amortization 9.7
Nondeductible interest 0.2 0.3 0.2 10.7
Tax-exempt interest (0.3) 0.7 (0.8) (31.7)
Net cash surrender value of
keyman life insurance (0.2) (0.4) (0.5) (18.4)
Political contributions 0.1 4.4
Meals and entertainment 0.5 0.7 0.2 6.3
Valuation allowance 43.7 25.9
Other 0.7 (1.5) 2.9 15.8
------ ------ ------ ------
Effective rate 11.0% (34.0)% (5.3)% 56.6%
====== ====== ====== ======
</TABLE>
16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK, DERIVATIVE
FINANCIAL INSTRUMENTS
Rodman maintains active inventory positions in a variety of fixed
income financial instruments. Most of these positions are customer
oriented, and inventory positions are established as necessary to meet
customers' demands. In addition, to anticipate customer demand for
such transactions, Rodman also carries an inventory of fixed income
financial instruments and maintains its access to market liquidity by
quoting bid and offer prices to, and trading with, other market
makers. These two activities constitute its proprietary trading
business and are essential to provide customers with fixed income
products at competitive prices. All positions are reported at fair
value and changes in fair value are reflected in trading income as
they occur. Rodman enters into transactions in derivative financial
instruments (primarily futures and options contracts traded on
exchanges) in order to facilitate its normal trading activities and to
manage its market and interest rate risk. Rodman has adopted Financial
Accounting Standards Board Statement No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments."
These financial instruments involve varying degrees of on and
off-balance sheet market and credit risk. Market risk is the potential
change in value of the financial instrument caused by unfavorable
changes in interest rates or the market values of the securities
underlying the instruments. Rodman monitors its exposure to market
risk through a variety of control procedures, including daily review
of trading positions. The extent of utilization of these derivative
financial instruments is insignificant to Rodman's financial condition
and results of operations.
F-17
<PAGE>
Counterparties to Rodman include domestic and foreign corporations,
governments and institutional and individual investors. Counterparty
credit risk is measured by the loss Rodman would record if its
counterparties failed to perform pursuant to terms of their
obligations to Rodman. The exposure to credit risk associated with the
nonperformance of these counterparties in fulfilling their contractual
obligations pursuant to securities and commodities transactions can be
directly impacted by volatile trading markets which may impair the
counterparties' ability to satisfy their obligations. Rodman controls
such risks by requiring minimum margins for open positions in
accordance with regulatory and Rodman guidelines. Rodman monitors
minimum margin levels daily and may require additional collateral to
be deposited with or returned to Rodman when deemed necessary. Market
declines could, however, reduce the value of any collateral below the
principal amount loaned, plus accrued interest, before the collateral
can be sold.
Rodman's customer financing and securities settlement activities
permit it to pledge customer margin securities as collateral in
support of various collateralized financial sources such as bank
loans, letters of credit, and securities loaned. Additionally, Rodman
pledges customer securities as collateral to satisfy margin deposit
requirements of various exchanges. In the event the counterparty is
unable to meet its contracted obligation to return customer securities
pledged as collateral, Rodman may be exposed to the risk of acquiring
the securities at prevailing market prices in order to satisfy its
customer obligations. Rodman seeks to control this risk by monitoring
the market value of securities pledged daily and by requiring
adjustments of collateral levels in the event of excess market
exposure. Credit limits are also established for such activities and
are monitored daily.
Rodman's counterparties primarily consist of domestic and foreign
corporations, governments, and institutional and individual investors.
Concentrations of credit risk can be affected by changes in economic,
industry or geographic factors. Rodman seeks to control the potential
for concentration risk through a variety of control procedures
described above.
Securities sold but not yet purchased commit Rodman to deliver
specified securities at predetermined prices. To satisfy the
obligation, Rodman must acquire the securities at market prices, which
may differ from the values on the statement of financial condition.
Rodman's customer activities involve the execution, settlement and
financing of various customer securities and commodities transactions.
Customer securities activities are transacted on either a cash or
margin basis and customer commodity transactions are generally
transacted on a margin basis subject to individual exchange
regulations. In accordance with industry practice, Rodman records
customer transactions on a settlement date basis, which is generally
three business days after trade date. These transactions may expose
Rodman to off-balance-sheet risk in the event the customer is unable
to fulfill its contracted obligations and margin requirements are not
sufficient to fully cover losses which customers may incur. In the
event the customer fails to satisfy its obligations, Rodman may be
required to purchase or sell financial instruments at prevailing
market prices in order to fulfill the customer's obligations.
Rodman seeks to control the risks associated with its customer
activities by requiring customers to maintain margin collateral in
compliance with various regulatory and internal guidelines. Rodman
monitors required margin levels daily and, pursuant to such
guidelines, requires the customers to deposit additional collateral or
reduce positions, when necessary. Rodman also establishes credit
limits for customers engaged in commodity futures activities, which
are monitored daily.
In connection with these activities, Rodman enters into collateralized
reverse repurchase agreements, securities borrowing and lending
arrangements and certain other collateralized transactions which may
result in significant credit exposure in the event the counterparty to
the transaction is unable to fulfill their contractual obligations. In
accordance with industry practice, securities borrowing arrangements
are
F-18
<PAGE>
generally collateralized by cash or securities with a market value in
excess of the Rodman's obligation under the contract. Rodman attempts
to minimize credit risk associated with these activities by monitoring
customer credit exposure and collateral values daily and requiring
additional collateral to be deposited with or returned to Rodman when
deemed necessary.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that the carrying amount of its financial
instruments is a reasonable estimate of fair value. Assets, including
cash and cash equivalents, cash and short-term investments required to
be segregated under federal regulations, and certain receivables are
carried at fair value or contracted amounts which approximate fair
value. Similarly, liabilities including short-term notes payable to
banks and certain payables are carried at amounts approximating fair
value.
Securities owned and securities sold but not yet purchased are carried
at fair value. Fair value for these instruments is estimated using
available market quotations for traded instruments. Market quotations
for traded instruments are obtained from various sources, including
the major securities exchanges and dealers.
The estimated fair value of the Company's liabilities subordinated to
the claims of general creditors, determined using discounted cash flow
analysis based upon borrowing rates for similar types of borrowing
arrangements, approximates carrying value.
18. SUBSEQUENT EVENTS
CONVERSION TO FULLY DISCLOSED OPERATION
In January 1996, Rodman changed its business operation from a clearing
broker to a non-clearing broker whereby Rodman's customer accounts are
introduced and cleared by a contracted clearing broker on a fully
disclosed basis. As a result of this conversion, Rodman will not be
required to perform a reserve requirement calculation as required by
SEC Rule 15c3-3 under the exemptive provision of that rule.
ABACO COMMITMENT
In February 1996, the Company received a letter from Abaco Grupo, the
parent company of the majority stockholder, Abaco, whereby Abaco Grupo
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.
ISSUANCE OF PREFERRED SHARES
On March 29, 1996, the Company issued to Abaco 50 shares of non-voting
convertible preferred stock at a price per share of $100,000. The
terms of such shares are identical to those of the preferred stock
issued in December of 1995.
F-19
<PAGE>
19. TRANSITION PERIOD AND COMPARABLE PRIOR YEAR
As discussed in Note 1, effective December 31, 1994, the Company
changed its fiscal year from the last Friday in June to a calendar
year end. Results of operations for the six month transition period
ended December 31, 1994, and unaudited results of operations for the
comparable six month period are as follows:
<TABLE>
<CAPTION>
Six Month Transition Period Six Month Period
Ended December 31, 1994 Ended December 31, 1993
(unaudited)
<S> <C>
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>
20. 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:
03/31/95 $ 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)
============ =============== =============== =============
Fiscal year 1993 Quarter ended:
09/25/92 $ 19,950 $ 70 $ 51 $ .01
12/31/92 21,950 627 318 .07
03/26/93 22,607 320 263 .06
06/25/93 22,802 (469) (376) (.08)
------------ --------------- --------------- -------------
TOTAL $ 87,309 $ 548 $ 256 $ .06
============ =============== =============== =============
</TABLE>
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-20
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
RODMAN & RENSHAW CAPITAL GROUP, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office shall be established
and maintained at the office of The Corporate Trust Company, in the City of
Wilmington, in the County of New Castle, in the State of Delaware, and said
Company shall be the registered agent of this corporation in charge thereof.
SECTION 2. OTHER OFFICES. The corporation may have other offices, either
within or outside of the State of Delaware, at such place or places as the Board
of Directors may from time to time appoint or the business of the corporation
may require.
ARTICLE II
STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. The annual meeting of stockholders of the
corporation for the election of directors and the transaction of other business
shall be held, in each year, on the date and at the time as shall be fixed by
the Board of Directors and stated in the notice of said meeting. Such annual
meetings shall be general meetings open for the transaction of any business
within the powers of the corporation without special notice of such business,
except in cases in which special notice is required by statute, by the
certificate of incorporation or by these by-laws.
SECTION 2. SPECIAL MEETINGS. Unless otherwise prescribed by statute,
special meetings of the stockholders shall be called by the Chairman of the
Board upon receipt of a written request therefor, stating the purpose thereof
and signed by a majority of the directors. No business other than that stated in
the notice described in the next succeeding section shall be transacted at any
special meeting without the unanimous consent of all of the stockholders
entitled to vote thereat.
SECTION 3. NOTICE OF MEETINGS. (a) Except as otherwise provided by law,
and as set forth in subsection (b) hereof, written or printed notice stating the
place, date and hour of the meeting and, in the case of a special meeting, a
brief statement of the purpose or purposes for which the meeting is called,
shall be delivered not less than ten (10) nor more than sixty (60) days
<PAGE>
- 2 -
before the date of every meeting of stockholders, either personally or by mail,
by or at the direction of the President and Chief Executive Officer or the
Secretary, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail addressed to the stockholder at his address as it appears on the
records of the corporation, with postage thereon prepaid. Whenever any notice is
required to be given under the provisions of Delaware law, the certificate of
incorporation or these by-laws, a waiver thereof in writing signed by the person
or persons entitled to such notice, whether it be before or after the time
stated therein, shall be deemed equivalent to the giving of such notice. It
shall not be requisite to the validity of any meeting of stockholders that
notice thereof, whether prescribed by law, by the certificate of incorporation
or by these by-laws, shall have been given to any stockholder who attends in
person or by proxy. No notice other than by verbal announcement need be given of
any adjourned meetings of stockholders.
(b) Stockholders intending to nominate directors for election must
deliver written notice thereof to the Secretary of the corporation not later
than (i) with respect to an election to be held at an annual meeting of
stockholders, ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders, and (ii) with respect to an election
to be held at a special meeting of stockholders, the close of business on the
tenth day following the date on which notice of such meeting is first given to
stockholders. The notice shall set forth certain information concerning such
stockholder and his nominee(s), including their names and addresses, a
representation that the stockholder is entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice, a description of all arrangements or
understandings between the stockholder and each nominee, such other information
as would be required to be included in a proxy statement soliciting proxies for
the election of the nominees of such stockholder and the consent of each nominee
to serve as a director of the Company if so elected. The chairman of the annual
or special meeting of the corporation may refuse to acknowledge the nomination
of any person not made in compliance with the foregoing procedure.
SECTION 4. PLACE OF MEETINGS. Annual and special meetings of
stockholders may be held at one of the corporation's offices or at such place
or places within or without the State of Delaware as shall be determined by
the Board of Directors.
SECTION 5. QUORUM. Except as otherwise required by law, the
certificate of incorporation or these by-laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at
<PAGE>
- 3 -
all meetings of the stockholders. In case a quorum shall not be present at any
meeting, a majority in interest of the stockholders entitled to vote thereat,
present in person or by proxy, shall have power to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until the
requisite amount of stock entitled to vote shall be present. If upon the
reconvening of any such adjourned meeting a majority of the stock entitled to
vote shall be represented, any business may be transacted which might have been
transacted at the meeting as originally noticed, but only those stockholders
entitled to vote at the meeting as originally noticed shall be entitled to vote
at such time as it is reconvened.
SECTION 6. VOTING. Each stockholder entitled to vote in accordance with
the terms of the certificate of incorporation or these by-laws shall be entitled
to one (1) vote for each share of stock entitled to vote held by such
stockholder. Shares of its own stock belonging to the corporation shall not be
voted, directly or indirectly, at any meeting and shall not be counted in
determining the total number of outstanding shares at any given time, but shares
of its own stock held by the corporation in a fiduciary capacity may be voted
and shall be counted in determining the total number of outstanding shares at
any given time. When a quorum is present or represented at any meeting of
stockholders, the vote of the holders of a majority of the shares present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which a different vote is required by
virtue of an express provision of law, the certificate of incorporation or
another section of these by-laws.
SECTION 7. PROXIES. Any stockholder entitled to vote at a meeting
of stockholders may vote either in person or by proxy executed in writing by
the stockholder or by his duly authorized attorney-in-fact.
SECTION 8. LIST OF STOCKHOLDERS. At least ten (10) days prior to each
meeting of stockholders at which directors are to be elected, the Secretary
shall make or cause to be made a complete list of the stockholders entitled to
vote at the ensuing election, arranged in alphabetical order, showing the
mailing address of each according to the records of the corporation and the
number of voting shares held by each. Such list shall be kept on file at the
office of the corporation for a period of ten (10) days prior to such meeting,
and shall at all times during the usual hours for business be open to the
examination of any stockholder, and also shall be produced and kept at the time
and place of such election for the inspection of any stockholder during the
whole time thereof.
The original stock ledger or transfer book, or a duplicate thereof, kept
at the principal office of the corporation, shall be
<PAGE>
- 4-
prima facie evidence as to the stockholders who are entitled to examine such
list or stock ledger or transfer book or to vote at any meeting of stockholders.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. POWERS. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, which may exercise
all of the powers of the corporation except such as are by law, the certificate
of incorporation or these by-laws conferred upon or reserved to the
stockholders. Continuing and exclusive authority to fix, supervise and control
the professional business and other affairs of the corporation shall be wholly
vested in the Board of Directors.
SECTION 2. QUALIFICATIONS. Directors of this corporation shall be
Independent Directors (as defined below), Parent Directors (as defined below),
or Company Directors (as defined below). "Company Directors" are employees of
the corporation or its affiliates. The term of any Company Director who ceases
to qualify as provided in the foregoing sentence shall immediately and without
any further action terminate forthwith. "Parent Directors" means such persons as
are designated by Abaco Grupo Financiero, S.A. de C.V. ("Parent"), as such
designation may change from time to time. An "Independent Director" means any
person designated by Parent who (i) is in fact independent and qualifies as an
independent director in accordance with New York Stock Exchange rules, (ii) is
not connected with Parent or the corporation or any of their respective
affiliates as an officer, employee, trustee, partner, director (other than of
the corporation) or person performing similar functions and (iii) has not been
employed by the corporation or any of its subsidiaries during the preceding
year.
SECTION 3. NUMBER, ELECTION AND REMOVAL OF DIRECTORS. The number of
directors which shall constitute the whole Board of Directors shall be fixed
from time to time by resolution of the Board of Directors, but shall not be less
than eleven (11) nor more than twenty-one (21). Except as provided in Section 10
of this Article III, directors shall be elected by a plurality of the votes cast
at Annual Meetings of Stockholders. At each annual meeting of stockholders,
directors shall be elected for a term expiring at the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
Any director may be removed, with or without cause, by the holders of a majority
of the shares then entitled to vote at an election of directors.
SECTION 4. MEETINGS. Regular meetings of the Board of Directors
shall be held at the time and place determined by the Board of Directors.
<PAGE>
- 5 -
Special meetings of the Board of Directors may be called by the Chairman
of the Board or by a majority of the Parent Directors on the written request of
any director and shall be held at such time and such place or places as may be
determined by the directors, or as shall be stated in the call of the meeting.
SECTION 5. NOTICE OF MEETINGS. No notice of regular meetings of the
Board of Directors need be given. Notice of the place, day and hour of every
special meeting shall be given to each director at least one (1) day before the
meeting, by delivering the same to him personally, by sending the same to him by
telefax or by leaving the same at his residence or usual place of business, or,
in the alternative, upon seven (7) days' notice, by mailing it, postage prepaid,
and addressed to him at his last known mailing address, as reflected in the
records of the corporation. It shall not be requisite to the validity of any
meeting of the Board of Directors that notice thereof shall have been given to
any director who attends, except where a director attends for the express
purpose of objecting to the transaction of any business because the meeting is
not lawfully called or convened. No notice of adjourned meetings of the Board of
Directors need be specified in the notice or waiver of notice of such meeting.
All regular and special meetings of the Board of Directors shall be open for the
transaction of any business within the powers of the corporation without special
notice of such business, except in those cases in which special notice is
required by law, the certificate of incorporation or by these by-laws.
SECTION 6. QUORUM. At all meetings of the Board of Directors, a majority
of the Board of Directors shall constitute a quorum. The act of the majority of
the whole Board of Directors shall be the act of the Board of Directors, unless
the act of a greater number is required by law, the certificate of incorporation
or these by-laws. In the absence of a quorum at a meeting of the Board of
Directors, a majority of those present may adjourn the meeting from time to time
until a quorum is obtained, and no notice thereof need be given other than by
announcement at the meeting which shall be adjourned.
SECTION 7. INFORMAL ACTION. Unless otherwise restricted by the
certificate of incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of the Executive
Committee may be taken without a meeting, if a written consent to such action is
executed by all members of the Board of Directors or of the Executive Committee,
as the case may be, and such written consent is filed with the minutes of
proceedings of the Board of Directors or of the Executive Committee.
SECTION 8. COMPENSATION. Directors shall not receive any stated
salary for their services as directors or as members of
<PAGE>
- 6 -
committees, but by resolution of the Board of Directors a fixed fee and expenses
of attendance may be allowed for attendance at each meeting. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
SECTION 9. RESIGNATIONS. Any director, member of the Executive Committee
or officer may resign at any time. Such resignation shall be made in writing,
and shall take effect at the time specified therein, and if no time be
specified, at the time of its actual receipt by the Chairman of the Board,
President or Secretary. The acceptance of a resignation shall not be necessary
to make it effective.
SECTION 10. VACANCIES. Vacancies in the Board of Directors, through
death, resignation or otherwise, and newly created directorships resulting from
an increase in the number of directors, may be filled by a majority of the
remaining directors in office, though less than a quorum, or by the sole
remaining director, provided, however, that in all events Parent shall be
entitled to designate the director or directors to fill vacancies in the Board
of Directors through death, resignation or otherwise of any Parent Director, and
provided further that until December 23, 1996, if a vacancy in the Board of
Directors exists through death, resignation or otherwise of any Company
Director, and the Board of Directors by a majority vote of the whole Board of
Directors determines to replace that Director, then the other Company Directors
shall have the right, by majority vote, to designate an employee of the Company
or one of its affiliates, as a replacement for that Company Director. Directors
elected to fill vacancies shall hold office for a term expiring at the next
annual meeting of stockholders and until their successors have been duly elected
and qualified, or until their earlier resignation or removal.
SECTION 11. CHAIRMAN AND VICE CHAIRMAN; PRESIDING OFFICER. The Board of
Directors, by resolution adopted by a majority of the whole Board of Directors,
shall elect a Chairman of the Board of Directors, who shall preside at all
meetings of the stockholders of the corporation and at all meetings of the Board
of Directors. The Board of Directors, by resolution adopted by a majority of the
whole Board of Directors, also may elect a Vice Chairman of the Board of
Directors, who, in the absence of the Chairman of the Board of Directors, shall
preside at meetings of the stocKholders of the corporation and meetings of the
Board of Directors. In the absence of the Chairman and Vice Chairman of the
Board of Directors, the Board of Directors, by resolution adopted by a majority
of the whole Board of Directors, may designate any Parent Director to preside at
a particular meeting of the stockholders of the corporation or of the Board of
Directors.
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ARTICLE IV
COMMITTEES
SECTION 1. EXECUTIVE COMMITTEE. The Board of Directors, by resolution
adopted by a majority of the whole Board of Directors, may designate an
Executive Committee consisting of three (3) or more directors. Except as
otherwise provided by law or by the Board of Directors, during the intervals
between the meetings of the Board of Directors the Executive Committee shall
have and may exercise all of the powers of the Board of Directors in the
management of the corporation. The Executive Committee shall keep regular
minutes of its proceedings and report the same to the Board of Directors at its
meeting next succeeding such action.
SECTION 2. MEETINGS OF EXECUTIVE COMMITTEE. The Executive Committee
shall fix its own rules of procedure and shall meet as provided by such rules,
and it also shall meet at the call of the Chairman of the Board of Directors or
a majority of the members of the Committee. A majority of the members of the
Executive Committee shall be necessary to constitute a quorum, and the
concurrence of a majority of the whole Executive Committee shall be required in
all matters to constitute the act of the Committee.
SECTION 3. EXECUTIVE COMMITTEE POWERS. For all purposes of these
by-laws, the words "Board of Directors," "directors," "Board" or any equivalent
term shall be construed to include "Executive Committee," it being the intent
that such Committee may, except as otherwise provided by law, have and exercise
all of the powers conferred upon the Board of Directors by law, the certificate
of incorporation and these by-laws.
SECTION 4. AUDIT COMMITTEE. The Board of Directors, by resolution
adopted by a majority of the whole Board of Directors, shall designate an Audit
Committee consisting of one (1) or both of the Independent Directors. It
shall be the Audit Committee's responsibility to:
- Recommend to the Board of Directors which accounting firm to employ
as the corporation's external auditor and review the proposed
discharge of any such firm.
- Review the external auditor's compensation, the proposed terms of
its engagement and its independence.
- Review the appointment and replacement of the corporation's
internal auditing personnel.
- Serve as a channel of communication between the external auditor
and the Board of Directors and between the
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corporation's internal auditing staff and the Board of Directors.
- Review the results of each external audit of the corporation, the
report of the audit, any related management letter, management's
responses to recommendations made by the external auditor in
connection with the audit, reports of the internal auditing staff
that are material to the corporation as a whole, and management's
responses to those reports.
- Review the corporation's annual financial statements, any
certification, report, opinion, or review rendered by the external
auditor in connection with those financial statements, and any
significant disputes between management and the external auditor
that arose in connection with the preparation of those financial
statements.
- Consider, in consultation with the external auditor and the
internal auditing staff, the adequacy of the corporation's internal
controls.
- Consider significant changes and other significant questions of
choice regarding the appropriate auditing and accounting principles
and practices to be used in the preparation of the corporation's
financial statements.
The Audit Committee shall meet at such times during the year as to properly
perform its responsibilities. It shall keep regular minutes of its proceedings
and report the same to the Board of Directors when required. It shall have
authority to retain special counsel or experts as it deems necessary.
SECTION 5. COMPENSATION COMMITTEE. The Board of Directors, by
resolution adopted by a majority of the whole Board of Directors, shall
designate a Compensation Committee consisting of one (1) or both of the
Independent Directors. It shall be the Compensation Committee's responsibility
to:
- Review and recommend to the Board of Directors the annual salary,
bonus, stock options and other benefits, direct and indirect, of
the corporation's officers.
- Review new executive compensation programs; review on a
periodic basis the operation of the corporation's executive
compensation programs to determine whether they are properly
coordinated; establish and periodically review policies for the
administration of executive compensation programs; and take steps
to modify any executive compensation programs that yield payments
and
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benefits that are not reasonably related to executive
performance.
- Establish and periodically review policies in the area of
management perquisites.
The Compensation Committee shall meet at such times during the year as
to properly perform its responsibilities. It shall keep regular minutes of its
proceeding and report the same to the Board of Directors when required.
SECTION 6. NOMINATING COMMITTEE. The Board of Directors, by
resolution adopted by a majority of the whole Board of Directors, shall
designate a Nominating Committee consisting of three (3) or more directors.
It shall be the Nominating Committee's responsibility to:
- Recommend to the Board of Directors the slate of nominees of
directors to be elected by the stockholders and any directors to be
elected by the Board of Directors, based upon a review of the
qualifications of such persons.
- Recommend to the Board of Directors the directors to be selected
for membership on the various committees of the Board of Directors.
The Nominating Committee shall meet at such times during the year as to
properly perform its responsibilities. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors when required.
SECTION 7. OTHER COMMITTEES. The Board of Directors, by resolution
adopted by the whole Board of Directors, may designate other committees as it
deems appropriate. Each such committee shall consist of one (1) or more of the
directors of the corporation, and to the extent provided by the Board of
Directors, shall have and may exercise the powers of the Board of Directors in
the management of the business and affairs of the corporation, and may have
power to authorize the seal of the corporation to be affixed to all papers which
may require it. Such committee or committees shall have such name or names as
may be determined from time to time by the Board of Directors. The committees
shall keep regular minutes of their proceedings and report the same to the Board
of Directors when required.
SECTION 8. ABSENT MEMBERS. In the event a member of any committee is
absent or disqualified from any meeting thereof, the member or members present
at any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint a Parent Director to sit at the
meeting in the place of any such absent or disqualified member.
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SECTION 9. MODIFICATIONS OF COMMITTEE RESPONSIBILITIES. The
Responsibilities of the Audit Committee, Compensation Committee, Nominating
Committee, and any other committees may be modified from time to time by the
Board of Directors by resolution or by adoption of charters of such committees.
Any charter of the Audit Committee, Compensation Committee, or Nominating
Committee, as such charter may be amended by the Board of Directors from time to
time, shall supersede the responsibilities enumerated in Sections 4, 5 and 6,
respectively, of this Article IV, until such time as the charter is revoked by
the Board of Directors.
ARTICLE V
OFFICERS
SECTION 1. OFFICERS. The officers of the corporation, all of whom shall
be subject to the supervision and direction of the Board of Directors, shall be
a President and Chief Executive Officer, a Chief Financial Officer, a Secretary
and a Treasurer and may consist of such vice presidents, assistant secretaries,
assistant treasurers and other officers as the Board of Directors shall
determine. None of the aforesaid officers except the President and Chief
Executive Officer need be directors of the corporation. The officers shall be
elected by the Board of Directors from time to time. Any two or more offices may
be held by the same person.
SECTION 2. PRESIDENT AND CHIEF EXECUTIVE OFFICER. The President and
Chief Executive Officer shall have overall responsibility for the formulation of
corporate policies and purposes to be presented from time to time to the Board
of Directors for adoption on behalf of the corporation, shall have
responsibility for communicating said policies and purposes, as adopted, to the
officers, staff and employees of the corporation, and shall have power to
supervise and direct all officers and employees of the corporation in the
exercise of their duties. In the event that the Board of Directors shall,
pursuant to the authority granted by Article IV of these bylaws, designate an
Executive Committee, the President and Chief Executive Officer shall be one of
the directors designated to serve on such committee. The Chief Executive Officer
also shall serve as an ex officio member of each and every other committee of
the Board of Directors established pursuant to the provisions of Article IV of
these by-laws, except for the Audit and Compensation Committees.
SECTION 3. CHIEF OPERATING OFFICER. Subject to direction from the
President and Chief Executive Officer, the Chief Operating Officer shall have
such general powers and duties of direction and control of the business of the
corporation as shall be necessary to carry out and give effect to the corporate
policies and purposes
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adopted by the Board of Directors. The Chief Operating Officer shall report to
the Board of Directors through, and shall be responsible to, the President and
Chief Executive Officer.
SECTION 4. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
have overall responsibility for the financial affairs of the corporation,
including the preparation of all financial reports, audits and returns of the
corporation. He also shall have responsibility for making recommendations
concerning the corporation's fiscal policies and all financial matters affecting
the corporation. The Chief Financial Officer shall report to the Board of
Directors through, and shall be responsible to, the President and Chief
Executive Officer.
SECTION 5. VICE PRESIDENTS. The Vice President or Vice Presidents
shall perform such duties as may be assigned to him or them by any executive
officer of the corporation acting at the direction of the Board of Directors.
SECTION 6. SECRETARY. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by law or by these by-laws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person so directed by the
President and Chief Executive Officer, the Chief Operating Officer or the Board
of Directors. He shall record all of the proceedings of the meetings of the
stockholders of the corporation and of the Board of Directors in a book to be
kept for that purpose, and shall perform such other duties as may be assigned to
him by the Board of Directors or any other executive officer of the corporation
acting at the direction of the Board of Directors. He shall have the custody of
the seal of the corporation and shall affix the same to all instruments
requiring it, when authorized by the Board of Directors, and attest the same.
SECTION 7. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
corporation in such depositories as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the corporation as may be ordered by
the Board of Directors, or any other executive officer of the corporation acting
at the direction of the Board of Directors, taking proper vouchers for such
disbursements. He shall render to the Board of Directors, or its designees
(including the President and Chief Executive Officer, the Chief Operating
Officer and the Chief Financial Officer), whenever they may request it, an
account of all of his transactions as Treasurer and of the financial condition
of the corporation. If required by the Board of Directors, he shall give the
corporation a bond for the faithful
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discharge of his duties in such amount and with such surety as the Board of
Directors shall prescribe.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. If desired,
the Board of Directors may elect one or more Assistant Secretaries and one or
more Assistant Treasurers. The Assistant Secretaries and Assistant Treasurers,
if any, shall have such powers and shall perform such duties as shall be
assigned to them by the Board of Directors or any executive officer of the
corporation acting at the direction of the Board of Directors.
SECTION 9. EXECUTION OF DOCUMENTS. Except as otherwise authorized or
directed by the Board of Directors, either of the President and Chief Executive
Officer and the Chief Operating Officer, or in their absence, a Vice President,
may execute stock certificates, bonds, mortgages and other contracts on behalf
or the corporation and shall cause the corporate seal to be affixed to any
instrument requiring it.
SECTION 10. REMOVAL OF OFFICERS. Any officer of the corporation may be
removed by the Board of Directors whenever in its judgment the best interests
of the corporation will be served thereby.
ARTICLE VI
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. Certificates of stock, numbered and
with the seal of the corporation affixed, signed by the President and Chief
Executive Officer or the Chief Operating Officer and the Treasurer or an
Assistant Treasurer, or Secretary or Assistant Secretary, shall be issued to
each stockholder certifying the number of shares owned by him in the
corporation. If such certificate is countersigned by a transfer agent or
registrar other than the corporation or its employee, any other signature on the
certificate may be a facsimile.
SECTION 2. LOST CERTIFICATES. A new certificate of stock may be issued
in the place of any certificate theretofore issued by the corporation and
alleged to have been lost or destroyed. However, the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or his legal
representative, to give the corporation a bond, in such sum as they may direct,
not exceeding double the value of the stock, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss of
the certificate, or the issuance of a new certificate.
SECTION 3. TRANSFER OF SHARES. The shares of stock of the
corporation shall be transferable only upon its books by the
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holders thereof in person or by their duly authorized attorneys or legal
representatives, and upon such transfer the old certificates shall be
surrendered to the corporation by the delivery thereof to the person in charge
of the stock and transfer books and ledgers, by whom they shall be canceled, and
new certificates shall thereupon be issued.
SECTION 4. DIVIDENDS. Subject to the provisions of the certificate of
incorporation, the Board of Directors may, out of funds legally available
therefor, at any regular or special meetings, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the directors from time to time in their
absolute discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
Board of Directors shall deem conducive to the interests of the corporation.
SECTION 5. SEAL. The corporate seal shall be circular in form and shall
contain the name of the corporation and the words "CORPORATE SEAL DELAWARE."
Said seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise .
SECTION 6. FISCAL YEAR. The fiscal year of the corporation shall
be as determined by the Board of Directors.
SECTION 7. CHECKS. All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of the
corporation, in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 8. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required
to be given by these by-laws, personal notice is not meant unless expressly so
stated, and any notice so required shall be deemed to be sufficient if given by
certified or registered mail, return receipt requested, in a sealed post-paid
wrapper, addressed to the person entitled thereto at his last known address.
Such notice shall be deemed to have been given on the day of such mailing.
Stockholders not entitled to vote shall not be entitled to receive notice of any
meetings except as otherwise provided by law.
Whenever any notice is required to be given under the provisions of any
law, the certificate of incorporation or these by-laws, a waiver thereof in
writing, signed by the person or persons entitled to said notice, whether before
or after the time stated therein, shall be deemed equivalent thereto.
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SECTION 9. FIXING OF RECORD DATE. The Board of Directors may fix in
advance a date, not more than sixty (60) or less than ten (10) days preceding
the date of any meeting of stockholders, nor more than sixty (60) days prior to
the date for the payment of any dividend or the date for the allotment of rights
or the date when any change or conversion or exchange of capital stock shall go
into effect, as a record date for the determination of the stockholders entitled
to notice of, and to vote at, any such meeting, or entitled to receive payment
of any such dividends or to any such allotment of rights or to exercise the
rights in respect of any such change, conversion or exchange of capital stock,
and in such case such stockholders only as shall be stockholders of record on
the date so fixed shall be entitled to such notice of, and to vote at, such
meeting, or to receive such allotment of rights or to exercise such rights, as
the case may be, notwithstanding any transfer of any stock on the books of the
corporation after any such record date fixed as aforesaid.
ARTICLE VII
AMENDMENTS
These by-laws may be amended or repealed and new by-laws may be adopted at
any regular or special meeting of the Board of Directors by the affirmative vote
of a majority of the entire Board of Directors.
ARTICLE VIII
INDEMNIFICATION
The corporation shall indemnify its officers, directors, employees and
agents to the fullest extent permitted by the General Corporation Law of the
State of Delaware.
Adopted January 10, 1994 Amended June 7, 1995 Amended February 8, 1996
<PAGE>
EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS
OF
RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS
OF SERIES B NON-VOTING CONVERTIBLE PREFERRED STOCK
OF
RODMAN & RENSHAW CAPITAL GROUP, INC.
A DELAWARE CORPORATION
Charles W. Daggs, III and James D. Van De Graaff certify that:
A. They are the duly elected and acting President and Corporate Secretary,
respectively, of Rodman & Renshaw Capital Group, Inc., a Delaware corporation
(the "Corporation").
B. Pursuant to the authority given by the Corporation's Certificate of
Incorporation, the Board of Directors of the Corporation has duly adopted the
following recitals and resolutions:
WHEREAS, the Certificate of Incorporation of the Corporation provides
for a class of shares known as Preferred Stock, consisting of five
million (5,000,000) shares issuable from time to time in one or more
series; and
WHEREAS, the Board of Directors of the Corporation is authorized to fix
by resolution or resolutions the rights, preferences, privileges and
restrictions granted to or imposed upon the Preferred Stock or any
series thereof; and
WHEREAS, the Corporation has no issued or outstanding shares
of Preferred Stock; and
WHEREAS, the Board of Directors desires, pursuant to its authority as
aforesaid, to designate fifty (50) shares of the Preferred Stock as
"Series B Non-
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Voting Convertible Preferred Stock" and to fix the rights,
preferences, privileges and restrictions relating to such series of
Preferred Stock;
NOW, WHEREFORE, BE IT RESOLVED, that the Board of Directors hereby
fixes the designation and the number of shares constituting, and the
rights, preferences, privileges and restrictions relating to, the
Series B Non-Voting Convertible Preferred Stock:
1. Designation. This series of Preferred Stock shall be
designated "Series B Non-Voting Convertible Preferred Stock"
(the "Series B Preferred Stock").
2. Number of Shares and Par Value. The number of shares
constituting the Series B Preferred Stock shall be fifty (50).
Each share of the Series B Preferred Stock shall have a par
value of one cent ($.01).
3. Certain Definitions. Unless the context otherwise
requires, the terms defined in this paragraph 3 shall have,
for all purposes of this resolution, the meanings herein
specified.
Common Stock. The term "Common Stock" shall mean all shares now
or hereafter authorized of any class of Common Stock of the
Corporation and any other stock of the Corporation, howsoever
designated, authorized after the Issue Date, which has the right
(subject always to prior rights of any class or series of preferred
stock) to participate in the distribution of the assets and earnings
of the Corporation without limit as to per share amount.
Conversion Date. The term "Conversion Date" shall have
the meaning set forth in subparagraph 6(c) below.
Conversion Price. The term "Conversion Price" shall mean the
price per share of Common Stock used to determine the number of
shares of Common Stock deliverable upon conversion of a share of the
Series B Preferred Stock, which price shall initially be $1.28 per
share as determined pursuant to subparagraph 6(b) below (based upon
the Corporation's records as at the close of October, 1995), subject
to adjustment in accordance with the provisions of subparagraph 6(e)
below.
Current Market Price. The term "Current Market Price"
shall have the meaning set forth in subparagraph 6(f) below.
Dividend Payment Date. The term "Dividend Payment Date"
shall have the meaning set forth in subparagraph 4(a) below.
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Dividend Period. The term "Dividend Period" shall have
the meaning set forth in subparagraph 4(a) below.
Issue Date. The term "Issue Date" shall mean the date that
shares of Series B Preferred Stock are first issued by the
Corporation.
Junior Stock. The term "Junior Stock" shall mean, for purposes
of paragraphs 4, 5 and 8 below, the Common Stock and any other class
or series of stock of the Corporation issued after the Issue Date not
entitled to receive any dividends in any Dividend Period unless all
dividends required to have been paid or declared and set apart for
payment on the Series B Preferred Stock shall have been so paid or
declared and set apart for payment and, for purposes of paragraphs 5
and 8 below, any class or series of stock of the Corporation issued
after the Issue Date not entitled to receive any assets upon the
liquidation, dissolution or winding up of the affairs of the
Corporation until the Series B Preferred Stock shall have received
the entire amount to which such stock is entitled upon such
liquidation, dissolution or winding up.
Parity Stock. The term "Parity Stock" shall mean, for purposes
of paragraphs 4, 5, 7 and 8 below, any other class or series of stock
of the Corporation issued after the Issue Date entitled to receive
payment of dividends on a parity with the Series B Preferred Stock
and, for purposes of paragraphs 4 and 8 below, any other class or
series of stock of the Corporation issued after the Issue Date
entitled to receive assets upon the liquidation, dissolution or
winding up of the affairs of the Corporation on a parity with the
Series B Preferred Stock.
Senior Stock. The term "Senior Stock" shall mean, for purposes
of paragraphs 4, 5, 7 and 8 below, any class or series of stock of
the Corporation issued after the Issue Date ranking senior to the
Series B Preferred Stock in respect of the right to receive
dividends, and, for purposes of paragraphs 4 and 8 below, any class
or series of stock of the Corporation issued after the Issue Date
ranking senior to the Series B Preferred Stock in respect of the
right to receive assets upon the liquidation, dissolution or winding
up of the affairs of the Corporation.
Subscription Price. The term "Subscription Price" shall
mean $100,000 per share.
Subsidiary. The term "Subsidiary" shall mean any
corporation of which shares of stock possessing at least a
majority of the general voting power in electing the board of
directors are, at the time as of which any determination is
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being made, owned by the Corporation, whether directly or indirectly
through one or more Subsidiaries.
4. Dividends.
(a) Subject to the prior preferences and other rights of any
Senior Stock and restrictions imposed by the terms of any
indebtedness of the Corporation, the holders of Series B Preferred
Stock shall be entitled to receive, out of funds legally available
for the purpose, cash dividends at a per annum rate applied to the
Subscription Price as determined daily during each Dividend Period
equal to the then most recent "Prime Rate," as published in The Wall
Street Journal (or any successor publication) as the base rate on
corporate U.S. Dollar loans posted by at least 75% of the nation's 30
largest banks (or any publicly published comparable rate as
determined by the Board of Directors) plus two percent per annum;
such rate to change as and when such "Prime Rate" changes and such
rate to be determined on the basis of a 365 day year and the actual
days elapsed during a Dividend Period. Such dividends shall be
cumulative from July 1, 1996, and shall be payable in arrears, when
and as declared by the Board of Directors, on March 31, June 30,
September 30 and December 31 of each year (each such date being
herein referred to as a "Dividend Payment Date"), commencing on
September 30, 1996. The period from July 1, 1996, through September
30, 1996, and each quarterly period between consecutive Dividend
Payment Dates thereafter shall hereinafter be referred to as a
"Dividend Period." Each such dividend shall be paid to the holders of
record of the Series B Preferred Stock as their names appear on the
share register of the Corporation on the corresponding Record Date.
As used above, the term "Record Date" means, with respect to the
dividend payment on March 31, June 30, September 30 and December 31,
respectively, of each year, the preceding March 30, June 29,
September 29 and December 30, or such other record date designated by
the Board of Directors of the Corporation with respect to the
dividend payable on such respective Dividend Payment Date. Dividends
on account of arrears for any past Dividend Periods may be declared
and paid at any time, without reference to any Dividend Payment Date,
to holders of record on such date, not exceeding 50 days preceding
the payment date thereof, as may be fixed by the Board of Directors.
No dividends shall be payable in respect of any period less than a
full Dividend Period.
(b) In the event that full cash dividends are not paid or made
available to the holders of all outstanding shares of Series B
Preferred Stock and of any Parity Stock, and funds available shall be
insufficient to permit payment in full in cash to all such holders of
the preferential amounts to which they are then entitled, the entire
amount available for payment of cash dividends shall be
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distributed among the holders of the Series B Preferred Stock and of
any Parity Stock ratably in proportion to the full amount to which
they would otherwise be respectively entitled, and any remainder not
paid in cash to the holders of the Series B Preferred Stock shall
cumulate as provided in subparagraph 4(c) below.
(c) If, on any Dividend Payment Date, the holders of the Series
B Preferred Stock shall not have received the full dividends provided
for in the other provisions of this paragraph 4, then such dividends
shall cumulate, whether or not earned or declared, with additional
dividends thereon for each succeeding full Dividend Period during
which such dividends shall remain unpaid. Unpaid dividends for any
period less than a full Dividend Period shall cumulate on a
day-to-day basis and shall be computed on the basis of a 365 day
year.
(d) So long as any shares of Series B Preferred Stock shall be
outstanding, the Corporation shall not declare or pay on any Junior
Stock any dividend whatsoever, whether in cash, property or otherwise
(other than dividends payable in shares of the class or series upon
which such dividends are declared or paid, or payable in shares of
Common Stock with respect to Junior Stock other than Common Stock,
together with cash in lieu of fractional shares), nor shall the
Corporation make any distribution on any Junior Stock, nor shall any
monies be paid or made available for a sinking fund for the purchase
or redemption of any Junior Stock, unless all dividends to which the
holders of Series B Preferred Stock shall have been entitled for all
previous Dividend Periods shall have been paid or declared and a sum
of money sufficient for the payment thereof set apart.
5. Distributions Upon Liquidation, Dissolution or Winding Up. In the
event of any voluntary or involuntary liquidation, dissolution or
other winding up of the affairs of the Corporation, subject to the
prior preferences and other rights of any Senior Stock, but before
any distribution or payment shall be made to the holders of Junior
Stock, the holders of the Series B Preferred Stock shall be entitled
to be paid the Subscription Price of all outstanding shares of Series
B Preferred Stock as of the date of such liquidation or dissolution
or such other winding up, plus any accrued and unpaid dividends
thereon to such date, and no more, in cash or in property taken at
its fair value as determined by the Board of Directors. If such
payment shall have been made in full to the holders of the Series B
Preferred Stock, and if payment shall have been made in full to the
holders of any Senior Stock and Parity Stock of all amounts to which
such holders shall be entitled, the remaining assets and funds of the
Corporation shall be distributed among the holders of Junior Stock,
according to their respective shares and priorities. If, upon any
such liquidation, dissolution or other winding
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up of the affairs of the corporation, the net assets of the
Corporation distributable among the holders of all outstanding shares
of the Series B Preferred Stock and of any Parity Stock shall be
insufficient to permit the payment in full to such holders of the
preferential amounts to which they are entitled, then the entire net
assets of the Corporation remaining after the distributions to
holders of any Senior Stock of the full amounts to which they may be
entitled shall be distributed among the holders of the Series B
Preferred Stock and of any Parity Stock ratably in proportion to the
full amounts to which they would otherwise be respectively entitled.
Neither the consolidation or merger of the Corporation into or with
another corporation or corporations, nor the sale of all or
substantially all of the assets of the Corporation to another
corporation or corporations shall be deemed a liquidation,
dissolution or winding up of the affairs of the corporation within
the meaning of this paragraph 5.
6. Conversion Rights. The Series B Preferred Stock shall be
convertible into Common Stock as follows:
(a) Automatic Conversion. Each outstanding share of Series B
Preferred Stock shall automatically be converted, without any further
act of the Corporation or its stockholders, into fully paid and
nonassessable shares of Common Stock at the Conversion Price then in
effect, upon the commencement of a rights offering to all
stockholders of the Corporation at a per share cash price equal to
such Conversion Price pursuant to which the stockholders of the
Corporation (other than the holders of Series B Preferred Stock whose
rights to purchase shares in the offering would be deemed exercised
and consummated by the conversion) could purchase the number of
shares proportional to the number of shares issued upon conversion
("Rights Offering"). The Series B Preferred Stock shall not otherwise
be convertible.
(b) Conversion Price. Each share of Series B Preferred Stock
shall be converted into a number of shares of Common Stock determined
by dividing (i) the sum of (A) the Subscription Price plus (B) any
dividends on such share of Series B Preferred Stock which such holder
is entitled to receive, but has not yet received, by (ii) the
Conversion Price in effect on the Conversion Date. The Conversion
Price at which shares of Common Stock shall initially be issuable
upon conversion of the shares of Series B Preferred Stock shall be
determined on a floating basis and shall equal the book value per
share of Common Stock from time to time determined in accordance with
generally accepted accounting principles from the Corporation's
financial records as at the close of the full month immediately
preceding the Conversion Date (provided that, if it is not
practicable to determine such book value on a sufficiently timely
basis to commence the Rights Offering, then the Conversion Price
shall be so
<PAGE>
- 7 -
determined at the close of the full month second preceding the
Conversion Date). Such determination shall be made by the independent
auditors of the Company based on a review of the financial records of
the Company but without an audit. The Conversion Price shall be
subject to adjustment as set forth in subparagraph 6(e). No payment
or adjustment shall be made for any dividends on the Common Stock
issuable upon such conversion.
(c) Mechanics of Conversion. Upon the occurrence of the event
specified in subparagraph 6(a), the outstanding shares of Series B
Preferred Stock shall be converted automatically without any further
action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided that the Corporation
shall not be obligated to issue to any such holder certificates
evidencing the shares of Common Stock issuable upon such conversion
unless certificates evidencing the shares of Series B Preferred Stock
are either delivered to the Corporation or any transfer agent of the
Corporation. Conversion shall be deemed to have been effected on the
date of the occurrence of the event specified in subparagraph 6(a)
and such date is referred to herein as the "Conversion Date." Subject
to the provisions of subparagraph 6(e), as promptly as practicable
thereafter (and after surrender of the certificate or certificates
representing shares of Series B Preferred Stock to the Corporation or
any transfer agent of the Corporation) the Corporation shall issue
and deliver to or upon the written order of such holder a certificate
or certificates for the number of full shares of Common Stock to
which such holder is entitled and a check or cash with respect to any
fractional interest in a share of Common Stock as provided in
subparagraph 6(d). Subject to the provisions of subparagraph 6(e),
the person in whose name the certificate or certificates for Common
Stock are to be issued shall be deemed to have become a holder of
record of such Common Stock on the applicable Conversion Date.
(d) Fractional Shares. No fractional shares of Common Stock or
script shall be issued upon conversion of shares of Series B
Preferred Stock. Instead of any fractional shares of Common Stock
which would otherwise be issuable upon conversion of any shares of
Series B Preferred Stock, the Corporation shall pay a cash adjustment
in respect of such fractional interest in an amount equal to that
fractional interest of the then Current Market Price.
(e) Conversion Price Adjustments. The Conversion Price
shall be subject to adjustment from time to time as follows:
(i) Consolidation, Merger, Sale, Lease or Conveyance.
In case of any consolidation with or merger of the Corporation with
or into
<PAGE>
- 8 -
another corporation, or in case of any sale, lease or conveyance to
another corporation of the assets of the Corporation as an entirety
or substantially as an entirety, each share of Series B Preferred
Stock shall after the date of such consolidation, merger, sale, lease
or conveyance be convertible into the number of shares of stock or
other securities or property (including cash) to which the Common
Stock issuable (at the time of such consolidation, merger, sale,
lease or conveyance) upon conversion of such share of Series B
Preferred Stock would have been entitled upon such consolidation,
merger, sale, lease or conveyance; and in any such case, if
necessary, the provisions set forth herein with respect to the rights
and interests thereafter of the holders of the shares of Series B
Preferred stock shall be appropriately adjusted so as to be
applicable, as nearly as may reasonably be, to any shares of stock or
other securities or property thereafter deliverable on the conversion
of the shares of Series B Preferred Stock.
(ii) Rounding of Calculations; Minimum Adjustment. All
calculations under this subparagraph (e) shall be made to the nearest
cent or to the nearest one hundredth (1/100th) of a share, as the
case may be. Any provision of this paragraph 6 to the contrary
notwithstanding, no adjustment in the Conversion Price shall be made
if the amount of such adjustment would be less than $0.05, but any
such amount shall be carried forward and an adjustment with respect
thereto shall be made at the time of and together with any subsequent
adjustment which, together with such amount and any other amount or
amounts so carried forward, shall aggregate $0.05 or more.
(iii) Timing of Issuance of Additional Common Stock Upon Certain
Adjustments. In any case in which the provisions of this subparagraph
(e) shall require that an adjustment shall become effective
immediately after a record date for an event, the Corporation may
defer until the occurrence of such event (A) issuing to the holder of
any share of Series B Preferred Stock converted after such record
date and before the occurrence of such event the additional shares of
Common Stock issuable upon such conversion by reason of the
adjustment required by such event over and above the shares of Common
Stock issuable upon such conversion before giving effect to such
adjustment and (B) paying to such holder any amount of cash in lieu
of a fractional share of Common Stock pursuant to subparagraph (d) of
this paragraph 6; provided that the Corporation upon request shall
deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares, and
such cash, upon the occurrence of the event requiring such
adjustment.
(f) Current Market Price. The Current Market Price at
any date
<PAGE>
- 9 -
shall mean, in the event the Common Stock is publicly traded, the
average of the daily closing prices per share of Common Stock for 30
consecutive trading days ending no more than 15 business days before
such date (as adjusted for any stock dividend, split, combination or
reclassification that took effect during such 30 business day
period). The closing price for each day shall be the last reported
sale price regular way or, in case no such reported sale takes place
o such day, the average of the last closing bid and asked prices
regular way, in either case on the principal national securities
exchange on which the Common Stock is listed or admitted to trading,
or if not listed or admitted to trading on any national securities
exchange, the closing sale price for such day reported by NASDAQ, if
the Common Stock is traded over-the-counter and quoted in the
National Market System, or if the Common Stock is so traded, but not
so quoted, the average of the closing reported bid and asked prices
of the Common Stock as reported by NASDAQ or any comparable system
or, if the Common Stock is not listed on NASDAQ or any comparable
system, the average of the closing bid and asked prices as furnished
by two members of the National Association of Securities Dealers,
Inc. selected from time to time by the Corporation for that purpose.
If the Common Stock is not traded in such manner that the quotations
referred to above are available for the period required hereunder,
Current Market Price per share of Common Stock shall be deemed to be
the fair value as determined by the Board of Directors, irrespective
of any accounting treatment.
(g) Statement Regarding Adjustments. Whenever the Conversion
Price shall be adjusted as provided in subparagraph 6(e), the
Corporation shall forthwith file, at the office of any transfer agent
for the Series B Preferred Stock and at the principal office of the
Corporation, a statement showing in detail the facts requiring such
adjustment and the Conversion Price that shall be in effect after
such adjustment, and the Corporation shall also cause a copy of such
statement to be sent by mail, first class postage prepaid, to each
holder of shares of Series B Preferred Stock at its address appearing
on the Corporation's records.
(h) Costs. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or
delivery of shares of Common Stock upon conversion of any shares of
Series B Preferred Stock; provided that the Corporation shall not be
required to pay any taxes which may be payable in respect of any
transfer involved in the issuance or delivery of any certificate for
such shares in a name other than that of the holder of the shares of
Series B Preferred Stock in respect of which such shares are being
issued.
<PAGE>
- 10 -
(i) Reservation of Shares. The Corporation shall reserve at all
times so long as any shares of Series B Preferred Stock remain
outstanding, free from preemptive rights, out of its treasury stock
(if applicable) or its authorized but unissued shares of Common
Stock, or both, solely for the purpose of effecting the conversion of
the shares of Series B Preferred Stock, sufficient shares of Common
Stock to provide for the conversion of all outstanding shares of
Series B Preferred Stock.
(j) Approvals. If any shares of Common Stock to be reserved for
the purpose of conversion of shares of Series B Preferred Stock
require registration with or approval of any governmental authority
under any federal or state law before such shares may be validly
issued or delivered upon conversion, then the Corporation will in
good faith and as expeditiously as possible endeavor to secure such
registration or approval, as the case may be. If, and so long as, any
Common Stock into which the shares of Series B Preferred Stock are
then convertible is listed on any national securities exchange, the
Corporation will, contemporaneously with the conversion, cause to be
listed and thereafter to keep listed on such exchange, upon official
notice of issuance, all shares of such Common Stock issuable upon
conversion.
(k) Valid Issuance. All shares of Common Stock which may be
issued upon conversion of the shares of Series B Preferred Stock will
upon issuance by the Corporation be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens and charges
with respect to the issuance thereof, and the Corporation shall take
no action which will cause a contrary result (including without
limitation, any action which would cause the Conversion Price to be
less than the par value, if any, of the Common Stock).
7. Voting Rights.
(a) The holders of the issued and outstanding shares of Series B
Preferred Stock have no voting rights except as set forth herein and
as required by law.
(b) Without the consent of the holders of at least
(i) a majority of the shares of Series B Preferred Stock
then outstanding, given in writing or by vote at a meeting of holders
of Series B Preferred Stock called for such purpose, the Corporation
will not (A) increase the authorized amount of Series B Preferred
Stock or (B) create any other class of Parity Stock or Senior Stock
or increase the authorized amount of any such other class; and
<PAGE>
- 11 -
(ii) a majority of the shares of Series B Preferred Stock then
outstanding, given in writing or by vote at a meeting of holders of
Series B Preferred Stock called for such purpose, the Corporation
will not (A) other than as set forth in (i) above, amend, alter or
repeal any provision of the Certificate of Incorporation or this
Certificate so as to adversely affect the rights, preferences or
privileges of the Series B Preferred Stock or (B) merge or
consolidate with or into any other person, or sell substantially all
of its assets or business to any other person, except that the
Corporation may merge with any person if the corporation is the
entity surviving such merger and such merger does not adversely
affect the rights, preferences and privileges of the Series B
Preferred Stock.
8. Covenants. In addition to any other rights provided by law, so
long as any Series B Preferred Stock is outstanding, the Corporation,
without first obtaining the affirmative vote or written consent of
the holders of not less than a majority of such outstanding shares of
Series B Preferred Stock, will not:
(a) amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-Laws or to these
resolutions if such action would alter adversely or change the
preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of, any Series B Preferred Stock, or
increase or decrease the number of shares of Series B Preferred Stock
authorized hereby;
(b) authorize or issue shares of any class or series of stock
not expressly authorized herein having any preference or priority as
to dividends, assets or other rights superior to or on a parity with
any such preference or priority of the Series B Preferred Stock, or
authorize or issue shares of stock of any class or any bonds,
debentures, notes or other obligations convertible into or
exchangeable for, or having option rights to purchase, any shares of
stock of the Corporation having any preference or priority as to
dividends, assets or other rights superior to or on a parity with any
such preference or priority of the Series B Preferred Stock;
(c) reclassify any class or series of any Junior Stock into
Parity Stock or Senior Stock or reclassify any series of Parity Stock
into Senior Stock; or
(d) pay or declare any dividend on any Junior Stock (other than
dividends payable in shares of the class or series upon which such
dividends are declared or paid, or payable in shares of Common Stock
with respect to Junior Stock other than Common Stock, together with
cash in lieu of fractional shares and dividends not in excess of
dividends paid to the Series B Preferred Stock)
<PAGE>
- 12 -
while the Series B Preferred Stock remains outstanding, or apply any
of its assets to the redemption, retirement, purchase or acquisition,
directly or indirectly, through subsidiaries or otherwise, of any
Junior Stock, except from employees of the Corporation upon
termination of employment or otherwise pursuant to the terms of stock
purchase or option agreements providing for the repurchase of, or
right of first refusal with respect to, such Junior Stock entered
into with such employees.
9. Exclusion of Other Rights. Except as may otherwise be required by
law, the Series B Preferred Stock shall not have any preferences or
relative, participating, optional or other special rights, other than
those specifically set forth in this resolution (as such resolution
may be amended from time to time) and in the Corporation's
Certificate of Incorporation. The shares of Series B Preferred Stock
shall have no preemptive or subscription rights. The Series B
Preferred Stock shall not be subject to redemption or the operation
of a retirement or sinking fund.
10. Headings of Subdivisions. The headings of the various
subdivisions hereof are for convenience of reference only and
shall not affect the interpretation of any of the provisions
hereof.
11. Severability of Provisions. If any right, preference or
limitation of the Series B Preferred Stock set forth in this
resolution (as such resolution may be amended from time to time) is
invalid, unlawful or incapable of being enforced by reason of any
rule of law or public policy, all other rights, preferences and
limitations set forth in this resolution (as so amended) which can be
given effect without the invalid, unlawful or unenforceable right,
preference or limitation shall, nevertheless, remain in full force
and effect, and no right, preference or limitation herein set forth
shall be deemed dependent upon any other such right, preference or
limitation unless so expressed herein.
12. Status of Reacquired Shares. Shares of Series B Preferred Stock
which have been issued and converted or reacquired in any manner
shall (upon compliance with any applicable provisions of the laws of
the State of Delaware) have the status of authorized and unissued
shares of Preferred Stock issuable in series undesignated as to
series and may be redesignated and reissued.
C. The authorized number of shares of Preferred Stock of the Corporation is
5,000,000 and the number of shares constituting the Series B Non-Voting
Convertible Preferred Stock, consisting of the shares authorized hereby, is 50.
<PAGE>
- 13 -
IN WITNESS WHEREOF, the undersigned have executed this certificate as of
December 21, 1995, on behalf of the Corporation, and certify under penalty of
perjury that this is the act and deed of the Corporation, and that the facts
stated herein are true.
/s/ Charles W. Daggs, III
--------------------------------
Charles W. Daggs, III, President
/s/ James D. Van De Graaff
--------------------------------
James D. Van De Graaff, Secretary
<PAGE>
EXHIBIT 10.8
STOCK PURCHASE AGREEMENT
This Agreement is entered into as of the 21st day of December, 1995, by and
between Rodman & Renshaw Capital Group, Inc., a Delaware corporation (the
"Company"), and Abaco Casa de Bolsa, S.A. de C.V., Abaco Grupo Financiero, a
corporation incorporated under the laws of the United Mexican States ("Abaco").
RECITALS
WHEREAS, Abaco owns a majority of the outstanding shares of capital stock
of the Company; and
WHEREAS, Abaco desires to invest additional funds in the Company in
consideration of additional shares of capital stock of the Company.
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties agree as follows:
1. PURCHASE AND SALE OF SHARES. At the Closing (as hereinafter defined),
the Company shall issue and sell to Abaco, and Abaco shall purchase from the
Company 50 shares of Series B, non-voting preferred stock, $0.01 par value, of
the Company as further described in Exhibit A hereto (the "Shares"). The terms,
conditions, and agreements relating to the Shares as set forth in Exhibit A form
a part of this Agreement and are binding upon the parties.
2.
2. CONSIDERATION AND PAYMENT. In consideration for the Shares, Abaco
shall pay the Company at the Closing by bank check or wire transfer the
aggregate amount of U.S.$5,000,000.
3. CLOSING. The purchase and sale of the Shares shall take place at the
offices of the Company, on December 21, 1995, at a mutually agreeable time (the
"Closing"). At the Closing, the Company shall deliver or cause to be delivered
to Abaco, certificates evidencing the Shares, duly issued to Abaco, and any and
all other documents necessary to issue the Shares, and Abaco shall deliver or
cause to be delivered to the Company, the purchase price as provided in Section
2.
<PAGE>
- 2 -
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Abaco as follows:
A. Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Delaware.
B. Capitalization. The aggregate number of shares of capital stock which
the Company is authorized to issue is 20,000,000 shares of common stock, $0.09
par value, 6,645,802 of which are presently issued and outstanding and 5,000,000
shares of preferred stock, $0.01 par value, none of which are issued or
outstanding. The Shares have been duly authorized and when issued and paid for
in accordance with this Agreement will be validly issued, fully-paid, and
non-assessable. The shares of common stock of the Company into which the Shares
are convertible have been duly reserved for such conversion, and when issued
pursuant to such conversion such shares of common stock will be validly issued,
fully paid, and non-assessable.
C. Authority, Execution and Delivery. The Company has all requisite power
and authority to execute, deliver and perform its obligations under this
Agreement. The execution, delivery and performance of this Agreement and the
consummation of the transaction contemplated hereby have been duly authorized by
all requisite corporate action on the part of the Company. This Agreement has
been duly executed and delivered by the Company and constitutes the legal, valid
and binding obligation of the Company enforceable in accordance with its terms.
D. Financial Statements. The Company has furnished to Abaco the financial
statements for the Company as of September 30, 1995, which statements have been
prepared in accordance with generally accepted accounting principles
consistently applied and present fairly the financial position of the Company as
of the date thereof and the results of operations for the periods covered
thereby. The Company further represents and warrants that there has been no
material change in the financial position of the Company since such date.
E. No Conflict. Except for the authorization of the listing of the shares
of common stock into which the Shares are convertible prior to such conversion
by the New York Stock Exchange and the filing of a Certificate of Designations
in respect of the Shares with the Secretary of State of Delaware, no
authorization or consent is required in connection with the execution, delivery,
or performance of this Agreement by the Company and such execution, delivery or
performance will not conflict with or result in a breach of the Company's
charter documents or any material instrument or agreement.
<PAGE>
- 3 -
5. REPRESENTATIONS AND WARRANTIES OF ABACO. Abaco hereby represents and
warrants to the Company as follows:
A. Corporate Organization. Abaco is a Mexican corporation, duly
organized, validly existing and in good standing under the laws of the United
Mexican States.
B. No Conflict. Except for approval by Mexican regulatory
authorities, no authorization or consent is required in connection with the
execution, delivery, or performance of this Agreement by Abaco and such
execution, delivery or performance will not conflict with or result in a breach
of Abaco's charter documents or any material instrument or agreement.
C. Authority, Execution and Delivery. Abaco has all requisite corporate
power and authority to execute, deliver and perform its obligations under this
Agreement. The execution, delivery and performance of this Agreement and the
consummation of the transaction contemplated hereby have been duly authorized by
all requisite corporate action on the part of Abaco. This Agreement has been
duly executed and delivered by Abaco and constitutes the legal, valid and
binding obligation of Abaco enforceable in accordance with its terms.
D. Investment Intent. The Shares acquired by Abaco pursuant to this
Agreement, and the shares of common stock which may be acquired upon conversion
of the Shares, will be acquired by Abaco for its own account and not with a view
to, or for resale in connection with, any distribution of any of the Shares.
Abaco acknowledges that it is aware of the applicable limitations under the
Securities Act of 1933, as amended, upon the subsequent sale of the Shares, or
such common shares, as the case may be, and that accordingly, certificates
representing the Shares, or such common shares, as the case may be, may bear an
appropriate legend.
6. CONDITIONS TO CLOSING. The obligations of each of the parties to
consummate the transactions contemplated by this Agreement shall be subject to
the following conditions:
A. Representations and Warranties True. The representations and
warranties of the other party shall be true and accurate in all material
respects as of the date of the Closing, as if made on such date.
B. No Litigation. There shall be no order, and no proceeding or
investigation, pending or threatened, restricting or prohibiting the
transactions contemplated by this Agreement.
C. Certificate of Designations. The Company shall have filed a
Certificate of Designations in respect of the Shares with the Secretary of
State of Delaware.
<PAGE>
- 4 -
D. Mexican Regulatory Approvals. All requisite approvals by Mexican
regulatory approvals shall have been obtained.
7. RIGHTS OFFERING. The Company agrees to commence a rights offering in
accordance with Section 6(a) of Exhibit A as soon as practicable after the
availability of the annual report for the Company's fiscal year ended December
31, 1995, which offering will effect the conversion of the Shares into shares of
common stock of the Company in accordance with the terms of said Section 6(a),
and further agrees to promptly thereafter cause such common shares to be listed
on the New York Stock Exchange.
8. MISCELLANEOUS PROVISIONS.
A. Amendment, Modification and Waiver. This Agreement may be amended,
modified and supplemented, in writing only, by mutual consent of the parties
hereto. No failure on the part of any party to exercise any right, power or
privilege hereunder shall operate as a waiver.
B. Assignment. The respective rights and obligations of the Company and
Abaco under this Agreement shall not be assignable by either the Company or
Abaco without the prior written consent of the other.
C. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
D. Entire Agreement. This Agreement including the exhibit hereto
contains the entire understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions, promises,
representations, warranties, covenants, or undertakings, other than those
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
E. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
<PAGE>
- 5 -
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ATTEST: RODMAN & RENSHAW CAPITAL
GROUP, INC.
By: By:
---------------------------- ----------------------------------
Title: Title:
------------------------- -------------------------------
ATTEST: ABACO CASA DE BOLSA, S.A. DE C.V.,
ABACO GRUPO FINANCIERO
By: By:
---------------------------- ----------------------------------
Title: Title:
------------------------- -------------------------------
<PAGE>
EXHIBIT 10.9
CONFIA, S.A., INSTITUCION DE BANCA MULTIPLE,
ABACO GRUPO FINANCIERO
PROMISSORY NOTE
By means of this PROMISSORY NOTE, the SUBSCRIBER unconditionally promises to pay
to the order of Confia, S.A., Institucion de Banca Multiple, Abaco Grupo
Financiero, Grand Cayman Branch (the "BANK"), the principal amount of
USD$26,500,000.00 (Twenty-Six Million, Five Hundred Thousand and 00/100 U.S.
Dlls) lawful currency of the United States of America precisely on June 03,
1996.
The SUBSCRIBER promises to pay on June 03, 1996 interest on the principal amount
hereof an annual rate of interest of 12%.
In the event the SUBSCRIBER shall fail to pay the principal amount hereof as and
when due hereunder, the unpaid amount shall bear interest from the date such
payment was due until payment of such amount in full calculated on a daily basis
of a rate per annum of 50%.
Interest hereunder shall be computed on the basis of a year of 360 days for the
actual number of days elapsed.
The principal amount hereof and interest thereon shall be payable to the BANK in
New York, New York, U.S.A., at the office of Swiss Bank, Co. of New York, for
the credit of the BANK's account No. 101-WA-012297-000, in freely transferable
Dollars and in same day funds, no later than 12:00 noon (New York time), on the
date on which such payments are due.
Whenever any payment to be made hereunder shall be stated to be due on a day
which is not a business day, (meaning a day of the year on which banks in
London, England, carry on transactions in Dollars and banks in New York City,
U.S.A. and in Mexico City, United Mexican States ("Mexico") are not required or
authorized to close), such payment shall become due on the next following
business day.
The SUBSCRIBER agrees to make all payments in respect of principal and interest
free and clear of and without deduction, charge or withholding, or any tax
liabilities imposed on such amounts, actually or in the future payable in any
jurisdiction. If at any time Mexico (or any other country entitled to do so) or
any political subdivision or any taxing authority thereof or therein shall
impose, charge or collect any tax, charge, withholding, deduction, levy, or any
other fiscal liability together with interest, penalties, fines, or charges
thereon (the "Taxes"), on or with respect hereto or to any payment hereunder,
the SUBSCRIBER agrees to pay, immediately to the appropriate tax authority, on
behalf of the BANK the amount of any such additional amounts required to ensure
the BANK received the full amount that the BANK would have received had no such
payment of taxes been made.
<PAGE>
The SUBSCRIBER and the GUARANTOR hereby irrevocably submit to the jurisdiction
of any New York State court or any United States court sitting in New York City,
New York, United States or any competent court of Mexico City, Mexico or of the
city of CHICAGO, ILLINOIS, USA, in any action or proceeding arising out of or
relating to this PROMISSORY NOTE, as the plaintiff in such action or proceeding
may elect and the SUBSCRIBER and the GUARANTOR hereby irrevocably agree that all
claims in respect of such action or proceeding may be heard and determined in
any of such courts. The SUBSCRIBER and the GUARANTOR irrevocably waive, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to laying of venue of any suit, action or proceeding with respect to this
PROMISSORY NOTE brought in any court aforementioned, and the SUBSCRIBER and the
GUARANTOR further irrevocably waive any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
The SUBSCRIBER and the GUARANTOR hereby expressly waive all rights to any other
jurisdiction, which they may now or hereafter have any reason of their present
or subsequent domiciles.
The SUBSCRIBER and the GUARANTOR hereby consent to service of process upon them
in any action or proceeding arising out of or relating to this PROMISSORY NOTE:
(i) if in the State of New York, United States, at the address of CT Corporation
System (the "Process Agent"), (ii) and if in the Federal District of Mexico or
in CHICAGO, ILLINOIS, USA, at the domicile appearing under their respective name
in this signature page.
This PROMISSORY NOTE is executed in an English and Spanish version, both of
which shall bind the SUBSCRIBER and the GUARANTOR and constitute one and the
same PROMISSORY NOTE; provided however, that in the case of doubt as to the
proper interpretation or construction of this PROMISSORY NOTE, the English text
shall be controlling in all cases, except that in the case of any legal
proceeding instituted in any court of Mexico the Spanish text shall be
controlling.
This PROMISSORY NOTE is executed in Chicago, Illinois, USA, on December 04,
1995.
THE SUBSCRIBER
/s/ Charles W. Daggs
- - - - - - ------------------------------------------------
By: Rodman & Renshaw Capital Group, Inc.
Title: President and Chief Executive Officer
Address: Sears Tower
233 S. Wacker Dr., Ste. 4500
Chicago, Illinois 60603
THE GUARANTOR
- - - - - - ------------------------------------------------
By:
Title:
Address:
<PAGE>
EXHIBIT 10.16
OPTION AGREEMENT
UNDER THE
RODMAN & RENSHAW CAPITAL GROUP, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Rodman & Renshaw Capital Group, Inc. (the "Company") and
__________________________ (the "Grantee") hereby agree as follows:
ARTICLE 1
DEFINED TERMS
Every term defined or given a special meaning in the Rodman & Renshaw
Capital Group, Inc. Non-Employee Director Stock Option Plan (the "Plan") has the
same meaning whenever it is capitalized in this Agreement.
ARTICLE 2
OPTION TERMS
2.1 Grant. The Company hereby acknowledges that it has granted the Grantee
a non-qualified stock option ("Option") under the Plan entitling the Grantee to
purchase shares of Stock from the Company on the terms and subject to the
conditions specified in this Agreement and the Plan.
2.2 Grant Date. The Grant Date of this Option is July 1, _______.
2.3 Number of Shares. Unless and until an adjustment shall be made pursuant
to Section 12 of the Plan, the maximum number of shares of Stock which may be
purchased with this Option is 7,500.
2.4 Option Price. Unless and until an adjustment shall be made pursuant to
Section 12 of the Plan, the price at which shares of Stock may be purchased from
the Company upon any exercise of this Option is $_____ per share. After any
adjustment shall be made under Section 12 of the Plan, the price at which shares
of Stock may be purchased under this Option at any given time shall be the price
established as a result of all adjustments made to this Option pursuant to
Section 12 of the Plan, at or before the given time.
<PAGE>
- 2 -
2.5 Vesting Schedule. Except as may otherwise be expressly authorized by
the provisions of the Plan or this Agreement, this Option shall not vest and may
not be exercised prior to the twelve-month anniversary of the Grant Date. This
Option shall vest and shall be exercisable in full from and after the
twelve-monthly anniversary of the Grant Date.
2.6 Non-Qualified Stock Option. It is expressly intended that this
Option shall not constitute an "incentive stock option" under Section 422 of
the Code.
ARTICLE 3
EXERCISE
3.1 Time of Exercise. To the extent vested, this Option may be exercised
in one or more installments at such time as the person entitled to exercise this
Option may desire with respect to all shares of Stock then available under this
Option, provided that in no event may this Option be exercised after its
termination date (as determined in accordance with Section 3.3 of this
Agreement) or in a manner or to an extent contrary to this Agreement or the
Plan.
3.2 Manner of Exercise. In connection with any exercise of this Option,
the person exercising this Option shall give the Secretary of the Company a
written notice (the "exercise notice") which: (i) shall identify this Option;
(ii) shall specify the number of shares of Stock with respect to which this
Option is then being exercised and shall state that the person signing such
notice agrees to purchase the shares so specified at the price and on the terms
established in this Agreement and the Plan; (iii) shall identify the form of
payment of the Option price; and (iv) shall be signed by the person entitled to
exercise this Option. This Option shall be deemed to have been exercised on the
date (the "exercise date") of the actual receipt of (i) payment of the Option
price and (ii) the exercise notice relating to such exercise completed as
required by this Section 3.2 (or completed in such other form or manner as shall
be approved by the Secretary) at the main office of the Company in Chicago,
Illinois.
3.3 Termination. This Option may not be exercised after its termination
date, i.e., this Option does not convey any right to purchase any shares which
the Grantee shall not have agreed to purchase in an exercise notice delivered on
or prior to the termination date in accordance with the requirements of Section
3.2 of this Agreement. The "termination date" for this Option shall occur on the
earlier of the following dates: (i) the tenth anniversary of the Grant Date
(which date shall be deemed to be the "expiration date" of this Option), or (ii)
any date established under any of the provisions of this Agreement or the Plan
as the date after which this Option may not be exercised.
<PAGE>
- 3 -
ARTICLE 4
THE PLAN TERMS
4.1 Plan Terms Control. This Option has been granted under the Plan as
in effect as of the Grant Date. The terms of the Plan as in effect as of the
Grant Date are attached as Exhibit A to this Agreement, are incorporated into
this Agreement by reference and shall control the rights and obligations of the
Company and the Grantee under this Agreement. Without limiting by implication
the generality of the preceding provisions, the Company and the Grantee
expressly agree that:
(a) the amount and nature of shares of Stock subject to this
Option and the Option price available under this Option may
be adjusted to the extent and in the manner provided in
Section 12 of the Plan; and
(b) the rights of the Grantee under this Agreement may not be
assigned or otherwise pass to any other person until and
unless the Grantee should die.
4.2 Effect of Subsequent Changes in the Plan. No change in the Plan
which shall be made after the Grant Date shall affect the rights of the Grantee
under this Agreement unless the Grantee shall have agreed in writing to such
change. No change in the Plan after the Grant Date shall inure to the benefit of
the Grantee except to the extent expressly permitted by the Committee. The term
"Plan" as applied under this Agreement as of any time means the Rodman & Renshaw
Capital Group, Inc. Non-Employee Director Stock Option Plan as amended and in
effect on the Grant Date and as amended after the Grant Date to the extent
effect is to be given to such amendment under the provisions of this Section
4.2.
ARTICLE 5
GENERAL PROVISIONS
5.1 Compliance with Law. The Grantee understands that (a) the Company
has no obligation to register or to continue the registration of the shares of
Stock subject to this Option and (b) the applicable securities laws may restrict
the right of the Grantee to exercise this Option or to dispose of any Stock
which the Grantee may acquire upon any such exercise and may govern the manner
in which such Stock must be sold. Any other provision in this Agreement or the
Plan notwithstanding:
(i) If the Company deems necessary to comply with the
Securities Act of 1933, the Company may require a written
investment intent
<PAGE>
- 4 -
representation by the Grantee and may require that a
restrictive legend be affixed to certificates for shares of
Stock.
(ii) If, based upon the opinion of counsel for
the Company, the Company determines that the exercise or
nonforfeitability of, or delivery of benefits pursuant to,
this Option would violate any applicable provision of (A)
federal or state securities laws or (B) the listing
requirements of any national securities exchange on which
are listed any of the Company's equity securities, then
the Company may postpone any such exercise,
nonforfeitability or delivery, as the case may be, but the
Company shall use its best efforts to cause such exercise,
nonforfeitability or delivery to comply with all such
provisions at the earliest practicable date.
(iii) The Plan and this Agreement are subject to all laws and
regulations of any governmental authority which may be
applicable thereto; and notwithstanding any provision of
the Plan or this Agreement, the Grantee shall not be
entitled to exercise this Option or receive the benefits
thereof and the Company shall not be obligated to deliver
any Stock or pay any benefits to the Grantee if such
exercise, delivery, receipt or payment of benefits
would constitute a violation by the Grantee or the Company
of any provision of any such law or regulation.
The Company shall not be obligated to issue any shares of Stock by reason of any
exercise of this Option until and unless the Company shall have received full
payment for those shares of Stock. No one shall have rights as a stockholder
with respect to any Stock issuable under this Option until and unless such Stock
is issued and delivered by the Company.
5.2 Binding Agreement. Each party acknowledges that it is intended that
the other party may rely on the rights granted by this Agreement and that this
Agreement is supported by adequate consideration and is binding on each party in
accordance with its terms. This Agreement shall also be binding upon and inure
to the benefit of any successor to the Company.
5.3 Complete Agreement. This Agreement and the Plan contain the complete
agreement between the parties relating in any way to this Option or the rights
or obligations of the parties evidenced by this Agreement and supersede any
prior or contemporaneous understandings, agreements or representations by or
between the parties, written or oral, which may have related to such subject
matter in any way.
<PAGE>
- 5 -
5.4 No Oral Commitments. No party hereto shall have any right to rely
upon or enforce any representation, warranty or agreement made by any other
person either before of after the date hereof unless such representation,
warranty or agreement shall be set forth in a writing which shall have been
signed by the person to be held responsible for such representation, warranty or
agreement.
5.5 Amendments and Waivers. The provisions of this Agreement may be
amended and a person may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if such amendment, act or
omission has been approved in writing by the parties to this Agreement. No
course of dealing or any delay in exercising any rights hereunder shall operate
as a waiver of any rights of any person under this Agreement. A waiver upon any
one occasion shall not be construed as a bar or waiver of any right or remedy on
any future occasion.
5.6 Counterparts. Two or more duplicate originals of the written
instrument containing this Agreement may be signed by the parties, each of which
shall be an original but all of which together shall constitute one and the same
agreement.
5.7 Headings. The headings used in this Agreement are for convenience
only, do not constitute a part of this Agreement, and shall not be deemed to
limit, characterize, or in any way affect any provision of this Agreement.
5.8 Severability. If any provision of this Agreement or the Plan shall
be held illegal or invalid for any reason, such illegality or invalidity shall
not affect the remaining provisions of this Agreement or the Plan, and the
Agreement and the Plan shall each be construed and enforced as if the illegal or
invalid provisions had never been set forth herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Grant Date.
RODMAN & RENSHAW CAPITAL GROUP, INC.
By:
-----------------------------------
Its:
-----------------------------------
GRANTEE:
Agreement No.
---- ----------------------------------------
<PAGE>
EXHIBIT 10.17
OPTION AGREEMENT
UNDER THE
RODMAN & RENSHAW CAPITAL GROUP, INC.
1994 STOCK OPTION PLAN
INCENTIVE STOCK OPTION
Rodman & Renshaw Capital Group, Inc. (the "Company") and
__________________ (the "Grantee") hereby agree as follows:
ARTICLE 1
DEFINED TERMS
Every term defined or given a special meaning in the Rodman & Renshaw
Capital Group, Inc. 1994 Stock Option Plan, a copy of which is Exhibit A hereto
and made a part hereof as set forth in Article 4 below (the "Plan"), has the
same meaning as provided in the Plan whenever it is capitalized in this
Agreement.
ARTICLE 2
OPTION TERMS
2.1. Grant. The Company hereby acknowledges that it has granted the
Grantee an incentive stock option ("Option") under the Plan entitling the
Grantee to purchase shares of Stock from the Company on the terms and subject to
the conditions specified in this Agreement and the Plan.
2.2 Grant Date. The Grant Date of this Option is _______________.
2.3 Number of Shares. Unless and until an adjustment shall be made
pursuant to Section 22 of the Plan, the maximum number of shares of Stock which
may be purchased with this Option is _____________.
2.4 Option Price. Unless and until an adjustment shall be made pursuant
to Section 22 of the Plan, the price at which shares of Stock may be purchased
from the Company upon any exercise of this Option is $____ per share. After any
adjustment shall be made under Section 22 of the Plan, the price at which shares
of Stock may be purchased under this Option at any given time shall be the price
established as a result of all adjustments made to this Option pursuant to
Section 22 of the Plan, at or before the given time.
<PAGE>
-2-
2.5 Vesting Schedule. Except as may otherwise be expressly
authorized by the provisions of the Plan or this Agreement, this Option shall
vest as follows: ___________________________________________________________.
2.6 Incentive Stock Option. It is expressly intended that this
Option shall constitute an "incentive stock option" under Section 422 of the
Code.
ARTICLE 3
EXERCISE
3.1 Time of Exercise. To the extent vested, this Option may be exercised
in one or more installments at such time as the person entitled to exercise this
Option may desire with respect to all shares of Stock then available under this
Option, provided that in no event may this Option be exercised after its
termination date (as determined in accordance with Section 3.5 of this
Agreement) or in a manner or to an extent contrary to this Agreement or the
Plan. Notwithstanding the foregoing,
<PAGE>
- 3 -
the aggregate Fair Market Value of Stock (determined on the Grant Date) with
respect to all incentive stock options granted to the Grantee under the Plan or
any other employee stock option plan of the Company or any parent or Subsidiary
of the Company exercisable for the first time by the Grantee during any calendar
year shall not exceed $100,000.
3.2 Manner of Exercise. In connection with any exercise of this Option,
the person exercising this Option shall give the Secretary of the Company a
written notice (the "exercise notice") which: (i) shall identify this Option;
(ii) shall specify the number of shares of Stock with respect to which this
Option is then being exercised and shall state that the person signing such
notice agrees to purchase the shares so specified at the price and on the terms
established in this Agreement and the Plan; (iii) shall identify the form of
payment of the Option price; (iv) shall indicate whether the Grantee has elected
Share Withholding as provided in Section 3.3 below; and (v) shall be signed by
the person entitled to exercise this Option. This Option shall be deemed to have
been exercised on the date (the "exercise date") of the actual receipt of (i)
payment of the Option price and (ii) the exercise notice relating to such
exercise completed as required by this Section 3.2 (or completed in such other
form or manner as shall be approved by the Secretary) at the main office of the
Company in Chicago, Illinois.
3.3 Elective Share Withholding.
(a) Subject to subsection (b) below, the Grantee may elect the withholding
("Share Withholding") by the Company of a portion of the shares of Stock
otherwise deliverable to such Grantee upon the exercise of this Option (a
"Taxable Event") having a Fair Market Value equal to:
(i) the minimum amount necessary to satisfy required federal,
state, or local withholding tax liability attributable to the
Taxable Event; or
(ii) with the Committee's prior approval, a greater amount, not to
exceed the estimated total amount of the Grantee's tax liability
with respect to the Taxable Event.
(b) Each Share Withholding election shall be subject to the
following restrictions:
(i) the Grantee's election shall be subject to the Committee's
right to revoke such election at any time before the Grantee's
election;
(ii) if the Grantee is a Section 16 Grantee, such Grantee's
election shall be subject to the disapproval of the Committee
at any time;
<PAGE>
- 4 -
(iii) the Grantee's election must be made before the date (the
"Tax Date") on which the amount of tax to be withheld is
determined;
(iv) the Grantee's election shall be irrevocable;
(v) a Section 16 Grantee may not elect Share Withholding within
six months after the Grant Date of this Option (except if the
Grantee dies or incurs a Disability before the end of the
six-month period); and
(vi) except to the extent such condition may be waived by the
General Counsel of the Company, a Section 16 Grantee must elect
Share Withholding either six months before the Tax Date or
during the ten business day period beginning on the third
business day after the release of the Company's quarterly or
annual summary statement of sales and earnings.
3.4 Section 83(b) Election. The Committee may at any later date prohibit
the Grantee from making the election permitted under Section 83(b) of the Code
(i.e., an election to include in the Grantee's gross income in the year of
exercise the amounts specified in Section 83(b) of the Code). If the Committee
has not prohibited the Grantee from making such election, and the Grantee shall,
in connection with the exercise of this Option, make such election, the Grantee
shall notify the Company of such election within 10 days of filing notice of the
election with the Internal Revenue Service, in addition to any filing and
notification required pursuant to regulations issued under the authority of
Section 83(b) of the Code.
3.5 Termination. This Option may not be exercised after its termination
date, i.e., this Option does not convey any right to purchase any shares which
the Grantee shall not have agreed to purchase in an exercise notice delivered on
or prior to the termination date in accordance with the requirements of Section
3.2 of this Agreement. The "termination date" for this Option shall occur on the
earlier of the following dates: (i) the tenth anniversary of the Grant Date, or
fifth anniversary if the Grantee is a 10% Owner (which date shall be deemed to
be the "expiration date" of this Option), or (ii) any date established under any
of the provisions of this Agreement or the Plan as the date after which this
Option may not be exercised.
3.6 Disqualifying Dispositions. The Grantee shall notify the Company of
any disposition of the Stock issued pursuant to the exercise of this Option
under the circumstances described in Section 421(b) of the Code (relating to
certain disqualifying dispositions) within 10 days of such disposition.
<PAGE>
- 5 -
ARTICLE 4
THE PLAN TERMS
4.1 Plan Terms Control. This Option has been granted under the Plan as
in effect as of the Grant Date. The terms of the Plan as in effect as of the
Grant Date are attached as Exhibit A to this Agreement, are incorporated into
this Agreement by reference and shall control the rights and obligations of the
Company and the Grantee under this Agreement. To the extent that the Plan and
this Agreement are inconsistent, the Plan shall control. Without limiting by
implication the generality of the preceding provisions, the Company and the
Grantee expressly agree that:
(a) the amount and nature of shares of Stock subject to this
Option and the Option price available under this Option may
be adjusted to the extent and in the manner provided in
Section 22 of the Plan; and
(b) the rights of the Grantee under this Agreement may not be
assigned or otherwise pass to any other person until and
unless the Grantee should die.
4.2. Effect of Subsequent Changes in the Plan. No change in the Plan
which shall be made after the Grant Date shall affect the rights of the Grantee
under this Agreement unless the Grantee shall have agreed in writing to such
change. No change in the Plan after the Grant Date shall inure to the benefit of
the Grantee except to the extent expressly permitted by the Committee. The term
"Plan" as applied under this Agreement as of any time means the Rodman & Renshaw
Capital Group, Inc. 1994 Stock Option Plan as amended and in effect on the Grant
Date and as amended after the Grant Date to the extent effect is to be given to
such amendment under the provisions of this Section 4.2.
<PAGE>
- 6 -
ARTICLE 5
GENERAL PROVISIONS
5.1 Compliance with Law. The Grantee understands that (a) the Company has
no obligation to register or to continue the registration of the shares of Stock
subject to this Option and (b) the applicable securities laws may restrict the
right of the Grantee to exercise this Option or to dispose of any Stock which
the Grantee may acquire upon any such exercise and may govern the manner in
which such Stock must be sold. Any other provision in this Agreement or the Plan
notwithstanding:
(i) If the Company deems necessary to comply with the
Securities Act of 1933, the Company may require a written
investment intent representation by the Grantee and may
require that a restrictive legend be affixed to
certificates for shares of Stock.
(ii) If, based upon the opinion of counsel for
the Company, the Company determines that the exercise or
nonforfeitability of, or delivery of benefits pursuant to,
this Option would violate any applicable provision of (A)
federal or state securities laws or (B) the listing
requirements of any national securities exchange on which
are listed any of the Company's equity securities, then
the Company may postpone any such exercise,
nonforfeitability or delivery, as the case may be, but the
Company shall use its best efforts to cause such exercise,
nonforfeitability or delivery to comply with all such
provisions at the earliest practicable date.
(iii) The Plan and this Agreement are subject
to all laws and regulations of any governmental authority
which may be applicable thereto; and notwithstanding any
provision of the Plan or this Agreement, the Grantee shall
not be entitled to exercise this Option or receive the
benefits thereof and the Company shall not be obligated to
deliver any Stock or pay any benefits to the Grantee if
such exercise, delivery, receipt or payment of benefits
would constitute a violation by the Grantee or the Company
of any provision of any such law or regulation.
The Company shall not be obligated to issue any shares of Stock by reason of any
exercise of this Option until and unless the Company shall have received full
payment for those shares of Stock. No one shall have rights as a stockholder
with respect to any Stock issuable under this Option until and unless such Stock
is issued and delivered by the Company to the Grantee.
<PAGE>
- 7 -
5.2 No Right to Employment. No obligation of the Company or any of
its Subsidiaries as to the length of any Grantee's employment shall be implied
by the terms of the Plan or this Agreement.
5.3 Binding Agreement. Each party acknowledges that it is intended that
the other party may rely on the rights granted by this Agreement and that this
Agreement is supported by adequate consideration and is binding on each party in
accordance with its terms. This Agreement shall also be binding upon and inure
to the benefit of any successor to the Company.
5.4 Complete Agreement. This Agreement and the Plan contain the complete
agreement between the parties relating in any way to this Option or the rights
or obligations of the parties evidenced by this Agreement and supersede any
prior or contemporaneous understandings, agreements or representations by or
between the parties, written or oral, which may have related to such subject
matter in any way.
5.5 No Oral Commitments. No party hereto shall have any right to rely
upon or enforce any representation, warranty or agreement made by any other
person either before of after the date hereof unless such representation,
warranty or agreement shall be set forth in a writing which shall have been
signed by the person to be held responsible for such representation, warranty or
agreement.
5.6 Amendments and Waivers. The provisions of this Agreement may be
amended and a person may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if such amendment, act or
omission has been approved in writing by the parties to this Agreement. No
course of dealing or any delay in exercising any rights hereunder shall operate
as a waiver of any rights of any person under this Agreement. A waiver upon any
one occasion shall not be construed as a bar or waiver of any right or remedy on
any future occasion.
5.7 Counterparts. Two or more duplicate originals of the written
instrument containing this Agreement may be signed by the parties, each of which
shall be an original but all of which together shall constitute one and the same
agreement.
5.8 Headings. The headings used in this Agreement are for convenience
only, do not constitute a part of this Agreement, and shall not be deemed to
limit, characterize, or in any way affect any provision of this Agreement.
5.9 Severability. If any provision of this Agreement or the Plan shall
be held illegal or invalid for any reason, such illegality or invalidity shall
not affect the remaining provisions of this Agreement or the Plan, and the
Agreement and the Plan shall each be construed and enforced as if the illegal or
invalid provisions had never been set forth herein.
<PAGE>
- 8 -
5.10 Tax Treatment. To receive the tax treatment usually applicable to
incentive stock options, the Grantee will be required to meet certain
qualifications and will be subject to certain restrictions. The Company does not
provide tax advice to Grantees and tax rules are not only complex, but
constantly changing. Thus, it is recommended that the Grantee consult with his
or her tax adviser to determine which qualifications and restrictions may be
applicable to the Grantee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Grant Date.
RODMAN & RENSHAW CAPITAL GROUP, INC.
By:
-----------------------------------
GRANTEE:
Agreement No.
------ ----------------------------------
----------------------------------
<PAGE>
EXHIBIT 10.20
<TABLE>
<S> <C>
MASTER LEASE AGREEMENT FACILITY CAPITAL CORPORATION
333 West Wacker Drive, Suite 1750
Chicago, IL 60606
(312) 541-6000
LESSEE: Rodman & Renshaw Capital Group, Inc. MASTER LEASE AGREEMENT NUMBER:RODM-1
------------------------------------------------- ------
ADDRESS: 233 South Wacker Drive, Chicago, Illinois 60603 DATE: May 31, 1995
------------------------------------------------ ------------
</TABLE>
WHEREAS, FACILITY CAPITAL CORPORATION ("Lessor") desires to lease equipment to
Lessee, and Lessee desires to lease same from Lessor; NOW THEREFORE, in
consideration of the mutual promises contained herein, Lessor and Lessee agree
as follows:
1. LEASE
This Master Lease Agreement ("MLA") establishes the general terms and conditions
by which Lessor may lease to Lessee the equipment, together with all additions,
accessories and alterations now or hereinafter affixed thereto (collectively,
the "Equipment"), listed on each Equipment Schedule executed periodically
pursuant to this MLA. Each such Equipment Schedule shall incorporate by
reference the terms of this MLA, and shall constitute a separate and distinct
lease and contractual obligation of the Lessee. In this MLA, the term "Lease"
shall refer to an individual Equipment Schedule which incorporates this MLA, and
the term "Leases" shall refer to all such Equipment Schedules. If the provisions
of an Equipment Schedule conflict with the provisions of this MLA, the
provisions of such Equipment Schedule shall prevail.
2. TERM AND RENT PAYMENTS
The term of each Lease with respect to the Equipment shall begin on the date
("Acceptance Date") on which Lessee executes the confirmation of unconditional
acceptance described in section 5, and shall include any "Interim Term" (defined
below), the "Basic Term" set forth in the Equipment Schedule relating thereto,
any extension of the Basic Term, and any renewal term(s) (collectively, the
"Term"). If the Acceptance Date is the first day of a calendar month, then such
date shall also be the Commencement Date; otherwise, the Commencement Date shall
be the first day of the calendar month following the Acceptance Date. The
"Interim Term" as used herein shall be that period from and including the
Acceptance Date to the Commencement Date. Lessee shall pay to Lessor on the
Commencement Date, as additional rent, an amount equal to one thirtieth (1/30)
of the monthly rent payable during the Basic Term as set forth in the Equipment
Schedule (the "Monthly Rent") multiplied by the number of days in the Interim
Term. The Basic Term shall commence on the Commencement Date.
Lessee's obligation to pay rent shall commence on the Acceptance Date of the
Lease. Lessee agrees to pay the total rent for the entire Term, which shall be
the total of all Monthly Rent and other required payments as set forth in the
Equipment Schedule plus such additional rent amounts as may become due hereunder
(the foregoing hereinafter collectively referred to as "Rent"). Except as
otherwise provided in this Lease, Rent payments shall be monthly and shall be
payable in advance on the first day of each month during the Term of this Lease
beginning with the Commencement Date. All Rent payments shall be due and payable
whether or not Lessee has received notice or demand that such Rent payments are
due, and shall be sent or personally delivered to the address of the Lessor as
specified in the Equipment Schedule or as otherwise directed by the Lessor in
writing. TIME IS OF THE ESSENCE. PAYMENTS OF RENT WHICH ARE NOT RECEIVED BY
LESSOR ON OR BEFORE THE DUE DATE SHALL BE DELINQUENT AND SHALL BE SUBJECT TO A
TWO PERCENT (2%) LATE CHARGE FOR EACH FULL AND/OR FRACTIONAL MONTH DELINQUENT
(THE "LATE CHARGE RATE"). Such late charges shall be deemed to be Rent and be
due
(1)
<PAGE>
and payable within ten (10) days of Lessor's issuance of an invoice therefor.
If, upon expiration of the Basic Term hereof, the Equipment Schedule requires
Lessee, or grants Lessee the option, to elect to (a) purchase the Equipment, (b)
renew the Lease, or (c) return the Equipment to Lessor as hereinafter provided,
or any combination of the foregoing (hereinafter, the "Option" or "Options"),
then Lessee shall give written notice to Lessor not more than twelve (12) months
nor less than six (6) months prior to such expiration as to which Option Lessee
elects. If Lessee fails to so notify Lessor, then the Basic Term of this Lease
shall automatically be extended for successive monthly periods until such time
as Lessee has provided Lessor with six (6) months prior written notice of its
election. If Lessor and Lessee cannot agree on purchase or renewal terms, the
Basic Term of this Lease shall be automatically extended for successive monthly
periods until such time as a renewal rent is agreed upon by the parties or a
purchase or return of the Equipment is effected in accordance with the terms of
this Lease. If the Equipment Schedule requires the Lessee to pay a minimum fair
market value payment ("Minimum FMV Payment") in connection with a purchase or
return of the Equipment upon expiration of the Basic Term, Lessee's obligation
to pay such Minimum FMV Payment shall not abate by reason of extension of the
Basic Term as provided for in the two immediately preceding sentences. If Lessee
elects to renew the Lease in accordance with the terms hereof and any Rent or
other payment due hereunder shall be past due upon expiration of the Basic Term
(after taking effect of any extension as provided for above), then, at the
option of Lessor and without limiting Lessor's rights pursuant to section 19
hereof, the Basic Term of the Lease may be extended for successive monthly
periods until such time as all Rent and other payments then due (including those
due as a result of extension of the Basic Term) are received by Lessor,
whereupon the renewal term will commence as of the first day of the following
month. Lessee shall pay the Monthly Rent each month during any extension of the
Basic Term. Each Option shall apply to all, but not less than all, of the
Equipment subject to the Lease. If any Option to purchase is subject to Lessor's
written consent, Lessor's consent may be withheld with or without cause.
If Lessee purchases the Equipment pursuant to the terms of this Lease, the
purchase price shall be payable at the expiration of the Term hereof; if Lessee
fails to timely make such payment, Lessee shall pay as additional rent an amount
equal to one-thirtieth (1/30) of the Monthly Rent for each day delinquent. Any
such sale of the Equipment to Lessee will be made "as is, where is" without
representation or warranty of any kind except that Lessor will warrant that it
owns the Equipment free and clear of any liens, claims or encumbrances created
by Lessor. Except in the event of a purchase of the Equipment by Lessee, Lessee
agrees to return the Equipment to Lessor at expiration of the Term in accordance
with the terms of this Lease. Without limiting the rights and remedies of Lessor
in an event of default, if Lessee fails for any reason to re-deliver the
Equipment back to Lessor, an agent of Lessor, or to a common carrier consigned
for shipment to Lessor, in accordance with Lessor's written instructions, within
fourteen (14) days after expiration of the Term of this Lease, then (a) Lessee
shall pay as additional rent one hundred fifty percent (150%) of one-thirtieth
(1/30) of the Monthly Rent for each of such fourteen (14) days and for each day
thereafter until such re-delivery, and (b) Lessee shall have no further right to
the Equipment, but until the Equipment is so returned the Lease shall remain in
full force and effect as to obligations of the Lessee thereunder. Any Minimum
FMV Payment due with the return of the Equipment shall be subject to late
charges calculated at the Late Charge Rate if not received by Lessor on or
before expiration of the Basic Term.
3. TITLE
This is an agreement of lease only. The Equipment is and shall at all times be
and remain the sole and exclusive personal property of Lessor. Nothing herein
shall be construed as conveying to Lessee any right, title, or interest in or to
the Equipment leased hereunder, except the express interest hereunder of Lessee
as a lessee to maintain possession and use of the Equipment for the Term of this
Lease. No options or agreements for renewal of the Lease or purchase of the
Equipment by Lessee exist, nor shall any be implied, except as specifically
stated in the Equipment Schedule.
All the Equipment shall remain personal property (even though said Equipment may
hereafter become attached or affixed to realty) and title thereto shall at all
times remain in Lessor exclusively. All replacement parts, substitutions,
modifications, repairs, alterations, additions, accessories and operating
controls incorporated in or affixed to the Equipment (herein collectively called
"additions" and included in the definition of Equipment) whether before or after
the Commencement Date of this Lease, shall become the sole and exclusive
property of Lessor upon being so incorporated or affixed, and shall be returned
to Lessor as provided in section 5. At any time during the Term of this Lease,
upon request of Lessor, Lessee will promptly affix to the Equipment labels
supplied by Lessor in accordance with Lessor's instructions, and keep same
affixed throughout the Term of this Lease.
Lessor is hereby authorized by Lessee, at the Lessee's expense, to (i) obtain
lien searches on Lessee, and (ii) cause this Lease or any statement or other
instrument in respect thereto, showing the interest of the Lessor in the
Equipment, to be filed or recorded, or re-filed or re-recorded, with any
governmental agency deemed appropriate by Lessor. Lessee agrees to promptly
execute and deliver, or cause to be executed and delivered, to Lessor any
statement or instrument requested by Lessor for the purpose of showing Lessor's
interest in the Equipment, including, without limitation, UCC financing
statements, security agreements and waivers of rights in the Equipment from
owners and mortgagees of real property wherein the Equipment is located. Lessee
hereby grants to Lessor a limited power of attorney to execute in Lessee's name
any UCC financing statements or other documents or instruments deemed necessary
by Lessor to protect Lessor's interests in the Equipment. If any item of
Equipment includes computer software, Lessee shall execute and deliver, and
shall cause the seller or supplier thereof to execute and deliver, all such
documents to Lessor as Lessor deems necessary to effectuate the assignment of
all applicable software licenses to Lessor. Lessee shall at its expense (a)
protect and defend Lessor's title to the Equipment from and against all persons
claiming by, through or under Lessee, (b) at all times keep the Equipment free
from any and all liens, encumbrances, attachments, levies, executions, burdens,
charges, or legal process of any and every type whatsoever, (c) give Lessor
immediate written notice of any of the above, and (d) indemnify, defend and save
Lessor harmless of and from any loss, cost or expense (including attorneys'
fees) that may be imposed on, incurred by, or asserted against Lessor as a
result of any of the events described in (a) or (b) above.
(2)
<PAGE>
4. CHANGES IN EQUIPMENT COST
As used in this Lease, "Equipment Cost" means the total cost to Lessor of
purchasing and delivering the Equipment to Lessee and, subject to Lessor's
consent, may include taxes, transportation and other charges. To the extent such
taxes, transportation and other charges are excluded from Equipment Cost, Lessee
agrees to pay such amounts when due or, if paid by Lessor at its option, to
remit such amounts to Lessor in accordance with section 8 and section 16. The
amount of the Monthly Rent, security deposit, Minimum FMV Payment and other
amounts set forth on the Equipment Schedule are based on an estimate of the
total cost of the Equipment, which may, but need not be, set forth on the
Equipment Schedule, and such amounts shall be adjusted proportionately if the
Equipment Cost differs from said estimate. Lessee hereby authorizes Lessor to so
adjust the amounts set forth in the Equipment Schedule when the Equipment Cost
is known. Lessor will inform Lessee of the adjustments necessary to reflect the
Equipment Cost.
5. DELIVERY, ACCEPTANCE AND RETURN OF EQUIPMENT
Without limiting the rights of Lessor in the event of a default by Lessee,
Lessor shall at any time prior to the Acceptance Date have the right to
terminate this Lease if (a) there shall be, in the reasonable judgment of
Lessor, a material and adverse change in Lessee's financial condition, or (b)
Lessor, in good faith, otherwise deems itself insecure, or (c) said Equipment is
for any reason not delivered to, installed, and unconditionally accepted (as
evidenced by execution and delivery of the confirmation of unconditional
acceptance hereinafter described) within 90 days after the date of Lessee's
execution of the Equipment Schedule pertaining to such Equipment. Upon any
termination pursuant to this paragraph, Lessee shall forthwith pay to Lessor all
amounts then due under this Lease and any written agreements between Lessee and
Lessor in connection herewith (including, without limitation, any progress
payment agreement), whereupon if Lessee is not in default and has then fully
performed all of its obligations hereunder and under any such written
agreements, Lessor will, upon request of Lessee, transfer to Lessee without
warranty or recourse any rights that Lessor may then have with respect to such
Equipment.
Upon delivery and proper installation of the Equipment at the premises of the
Lessee as specified in the Equipment Schedule (the "Premises"), but in no event
later than 15 days after such delivery and installation, Lessee agrees to
promptly execute and deliver to Lessor a confirmation of unconditional
acceptance thereof in the form supplied by Lessor (the "Equipment Acceptance"
form). Lessee further agrees to promptly inform Lessor, and in any event prior
to executing the Equipment Acceptance, of any defects in the Equipment, or in
the installation thereof, which have come to the attention of Lessee or its
agents and which might give rise to a claim by Lessee against the seller or
manufacturer or any other person, and failure to do so shall be an
acknowledgement by Lessee that no such defects in the Equipment or its
installation exist to the knowledge of Lessee or its agents.
Except in the event of Lessee purchasing the Equipment from Lessor, upon
expiration of the Term of this Lease for any reason whatsoever, Lessee shall
return the Equipment to Lessor in good condition and repair, reasonable wear and
tear excepted, and operable within the applicable specifications published by
the seller or manufacturer thereof. Lessee shall make such return at its
expense, by causing the Equipment to be assembled, crated and loaded on board
such carrier as Lessor shall specify, and shipping the same, freight and
insurance prepaid, to the destination specified by Lessor; provided, however,
that Lessor shall reimburse Lessee for any freight charges incurred at the
direction of Lessor which may exceed the charges for shipment from the then
location of the Equipment to Lessor's principal place of business in Chicago,
Illinois. Lessee shall pay to Lessor on demand, as additional rent hereunder,
the costs of repairs and replacements (for items of Equipment worn or damaged
beyond repair) necessary to then place the Equipment in the condition required
by this Lease.
6. DISCLAIMER OF WARRANTIES
Lessee has selected and chosen the type and quality of Equipment herein leased
and the seller(s) and manufacturer(s) (hereinafter collectively referred to as
"Seller") thereof, as set forth in the Equipment Schedule. Lessor's purchase of
the Equipment is in connection with this Lease, and Lessee acknowledges that
Lessee has received and approved all the terms and conditions of such purchase
including, without limitation, all quotations, purchase orders, purchase
agreements and supply contracts. LESSOR MAKES NO WARRANTY, EITHER EXPRESS OR
IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE
CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS, ADAPTABILITY OR
SUITABILITY FOR ANY PARTICULAR PURPOSE, AND AS TO LESSOR, LESSEE LEASES, HIRES
AND RENTS THE EQUIPMENT "AS IS." Lessee understands and agrees that neither
Seller, nor any agent of Seller, is an agent of Lessor or is in any manner
authorized to waive or alter any term or condition of this Lease. No
representation as to the Equipment or any other matter by Seller shall be deemed
Lessor's representation and in no way shall affect Lessee's duties to perform
its obligations as set forth in this Lease. Lessor shall not be liable for any
loss or damage suffered by Lessee or by any other person or entity, direct or
indirect or consequential, including, but not limited to, business interruption
and injury to persons or property, resulting from non-delivery or late delivery,
installation, failure or faulty operation, condition, suitability, or use of the
Equipment leased by Lessee hereunder, or for any failure of any representations,
warranties or covenants made by Seller. Any claims of Lessee shall not be made
against Lessor but shall be made, if at all, solely and exclusively against
Seller and persons other than the Lessor. Lessor hereby authorizes Lessee to
enforce during the term of this Lease, in its name, but at Lessee's sole effort
and expense, all warranties, agreements or representations, if any, which may
have been made by Seller to Lessor or to Lessee, and Lessor hereby agrees to
assign to Lessee solely for the purpose of making and prosecuting any such
claim, all rights which Lessor has against Seller for breach of warranty or
other representation respecting the Equipment. At Lessor's option, all cash
proceeds or equivalent thereof resulting from any such claim shall be used to
repair or replace the Equipment.
7. USE, CARE AND MAINTENANCE OF THE EQUIPMENT
Lessee shall, at its own expense, maintain the Equipment in good operating
condition, repair and appearance, and protect the same from deterioration except
for reasonable wear and tear alone. Lessee shall use the Equipment in the
ordinary course of Lessee's business only, within the normal capacity of the
Equipment, without abuse, and in the manner contemplated by the Seller. Lessee
shall comply with Seller's instructions relating to the Equipment, and with any
applicable laws and governmental regulations. When generally offered by the
Seller, Lessee shall, at its expense, keep in full force and effect, throughout
the Term of this Lease, a prime shift maintenance contract with such Seller, and
take such other actions necessary to ensure that the Equipment remains eligible
for such a contract upon expiration of the Term of this Lease.
Lessee shall not make any modification, alteration, or addition to the Equipment
(other than normal operating controls and accessories) without the express
written consent of Lessor which shall not unreasonably be withheld. Lessee
shall, at its sole cost and expense, make such repairs, alterations and
replacements to the Equipment as may be prescribed by Seller or required as a
matter of law. Lessee will not permit anyone other than the authorized
representatives of the Seller to effect any repair, replacement, alteration, or
addition to the Equipment, all of which
(3)
<PAGE>
shall be free and clear of all liens, claims and encumbrances and shall
immediately become the property of Lessor under the Lease.
Lessee shall retain uninterrupted possession and control of the Equipment and
shall at all times use it solely and continuously in the conduct of Lessee's
business. WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, LESSEE MAY NOT (A) SELL,
CONVEY, TRANSFER, ENCUMBER, PART WITH POSSESSION OF, ASSIGN OR SUBLEASE, ANY
ITEM OF EQUIPMENT OR ANY OF ITS RIGHTS OR OBLIGATIONS HEREUNDER, AND ANY SUCH
PURPORTED TRANSACTION SHALL BE VOID AND OF NO FORCE OR EFFECT, (B) RELOCATE OR
OPERATE THE EQUIPMENT AT LOCATIONS OTHER THAN THE PREMISES, OR (C) PLACE THE
EQUIPMENT, OR ANY ITEM THEREOF, IN STORAGE. NO RELOCATION, ASSIGNMENT, TRANSFER,
SUBLEASE OR OTHER DISPOSITION BY LESSEE SHALL, IN ANY MANNER WHATSOEVER, RELIEVE
LESSEE OF ANY OF ITS OBLIGATIONS HEREUNDER, AND LESSEE SHALL REMAIN PRIMARILY
LIABLE TO PAY AND PERFORM ALL OF ITS OBLIGATIONS HEREUNDER. In the event of
relocation of the Equipment or any item thereof to which Lessor consents, all
costs of any nature whatsoever (including additional taxes and insurance
expense) resulting from such relocation shall be promptly paid by Lessee. Lessor
shall have the right, during normal business hours, to enter Lessee's premises
where the Equipment is located in order to inspect, observe, affix labels or
other markings, to remove, or to exhibit the Equipment to prospective purchasers
or future lessees thereof, or to otherwise protect Lessor's interest therein,
and Lessee shall cooperate in affording Lessor the opportunity to do so.
8. TAXES AND OTHER CHARGES
THIS LEASE IS INTENDED TO BE A NET LEASE, AND PAYMENTS HEREUNDER ARE INTENDED TO
BE NET TO LESSOR. All taxes (including, without limitation, gross receipts
taxes, personal property taxes and sales, use and leasing taxes), assessments,
licenses, registration fees and other charges and together with penalties,
interest or fines relating thereto (collectively, "Taxes") that pertain to the
Equipment, its acquisition, purchase, use, ownership, transfer or lease which
accrue prior to or upon expiration of the Term of this Lease (except for
Lessor's federal or state net income taxes), whether such taxes are assessed or
would ordinarily be assessed against Lessor or Lessee, shall be timely paid by
the Lessee. To the extent possible under applicable law, Lessee agrees to timely
report, file, and pay when due such Taxes to the appropriate taxing authority
and shall send a copy of any such report or return to Lessor; in case of failure
of Lessee to so pay such Taxes, Lessor may pay all or any part of such Taxes, in
which event the Taxes so paid by Lessor plus expenses incurred by Lessor in
connection therewith (including, without limitation, attorneys' fees) shall be
immediately payable by Lessee to Lessor together with interest thereon from the
date(s) of Lessor's payment(s) to the date of Lessor's receipt of Lessee's
payment therefor at the rate per annum of the greater of 18% or 125% of the
prime rate of interest as reported in The Wall Street Journal from time to time
but not more than the highest rate permitted by applicable law (the "Delinquency
Rate"). Notwithstanding the foregoing, Lessor may elect to invoice Lessee for
certain Taxes (including, without limitation, sales, use, gross receipts or
other tax that may be imposed on or measured by Rent) as additional rent, which
Lessee agrees to pay in accordance with Lessor's invoices therefor.
Lessee shall promptly pay all costs, expenses, and obligations of every kind and
nature in connection with the use or operation of the Equipment which may arise,
accrue, or become due during the Term of this Lease, whether or not specifically
mentioned herein.
9. INDEMNITY
Lessee shall and does hereby agree to indemnify, defend and save Lessor and
Lessor's assignee(s) harmless of and from any and all loss, liability (including
negligence, tort and strict liability), damage (including, without limitation,
Lessee's loss of business or profits), injury, demand and expense (including,
without limitation, attorneys' fees) of any kind whatsoever arising out of, on
account of, or in connection with (a) this Lease, (b) the Equipment, including,
without limitation, its manufacture, selection, purchase, delivery, nondelivery,
installation, ownership, possession, seizure, attachment, financing, operation,
control, use, maintenance, deinstallation, and the return thereof, and (c) the
violation of any local, state or federal law, rule or regulation pertaining to
environmental regulation, contamination or cleanup. This indemnity shall not be
affected or terminated by reason of the expiration of this Lease for any reason,
with respect to all or any part of the Equipment, and shall survive the Term of
this Lease. However, this indemnity shall not cover any liability, loss, damage,
injury, demand or expense arising from events which occur after the Equipment is
returned to Lessor pursuant to the terms of this Lease. Lessee agrees to notify
Lessor immediately as to any claim, suit, action, damage (including to the
Equipment) or injury covered by this section.
10. INSURANCE
Lessee shall, at its own expense, keep the Equipment (including all additions
thereto) insured against all risks of loss or damage from every and any cause
whatsoever in such form as is satisfactory to Lessor and in an amount sufficient
at all times to pay the greater of the full replacement cost of the Equipment or
the applicable stipulated loss value payment set forth in the Equipment Schedule
(the "Stipulated Loss Value Payment"). All such policies shall protect Lessor
and Lessor's assignee(s) and Lessee as their interests may appear, and shall
provide that all losses shall be payable to Lessor, and adjusted solely with
Lessor.
Lessee shall also, at its own expense, carry public liability insurance, with
Lessor and Lessor's assignee(s) as an additional insured, in such amounts with
such companies and in such form as is satisfactory to Lessor, with respect to
injury to person or property resulting from or based in any way upon or in any
way connected with or related to the installation, use or alleged use, or
operation of any or all of the Equipment, or its location or condition.
Lessee shall deliver to Lessor, prior to any payments for the Equipment,
certificates of insurance or other satisfactory evidence of such insurance, and
shall further deliver evidence of each renewal of these policies not less than
30 days prior to expiration thereof. Each such policy shall contain an
endorsement providing that the insurer will give Lessor not less than thirty
(30) days prior written notice of the effective date of any modification or
cancellation of such policy, or the failure by Lessee to timely pay all required
premiums, costs or charges with respect thereto.
In case of failure by Lessee to timely procure or maintain insurance required
hereunder, Lessor shall have the right, but not the obligation, to obtain such
insurance and any premium or other cost related thereto paid by Lessor shall be
immediately due and payable by Lessee to Lessor together with interest thereon
at the Delinquency Rate from the date(s) of Lessor's payment(s) to the date of
Lessor's receipt of Lessee's payment therefor. The maintenance of insurance
policies pursuant to the provisions of this section shall not limit any
obligation or liability of Lessee pursuant to section 9, section 11 or any other
provision of this Lease.
11. RISK OF LOSS
Until such time as the Equipment is returned and delivered to and accepted by
Lessor, pursuant to the terms hereof, Lessee hereby assumes and shall bear the
entire risk of loss, damage, theft, destruction or governmental requisition of
the Equipment or any portion thereof, from any cause whatsoever, commencing with
delivery of such Equipment to Lessee. Without limitation of the foregoing, no
loss, damage, theft, destruction or governmental requisition of the Equipment
shall relieve Lessee in any way from its obligations hereunder.
(4)
<PAGE>
Lessee shall promptly notify Lessor in writing of any loss, damage, theft,
destruction or governmental requisition of the Equipment. In the event of any
such loss, damage, theft, destruction or governmental requisition of any item of
the Equipment (the "Casualty Equipment"), Lessee shall, at the option of Lessor:
(a) promptly place, at Lessee's expense, the Casualty Equipment in good repair,
condition and working order in accordance with Seller's specifications and to
the satisfaction of Lessor; or (b) promptly replace, at Lessee's expense, the
Casualty Equipment with like equipment (the "Replacement Equipment") of the same
or a later model of equivalent or greater value and substantially similar or
improved in operating performance as compared to the operating performance of
the Casualty Equipment, with the same additions as the Casualty Equipment, and
in good repair, condition and working order in accordance with Seller's
specifications and to the satisfaction of Lessor; or (c) immediately pay to
Lessor the sum of all Rent and other amounts then accrued and unpaid hereunder
plus the Stipulated Loss Value Payment then applicable for this Lease together
with interest thereon at the Delinquency Rate from the date such payment is due
until the date payment in full is received by Lessor. In the event Lessor elects
or requires Lessee to repair or replace any such item of Casualty Equipment
pursuant to (a) or (b) of the preceding sentence, this Lease shall remain in
full force and effect without abatement of rent, and the insurance proceeds
received by Lessor, if any, pursuant to section 10, after the use of such funds
to pay any unpaid Rent or other amounts then due hereunder, shall be paid to
Lessee upon Lessee's furnishing proof satisfactory to Lessor that such repair or
replacement has been completed in a satisfactory manner and fully paid for by
Lessee. Replacement Equipment acquired pursuant to (b) shall immediately become
the property of Lessor under this Lease and shall be conveyed to Lessor free and
clear of all liens, claims and encumbrances, and Lessee shall be entitled to
whatever interest Lessor may have in the Casualty Equipment "as is," in its then
condition and location without warranties of any type whatsoever, express or
implied. In the event Lessor elects option (c), then upon payment by Lessee to
Lessor of all sums required pursuant to (c): (i) this Lease shall terminate and
Lessee shall be entitled to whatever interest Lessor may have in the Casualty
Equipment "as is," in its then condition and location without warranties of any
type whatsoever, express or implied, and (ii) insurance proceeds received by
Lessor, if any, pursuant to section 10 on account of the Equipment shall be paid
to Lessee up to the amount of the applicable Stipulated Loss Value Payment.
12. FINANCIAL INFORMATION
Lessee agrees that its applications, statements, and financial reports submitted
by it to Lessor, and those of any guarantor(s) of Lessee's performance under
this Lease and related agreements ("Guarantor"), are material inducements to the
execution by Lessor of this Lease. Lessee represents and warrants that such
applications, statements, and financial reports are, and all information
hereinafter furnished by Lessee to Lessor will be, true, correct and complete in
all material respects and fairly present the financial condition of Lessee (and
any Guarantor) for the respective periods covered thereby, and that since the
date thereof there has been no material adverse change in such financial
condition or operations. Lessee agrees to promptly furnish to Lessor the annual
financial statements of Lessee and of any Guarantor, certified by independent
certified public accountants, and such interim financial statements and other
financial information of Lessee and any Guarantor as Lessor may require during
the Term of this Lease. Lessee hereby authorizes Lessor to make credit inquiries
with Lessee's bank(s) and trade references from time to time during the Term
hereof, and Lessee agrees to provide Lessor with current references upon
Lessor's request and to authorize such references to release credit information
to Lessor.
Lessee covenants and agrees to provide written notice to Lessor and its assigns
if Lessee (a) ceases doing business as a going concern or, if a corporation,
ceases to be in good standing or files a statement of intent to dissolve; or (b)
makes an assignment for the benefit of creditors, admits in writing its
inability to pay its debts as they become due, files a voluntary petition in
bankruptcy, is adjudicated a bankrupt or an insolvent, files a petition seeking
for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar arrangement under the Federal Bankruptcy
Code or any similar Federal or state statute, law or regulation, or files an
answer admitting the material allegations of a petition filed against it in any
such proceeding, or fails to have such petition dismissed within thirty (30)
days after filing, or consents to or acquiesces in the appointment of a trustee,
receiver or liquidator of it or all or any substantial part of its assets or
properties. Said notice shall be given within five (5) business days after the
occurrence of any of the foregoing.
13. DOCUMENTATION
Lessee covenants that it shall promptly and at its expense perform all acts and
execute and deliver to Lessor all documents which Lessor deems necessary or
desirable to implement the provisions of this Lease and establish and protect
the rights, interests and remedies of Lessor and its assigns hereunder. This
shall include, without limitation, providing to Lessor (a) the Progress Payment
Agreement, Equipment Schedule, Equipment Acceptance and annexes, amendments and
exhibits thereto; (b) Uniform Commercial Code financing statements, landlord and
mortgagee's waivers, and legal description(s) of the Premises; (c) secretary and
incumbency certificates; (d) guarantees; (e) acknowledgements of assignment by
Lessor; (f) insurance certificates; (g) copies of tax returns and assessments;
(h) cancelled checks and other proof of payment of Rent and other amounts
payable hereunder; (i) copies of maintenance contracts, if applicable; and (j)
certificates addressed to such persons as Lessor may direct stating that this
Lease is in full force and effect, that there are no amendments or modifications
thereto (or stating such amendments or modifications), that Lessor is not in
default of or breach hereunder (or stating all defaults or breaches claimed by
Lessee), setting forth the date to which Rent and other payments due hereunder
have been paid, and stating such other matters as Lessor may request. All such
documentation shall be in a form acceptable to Lessor.
14. TAX INDEMNITY
Lessee acknowledges that the Monthly Rent and other required payments as set
forth in the Equipment Schedule are computed under the assumption that Lessor
will be treated for Federal income tax purposes (and, to the extent allowable,
for state and local income tax purposes) as the owner of the Equipment and, with
respect to the Equipment Cost, will be entitled to accelerated cost recovery
deductions as provided under Section 167 and Section 168 of the Internal Revenue
Code of 1986 as amended (the "Code"), comparable deductions for state and local
income tax purposes, and any income tax credits which may now or hereafter apply
under the Code or otherwise (including, without limitation, Investment Tax
Credit) (collectively, "Tax Benefits"). Such Tax Benefits are further assumed to
commence not later than Lessor's taxable year encompassing the Acceptance Date.
Lessee represents and warrants to Lessor that Lessor shall be entitled to take
the Tax Benefits and that it has not, and will not, during the Term of the Lease
take any action or fail to take any action which, under the Code, will result in
the loss or delay of Lessor's realization of all or any part of the Tax
Benefits. Lessee agrees to account for this Lease as a true lease for income tax
purposes and will take no position on any tax returns or any other document
which is inconsistent therewith. Any loss, theft, damage or destruction of the
Equipment not resulting in payment of the Stipulated Loss Value Payment shall
also constitute an act of Lessee for purposes of this section.
If Lessor's Tax Benefits are lost, reduced, delayed or otherwise
(5)
<PAGE>
made unavailable to Lessor (hereinafter called a "Loss") as a result of any act,
failure to act or misrepresentation by Lessee, then Lessee shall pay to Lessor,
as additional rent, that cash amount which provides Lessor with the same
after-tax rate of return on investment (using a 34% Federal income tax rate and
a 6.5% state income tax rate) as Lessor would have realized absent the Loss.
Such cash amount shall be paid by Lessee to Lessor not later than 15 days after
written demand therefor from Lessor accompanied by a written statement
reasonably detailing the Loss and the computation of the amount so payable.
15. OTHER COVENANTS AND WARRANTIES OF LESSEE
LESSEE AGREES THAT ITS OBLIGATIONS UNDER THIS LEASE INCLUDING, WITHOUT
LIMITATION, THE OBLIGATION TO PAY RENT AND ALL OTHER AMOUNTS DUE AND TO BECOME
DUE UNDER THE LEASE, ARE ABSOLUTE AND UNCONDITIONAL, AND SHALL CONTINUE IN FULL
FORCE AND EFFECT REGARDLESS OF ANY INABILITY OF LESSEE TO USE THE EQUIPMENT OR
ANY PART THEREOF FOR ANY REASON WHATSOEVER INCLUDING, WITHOUT LIMITATION, WAR,
ACT OF GOD, STORMS, GOVERNMENTAL REGULATIONS, STRIKE, OTHER LABOR TROUBLES,
LOSS, DAMAGE, DESTRUCTION, LOSS OF POSSESSION OR RIGHT OF POSSESSION, DISREPAIR,
OBSOLESCENCE, FAILURE OF OR DELAY IN DELIVERY OF THE EQUIPMENT, FAILURE OF THE
EQUIPMENT TO PROPERLY OPERATE FOR ANY CAUSE AND AT ANY TIME, IMPROPER
INSTALLATION OR CONDITION, SUITABILITY OR ADAPTABILITY OF THE EQUIPMENT FOR
LESSEE'S CAUSE OR PURPOSE, BREACH OF WARRANTY OR COVENANTS OR OTHER ACTS BY
SELLER, OR ANY OTHER CAUSE, AND THAT ITS OBLIGATIONS SHALL NOT ABATE DUE TO ANY
CLAIM OR DEFENSE AGAINST LESSOR, REGARDLESS OF THE NATURE THEREOF. In the event
of any alleged claim, including a claim which would otherwise be in the nature
of a set-off, against Lessor, Lessee shall fully perform and pay its obligations
hereunder (including all Rent, without set-off or defense of any kind) and its
only recourse against Lessor shall be by a separate action.
To the extent permitted by applicable law, Lessee hereby waives any and all
rights and remedies conferred upon Lessee by sections 2A-401 and 2A-402, and
sections 2A-508 through 2A-522 of the Illinois Uniform Commercial Code
including, but not limited to, Lessee's rights to (i) cancel, terminate,
repudiate or rescind this Lease; (ii) suspend performance of any of its
obligations hereunder; (iii) revoke acceptance of the Equipment; (iv) recover
damages or Rent or the Equipment from Lessor for any breaches of warranty or for
any other reason; (v) a security interest in the Equipment in Lessee's
possession or control for any reason; (vi) sell or otherwise dispose of the
Equipment, or claim any expenses in connection therewith; (vii) deduct all or
any part of any claimed damages resulting from Lessor's default, if any, under
this Lease or any lease or other agreement at any time executed between Lessee
and Lessor; (viii) accept partial delivery of the Equipment; (ix) "cover" by
making any purchase or lease of, or contract to purchase or lease, equipment in
substitution of that due from Lessor; (x) recover any general, special,
incidental or consequential damages for any reason whatsoever; and (xi) specific
performance, replevin, detinue, sequestration, claim, and delivery of the like
for any item of Equipment identified to this Lease. To the extent permitted by
applicable law, Lessee also hereby waives any rights now or hereafter conferred
by statute or otherwise which may require Lessor to sell, lease or otherwise use
the Equipment in mitigation of Lessor's damages hereunder or which may otherwise
limit or modify any of Lessor's rights or remedies hereunder. Nothing in this
paragraph shall be deemed to diminish Lessee's right of quiet enjoyment under
the Lease or to limit Lessee's rights and remedies against the Seller of the
Equipment.
In order to induce Lessor to enter into this Lease and to lease the Equipment to
Lessee hereunder, Lessee represents and warrants that: (a) ORGANIZATION. Lessee
is a corporation in good standing and qualified to do business in its state of
incorporation and in each State in which the Equipment will be located. (b)
POWER AND AUTHORITY. Lessee has the full power, authority and legal right to
execute, deliver, and perform this Lease, which has been duly authorized by all
necessary corporate action of Lessee. (c) ENFORCEABILITY. This Lease has been
duly executed and delivered by Lessee and constitutes the legal, valid and
binding obligation of the Lessee enforceable in accordance with its terms. (d)
CONSENTS. The execution, delivery and performance of this Lease, including the
commitment and payment of rent, does not (i) require the consent of any
stockholder, trustee, or holders of any indebtedness or obligations of Lessee
except such as have been duly obtained, or (ii) contravene any law, governmental
rule, regulation or order now binding on Lessee, or the charter or by-laws of
Lessee, or (iii) contravene the provisions of, or constitute a default under, or
result in the creation of any lien upon any property of Lessee under any
mortgage, instrument or other agreement to which Lessee is a party or by which
Lessee or its assets may be bound or affected. (e) TITLE TO EQUIPMENT. On each
Acceptance Date, Lessor shall have good and marketable title to the Equipment
subject to the Lease, free and clear of all liens and encumbrances, except for
the lien of the seller of the Equipment which will be released upon receipt of
payment. (f) NO LITIGATION. There is no action, suit, investigation or
proceeding by or before any court, arbitrator, administrative agency or other
governmental authority pending or threatened against or affecting Lessee which
(i) involves the Equipment or transactions contemplated by this Lease, or (ii)
if adversely determined, could have a material adverse effect on the financial
condition, business, or operations of Lessee, or the ability of Lessee to
perform its obligations hereunder. (g) NO DEFAULT. Lessee is not in breach of or
default under any lease, loan agreement or other instrument to which Lessee is a
party. Lessee, if requested, shall provide at Lessee's expense an Opinion of
Counsel acceptable to Lessor affirming the covenants and warranties set forth in
items (a) through (g) of this paragraph and opining as to the matters set forth
in section 17 hereof.
16. PERFORMANCE BY LESSOR OF LESSEE'S OBLIGATIONS
In the case of the failure of Lessee to comply with any provision of this Lease,
Lessor shall have the right, but not the obligation, to effect such compliance
on behalf of Lessee. In such event, all monies spent by and expenses incurred by
Lessor in effecting such compliance (including, without limitation, attorneys'
fees) shall be immediately due and payable by Lessee to Lessor together with
interest thereon at the Delinquency Rate from the date(s) of Lessor's payment(s)
to the date of Lessor's receipt of Lessee's payment therefor.
17. PLEDGE OF ADDITIONAL COLLATERAL; DEBT SUBORDINATION; LETTER OF CREDIT
Prior to Lessor's disbursement of payment for Equipment (including disbursements
pursuant to any progress payment agreement), Lessee shall pledge and grant to
Lessor a first priority security interest in additional assets (the "Additional
Collateral") with a "Collateral Value" (as hereinafter defined) equal to or
greater than the Equipment Cost of such Equipment. Until Lessor releases its
security interest in the Additional Collateral pursuant to the terms of this
section, Lessee shall at its expense keep the Additional Collateral free from
any and all liens, encumbrances, attachments, levies, executions, burdens,
charges, or legal process of any and every type whatsoever except for the
security interest of Lessor. Subject to Lessor's review and approval, the
Additional Collateral may include (a) cash; (b) U.S. Treasury bills; (c)
American depositary receipts ("ADR's") for foreign stock; and (d) member seats
on the Chicago Board of Trade and/or the Chicago Mercantile Exchange (the
"Seats"). Collateral Value shall be the aggregate market value of the Additional
Collateral, less discounts of 20% and 50% for the ADR's and Seats, respectively.
Should the Collateral Value of the Additional Collateral pledged for this Lease
fall below the Equipment Cost at any time, Lessee shall pledge and grant to
Lessor supplementary Additional Collateral with a Collateral Value equal to or
greater than such shortfall within one (1) business
(6)
<PAGE>
day after Lessor's demand therefor. Should the Collateral Value of the
Additional Collateral pledged for this Lease exceed the Equipment Cost at any
time, then if requested by Lessee, any excess Additional Collateral will be
released to Lessee after review and confirmation of such excess by Lessor.
Lessee may substitute cash for non-cash forms of Additional Collateral with
notice to Lessor. Lessee shall pay all costs, fees and expenses of any and every
kind whatsoever incurred in connection with the Additional Collateral and
Lessor's security interest therein, including, without limitation, brokerage and
attorneys' fees.
Lessee covenants to Lessor that Lessee's existing and future debt obligations to
Lessee's parent and affiliated companies (collectively, the "Inter-Company
Debt") shall be subordinated to Lessee's obligations under this Lease. Such
subordination shall remain in effect for the entire Term of this Lease, unless
earlier waived by Lessor pursuant to the provisions of the following paragraph.
Lessee shall provide written documentation of such subordination acceptable to
Lessor on or before the July 15, 1995.
On or before August 31, 1995 (subject to extension at the sole discretion of
Lessor by a writing signed by Lessor), Lessee shall, at its sole cost and
expense, deliver to Lessor an irrevocable standby letter of credit (the "Letter
of Credit") naming Lessor as sole beneficiary in a face amount equal to the
total Equipment Cost of the Leases, and in a form and content, and issued by a
bank, acceptable to Lessor. Upon Lessor's receipt and acceptance of the Letter
of Credit, then (i) Lessor shall release its security interest in the Additional
Collateral, (ii) the Inter-Company Debt subordination provisions of the
preceding paragraph will be waived, and (iii) the Monthly Rent due for
subsequent months of the Basic Term (exclusive of any Monthly Rent payment(s)
already received by Lessor) under each Lease shall be reduced by five one
hundredths of one percent (.05%) of Equipment Cost. Lessee shall thereafter
maintain the Letter of Credit for the entire Term of each Lease; in the event
the Letter of Credit shall expire prior to the end of the Term of any Lease,
then not less than 30 days prior to expiration of the existing Letter of Credit,
Lessee shall deliver to Lessor a substitute Letter of Credit with a face amount
equal to the total of the Stipulated Loss Value Payments then applicable for the
Leases, and in a form and content, and issued by a bank, acceptable to Lessor.
Lessee shall pay all costs, fees and expenses of any and every kind whatsoever
incurred in connection with the Letter of Credit, its maintenance and
substitution, including, without limitation, transfer fees arising from any
assignment of Lessor's interest hereunder to Assignees (as hereinafter defined).
18. EVENTS OF DEFAULT
An event of default shall occur hereunder if (a) Lessee fails to pay
Rent or any other payment required hereunder within five (5) days after the same
is due and payable; or (b) Lessee breaches, or fails to perform or observe, any
other covenant, warranty, condition, or agreement made or given by Lessee in
this Lease or any other document furnished to Lessor in connection herewith, and
such breach or failure shall continue unremedied for a period of ten (10) days
after the date on which notice thereof shall be given by Lessor to Lessee; or
(c) Lessee ceases doing business as a going concern, or, if a corporation,
ceases to be in good standing or files a statement of intent to dissolve, or
abandons any or all of the Equipment; or (d) Lessee removes from the Premises,
places into storage, sells, conveys, transfers, encumbers, parts with possession
of, assigns or sublets any item of Equipment or any of its rights or obligations
hereunder (except with Lessor's prior written consent pursuant to section 7) or
Lessee shall otherwise create, incur, assume or suffer to exist any mortgage,
lien, pledge or other encumbrance or attachment of any kind whatsoever upon or
affecting the Equipment, the Additional Collateral (or any item thereof) or this
Lease or any of Lessor's or Lessee's interests hereunder; or (e) without
Lessor's prior written consent, Lessee shall enter into any transaction of
merger or consolidation in which it is not the surviving entity or sell,
transfer or dispose of all or substantially all of its assets; or (f) Lessee, or
any Guarantor, has made any material misrepresentation, or failed to disclose a
material fact, under this Lease or in connection with any information submitted
or furnished to Lessor by Lessee or any Guarantor; or (g) Lessee makes an
assignment for the benefit of creditors, admits in writing its inability to pay
its debts as they become due, files a voluntary petition in bankruptcy, is
adjudicated a bankrupt or an insolvent, files a petition seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar arrangement under the Federal Bankruptcy Code or any similar Federal
or state statute, law or regulation, or files an answer admitting the material
allegations of a petition filed against it in any such proceeding, or fails to
have such petition dismissed within thirty (30) days after filing, or consents
to or acquiesces in the appointment of a trustee, receiver or liquidator of it
or all or any substantial part of its assets or properties; or (h) Lessee shall
be in breach of or default under any lease (including, without limitation, any
lease of the Premises) or other agreement at any time executed with Lessor or
any other lessor or with any lender to Lessee; or (i) any Guarantor shall (I)
terminate, repudiate, revoke or disavow any of Guarantor's obligations under
his, her or its guaranty or breach any of the terms of such guaranty, or (II)
suffer a material adverse change in his, her or its financial condition or other
adverse change from the date hereof including, without limitation, Guarantor's
death, dissolution, insolvency, liquidation or bankruptcy, and as a result
Lessor deems itself to be insecure; or (j) Lessee fails to pledge and grant to
Lessor the Additional Collateral, or fails to maintain the Additional
Collateral, in accordance with section 17 hereof; or (k) Lessee's Inter-Company
Debt obligations are not subordinated to Lessee's obligations under this Lease,
in accordance with Section 17 hereof; or (l) Lessee fails to provide and
maintain the Letter of Credit in accordance with section 17 hereof, or the
issuer of the Letter of Credit shall renounce or repudiate all or any part of
its obligations under the Letter of Credit; or (m) Lessee breaches, or fails to
perform or observe, any other covenant, warranty, condition or agreement made or
given by Lessee in section 17 of this Lease or any other document furnished to
Lessor in connection therewith.
19. REMEDIES
Upon the occurrence of any event of default and at any time thereafter Lessor
may, in its sole discretion, do any one or more of the following: (a) upon
notice to Lessee, cancel this Lease; (b) by notice to Lessee, require that
Lessee return the Equipment to Lessor in accordance with section 5; (c) without
court order or other process of law, enter upon the Premises where such
Equipment is located and, with respect to all or any item of the Equipment, (i)
dispose of, (ii) render unusable, or (iii) take immediate possession of and
remove, or any combination of the foregoing, which action(s) shall not
constitute a cancellation of this Lease; (d) refuse to purchase or deliver to
Lessee the Equipment or such portion thereof not purchased or delivered
theretofore; (e) by notice to Lessee, declare immediately due and payable the
sum of all Rent and other amounts then accrued and unpaid together with the
present value all future Rent and other sums reserved under the Lease for the
full term hereof (including any Minimum FMV Payment) discounted at the rate of
five percent (5%) per annum (the "Discount Rate"); (f) with or without canceling
this Lease, recover from Lessee as liquidated damages (and not as a penalty)
either (i) the sum of all Rent and other amounts accrued and unpaid hereunder as
of the date of default, plus the Stipulated Loss Value Payment then applicable,
plus all legal fees and other costs and expenses incurred by Lessor as a result
of the default or the exercise of Lessor's remedies, together with interest on
the foregoing at the Delinquency Rate from the date of default to the date of
actual payment; OR, at the option of Lessor or as required by any applicable law
(ii) the sum of all Rent and other amounts accrued and unpaid hereunder as of
the date of entry of judgement in favor of Lessor, plus the present value as of
the date of such
(7)
<PAGE>
judgement of all future Rent and other sums reserved under the Lease for the
full term hereof (including any Minimum FMV Payment) discounted at a rate per
anum equal to the Discount Rate, plus an amount that will fully compensate
Lessor for any loss of Tax Benefits and residual interest in the Equipment in
connection with or arising out of Lessee's default, plus all legal fees and
other costs and expenses incurred by Lessor as a result of the default or the
exercise of Lessor's remedies, together with interest on the foregoing at the
Delinquency Rate from the date of default to the date of actual payment, (g) at
any time prior to collection of a judgement for damages, sell or re-lease or
otherwise dispose of the Equipment or any item thereof, upon such terms and to
such parties as Lessor, in its sole discretion, may elect, and apply any net
cash proceeds (after deducting Lessor's costs in connection therewith) to the
account of Lessee's obligations hereunder with Lessee remaining liable for any
deficiency and with any excess being retained by Lessor; (h) draft on the Letter
of Credit; (i) exercise any right or remedy which may be available to Lessor
under any security document or applicable law pertaining to the Additional
Collateral; (j) exercise any right or remedy which may be available to it under
the Uniform Commercial Code or any other applicable law or proceed by
appropriate court action, without affecting Lessor's title or right to
possession of the Equipment, to enforce the terms hereof or to recover damages
for the breach hereof or to cancel this Lease.
Lessee shall be liable for all legal fees and other costs and expenses incurred
by Lessor and its assigns resulting from any of the foregoing events of default
or the exercise of Lessor's remedies, including placing the Equipment in the
condition required by section 5, in addition to the Rent and other amounts
payable by Lessee hereunder and all other amounts at any time owing by Lessee to
Lessor. All such legal fees, costs and expenses shall be payable by Lessee upon
demand and, except as otherwise provided herein, interest on the foregoing shall
be charged to Lessee at the Delinquency Rate from the date of such demand until
the date of Lessor's receipt of Lessee's payment therefor. No remedy referred to
in this section is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to above or otherwise available to Lessor
at law or in equity. No express or implied waiver by Lessor of any default shall
constitute a waiver of any other default by Lessee or a waiver of any of
Lessor's rights, nor shall any delay by Lessor in enforcing any of its rights be
deemed a waiver thereof.
20. ASSIGNMENT BY LESSOR
Lessor may at any time transfer, assign or grant any or all of its interest
hereunder to others ("Assignees") with or without notice to Lessee. Such
Assignees shall have all of Lessor's rights but none of Lessor's obligations
hereunder unless expressly assumed by the Assignees, such obligations otherwise
remaining with Lessor. In the event that Lessor transfers or assigns its
interest hereunder, or grants a security interest in all or any part of this
Lease, the Equipment or sums payable hereunder, then Lessee shall (a) promptly
upon Lessor's request acknowledge such transfer, assignment or grant by
executing an acknowledgement of assignment or such other document(s) as may be
reasonably necessary to evidence, secure and complete such transfer, assignment
or grant; (b) upon receipt of instructions from Lessor, shall pay Rent and other
amounts due hereunder to the designated Assignee in accordance with said
instructions; and (c) not permit this Lease to be amended or the terms hereof
waived without the prior written consent of the Assignees. Lessee agrees that
its obligations hereunder, including its obligation to pay Assignees all Rent
and all other sums due and to become due hereunder, is absolute and
unconditional, and shall not be subject to, nor shall Lessee assert against the
Assignees, any abatement, reduction, recoupment, defense, setoff, claim or
counterclaim that Lessee may have against Lessor or any other party, including
Seller.
Lessee acknowledges and agrees that any transfer, assignment or grant by Lessor
will not materially change Lessee' duties and obligations under this Lease or
materially increase the burdens or risks imposed on Lessee. Notwithstanding any
such assignment, transfer or grant by Lessor, and so long as no event of default
shall have occurred hereunder, neither Lessor nor any Assignee shall interfere
with Lessee's right of quiet enjoyment, use and possession of the Equipment in
accordance with the terms hereof.
21. MISCELLANEOUS
IRREVOCABLE. This Lease is irrevocable by Lessee for the full Term hereof and
for the aggregate Rent and all other amounts herein reserved.
FINANCE LEASE. Lessee agrees and acknowledges that it is the intent of Lessee
and Lessor that this Lease qualify as a "finance lease" as defined in section
2A-103 of the Illinois Uniform Commercial Code.
APPLICATION OF PAYMENTS. Lessor shall have the exclusive right to determine how,
and in what amounts, payments received from Lessee (or any Guarantor) are
applied to amounts due and past due under the Leases, and such determination
shall be conclusive upon the Lessee and any Guarantor.
NOTICES. All notices and demands relating hereto shall be given in writing and
shall be deemed given when the same is (a) personally delivered with receipt
acknowledged or (b) mailed by certified mail, return receipt requested, with
proper postage prepaid, addressed to the party intended to be served at the
address set forth in the Equipment Schedule or at such other address designated
by notice served in accordance herewith.
SURVIVAL OF OBLIGATIONS. All obligations of Lessee shall survive the
expiration of the Term of this Lease.
SUCCESSORS AND ASSIGNS. This Lease is binding upon, and inures to the benefit
of, the parties hereto and their respective successors and assigns; provided,
however, that Lessee may not assign this Lease, or any of its rights or
obligations hereunder, without the prior written consent of Lessor as provided
in section 7 hereof.
MULTIPLE LESSEES. If more than one Lessee is named in the MLA or an Equipment
Schedule, the liability of each shall be joint and several.
NOT AN OFFER. Neither this MLA nor any Equipment Schedule shall be deemed to
constitute an offer or be binding upon Lessor until executed by Lessor's
authorized officer.
(8)
<PAGE>
SEVERABILITY. The invalidity or unenforceability of any provision of this Lease,
in whole or in part, shall not affect the validity or enforceability of the
remainder of any such provision or the remaining provisions of this Lease.
TITLES. Section titles are for reference purposes only and are not intended to
have legal effect or otherwise affect the interpretation of this MLA or any
Equipment Schedule.
COUNTERPARTS. Each Equipment Schedule may be executed in counterparts. Only
"Counterpart Number 1" of an Equipment Schedule, together with a photocopy of
the executed MLA shall constitute "Chattel Paper" or other "Collateral" within
the meaning of the Uniform Commercial Code.
LAW. This MLA and each Equipment Schedule are entered into under and shall be
construed in accordance with, and governed by, the laws of the State of
Illinois. LESSEE HEREBY CONSENTS TO THE JURISDICTION OF ANY LOCAL, STATE OR
FEDERAL COURT LOCATED WITHIN COOK COUNTY, ILLINOIS AND WAIVES ANY OBJECTIONS
WHICH LESSEE MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE
CONDUCT OF ANY PROCEEDING IN ANY SUCH COURT. LESSEE EXPRESSLY WAIVES ANY RIGHTS
TO A TRIAL BY JURY OF ALL DISPUTES BETWEEN LESSEE AND LESSOR OR LESSOR'S
ASSIGNEES.
ENTIRE AGREEMENT. Lessee represents that it has received, read and understands
this Master Lease Agreement, and agrees to be bound by its terms and conditions.
This Master Lease Agreement and the applicable Equipment Schedule, together with
addendums, exhibits and riders thereto: (i) constitute the entire agreement
between Lessee and Lessor with respect to the lease of the Equipment, (ii)
supersede all proposals, oral or written, and (iii) and may not be altered or
modified except by a writing signed by Lessee, Lessor and Lessor's Assignees, if
any.
Lessee's Initials ____________________
------------------------
The person executing this Master Lease Agreement for and on behalf of Lessee
warrants and represents to Lessor, which representation and warranty shall
survive the expiration of the Term of this Lease for any reason whatsoever, that
this Lease and the execution hereof has been duly and validly authorized by
Lessee, constitutes a valid and binding obligation of Lessee, and that he has
the authority to make such execution for and on behalf of Lessee.
IN WITNESS WHEREOF, this Master Lease Agreement has been executed this 31st day
of May, 1995
LESSEE: LESSOR:
Rodman & Renshaw Capital Group, Inc. Facility Capital Corporation
------------------------------------ ----------------------------
By: By:
--------------------------------- -------------------------
Name: John T. Hague Name: Clyde D. Cady
------------------------------ ----------------------
Title: Chief Financial Officer Title: President
------------------------------ ---------------------
(9)
<PAGE>
FIRST AMENDMENT TO MASTER LEASE AGREEMENT
This First Amendment to Master Lease Agreement Number RODM-1 dated May 31, 1995
(the "MLA") between Facility Capital Corporation as lessor ("Lessor") and Rodman
& Renshaw Capital Group, Inc. as lessee ("Lessee").
WHEREAS, Lessor and Lessee mutually desire to amend the MLA;
NOW, THEREFORE, in consideration of the foregoing premises, and for valuable
consideration, the receipt of which is hereby acknowledged, Lessee and Lessor
hereby amend the MLA as follows:
1. Lessee's address is amended in its entirety to read as follows:
"233 South Wacker Drive, Sears Tower, Suite 4500, Chicago, IL 60606"
2. The following additional paragraph is inserted at the end of section 2 of
the MLA:
"Notwithstanding any provision to the contrary in this MLA or any Equipment
Schedule, Monthly Rent originally due on or before October 1, 1995 shall,
to the extent not previously paid by Lessee, be due and payable by Lessee
to Lessor on the date of Lessor's [or its assignee(s)'] reimbursement to
Lessee for items of Equipment for which Lessee remitted deposit(s) to
Seller (as hereinafter defined).
3. Section 17 of the MLA is hereby amended as follows:
(a) In the second paragraph of section 17, the date "July 15, 1995" appearing
in the last line of said paragraph, is hereby deleted, and the date
"November 1, 1995" is substituted therefor.
(10)
<PAGE>
(b) The third paragraph of section 17 is hereby amended in its entirety to
read as follows:
"On or before November 1, 1995 (subject to extension at the sole discretion of
Lessor by a writing signed by Lessor), Lessee shall, at its sole cost and
expense, deliver to Lessor or Lessor's Assignees (as hereinafter defined) one
or more irrevocable standby letters of credit (which, together with all
substitutions and renewals thereof, shall be referred to collectively herein
as the "Letters of Credit" and singularly, a "Letter of Credit") naming Lessor
or Lessor's Assignees as sole beneficiary in an aggregate face amount equal to
the total Equipment Cost of the Leases, and in a form and content, and issued
by bank(s), acceptable to Lessor. Upon Lessor's receipt and acceptance of the
Letters of Credit, then (i) Lessor shall release its security interest in the
Additional Collateral, (ii) the Inter-Company Debt subordination provisions of
the preceding paragraph will be waived, and (iii) the Monthly Rent due for
subsequent months of the Basic Term (exclusive of any Monthly Rent payment(s)
already received by Lessor) under each Lease which has commenced by November
1, 1995 shall be reduced by five one hundredths of one percent (.05%) of
Equipment Cost. Lessee shall thereafter continuously maintain the Letters of
Credit for the entire Term of each Lease; in the event that any Letter of
Credit shall expire prior to the end of the Term of any Lease, then not less
than 30 days prior to expiration of such Letter of Credit, Lessee shall
deliver to Lessor or Lessor's Assignees substitute or renewal Letter(s) of
Credit with face amount(s) which, together with the face amounts of any
Letters of Credit which are not then so expiring, have an aggregate face
amount not less than the lesser of the total Equipment Cost of the Leases or
the total of the Stipulated Loss Value Payments then applicable for the
Leases, and in a form and content, and issued by bank(s), acceptable to
Lessor. Lessor may at any time transfer its interest under any one or more of
the Letters of Credit to Lessor's Assignees in connection with any assignment
of Lessor's interest hereunder to such Assignees. Lessee shall pay all costs,
fees and expenses of any and every kind whatsoever incurred in connection with
the Letters of Credit, their issuance, maintenance, substitution, and renewal,
including, without limitation, attorneys' fees and transfer fees arising from
any assignment of Lessor's interest hereunder."
(11)
<PAGE>
(c) The following additional paragraph is inserted after the third paragraph at
the end of section 17:
"If the proposed Letters of Credit are issued by a foreign bank, or a
domestic bank unacceptable to Lessor, then Lessee shall, at its sole cost
and expense, provide confirmations by domestic banks acceptable to Lessor,
which confirmations shall be in a form and content acceptable to Lessor."
4. Subsection (l) of section 18 is hereby amended in its entirety to read as
follows:
"Lessee fails to provide and maintain the Letters of Credit or required
confirmations in strict accordance with section 17 hereof, or the issuer of
any Letter of Credit or confirmation shall renounce or repudiate all or any
part of its obligations under such Letter of Credit or confirmation;"
5. All other references in the MLA to "Letter of Credit" are hereby amended
to read "Letters of Credit."
Except as specifically amended and modified hereby, all of the terms and
conditions of the Leases shall stand and remain unchanged and in full force and
effect.
IN WITNESS WHEREOF, the Lessor and Lessee have executed this First Amendment to
Master Lease Agreement this 24th day of October, 1995.
LESSEE: LESSOR:
Rodman & Renshaw Capital Group, Inc. Facility Capital Corporation
By: By:
--------------------------------- -----------------------------
Name: Name:
------------------------------- ---------------------------
Title: Title:
------------------------------ -------------------------
(12)
<PAGE>
EXHIBIT 10.21
CLEARING AGREEMENT
This agreement, made this 15TH day of SEPTEMBER, 1995 (the "Agreement") between
Correspondent Services Corporation (hereinafter referred to as "CSC"), and
RODMAN & RENSHAW, INC. (hereinafter referred to as the "Correspondent").
WITNESSETH THAT:
WHEREAS, the Correspondent is desirous of availing itself of clearing, execution
and other services related to the securities business as more fully set forth
herein; and Whereas, CSC desires to extend the foregoing types of services to
the Correspondent. Now Therefore, in consideration of the mutual covenants
hereinafter set forth and other good and valuable consideration the receipt of
which is hereby acknowledged, the parties hereto hereby covenant and agree as
follows:
I. SERVICES
A. Services to be Performed by CSC
(i) CSC will execute orders for the Correspondent's proprietary accounts
and for the Correspondent's customers whose cash or margin accounts
have been accepted by CSC ("Introduced Accounts"), but only insofar
as such orders are transmitted by the Correspondent to CSC.
(ii) CSC will generate, prepare and mail confirmations respecting each of
the Introduced Accounts.
(iii) CSC will prepare and mail the summary monthly statements (or
quarterly statements if no activity in any Introduced Account occurs
during any quarter covered by such statement) to every Introduced
Account.
(iv) CSC will settle contracts and transactions in securities (including
options to buy or sell securities) (i) between the Correspondent and
other brokers and dealers, (ii) between the Correspondent and the
Introduced Accounts, and (iii) between the Correspondent and persons
other than the Introduced Accounts or other brokers and dealers.
(v) CSC will engage in all cashiering functions for the
Introduced Accounts,
1
<PAGE>
including the receipt, delivery and transfer of securities purchased,
sold, borrowed and loaned, receiving and distributing payment
therefore, holding in custody and safekeeping all securities and
payments so received, the handling of margin accounts, including
paying and charging of interest, the receipt and distribution of
dividends and other distributions, and the processing of exchange
offers, rights offerings, warrants, tender offers and redemptions.
For purposes of the Securities and Exchange Commission's financial
responsibility rules and SIPC requirements, the Correspondent's
customers will be considered customers of CSC and not customers of
the Correspondent. Nothing herein shall cause the Correspondent's
customers to be construed or interpreted as customers of CSC for any
other purpose, or to negate the intent of any other section of this
agreement, including, but not limited to, the delineation of
responsibilities as set forth elsewhere in this agreement. Upon
mutual written agreement of the parties hereto, the cashiering
functions with respect to the receipt of securities and the making
and receiving payments therefor may be relinquished to the
Correspondent.
(vi) CSC will construct and maintain books and records of all
transactions executed or cleared through it and not specifically
charged to the Correspondent pursuant to the terms of this
Agreement, including a daily record of required margin and other
information required by Rule 432(a) of the rules of the Board of
Directors of the New York Stock Exchange, Inc. (the "Rules"), or by
the constitution, articles of incorporation, by-laws (or comparable
instruments) or rules, regulations or other instruments
corresponding to the foregoing, and the stated policies or practices
of any other securities exchange (the "Standards"), including but
not otherwise limited to any national securities exchanges
registered under the Securities Exchange Act of 1934, as amended
("National Securities Exchange").
B. Services Which Shall Not be Performed by CSC
Unless otherwise agreed to in a writing executed by the parties hereto, CSC
shall not engage in any of the following services on behalf of the
correspondent:
(i) Accounting, bookkeeping or recordkeeping, cashiering, or any other
services with respect to commodity transactions, and/or any
transaction other than securities transactions.
(ii) Preparation of the Correspondent's payroll records, financial
statements or any analysis or review thereof or any recommendations
relating thereto.
(iii) Preparation or issuance of checks in payment of the Correspondent's
2
<PAGE>
expenses, other than expenses incurred by CSC on behalf of the
Correspondent pursuant to this Agreement.
(iv) Payment of commissions, salaries or other remuneration to the
Correspondent's salespersons or any other employees of the
Correspondent.
(v) Preparation and filing of reports (the "Reports") with the
Securities and Exchange Commission, any state securities commission,
any National Securities Exchange, or other securities exchange or
securities association or any other regulatory or self-regulatory
body or agency with which the Correspondent is associated and/or by
which it is regulated. Furthermore, CSC will, at the request of the
Correspondent, furnish the Correspondent with any necessary
information and data contained in books and records kept by CSC and
not otherwise reasonably available to the Correspondent if such
information is required in connection with the preparation and
filing of Reports by the Correspondent.
(vi) Making and maintaining reports and records required to be kept by the
Correspondent by the Currency and Foreign Transactions Reporting Act
of 1970 and the regulations promulgated pursuant thereto, or any
similar laws or regulations enacted or adopted hereafter.
(vii) Verification of the address changes of any Introduced Account.
(viii) Obtaining and verifying new account information, and insuring that
such information meets the requirements of Rule 405{1} of the Rules
and any other Rules or applicable standards.
(ix) Maintaining a record of all personal and financial information
concerning any Introduced Account and all orders received therefrom,
and maintaining all documents and agreements executed by any
Introduced Account.
(x) Holding for safekeeping of the securities of any Introduced
Account registered in the name of the Introduced Account.
(xi) Accepting deposits from the Correspondent in the form of coin or
currency of the United States or any other country.
II. CLEARING CHARGES
See Schedule "A" attached hereto and incorporated herein by reference.
3
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Correspondent shall have sole discretion to determine the amount of
commission/mark up charged to its Introduced Accounts cleared by CSC. CSC
agrees to pay Correspondent all commissions and/or sales credits received
by CSC with respect to Correspondent's business less any amounts due to
CSC under this Agreement or otherwise and any expenses or other sums to
third parties paid on the Correspondent's behalf by CSC.
In no event shall the fees charged in this Article II for the above
services be in contravention of the Securities Act of 1933, as amended,
the Securities Exchange Act of 1934, the Investment Advisers Act of 1940,
as amended, or the Employee Retirement Income Security Act of 1974, as
amended, or any rules or regulations thereunder, or any other law, rule or
regulation, Federal, State or Local, or any constitution, by-law, rule,
regulation or instrument correspondent to the foregoing, or stated policy
or practice of any national securities exchange or other securities
exchange or association or other regulatory or self-regulatory body or
agency ("Laws and Regulations"). In the event that such fees are deemed by
CSC or the Correspondent to be in contravention of the Laws and
Regulations, they shall be replaced with fees mutually agreed upon in
writing by CSC and the Correspondent.
III. NOTATION ON STATEMENTS, CONFIRMATION AND OTHER WRITTEN MATERIAL
CSC shall carry all Introduced Accounts in the names of the
Correspondent's customers, with a notation on its books and records that
such Introduced Accounts were introduced by the Correspondent, and all
monthly or quarterly statements and confirmations relating to such
Introduced Accounts shall also indicate that the Introduced Accounts were
introduced by the Correspondent. In addition, account statements will
indicate that customer funds and securities received by CSC will be held
at CSC and will contain the telephone number of a contact area at CSC.
Inadvertent omission of such notations shall not be deemed to constitute a
breach of this Agreement. Copies of the forms covering the foregoing shall
be furnished by CSC to the Correspondent.
IV. OPENING OF ACCOUNTS
(i) At the time of the opening of each Introduced Account,
Correspondent shall furnish CSC with all financial and
personal information concerning such Introduced Accounts as
CSC may reasonably require. At the time of the opening of
Introduced Accounts which are margin accounts, the
Correspondent shall furnish CSC with executed customers'
agreements, hypothecation agreements and consents to loans of
securities (collectively, the "margin agreement"). CSC shall
supply the Correspondent with margin agreement forms
regarding margin accounts in sufficient quantities, such
forms to be submitted to CSC upon their completion by the
Correspondent. If any Introduced Account may have been
opened without CSC having previously received a properly
executed margin
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agreement, failure of CSC to receive such margin agreements
shall not be deemed to be a waiver of the information
requirements set forth herein. Upon the written or oral request
of CSC, the Correspondent shall furnish CSC with any other
documents and agreements executed by the Introduced Account on
forms which shall be supplied by CSC in sufficient quantities
and which may reasonably be required by CSC in connection with
the opening, operating or maintaining of Introduced Accounts.
CSC may, at its option, mail margin agreements or "new account"
forms directly to the Introduced Accounts upon notification by
the Correspondent, and/or require completion of its own margin
agreement or "new account" forms and, if required, option
account agreements for the Introduced Accounts. The
Correspondent shall promptly provide CSC with basic data and
copies of documents relating to each of the Introduced Accounts,
including, but not otherwise limited to, copies of records of
any receipts of the Introduced Accounts' funds and/or securities
received directly by the Correspondent, as shall be necessary
for CSC to discharge its service obligations hereunder.
(ii) All transactions in any Introduced Account are to be considered
cash transactions until such time as CSC has received margin
agreements, duly and validly executed in respect of such
Introduced Account. Nevertheless, it is intended that
Correspondent will obtain executed margin agreements within
the time periods set forth in procedural manuals provided by
CSC or any entity affiliated with CSC. In the event credit
is inadvertently extended with respect to such Introduced
Accounts, Correspondent shall indemnify and hold CSC harmless
from and against all loss, liability, damage, cost and expense
(including but not otherwise limited to fees and expenses of
legal counsel) arising therefrom.
(iii) At the time of the opening of any Introduced Account, the
Correspondent shall furnish CSC with the name of any principal
other than the account name for whom the Correspondent is acting
as agent, and written evidence of such authority.
(iv) The Correspondent shall have the sole and exclusive
responsibility for compliance with Rule 405(3) of the
Rules and shall specifically approve the opening of any new
account before forwarding such account to CSC as a potential
Introduced Account. CSC, in its reasonable business judgement,
reserves the right to reject any account which the
Correspondent may forward to CSC as a potential Introduced
Account. CSC also reserves the right to terminate any account
previously accepted by it as an Introduced Account.
(v) Pursuant to written notification received by the
Correspondent and
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forwarded to CSC, any account of the Correspondent may choose to
reject the services to be performed by CSC pursuant to this
Agreement and thus choose not to be serviced as an Introduced
Account pursuant hereto. Upon notice from another member
organization that an Introduced Account intends to transfer his
account thereto, CSC shall expedite such transfer and shall have the
sole and exclusive responsibility for compliance with Rule 412 of
the Rules.
(vi) It shall be the sole and exclusive responsibility of the
Correspondent to make every reasonable effort to ascertain the
essential facts relative to any Introduced Account and any
order therefore, in compliance with Rule 405(1) of the Rules,
including but not otherwise limited to ascertaining the
authority of all orders for Introduced Accounts, and the
genuineness of certificates, papers and signatures provided by
each Introduced Account. Any investment advice furnished to an
Introduced Account by the Correspondent shall be the sole and
exclusive responsibility of the Correspondent.
(vii) The Correspondent shall be solely and exclusively responsible
for the handling and supervisory review of any Introduced Accounts
over which the Correspondent's partners, officers or employees have
discretionary authority, as required by Rule 408 of the Rules and
any other applicable Laws and Regulations. The Correspondent shall
furnish CSC with such documentation with respect thereto as may be
requested by CSC. The Correspondent hereby agrees to indemnify and
hold CSC harmless against any loss, liability, damage, cost or
expense (including but not otherwise limited to fees and expenses
of legal counsel) suffered or incurred by CSC directly or
indirectly as a result of any liabilities or claims arising from
the exercise by the Correspondent, its partners, officers or
employees of discretionary authority over Introduced Accounts. The
Correspondent hereby warrants that with regard to any orders or
instructions given by the Correspondent with respect to such
discretionary accounts, its partners, officers or employees shall
have been fully and properly authorized relative thereto and that
the execution of such orders shall not be in violation of the Laws
and Regulations. Furthermore, the Correspondent hereby agrees to
indemnify and hold CSC harmless against any loss, liability,
damage, cost or expense (including but not otherwise limited to
fees and expenses to legal counsel) suffered or incurred by CSC
directly or indirectly as a result of any breach of the
Correspondent's said warranty.
(viii) The Correspondent shall have the sole and exclusive responsibility
for the handling and supervisory review of any Introduced Account
for an
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employee or officer of any member organization, self-regulatory
organization, bank, trust company, insurance company or other
organization engaged in the securities business, and for compliance
with Rule 407 of the Rules relating thereto. The Correspondent shall
furnish CSC with such documentation with respect thereto as may be
requested by CSC.
(ix) The Correspondent shall have the sole and exclusive responsibility to
insure that those of its customers who become Introduced Accounts
hereunder shall not be minors or subject to those prohibitions
existing under the Laws and Regulations generally relating to the
incapacity of any Introduced Account or any conflict of interest
relating to such Introduced Account.
(x) The Correspondent shall be solely and exclusively responsible
for any loss, liability, damage, cost or expense (including but not
otherwise limited to fees and expenses of legal counsel) sustained
or incurred by either the Correspondent or CSC, arising out of or
resulting from any orders the Correspondent has taken from
Introduced Account residing or being domiciled in jurisdictions in
which the Correspondent has not been or is no longer authorized to
do business.
(xi) It shall be the sole and exclusive responsibility of the
Correspondent to comply with the Laws and Regulations relating to
each Introduced Account which effect listed option transactions
including, but not limited to, approval by the Correspondent's
Registered Options Principal or Senior Registered Options Principal
(as applicable), delivery of required Options Disclosure Documents
(and Supplements where applicable) and option documentation.
V. TRANSACTIONS AND MARGIN
(i) It is understood that with respect to Introduced Accounts
which are margin accounts, CSC is responsible for compliance with
Regulation T, 12 C.F.R. Part 220, the Federal margin regulation
promulgated by the Board of Governors of the Federal Reserve System
(the "Board"), and any interpretative ruling issued by the Board,
and letter rulings of the Federal Reserve Bank of New York, Rules
and Interpretations of the New York Stock Exchange, Inc. and any
other applicable margin and margin maintenance requirements of the
Laws and Regulations. The Correspondent is responsible to CSC for
the collection of the margin required to support each transaction
for, and to maintain margin in, each Introduced Account and such
margin, in conformity with the above margin and margin maintenance
requirements. After such initial margin on each
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transaction has been received, maintenance margin calls shall be
generated by CSC and made by CSC or by the Correspondent at the
instructions of CSC. CSC shall have the right to modify, in its sole
discretion, the margin requirements of any Introduced Account from
time to time so that CSC may call for additional margin. Therefore,
CSC shall be the sole judge as to the amount of margin to be required
of and maintained by Introduced Accounts. CSC may impose such margin
by individual security within an account or by a specified Introduced
Account and such margin need not be of general application to all
accounts.
CSC shall impose no fees on the Correspondent, other than any fees or
charges imposed directly or by any regulatory body with regard to
margin extensions obtained by CSC pursuant to written requests from a
principal of the Correspondent.
(ii) On all transactions, the Correspondent shall be solely and
exclusively responsible to CSC for any loss, liability, damage, cost
or expense (including but not otherwise limited to fees and expenses
of legal counsel) incurred or sustained by the Correspondent or CSC
as result of the failure of any Introduced Account to make timely
payment for the securities purchased by it or timely and good
delivery of securities sold for it, or timely compliance by it with
margin or margin maintenance calls (provided that CSC has timely
issued such call and/or given notice thereof to the Correspondent or
if conditions creating such call should be reasonably known by
Correspondent), whether or not any margin extensions have been
granted by CSC pursuant to the request of the Correspondent, except
that no interest will be charged by CSC for cash shorts in Introduced
Accounts. The Correspondent agrees to be solely and exclusively
responsible for the payment and delivery of all "when issued" or
"when distributed" transactions which CSC may accept, forward or
execute for Introduced Accounts.
(iii) On all over-the-counter transactions for Introduced Accounts, the
Correspondent shall furnish CSC with the names of the respective
purchasing and selling broker-dealers (except as otherwise provided
in paragraph (iv) of this Section, as set forth below), the names of
the purchasing and selling customers, and the wholesale and retail
purchase and sale prices.
(iv) Should the Correspondent entrust the execution of an order in
an over-the-counter security to CSC or any entity affiliated with
CSC and the counter party is left at CSC's discretion, CSC will
assume the responsibility of paying the Correspondent that which the
counter party has failed to pay pursuant to the over-the-counter
order transaction (counter party risk). In
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the case the Correspondent executes its own over-the-counter order or
designates the counter party, it shall be understood that in the
event the over-the-counter dealer with whom the Correspondent dealt
or whom it designated fails to live up to its part of the
transaction, the Correspondent will assume the counter party risk and
reimburse CSC for any loss sustained thereby.
(v) The Correspondent shall be solely and exclusively responsible for
approving all orders for the Introduced Accounts and for establishing
procedures to insure that such approved orders are transmitted
properly to CSC for execution. CSC, in its reasonable business
judgement, reserves the right to reject any order which the
Correspondent may transmit to CSC for execution.
(vi) The Correspondent shall be solely and exclusively responsible for the
supervisory review of all orders for the Introduced Accounts and
shall insure that any orders and instructions given by it or any of
its employees to CSC pursuant to the terms of this Agreement shall
have been properly authorized in advance.
(vii) The Correspondent shall be solely and exclusively responsible for
sales and purchases for the Introduced Accounts that may create or
result in violation of any of the Laws and Regulations.
(viii) All transactions pursuant to the terms of this Agreement shall be
subject to the constitution, rules, by-laws, regulations, stated
practices, and customs and any modifications thereof of any national
securities exchange or other securities exchange or market and its
clearing house, if any, where executed, and the Laws and Regulations.
It is understood that the Correspondent assumes sole and exclusive
responsibility for compliance with the Laws and Regulations in the
same manner and to the same degree as if the Correspondent were
performing the services for the Introduced Accounts that have been
assumed by CSC pursuant to this Agreement, except insofar as CSC may
pursuant to paragraph (iv) of this Section, as set forth above,
select the counter party to a particular transaction.
(ix) All transactions heretofore had between the Correspondent and CSC
with respect to orders given by or for the Introduced Accounts and
cleared through CSC shall be subject to the Provisions of this
Agreement.
VI. SUPERVISORY RESPONSIBILITY
(i) Correspondent shall have the sole and exclusive
responsibility for the review of all Introduced Accounts and for
compliance with any
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supervisory responsibilities under Rule 405(2) of the Rules,
including but not otherwise limited to matters involving the
investment objectives of the Introduced Accounts, the reasonable
basis for recommendations made to Introduced Accounts, and the
frequency of trading in the Introduced Accounts, whether or not such
transactions are instituted by the Correspondent, its partners,
officers, employees or any registered investment advisor.
(ii) The Correspondent and CSC shall each be responsible for
compliance with any supervisory procedures under Rule 342 of the
Rules and, to the extent applicable, any other provisions of the
Laws and Regulations, including but not otherwise limited to
supervising the activities and training of their respective
registered representatives, as well as all of their other respective
employees in the performance of functions specifically allocated to
them pursuant to the terms of this Agreement.
VII. INFORMATION TO BE PROVIDED BY THE CORRESPONDENT
(i) The Correspondent shall provide CSC with copies of all
financial information and reports filed by the Correspondent with
the New York Stock Exchange, Inc. (if a member), the National
Association of Securities Dealers, Inc., the Securities and Exchange
Commission, and any other National Securities Exchange (where a
member) (including but not otherwise limited to monthly and
quarterly Financial and Operational Combined Uniform Single Reports,
i.e., "FOCUS" Reports) simultaneous with the filing therewith.
(ii) The Correspondent shall submit to CSC on an annual basis the
audited financial statements of the Correspondent, its parent
organization (if applicable) and, when requested by CSC, its
affiliated entities. In addition, the Correspondent shall submit to
CSC upon request, information and reports relating to the financial
integrity of Correspondent, its parent organization (if applicable)
and its affiliated entities, including but not otherwise limited to
information regarding the Correspondent's aggregate indebtedness
ratio and net capital.
(iii) The Correspondent shall provide CSC with all appropriate data in its
possession pertinent to the performance and supervision of any
function or responsibility specifically allocated to CSC pursuant to
the terms of this Agreement.
(iv) The Correspondent shall provide CSC with any amendment or supplement
to the Form BD of the Correspondent.
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VIII. INFORMATION TO BE PROVIDED BY CSC
CSC shall provide the Correspondent with all appropriate data in its
possession pertinent to the proper performance and supervision of any
function specifically allocated to the Correspondent pursuant to the
terms of this Agreement. The Correspondent shall be responsible for and
shall promptly reimburse CSC for all costs incurred by CSC in connection
with the preparation and mailing of such information.
IX. CUSTOMER NOTIFICATION AND CORRESPONDENCE
(i) The Correspondent shall be solely and exclusively responsible
for informing its customers in a written correspondence, the form
and substance of which will be mutually agreed upon, prior to the
effective date of this Agreement, as to the general nature of the
services to be provided by CSC pursuant to this agreement and the
right of such customers to reject the services provided herein. Any
new customers of the Correspondent shall also be informed as
provided herein, verbally prior to such customers becoming
Introduced Accounts and in writing, once the new accounts have been
opened and accepted. The Correspondent shall be solely and
exclusively responsible for the payment of all costs incurred in
connection with the preparation and mailing of such customer
correspondence.
(ii) The Correspondent shall inform its customers pursuant to such
written correspondence that all inquiries and correspondence should
be directed to the Correspondent. All customer correspondence shall
be reviewed and responded to by the party responsible for the
specific area to which the inquiry or complaint relates pursuant to
the terms of this Agreement. In the event such correspondence is not
directed to such party originally, the Correspondent or CSC shall
expeditiously forward such correspondence to the appropriate party.
X. ERRORS, CONTROVERSIES AND INDEMNITIES
(i) Errors, misunderstandings or controversies, except those specifically
otherwise covered in this Agreement, between the Introduced Accounts
and the Correspondent or any of its employees, which shall arise out
of acts or omissions of the Correspondent or any of its employees
(including, without limiting the foregoing, the failure of the
Correspondent to deliver promptly to CSC any instructions received by
the Correspondent from an Introduced Account with respect to the
voting, tender or exchange of shares held in such Introduced
Account), shall be the sole and exclusive responsibility and
liability of the Correspondent. In the event, however, that by reason
of such error, misunderstanding or controversy, the
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Correspondent in its discretion deems it advisable to commence an
action or proceeding against an Introduced Account, the Correspondent
shall indemnify and hold CSC harmless from any loss, liability,
damage, cost or expense (including but not otherwise limited to fees
and expenses of legal counsel) which CSC may incur or sustain in
connection therewith or under any settlement thereto. If such error,
misunderstanding or controversy shall result in the bringing of an
action or proceeding against CSC, the Correspondent shall indemnify
and hold CSC harmless from any loss, liability, damage, cost or
expense (including but not otherwise limited to reasonable fees and
expenses of legal counsel) which CSC may incur or sustain in
connection therewith or under any settlement thereof.
(ii) Errors, misunderstandings or controversies, except those
specifically otherwise covered in this Agreement, between the
Introduced Accounts and the Correspondent or any of its employees,
which shall arise out of acts or omissions of CSC or any of its
employees, shall be the sole and exclusive responsibility and
liability of CSC. In the event, however, that by reason of such
error, misunderstanding or controversy, CSC in its discretion
deems it advisable to commence an action or proceeding against an
Introduced Account, CSC shall indemnify and hold the Correspondent
harmless from any loss, liability, damage, cost or expense
(including but not otherwise limited to reasonable fees and expenses
of legal counsel) which the Correspondent may incur or sustain in
connection therewith or under any settlement thereof. If such
error, misunderstanding or controversy shall result in the bringing
of an action or proceeding against the Correspondent, CSC shall
indemnify and hold the Correspondent harmless from any loss,
liability, damage, cost or expense (including but not otherwise
limited to reasonable fees and expenses of legal counsel) which the
Correspondent may incur or sustain in connection therewith or under
any settlement thereof.
(iii) CSC and the Correspondent both agree to indemnify the other
and hold the other harmless from and against any loss, liability,
damage, cost or expense (including but not otherwise limited to
reasonable fees and expenses of legal counsel) arising out of or
resulting from any failure by the indemnifying party or any of its
employees to carry out fully the duties and responsibilities
assigned to the indemnifying party herein or any breach of any
representation or warranty herein by the indemnifying party under
this Agreement. The Correspondent hereby agrees to indemnify and
hold CSC harmless from and against any loss, liability, damage, cost
or expense (including but not otherwise limited to reasonable fees
and expenses of legal counsel) sustained or incurred in connection
herewith in the event any Introduced Account fails to meet any
initial margin call or subsequent maintenance calls, in conformity
with Section V hereof.
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(iv) The indemnification provisions in this Agreement, shall remain
operative and in full force and effect, regardless of the termination
of this Agreement, and shall survive any such termination.
(v) Correspondent agrees to maintain, and to provide evidence thereof to
CSC, at least $250,000 blanket bond indemnity bond insurance covering
any and all acts of its employees, agents and partners, with an
insurance company reasonably acceptable to CSC, listing CSC as an
insured party and permitting CSC to assume the policy in the event of
the Correspondent ceasing operations.
XI. REPRESENTATIONS AND WARRANTIES
(a) The Correspondent represents and warrants as follows:
(i) The Correspondent will maintain at all times
while this Agreement is in full force and effect stated net
capital of not less than $100,000 unless CSC has otherwise
agreed in writing. The Correspondent will not carry customer,
broker or dealer accounts and will not receive or hold funds
under Rule 15c3-1 of the Securities Exchange Act of 1934, as
amended, for those persons. The Correspondent will
immediately notify CSC when [i] its Aggregate Indebtedness
Ratio reaches or exceeds 10 to 1, [ii] if the Correspondent
has elected to operate under paragraph [f] or Rule 15c3-1 of
the Securities Exchange Act of 1934, as amended, when its net
capital is less than 5% of aggregate debit items computed in
accordance with Rule 15c3-3, [iii] when the aggregate amount
of any withdrawals of equity capital and/or unsecured advances
or loans exceed 20% of excess net capital in any 30 day period
or 30% of excess net capital in any 90 day period or [iv] its
stated net capital is less than the minimum amount required
under this Agreement.
(ii) The Correspondent is a member of good standing of the National
Association of Securities Dealers, Inc. The Correspondent will
promptly notify CSC of any additional exchange memberships or
affiliations. The Correspondent shall also comply with whatever
non-member access rules have been promulgated by any National
Securities Exchange or any other securities exchange of which
it is not a member.
(iii) The Correspondent is and during the term of this Agreement will
remain duly registered or licensed and in good standing as a
broker/dealer under all applicable Laws and Regulations.
(iv) The Correspondent has all the requisite authority in conformity
with all applicable Laws and Regulations to enter into this
Agreement and to retain
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the services of CSC in accordance with the terms thereof.
(v) The Correspondent is in compliance, and during
the term of this Agreement will remain in compliance with [i]
the capital and financial reporting requirements of every
National Securities Exchange or other securities exchange
and/or securities association of which the Correspondent is a
member, [ii] the capital requirements of the Securities and
Exchange Commission, and [iii] the capital requirements of
every state in which the Correspondent is licensed as a
broker/dealer.
(vi) The Correspondent shall not generate and/or prepare any
statements, billings or confirmations respecting any Introduced
Account unless expressly so instructed in writing by CSC.
(vii) The Correspondent shall keep confidential any information it
may acquire as a result of this Agreement regarding the
business and affairs of CSC, which requirement shall survive
the life of this Agreement.
(b) CSC represents and warrants as follows:
(i) CSC is a member in good standing of the National
Association of Securities Dealers, Inc., and the New York
Stock Exchange, Inc.
(ii) CSC is and during the term of this Agreement will remain duly
licensed and in good standing as a broker/dealer under all
applicable Laws and Regulations.
(iii) CSC has all the requisite authority, in
conformity with all applicable Laws and Regulations, to enter
into and perform this Agreement.
(iv) CSC is in compliance, and during the term of this
Agreement, will remain to compliance, with [i] the capital and
financial reporting requirements of every National Securities
Exchange and/or other securities exchange or association of
which it is a member, [ii] the capital requirements of the
Securities and Exchange Commission, and [iii] the capital
requirements of every state in which it is licensed as a
broker/dealer.
(v) CSC represents and warrants that the names and
addresses of the Correspondent's customers which have or which
may come to its attention in connection with the clearing and
related functions it has assumed under this Agreement are
confidential and shall not be utilized by CSC or an affiliate
thereof, except in connection with the functions performed by
CSC pursuant to this Agreement. CSC shall send no written
information to such customers other than statements, bills or
notices of transactions in
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connection with its role as clearing agent. Notwithstanding the
foregoing, should an Introduced Account request, on an unsolicited
basis, that CSC or any entity affiliated with CSC become its broker,
acceptance or such Introduced Account by CSC or any entity
affiliated with CSC shall in no way violate this representation and
warranty, nor result in a breach of this Agreement.
(vi) CSC shall keep confidential any information, including the names and
addresses of the Correspondent's customers, it may acquire as a
result of this Agreement regarding the business and affairs of the
Correspondent, which requirement shall survive the life of this
Agreement.
XII. TERMINATION - EVENT OF DEFAULT
Notwithstanding any provision in this Agreement, the following events or
occurrences shall constitute an Event of Default under this Agreement:
(i) Either CSC or the Correspondent shall fail to perform or observe any
term, covenant or condition to be performed or observed by it
hereunder and such failure shall continue to be unremedied for a
period of 30 days after written notice from the non-defaulting party
to the defaulting party specifying the failure and demanding that
the same be remedied; or
(ii) Any representation or warranty made by either CSC or the
Correspondent herein shall prove to be incorrect at any time in any
material respect; or
(iii) A receiver, liquidator or trustee of either CSC or the
Correspondent, or of its property, held by either party, is
appointed by court order and such order remains in effect for more
than 30 days; or either CSC or the Correspondent is adjudicated
bankrupt or insolvent; or any of its property is sequestered by
court order and such order remains in effect for more than 30 days;
or a petition is filed against CSC or the Correspondent under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether
now or hereafter in effect, and is not dismissed within 30 days
after such filing; or
(iv) Either CSC or the Correspondent files a petition in voluntary
bankruptcy or seeking relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or
hereinafter in effect, or consents to filing of any petition against
it under any such law; or
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(v) Either CSC or the Correspondent makes an assignment for the benefit
of its creditors, or admits in writing its inability to pay its debts
generally as they become due, or consents to the appointment of a
receiver, trustee or liquidator of either CSC or the Correspondent,
or of any property held by either party; or
(vi) Either party hereto knowingly and willfully solicits or causes to
solicit for employment the employees of either party or their
affiliates/subsidiaries, successors or assignees without prior
consent of the other party; or
(vii) If research is provided by CSC or any entity affiliated with CSC to
the Correspondent and the Correspondent knowingly and willfully
reproduces or reprints in any fashion same or represents to customers
or to an unrelated third party that the research supplied by CSC or
such affiliated entity is that of the Correspondent.
Upon the occurrence of any such Event of Default, the non-defaulting party
may, at its option, by notice to the defaulting party declare that this
Agreement shall be thereby terminated and such termination shall be
effective as of the date such notice has been sent or communicated to the
defaulting party.
XIII. REMEDIES CUMULATIVE
The enumeration herein of specific remedies shall not be exclusive of any
other remedies. Any delay or failure by any party of this Agreement to
exercise any right, power, remedy or privilege herein contained, or now or
hereafter existing under any applicable statute or law, shall not be
construed to be a waiver of such right, power, remedy or privilege or to
limit the exercise of such right, power, remedy or privilege. No single,
partial or other exercise of any such right, power, remedy or privilege
shall preclude the further exercise thereof or the exercise of any other
right, power, remedy or privilege.
XIV. MISCELLANEOUS
(i) As of the effective date of this Agreement CSC will not
convert or allow to be converted to its records as Introduced
Accounts customer accounts of the Correspondent that are partially
or totally unsecured, securities in the name of the Correspondent's
customers, or legal transfer securities (securities in the name of
estates, trust, joint ownership, foreign ownership and such), unless
previously approved in writing by CSC. If in error such accounts
are converted to CSC books or records, CSC reserves the right to
convert back to the Correspondent or its clearing agent said
customer accounts and the positions.
(ii) CSC shall have the power to place open orders as instructed
by the
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Correspondent as of the effective date of this Agreement, and
appropriate adjustments shall be made by CSC to reflect that CSC has
acted as broker on the open orders with specialists on any national
securities exchange or other securities exchange.
(iii) CSC shall have the power to effect appropriate adjustments with
respect to pending dividends and other distributions from the
effective date of this Agreement through the last payable date of
such pending dividends.
(iv) The Correspondent shall be responsible for providing annual dividend
and distribution information as contained in IRS Form 1087 (to
include individual 1099 filings) and any other information required
to be reported by Federal, state or local tax laws, rules or
regulations, to its customers until the effective date of this
Agreement, whereupon CSC shall assume this function as to Introduced
Accounts.
(v) CSC shall have the power to allocate and make appropriate adjustments
for fails, reorganization accounts, other work in process accounts,
and overages relating to accounts of the customers of the
Correspondent that have become Introduced Accounts pursuant to the
terms of this Agreement.
(vi) The Correspondent shall assume all liabilities in connection
with the bad debts of all Introduced Accounts. Unsecured debits in
the Introduced Accounts shall be paid within 30 days of their origin
date, and it shall be the responsibility of the Correspondent to
collect such payments from its customers and transmit them to CSC
within such 30-day period. If any unsecured debit balances remain
outstanding beyond such 30-day period, CSC is authorized to apply as
payment of such debit balances commission fees owed to the
Correspondent in connection with transactions pursuant to this
Agreement.
(vii) Transfers of securities relating to Introduced Accounts shall be
frozen ten business days prior to the effective date of this
Agreement.
(viii) CSC shall limit its services pursuant to the terms of this Agreement
to that of clearing functions and the related services expressly set
forth herein and the Correspondent shall not hold itself out as an
agent of CSC or any of the subsidiaries or companies controlled
directly or indirectly by or affiliated with CSC or its parent.
(ix) This Agreement supersedes any previous agreement and may be modified
only by a writing signed by both parties to this Agreement. Such
modification shall not be deemed as a cancellation of this Agreement.
17
<PAGE>
(x) This Agreement shall be submitted to and/or approved by any
national securities exchange, or other regulatory and
self-regulatory bodies vested with the authority to review and/or
approve this Agreement or any amendment or modifications hereto. In
the event of any such disapproval, the parties hereto agree to
bargain in good faith to achieve the requisite approval. CSC will
file a fully executed copy of this agreement with the New York Stock
Exchange.
(xi) This Agreement may be canceled by either of the parties
hereto upon ninety (90) days' written notice; provided, however,
that this Agreement may be canceled by either party upon thirty (30)
days' written notice if (i) the net capital ratio of the other party
exceeds 10 to 1, (ii) when the aggregate amount of any withdrawals
of equity capital and/or unsecured advances or loans exceed 20% of
excess net capital in any 30 day period or 30% of excess net capital
in any 90 day period or (iii) its stated net capital is less than
the minimum amount required under this Agreement; and provided,
further, that this Agreement may be canceled by CSC at any time
between the date on which this Agreement is executed and the
effective date of this Agreement, if there is a material change in
the control or management of the Correspondent.
(xii) Any dispute or controversy between the Correspondent and CSC relating
to or arising out of this Agreement shall be settled by arbitration
before and under the rules of the Arbitration Committee of the New
York Stock Exchange, Inc., unless the transaction which gave rise to
such dispute or controversy was effected in another exchange or
market which provides arbitration facilities, in which case it shall
be settled by arbitration under such facilities.
(xiii) CSC will not be bound to make any investigation into the facts
surrounding any transaction that it may have with the Correspondent
on a principal or agency basis or that the Correspondent may have
with its customers or other persons, nor will CSC be under any
responsibility for compliance by the Correspondent with any Laws and
Regulations which may be applicable to the Correspondent. It is
understood that CSC will assist the Correspondent in any
investigation conducted by the Correspondent.
(xiv) To facilitate the keeping of records by CSC the Correspondent will
turn over promptly to CSC any and all cash remittances and securities
which the Correspondent receives from its customer. Concurrently with
the delivery of such funds or securities to the Correspondent, it
shall furnish CSC with such information as may be relevant or
necessary to enable CSC to record promptly and properly such cash
remittances and securities
18
<PAGE>
in the respective Introduced Accounts.
(xv) This Agreement shall be binding upon all successors, assigns
or transferees of both parties hereto, irrespective of any change
with regard to the name of or the personnel of the Correspondent or
CSC. Any assignments of this Agreement shall be subject to the
requisite review and/or approval of any regulatory or
self-regulatory agency or body whose review and/or approval must be
obtained prior to the effectiveness and validity of such assignment.
Except as indicated below, no assignment of this Agreement by
either party shall be valid unless consented to in writing by the
other party. Any assignment by CSC to any subsidiary or to a
company affiliated with or controlled directly or indirectly by CSC
will be deemed valid and enforceable in the absence of any consent
from Correspondent. Neither this Agreement nor any operation
hereunder is intended to be, shall not be deemed to be, and shall
not be treated as a general or limited partnership, association or
joint venture or agency relationship between the Correspondent and
CSC.
(xvi) Should the Correspondent in any way attempt to hold itself
out as, advertise or in any way represent that it is the agent of
CSC, CSC shall have the power, at is option, to terminate the
Agreement as an event of default as defined in Section XII of this
Agreement and the Correspondent shall be liable for any loss,
liability, damage, cost or expense (including but not otherwise
limited to reasonable fees and expenses of legal counsel) sustained
or incurred by CSC as a result of such representation of agency or
apparent authority to act as an agent of CSC or agency by estoppel.
(xvii) The Correspondent shall not, without having obtained the prior
written approval of CSC, agree to place or place any advertisement
in any newspaper, publication, periodical or any other media if such
advertisement in any manner makes reference to CSC, to any person or
entity that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common
control with CSC and to the clearing arrangements and/or any of the
services embodied in this Agreement.
(xviii) The Laws and Regulations require that CSC must have proper
documentation to support any account opened on its books, including
Introduced Accounts. If, after reasonable requests therefor, the
necessary documents so as to enable CSC to comply with such account
documentation requirements of the Laws and Regulations have not been
received by CSC, the Correspondent shall receive notification that no
further orders will be accepted for the Introduced Accounts involved.
Should it happen that inadvertent orders are placed for such accounts
after
19
<PAGE>
this notice is received, no commission credit will be granted from
such order. On receipt of the necessary documents, this restriction
will be lifted on future commissions, but any commissions withheld
will be credited or paid. This Agreement is not in any way intended
to limit the responsibility of CSC under the Laws and Regulations
with respect to Introduced Accounts.
(xix) The construction and effect of every provision of this Agreement, the
rights of the parties hereunder and any questions arising out of this
Agreement, shall be subject to the statutory and common law of the
State of New York.
(xx) The headings preceding the text, articles and sections hereof have
been inserted for convenience and reference only and shall not be
construed to affect the meaning, construction or effect of this
Agreement.
(xxi) This Agreement shall cover only the type of services set
forth herein and is in no way intended nor shall be construed to
bestow upon the Correspondent any special treatment regarding any
other arrangements, agreements or understandings which presently
exist between Correspondent and CSC or which may hereinafter exist.
The Correspondent shall be under no obligation whatsoever to deal
with CSC or any of its subsidiaries or any companies controlled
directly or indirectly by or affiliated with CSC or its parent, in
any capacity other than as set forth in this Agreement. Likewise,
CSC shall be under no obligation whatsoever to deal with the
Correspondent or any of its affiliates in any capacity other than as
set forth in this Agreement.
(xxii) If any provision or condition of this Agreement shall be held to
be invalid or unenforceable by any court, or regulatory or
self-regulatory agency or body, such invalidity or unenforceability
shall attach only to such provision or condition. The validity of
the remaining provisions and conditions shall not be affected
thereby and this Agreement shall be carried out as if any such
invalid or unenforceable provision or condition were not
contained herein.
(xxiii) In the event that CSC assumes any contractual obligation on behalf of
the Correspondent relative to communication equipment, the
Correspondent hereby agrees to immediately absorb the remaining
portion of said contract if Correspondent terminates the relationship
with CSC. The Correspondent further agrees to absorb any and all
costs associated with the removal or relocation of any communication
equipment installed by or at the direction of CSC, if this agreement
is terminated by the Correspondent.
20
<PAGE>
(xxiv) Any unsecured debit residing in a customer account as a result of
the failure to perform on behalf of the customer and/or the
Correspondent will be the responsibility of the Correspondent.
Thirty (30) calendar days will be allowed for collection. If funds
are not received, CSC reserves the right to debit the Correspondent;
bad debit, collateral and/or commission refund account the amount of
the unsecured balance plus interest at the rate of 1/2% above the
prevailing broker call loan rate.
(xxv) The interest and handling expense (to include day charges) for any
DVP transaction that does not settle on a normal or regular way basis
or is rejected by the agent for any reason other than CSC negligence
is the responsibility of the Correspondent.
(xxvi) For the purposes of any and all notices, consents, directions,
approvals, restrictions, requests or other communications required
or permitted to be delivered hereunder, CSC's address shall be 120
Broadway, 8th Floor, New York, New York, 10271 and the
Correspondent's address shall be Sears Tower, Suite 4500, 233 South
Wacker Drive, Chicago, Illinois 60606, and either party may change
its address for notice purposes by giving written notice pursuant to
registered mail of the new address to the other party.
(xxvii) This Agreement shall become effective on or about September 15, 1995
or such date mutually agreed upon by the parties hereto.
Made and executed at _______________________________________ on the date
hereinabove set forth.
Accepted and Agreed to:
CORRESPONDENT FIRM
By:
------------------------
Title:
------------------------
Date:
------------------------
21
<PAGE>
Accepted and Agreed to:
CORRESPONDENT SERVICES CORPORATION (CSC)
By:
--------------------------------
Title:
--------------------------------
Date:
--------------------------------
22
<PAGE>
EXHIBIT 10.23
AMENDMENT NO. 1 TO
NOTE CONVERSION AGREEMENT
The Note Conversion Agreement dated as of September 29th, 1995 by and
between Rodman & Renshaw Capital Group, Inc. (the "Company") and Confia, S.A.,
Institucion de Banca Multiple, Abaco Grupo Financiero, a banking corporation
incorporated under the laws of the United Mexican States ("Confia") is hereby
amended as follows:
1. Amendments.
1.1 From and after the day hereof, the definition of the term "Note" in
Section 1 is hereby amended to delete the date of "September 30,
1995" in clause (i) and to insert in lieu thereof "November 10,
1995."
1.2 From and after the day hereof, Section 2 is hereby amended to
add the following sentence: "Confia further agrees to lend the
Company an additional $10,000,000 on or prior to November 10,
1995."
2. Miscellaneous. This Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware, excluding that body of
laws relating to conflict of laws. Except as specifically amended hereby,
the Note Conversion Agreement shall remain in full force and effect in
accordance with its existing terms, but each reference in the Note
Conversion Agreement to "this Agreement," "hereunder," "hereof" or words
of like import, and references to the Note Conversion Agreement in any and
all instruments or documents in connection therewith shall, except where
the context otherwise requires, be deemed a reference to the Note
Conversion Agreement as amended hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above.
RODMAN & RENSHAW CAPITAL GROUP, INC.
By: /s/ Charles W. Daggs, III
----------------------------------------
Name: Charles W. Daggs, III
Title: President & Chief Executive Officer
CONFIA, S.A., INSTITUCION DE BANCA
MULTIPLE, ABACO GRUPO FINANCIERO
By: /s/ Mario Velasco Coppel
----------------------------------------
Name: Mario S. Velasco Coppel
Title: Responsible Regional -
Monterrey
<PAGE>
EXHIBIT 21.1
RODMAN & RENSHAW CAPITAL GROUP, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
COMPANY STATE OF INCORPORATION
- - - - - - ----------------------------------------- -----------------
<S> <C>
Rodman & Renshaw, Inc. Delaware
Rodman Advisory Services Inc. Delaware
Rodman & Renshaw Chicago Theatre Ltd. Delaware
Rodman & Renshaw Futures Management, Inc. Delaware
Rodman River West, Inc. Delaware
Rodman Trading, Inc. Delaware
</TABLE>
<PAGE>
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, 1995 and
December 31, 1994 and for the year ended 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
March 26, 1996
<PAGE>
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, 1995.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 26, 1996
[ARTICLE] BD
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-01-1995
[PERIOD-END] DEC-31-1995
[CASH] 16,399,000
[RECEIVABLES] 65,842,000
[SECURITIES-RESALE] 2,204,000
[SECURITIES-BORROWED] 0
[INSTRUMENTS-OWNED] 16,489,000
[PP&E] 8,560,000
[TOTAL-ASSETS] 119,333,000
[SHORT-TERM] 57,172,000
[PAYABLES] 32,463,000
[REPOS-SOLD] 0
[SECURITIES-LOANED] 0
[INSTRUMENTS-SOLD] 4,964,000
[LONG-TERM] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 598,000
[OTHER-SE] 845,000
[TOTAL-LIABILITY-AND-EQUITY] 96,042,000
[TRADING-REVENUE] 26,628,000
[INTEREST-DIVIDENDS] 10,137,000
[COMMISSIONS] 24,879,000
[INVESTMENT-BANKING-REVENUES] 8,065,000
[FEE-REVENUE] 0
[INTEREST-EXPENSE] 10,217,000
[COMPENSATION] 57,872,000
[INCOME-PRETAX] (27,016,000)
[INCOME-PRE-EXTRAORDINARY] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (29,982,000)
[EPS-PRIMARY] (4.63)
[EPS-DILUTED] (4.63)
</TABLE>
ANNEX V
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
--------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission file number 1-9143
--------
RODMAN & RENSHAW CAPITAL GROUP, INC.
- - - -------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3111956
- - - ----------------------------- --------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
233 S. Wacker Drive, Suite 4500, Chicago, IL 60606
- - - -------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 312/526-2000
--------------
- - - -------------------------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the past 90 days. YES X No
------- ------
Shares of common stock outstanding at November 1, 1996: 6,645,802
par value $.09.
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements -
Condensed Consolidated Statements of Financial Condition as of September 30,
1996 (unaudited) and December 31, 1995.
Condensed Consolidated Statements of Operations (unaudited) for the three and
nine months ended September 30, 1996 and September 30, 1995.
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months
ended September 30, 1996 and September 30, 1995.
Notes to Condensed Consolidated Financial Statements (unaudited) - September 30,
1996.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
<TABLE>
SEPTEMBER 30
1996 DECEMBER 31
(unaudited) 1995
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 8,746 $ 9,001
Securities purchased under agreements
to resell - 2,204
Cash and short-term investments required to
be segregated under federal regulations 8,784 7,398
Receivables:
Customers 8 49,544
Brokers, dealers, and clearing
organizations 5,152 16,298
Securities owned - at market 7,371 16,489
Memberships in securities and commodities
exchanges at cost(market value 09/30/96 -
$1,356; 12/31/95 - $1,219) 272 272
Furniture, fixtures and leasehold improvements,
at cost, less accumulated depreciation and
amortization (09/30/96 - $5,242; 12/31/95 -
$5,132) 7,904 8,560
Prepaid expenses and other assets 14,766 9,567
Deferred income taxes (Net of valuation
allowance: 09/30/96 - $21,585;
12/31/95 - $17,059) - -
---------- -----------
$ 53,003 $ 119,333
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings from banks $ - $ 30,672
Short-term note payable to affiliate 26,500 26,500
Payables:
Customers 8,560 18,914
Brokers, dealers, and clearing
organizations - 13,549
Securities sold but not yet purchased,
at market 1,127 4,964
Accrued commissions 1,852 2,155
Accounts payable and accrued expenses 14,333 21,136
--------- -----------
52,372 117,890
<PAGE>
Liabilities subordinated to the claims
of general creditors - -
Stockholders' equity:
Convertible non-voting preferred stock,
$.01 par value, 5,000,000 shares authorized;
175 shares issued at 09/30/96 and 50 shares
issued at 12/31/95 - -
Common stock, $.09 par value: 20,000,000
shares authorized; 6,646,000 issued at
09/30/96 and 12/31/95 598 598
Additional paid-in capital 48,249 35,749
Accumulated deficit (48,216) (34,904)
---------- -----------
631 1,443
---------- -----------
$ 53,003 $ 119,333
========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) (in thousands, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1995 1996 1995
<TABLE>
<S> <C> <C> <C> <C>
REVENUES:
Commissions $ 3,643 $ 5,399 $ 15,370 $ 19,973
Principal 6,548 7,411 22,938 19,241
Interest 427 1,813 1,788 9,051
Fee income 1,240 3,269 6,276 6,252
Other 121 1,211 354 2,590
--------- -------- -------- --------
TOTAL REVENUES 11,979 19,103 46,726 57,107
EXPENSES:
Employee compensation
and benefits 10,307 15,609 36,701 40,958
Commissions, floor brokerage
and clearance 1,083 754 3,235 3,280
Interest 1,121 2,470 3,506 8,150
Communications 1,321 2,234 4,301 6,508
Occupancy and equipment 1,676 2,509 4,846 5,484
Professional fees 845 941 2,094 3,256
Other operating expense 1,997 1,174 5,355 3,289
--------- -------- -------- -------
TOTAL EXPENSES 18,350 25,691 60,038 70,925
--------- -------- -------- --------
Loss before taxes (6,371) (6,588) (13,312) (13,818)
Tax expense - (1,620) - (601)
--------- -------- -------- --------
NET LOSS $ (6,371) $ (8,208) $(13,312) $(14,419)
========= ======== ======== ========
Earnings per share data:
NET LOSS PER COMMON SHARE $ (0.96) $ (1.24) $ (2.00) $ (2.25)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 6,646 6,646 6,646 6,410
</TABLE>
See Notes to Condensed Consolidated Financial Statements<PAGE>
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in thousands)
NINE MONTHS ENDED
September 30 September 30
1996 1995
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (13,312) $ (14,419)
Adjustments to reconcile net loss to
net cash flows provided by
operating activities:
Equity in earnings in limited partnerships (1,192) -
Reserve on loans advanced to
limited partnerships 428 -
Gain on sale of fixed assets (8)
Gain on sale of exchange memberships - (771)
Deferred income taxes - 413
Depreciation and amortization 785 891
Net changes in operating assets
and liabilities:
Securities purchased under
agreements to resell 2,204 33,054
Cash and short-term investments
required to be segregated under
federal regulations (1,386) 14,387
Receivables from and payables
to customers, brokers, dealers
and clearing organizations 36,779 (51,594)
Recoverable income taxes
and income taxes payable - 1,330
Securities owned 9,118 106,792
Prepaid expenses and other assets (1,435) (4,373)
Securities sold but not yet purchased (3,837) (85,920)
Accrued commissions (303) 232
Accounts payable and accrued expenses (6,803) 7,398
NET CASH FLOWS PROVIDED BY ___________ __________
OPERATING ACTIVITIES 21,046 7,412
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and
leasehold improvements (129) (7,314)
Sale of exchange memberships - 4,349
NET CASH FLOWS USED IN ___________ __________
INVESTING ACTIVITIES (129) (2,965)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in short-term
borrowings from banks (30,672) (15,095)
Proceeds from short-term note payable
to affiliate - 6,500
Payment of notes subordinated to
claims of general creditors - (1,374)
Proceeds from issuance of convertible
non-voting preferred stock 9,500 -
NET CASH FLOWS USED IN ___________ __________
FINANCING ACTIVITIES (21,172) (9,969)<PAGE>
NET DECREASE IN CASH AND CASH
EQUIVALENTS (255) (5,522)
Cash and cash equivalents at beginning
of period 9,001 7,011
----------- -----------
Cash and cash equivalents at end of period $ 8,746 $ 1,489
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
- - - ------------------------------
The unaudited condensed consolidated financial statements of Rodman & Renshaw
Capital Group, Inc. and subsidiaries (collectively, the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management of the Company, all
adjustments considered necessary for a fair presentation of the financial
condition and results of operations of the Company for the periods presented
have been included. Although the Company has stock options outstanding, such
stock options do not have a dilutive effect on earnings per share; accordingly,
the primary and fully diluted loss per share calculations are not different. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Report on Form 10-K for the year
ended December 31, 1995.
NOTE B - ASSETS SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS
- - - --------------------------------------------------------------
The Company was holding in safekeeping $712,000 and $1,664,000 of securities
owned by customers as of September 30, 1996, and December 31, 1995,
respectively. In accordance with applicable regulations, these securities are
not included in the Condensed Consolidated Statement of Financial Condition.
NOTE C - NET CAPITAL REQUIREMENT AND DIVIDEND RESTRICTIONS
- - - ----------------------------------------------------------
The Company's primary subsidiary, Rodman & Renshaw, Inc.("Rodman"), a registered
broker-dealer and futures commission merchant, is subject to the minimum net
capital rules of the Securities and Exchange Commission (the "SEC"), Commodity
Futures Trading Commission (the "CFTC"), and the capital rules of the New York
Stock Exchange, Inc. (the "NYSE"), of which Rodman is a member. Rodman has
elected to use the alternative net capital method permitted by the SEC rule. At
December 31, 1995, these rules required that Rodman maintain minimum net
capital, as defined in such rules, equal to the greater of 2% of aggregate
debits arising from customer securities transactions or $1,000,000, or 4% of the
funds required to be segregated for customers pursuant to the Commodity Exchange
Act. In January 1996, Rodman changed its business operation from a clearing
securities broker to a non-clearing securities broker whereby Rodman's customer
accounts are introduced and cleared by a contracted clearing broker on a fully
disclosed basis. As a result of this conversion, Rodman's minimum 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. At September
30, 1996, and December 31, 1995, Rodman had net capital, as defined, of $7.6
million and $15.4 million, respectively, or $7.3 million and $14.3 million,
respectively, in excess of the minimum net capital.
On August 30, 1996, Rodman transferred all futures related activity to an
affiliate, Rodman & Renshaw Futures, Inc. ("RRFI"), a futures commission
merchant. RRFI is subject to the minimum net capital rules of the CFTC which is
the greater of $250,000 or 4% of the funds required to be segregated for
commodities customers.
The National Futures Association (the "NFA") may require a member firm to reduce
its business if its net capital is less than 6% of the funds required to be
segregated and may prohibit a member firm from expanding its business or paying
cash dividends if resulting net capital would be less than 7% of the funds
required to be segregated. At September 30, 1996, RRFI had net capital, as
defined, of $.5 million which exceeds the minimum net capital requirement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The results of operations should be read in conjunction with the Company's
condensed consolidated statements of income. The Company's principal activities
- - -- securities and commodities brokerage, principal trading for servicing its
customers, and investment banking services -- are highly competitive and
extremely volatile. The earnings of the Company are subject to wide fluctuations
since many factors over which the Company has little or no control -- such as
the overall volume of activity in the securities, futures and options markets
and the volatility and general level of market prices and interest rates -- may
affect its operations. In addition, results of operations for any particular
interim period may not be indicative of results to be expected for the year
ending December 31, 1996.
Despite market correction and volatility in July, and significantly lower
overall underwriting volume, the Company reported an improvement in net losses
of 22% in the 1996 third quarter as compared to the same period last year. This
improvement was acheived in spite of a 37% reduction in revenue.
REVENUES
Revenues were $12.0 million in the third quarter of 1996, a decline of $7.1
million as compared to the same 1995 period. Investment Banking and
Institutional Equities revenues declined in both July and August reflecting weak
demand in the market for small cap stocks. September's results for these
business units however, were 59% better than the same period last year as market
demand partially rebounded. The combination of a weak July and August equity
market environment and the closing of several retail branch offices resulted in
a revenue decline versus the third quarter of 1995. Excluding the reduction of
revenue from the Commodities business which management significantly reduced in
1995, year to date 1996 revenue levels were comparatively flat with 1995.
Principal transactions of $22.9 million in 1996 were $3.7 million higher than
the prior year reflecting the start-up of Institutional business in the second
quarter of 1995.
Interest income in 1996 declined significantly versus both the third quarter and
the first nine month period of 1995 as the Company reduced its security
inventory positions and converted to a non-clearing broker-dealer and futures
commission merchant. The decline in other income was primarily due to the
absence of the sale of certain exchange seats relating to the Commodities
business in the third quarter of 1995.
EXPENSES
Expense levels for the third quarter of 1996 declined $7.3 million, or 29%,
reflecting significant improvement versus 1995. For the first nine months,
expenses declined $10.9 million, an improvement versus the prior year, again
with reductions in almost every major category as Management's fixed expense
reduction programs began to produce material results. As of September 30, 1996
the Company had realized a reduction of over 16% in the number of total
employees versus September 1995. These expense reductions were partly offset by
higher compensation levels for key Research and Investment Banking hires as
these businesses are being enhanced to support the Company's business
initiatives in these areas.
Generally, floor brokerage, clearance and communications all declined as
compared to 1995, mainly reflecting savings from changes in the business line
mix. Interest expense also declined versus both 1995 periods, primarily
reflecting the decrease in securities inventory positions consistent with the
change in business mix.
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets are substantially comprised of cash, receivables and
securities inventory, which are all highly liquid. The principal sources of
financing are stockholders' equity, customer payables, short-term loans from
banks and affiliates, and other payables.
As a registered broker-dealer and futures commission merchant, Rodman and RRFI
are required by the SEC and CFTC to maintain specific amounts of net capital to
meet its customers' obligations. As of September 30, 1996, Rodman and RRFI's net
capital, as defined, exceeds the net capital requirement.
On June 22, 1994, the Company borrowed $10 million from Confia, S.A.,
Institucion de Banca Multiple, Abaco Grupo Financiero ("Confia, S.A."), an
affiliated company of the Company's majority stockholder, Abaco Casa de Bolsa,
S.A. de C.V., Abaco Grupo Financiero ("Abaco"). 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 losses were eroding its net capital. The loans were
consolidated and renewed on June 3, 1996, for a six month term ending December
3, 1996, at an annual interest rate of 12%. On February 9, 1996, the Company
also received a letter from Abaco Grupo Financiero, S.A. de C.V. ("Parent")
whereby Parent agreed to continue to unconditionally support the Company and
Rodman for the next year, up to and including March 31, 1997 ("Letter of
Support"). Based upon the Letter of Support, management believes that it is the
intention of Confia, S.A. to renew the $26.5 million loan when it becomes due. 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 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 $100,000, which shares are
convertible into Company common stock. In a conversion, the $5 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 of 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.
The support referred to in the February 9, 1996 letter 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. To that end, Parent had
agreed to provide the Company with a total of $9.5 million in equity capital in
March and April, 1996. On March 29, 1996, Parent provided $5 million of that
total through the purchase by Abaco of 50 additional shares of non-voting
preferred stock at a price per share of $100,000. 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 $100,000. The terms of
such shares are substantially identical to those of the preferred stock issued
in December, 1995, as discussed above. The balance sheet as of September 30,
1996 reflects the issuance to Abaco of an additional 30 shares of non-voting
preferred stock at a price per share of $100,000 for a total of $3 million
pursuant to an understanding with Abaco reached during the third quarter. The
terms of of such shares also are substantially identical to those issued in
December 1995, and the cash consideration was received from Abaco on November
14, 1996. At September 30, 1996, the book value per share of the Company's
common stock was approximately $0.09. 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 also were converted at such price, such conversion would entail the
issuance of an additional 295 million shares of common stock.
The Company currently has subordinated loans outstanding to Rodman, its
broker-dealer subsidiary, in an aggregate amount of $26.5 million. The loans are
funded by the Company's borrowing from Confia, S.A. discussed above. It is the
intention of management of the Company and Rodman to extend these subordinated
borrowings through June, 1998. To the extent that such subordinated borrowings
are required for Rodman's continued compliance with minimum net capital
requirements, they may not be repaid. In the event that the borrowing between
the Company and Confia, S.A. is not renewed or converted, Rodman will be
required to curtail its business activities substantially in order to reduce its
minimum net capital requirements, and then it would seek regulatory approval to
repay its subordinated debt to the Company.
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 included 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 stockholders' 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%. As of September 30, 1996, the debt/equity
ratio was 58%.
In the nine months ended September 30, 1996, the Company provided cash and cash
equivalents of $18.0 million from operating activities. In the nine months ended
September 30, 1995, the Company's operations provided $7.4 million.
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The following exhibits are included
herein or are incorporated by reference
(27.1) Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended
September 30, 1996.
SIGNATURES
-----------
Pursuant to the requirement of Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
RODMAN & RENSHAW CAPITAL GROUP, INC.
(Registrant)
Date: November 13, 1996 By: /s/ William C. Dennis Jr.
---------------------------------
William C. Dennis, Jr.
Chief Financial Officer
Date: November 13, 1996 By: /s/ Charles W. Daggs, III
----------------------------------
Charles W. Daggs, III
President and Chief Executive
Officer
<PAGE>
<TABLE>
[ARTICLE] BD
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] SEP-30-1996
[CASH] 17,530,000
[RECEIVABLES] 5,160,000
[SECURITIES-RESALE] 0
[SECURITIES-BORROWED] 0
[INSTRUMENTS-OWNED] 7,371,000
[PP&E] 7,904,000
[TOTAL-ASSETS] 53,003,000
[SHORT-TERM] 26,500,000
[PAYABLES] 24,745,000
[REPOS-SOLD] 0
[SECURITIES-LOANED] 0
[INSTRUMENTS-SOLD] 1,127,000
[LONG-TERM] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 598,000
[OTHER-SE] 33,000
[TOTAL-LIABILITY-AND-EQUITY] 53,003,000
[TRADING-REVENUE] 22,938,000
[INTEREST-DIVIDENDS] 1,788,000
[COMMISSIONS] 15,370,000
[INVESTMENT-BANKING-REVENUES] 6,276,000
[FEE-REVENUE] 0
[INTEREST-EXPENSE] 3,506,000
[COMPENSATION] 36,701,000
[INCOME-PRETAX] (13,312,000)
[INCOME-PRE-EXTRAORDINARY] (13,312,000)
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (13,312,000)
[EPS-PRIMARY] (2.00)
[EPS-DILUTED] (2.00)
</TABLE>
33
<PAGE>
ANNEX VI
EXECUTIVE OFFICERS AND DIRECTORS OF PARENT, ABACO,
HOLDINGS AND ACQUISITION CORP.
The name, residence or business address, present principal occupation or
employment and citizenship of each executive officer and director of Parent,
Abaco, Holdings and Acquisition Corp.
are set forth below:
NAME AND POSITION RESIDENCE OR BUSINESS ADDRESS CITIZENSHIP
Jorge Lankenau Rocha Ave. San Jeronimo 999 Pte. Mexico
Chairman of the Board of Monterrey, N.L. 64640 Mexico
Parent and Abaco; Chief
Executive Officer of Confia,
S.A.; Director and
President of Holdings;
Director and President
of Acquisition Corp.
Jose Maiz Mier Matamoros Ote. 506 Altos Mexico
Director of Parent Centro Monterrey, N.L., 64000
and Abaco; Mexico
Chief Executive Officer
of Constructora Maiz Mier,
S.A. de C.V.
Alejandro Junco de la Vega Washington 629 Ote. Centro Mexico
Director of Parent and Monterrey, N.L., 64000
Abaco; Chief Executive
Officer of Mexico
Editora El Sol S.A.
Enrique Garcia Gamez Ave. Ruiz Cortinex 257, Pte. Mexico
Director of Parent and Monterrey, N.L. 64290
Abaco; President of Agro
Servicios Mexico
Ragasa, S.A. de C.V.
Fernando Canales Clariond Ave. Munich 175 Mexico
Director of Parent and Abaco; Col. Cuauhtemoc
Vice Chairman and Executive San Nicolas de los Garza,
Vice President of Grupo Imsa, N.L. 64450 Mexico
S.A. de C.V.
Julio Escamez Ferreiro Dr. Martinez 112, Desp.6 Mexico
Director of Parent and Abaco; Col. Los Doctores
Chairman of the Board of Monterrey, N.L. 64710
Consorcio Industrial de Mexico
Exportacion, S.A.
Eduardo Leano Espinosa Loma Larga 3888, letra A, Mexico
Director of Parent and Abaco; Col. Villa Universitaria
Assistant Director of Zapopan, Jalisco 45110
Universidad Autonoma de Mexico
Guadalajara, A.C.
<PAGE>
Ignacio Santos de Hoyos Ave. Lazaro Cardenas 2475 Mexico
Director of Parent and Abaco; Pte., Resid. San Agustin
President of Grupo Garza Garcia, N.L. 66260
Inmobiliario Mexico, S.A. Mexico
Mauricio Fernandez Garza Ave. Lazaro Cardenas 2400 Mexico
Director of Parent and Abaco; Pte., Resid. San Agustin
Chief Executive Officer of Garza Garcia, N.L. 66220
Comercializadora de Puros Mexico
Jose Maiz Garcia Matamoros Ote. 506 Altos Mexico
Director of Parent and Abaco; Monterrey, N.L. 64000
General Manager of Mexico
Constructora Maiz Mier, S.A.
de C.V.
Rodrigo Padilla Olvera Ave. San Jeronimo 999 Pte. Mexico
Director of Parent and Monterrey, N.L. 64640
Abaco; President of Grupo Mexico
SAC, S.A. de C.V.; President
of Industrias Delmex, S.A. de
C.V.
David Rocha Prieto 105 Furr United States
Director of Parent and Abaco San Antonio, Texas 78201
EUA
Gerardo Ruiz Montemayor Ave. Cuauhtemoc 103 Mexico
Alternate Director of Abaco; Santa Catarina, N.L. 66350
Chief Executive Officer of Mexico
Lamina Despliegada, S.A. de
C.V.
Sergio Reyes Retana Paseo de la Reforma 450 Mexico
Alternate Director of Parent Sur, Col. Juarez
and Abaco; Director of Mexico, D.F. 06600
Regional Branches of Confia,
S.A.
Alejandro Garcia Gamez Ave. Ruiz Cortinez 257 Pte. Mexico
Alternate Director of Parent Monterrey, N.L. 64290
and Abaco; Vice President Mexico
Operations of Raul Garcia y
Cia, S.A. de C.V.
Reynelle Cornish Gonzalez Ave. San Jeronimo 999 Pte. Mexico
Director of Parent and Monterrey, N.L. 64640
Alternate of Abaco; Manager Mexico
of certain subsidiaries of
Parent
<PAGE>
Fernando Valdes Medina Ave. San Jeronimo 999 Pte. Mexico
Alternate Director of Parent Monterrey, N.L. 64640
and Abaco; Chief Financial Mexico
Officer of certain subsidiaries
of Parent
Juan Jose Leano Ave. Patria 1201 Mexico
Alternate Director of Parent Guadalajara, Jalisco 45110
and Abaco; Assistant Director Mexico
of Special Projects of
Universidad Autonoma de
Guadalajara, A.C.
Alberto Fernandez Garza Industrias 1200 Pte. Mexico
Alternate Director of Parent Col. Bellavista
and Abaco; Chairman of the Monterrey, N.L. 64410
Board of PYOSA, S.A. de Mexico
C.V.
Ernesto Guzman Valdes Ave. San Jeronimo 999 Pte. Mexico
Alternate Director of Parent; Monterrey, N.L. 64640
Director of Abaco; Chief Mexico
Executive Officer of Abaco
Jorge A. Garcia Garza Ave. San Jeronimo 999 Pte. Mexico
Alternate Director of Parent Monterrey, N.L. 64640
and Abaco; General Counsel Mexico
and Secretary of Parent and
Abaco
Jesus Elizondo Lopez Lic. Pedro Velez 2425 Col. Progreso Mexico
Director of Parent and Abaco; Monterrey, N.L. 64420
Chief Executive Officer of Mexico
Centro de Carnes San
Francisco, S.A. de C.V.
Luis Felipe Salas Benavides Jesus Cantu Leal 1528 Sur, Mexico
Director of Parent and Abaco; Col. Cerro de la Silla
Executive Vice President of Monterrey, N.L. 64810
Farmacias Benavides, S.A. de Mexico
C.V.
Marcelo Canales Clariond Ave Munich 175, Col. Cuauhtemoc Mexico
Director of Parent and Abaco; San Nicolas de los Garza,
Vice President for Planning N.L. 64450, Mexico
and Finance of Grupo IMSA,
S.A. de C.V.
Eduardo Camarena Legaspi Ave. San Jeronimo 999 Pte. Mexico
Director of Parent and Abaco; Monterrey, N.L. 64640
Director of International Mexico
Operations of Parent and
Confia, S.A.
<PAGE>
Eduardo Garza T. Fernandez Valentin G. Rivero 127 Mexico
Director of Parent and Abaco; Col. Los Trevino
President of Fabricaciones y Santa Catarina, N.L. 66335
Representaciones Industriales Mexico
S.A. de C.V.
Enrique Mouret Benavides Jesus Cantu Leal 1528 Sur Mexico
Alternate Director of Parent Col. Cerro de la Silla
and Abaco, Chief Executive Monterrey, N.L. 64810
Officer of FAR-BEN, S.A. de Mexico
C.V.
Rafael Alonso y Prieto Ave. San Jeronimo 999 Pte. Mexico
Alternate Director of Parent Monterrey, N.L. 64640
and Abaco; Assistant Chief Mexico
Executive Officer of Abaco
Alberto Elizondo Trevino Ave. Lazaro Cardenas 2400 Pte. Mexico
Alternate Director of Parent Desp. PD16
and Abaco; Independent Garza Garcia, N.L. 66220
Technical and Administrative Mexico
Consultant
Jesus Gonzalez Elizondo Presidente Masarik 169 Mexico
Director of Abaco; Chief Col. Polanco Mexico, D.F.
Executive Officer, Salinas Y 11570 Mexico
Rocha, S.A. de C.V.
Manuel Turrent Diaz Kilometro 30 1/2 de la Carr. Mex-Oro Mexico
Director of Abaco; President Fracc. Hacienda del Parque
of Desarrollo Programado, Cuautitian Izcall, Edo de Mex 54769
S.A. de C.V.
Jose Ma. Garza Ponce Zaragoza 1000 Sur, Mezz 1 Mexico
Director of Parent and Abaco; Monterrey, N.L.
Chairman of the Board of Mexico
Constructora Garza Ponce,
S.A. de C.V.
Salvador Martinez Garza Montenegro 2337 Mexico
Director of Parent and Abaco; Col. Moderna
Chief Executive Officer of Guadalajara, Jalisco 44100
Mexicana de Lubricantes, Mexico
S.A. de C.V.
Gustavo Gonzalez Garcia Guerrero Norte 3530 Mexico
Director of Parent and Col. Norte
Alternate of Abaco; Chief Monterrey, N.L. 64500
Executive officer of Mexico
Autolineas Mexicanas, S.A.
de C.V.
<PAGE>
Oscar Villarreal Aguero Kilometro 30 1/2 de la Carr. Mex-Oro Mexico
Alternate Director of Abaco; Hacienda Sierra Vieja 2
Chief Executive Officer of Fracc. Hacienda del Parque
Desarrollo Programado, S.A. Cuautitian Izcall, Edo de Mex 54769
de C.V.
Jose Ma. Garza Trevino Zaragoza 1000 Sur Mexico
Alternate Director of Parent Mezz 1
and Abaco; Chief Executive Monterrey, N.L.
Officer of Constructora Garza Mexico
Ponce, S.A. de C.V.
Francisco Vizcaino Gutierrez La Luna 2495 Mexico
Alternate Director of Parent Col. Jardines del Bosque
and Abaco; President of Sea Guadalajara, Jalisco 44520
Star Holding Company; Mexico
Jose Roble Flores Fernandez Ave. San Jeronimo 999 Pte. Mexico
Alternate Secretary of ParentMonterrey, N.L. 64640
and Abaco; Legal Counsel of Mexico
Parent and Abaco;
Enrique Marcos Giacoman Padre Mier 167 Pte. Mexico
Alternate Director of Parent Monterrey, N.L. 64000
and Abaco; General Manager Mexico
of Tiendas "El Sol"
Federico Richardson Lamas Ave. San Jeronimo 999 Pte. Mexico
Alternate Director of Parent Monterrey, N.L. 64640 Mexico
and Abaco
Ismael Garza T. Gonazales Juan I. Ramon 506 Ote. Desp. 300 Mexico
Alternate Director of Parent Monterrey, N.L.
Mexico
Juan Zurita Lagunes Amazonas 240, Desp. 10, Col. Del ValleMexico
Director of Parent; Chairman Garza Garcia, N.L.
of the Board of Club HaciendaMexico
Tequisqiapan, S.A.
Sergio T. Martinez Arrieta Ave. San Jeronimo 999 Pte. Mexico
Alternate Director of Parent,Edificio Anexo
Partner of Martinez Arrieta yMonterrey, N.L. 64640 Mexico
Asociados, S.C.
Jose Carlos Villarreal Ave. San Jeronimo 999 Pte. Mexico
Martinez Monterrey, N.L. 64640 Mexico
Alternate Director of Parent
and Abaco; Treasurer and
Chief Financial Officer of
Confia, S.A.
<PAGE>
Franciso E. Quiatanilla Montes Rocallosos 505 Sur Mexico
Director of Financial Residencial San Agustin
Contracts of Parent and Garza Garcia, N.L. 66260
Abaco; Secretary of Holdings Mexico
and Acquisition Corp.
