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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission file number: 1-9143
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RODMAN & RENSHAW CAPITAL GROUP, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 36-3111956
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
233 S. Wacker Drive, Suite 4500, Chicago, IL 60606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312)526-2000
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(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 No X *
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* - Registrant's Form 10-K for 1996 was filed on April 16, 1997, one day
later than the extended due date.
Shares of common stock, par value $.09 per share, outstanding at November 1,
1997: 6,645,802.
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, 1997 (unaudited) and December 31, 1996.
Condensed Consolidated Statements of Operations (unaudited)
for the three and nine months ended September 30, 1997 and
September 30, 1996.
Condensed Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 1997 and
September 30, 1996.
Notes to Condensed Consolidated Financial Statements
(unaudited) - September 30, 1997.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
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, DECEMBER 31,
1997 1996
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 156 $ 2,243
Securities purchased under agreements
to resell 1,500 5,301
Cash and short-term investments required to
be segregated under federal regulations 7,467
Receivables:
Customers - 25
Brokers, dealers, and clearing
organizations 2,165 1,610
Securities owned - at market 5,914 8,279
Memberships in securities and commodities
exchanges at cost(market value 09/30/97 -
$515; 12/31/96 - $246) 122 122
Furniture, fixtures and leasehold improvements,
at cost, less accumulated depreciation and
amortization (09/30/97 - $6,460; 12/31/96 -
$5,484) 6,499 7,431
Prepaid expenses and other assets 6,186 11,305
__________ ___________
$ 22,542 $ 43,783
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term notes payable to affiliate $ 40,255 $ 23,500
Payables:
Customers - 8,290
Brokers, dealers, and clearing
organizations - 1,294
Securities sold but not yet purchased,
at market 1,023 782
Accrued commissions 1,127 1,995
Accounts payable and accrued expenses 9,850 15,770
_________ ___________
52,255 51,631
Stockholders' equity:
Convertible non-voting preferred stock,
$.01 par value, 5,000,000 shares authorized;
175 shares issued at 09/30/97 and
at 12/31/96 - -
Common stock, $.09 par value: 20,000,000
shares authorized; 6,645,802 issued at
09/30/97 and 12/31/96 598 598
Additional paid-in capital 48,249 48,249
Accumulated deficit (78,560) (56,695)
__________ ___________
(29,713) (7,848)
__________ ___________
$ 22,542 $ 43,783
========== ===========
</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)
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES:
Commissions $ 3,529 $ 3,643 $ 11,536 $ 15,370
Principal 3,171 6,548 10,335 22,938
Interest 194 427 757 1,788
Fee income 358 1,240 2,582 6,276
Other 33 121 317 354
_________ ________ ________ ________
TOTAL REVENUES 7,285 11,979 25,527 46,726
EXPENSES:
Employee compensation
and benefits 6,841 10,307 22,070 36,701
Commissions, floor brokerage
and clearance 1,041 1,083 3,562 3,235
Interest 1,258 1,121 3,261 3,506
Communications 811 1,321 2,872 4,301
Occupancy and equipment 1,679 1,676 4,940 4,846
Professional fees (*) 1,626 845 4,386 2,094
Other operating expenses 2,220 1,997 6,301 5,355
_________ ________ ________ ________
TOTAL EXPENSES 15,476 18,350 47,392 60,038
NET LOSS $ (8,191) $ (6,371) $ (21,865) $ (13,312)
========= ======== ========= =========
Earnings per share data:
NET LOSS PER COMMON SHARE $ (1.23) $ (0.96) $ (3.29) $ (2.00)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 6,646 6,646 6,646 6,646
(*) Professional fees include accounting fees & expenses, consulting fees &
expenses, outside legal counsel fees & expenses and litigation awards &
settlements.
</TABLE>
See Notes to Condensed Consolidated Financial Statements
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in thousands)
<TABLE>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (21,865) $ (13,312)
Adjustments to reconcile net loss to
net cash flows provided by (used in)
operating activities:
Equity in earnings in limited partnerships (1,192)
Reserve on loans advanced to
limited partnerships 428
Depreciation and amortization 976 785
Net changes in operating assets
and liabilities:
Cash and short-term investments
required to be segregated under
federal regulations 7,467 (1,386)
Receivables from and payables
to customers, brokers, dealers
and clearing organizations (10,113) 36,779
Securities owned 2,365 9,118
Prepaid expenses and other assets 3,834 (1,435)
Securities sold but not yet purchased 241 (3,837)
Accrued commissions (868) (303)
Accounts payable and accrued expenses (5,921) (6,803)
NET CASH FLOWS PROVIDED BY (USED IN) ___________ __________
OPERATING ACTIVITIES (23,884) 18,842
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase)/Sale of furniture, fixtures and
leasehold improvements (44) (129)
Securities purchased under agreements to resell 3,801 2,204
Sale of exchange memberships 1,285 -
NET CASH FLOWS PROVIDED BY (USED IN) ___________ __________
INVESTING ACTIVITIES 5,042 2,075
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) in short-term
borrowings from banks - (30,672)
Proceeds from short-term notes payable
to affiliate 16,780 -
Payment of short-term notes payable
to affiliate (25) -
Proceeds from issuance of convertible
non-voting preferred stock - 9,500
NET CASH FLOWS PROVIDED BY (USED IN) ___________ __________
FINANCING ACTIVITIES 16,755 (21,172)
NET (DECREASE)/INCREASE IN CASH AND CASH
EQUIVALENTS (2,087) (255)
Cash and cash equivalents at beginning
of period 2,243 9,001
___________ ___________
Cash and cash equivalents at end of period $ 156 $ 8,746
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
RODMAN & RENSHAW CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
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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, 1996.
NOTE B - ASSETS SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS
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The Company was holding in safekeeping $0.0 million and $1.0 million
of securities owned by customers as of September 30, 1997 and December
31, 1996, respectively. In accordance with applicable regulations,
these securities are not included in the Condensed Consolidated
Financial Statements.
NOTE C - NET CAPITAL REQUIREMENT AND DIVIDEND RESTRICTIONS
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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) and the 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 SEC rules. 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 is required to maintain minimum net capital, as defined in such
rules, equal to the greater of $250,000 or 4% of the funds required to
be segregated for commodities customers. At September 30, 1997 and
December 31, 1996, Rodman had net capital, as defined, of $.7 million
and $2.5 million, respectively, or $.4 million and $2.2 million,
respectively, in excess of the minimum net capital.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Managements discussion and analysis of financial condition and
results of operations should be read in conjunction with the
Companys condensed consolidated financial statements. 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 trends in revenue
due to changes in market conditions or other factors, 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. 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, 1997.
Revenues for the quarter ended September 30, 1997 totaled $7.3
million, a 39.2% decrease from $12.0 million for the previous year's
comparative quarter, reflecting changes in business mix, capital
constraints, a net reduction in producers, generally lower levels of
production by producers and a lower level of investment banking
activity. For the third quarter of 1997, the Company recorded a net
loss of $8.2 million, or $1.23 per common share, versus a net loss of
$6.4 million, or $0.96 per common share, for the comparative quarter
last year.
REVENUES
Revenues for the quarter and nine months ended September 30, 1997 were
$7.3 million and $25.5 million, respectively, or $4.7 million and
$21.2 million, respectively, lower than the same periods last year.
Downsizing of the Futures and Fixed Income businesses accounted for
$1.2 million and $6.1 million of these decreases, respectively. The
Company's core business lines (Retail, Institutional Equity, and
Investment Banking) were, on a combined basis, 32.3% and 38.3% below
the respective 1996 levels, reflecting capital constraints, a net
reduction in producers, generally lower levels of production by
producers and a lower level of investment banking activity.
Commission revenue is derived from the execution of customer orders to
buy and sell securities. Commission revenue decreased slightly (2.8%)
from $3.6 million for the quarter ended September 30, 1996 to $3.5
million for the quarter ended September 30, 1997 but decreased 24.8%
from $15.3 million for the nine months ended September 30, 1996 to
$11.5 million in the first nine months of 1997, mainly reflecting
lower Retail and Institutional Equity sales in the first and second
quarters compared to the third quarter, during which sales remained
relatively flat compared to the comparable quarter for 1996. The
number of Retail producers decreased to 41 at September 30, 1997 from
63 at September 30, 1996. The number of Institutional Equity producers
remained relatively constant (54 at September 30, 1996 and 53 at
September 30, 1997) when compared with the comparable quarter for
1996, but such number had decreased to 45 at June 30, 1997 (compared
to 52 at June 30, 1996) and 44 at March 31, 1997 (compared to 51 at
March 31, 1996). The average annualized production of Retail sales
producers fell 39.3% from September 30, 1996 to September 30, 1997 and
the average annualized production of Institutional Equity sales
producers fell 32.5% as of such dates. Partly offsetting the decline
in overall Institutional Equity commissions was increased revenue from
the Direct Access segment of that group, where revenues increased from
$1.3 million for the three months ended September 30, 1996 to $1.6
million for the three months ended September 30, 1997, a 23.1%
increase. For the nine months ended September 30, 1997, Direct Access
revenues totaled $4.6 million versus $3.5 million for the same period
in 1996, a 31.4% increase.
Revenue from principal transactions includes mark-ups and realized and
unrealized gains and losses on securities held for resale. Principal
transaction revenue decreased $3.4 million from $6.5 million for the
quarter ended September 30, 1996 to $3.2 million for the quarter ended
September 30, 1997 and decreased $12.6 million from $22.9 million for
the nine months ended September 30, 1996 to $10.3 million for the nine
months ended September 30, 1997. This decline was partially due to a
downsizing of the Company's Fixed Income business, which occurred at
the end of 1996, both in its New York and Chicago offices. Also
contributing to the weaker 1997 performance levels in principal
transactions was lower revenue from the Institutional Equity business
line, which reflected the departure of certain New York based sales
personnel. Partially offsetting the decline were gains in the
corporate securities portfolio.
Interest income for the three and nine months ended September 30, 1997
declined by $0.2 million and $1.0 million, respectively, compared to
the comparable periods of 1996, as the Company reduced its securities
inventory positions in Government Obligations and other interest-
bearing investments, and as the net margin interest earned on retail
customer account balances declined due to cessation of self-clearing
operations.
Fee income, which reflects mainly the activities of Rodman's
Investment Banking department, decreased 71.1% for the quarter ended
September 30, 1997 as compared to the third quarter of 1996 and
decreased 58.9% for the nine months ended September 30, 1997 compared
to the same period in 1996. In each of the three and nine months ended
September 30, 1997, the Company completed one and three public
offerings versus three and twelve, respectively, in the same 1996
periods. Also contributing to the revenue decline were significantly
lower Investment Banking advisory fees in the three and nine months
ended September 30, 1997.
EXPENSES
Expenses decreased $2.9 million, or 15.8%, from $18.4 million for the
three months ended September 30, 1996 to $15.5 million for the three
months ended September 30, 1997 and decreased $12.6 million, or
21.0%, from $60.0 million for the nine months ended September 30,
1996 to $47.4 million for the nine months ended September 30, 1997.
Employee compensation decreased by $3.5 million, a decrease of 34.0%,
and $14.6 million, a decrease of 39.8%, respectively, for the quarter
and nine months ended September 30, 1997 versus the same periods last
year. Total headcount at September 30, 1997 was 37.9% lower than at
September 30, 1996. This change is mainly attributable to the ongoing
expense reduction program. This program includes the downsizing of
the Futures and Fixed Income business lines, which were unprofitable,
reductions in administrative staffing, pruning of weak producers and
other cost containment measures.
Communications and occupancy and equipment expenses also declined in
the three and nine months ended September 30, 1997 as compared to the
same periods last year, primarily as a result of savings from
downsizing. Other operating expenses increased in the three and nine
months ended September 30, 1997 as compared to the prior year periods
as a result of certain asset write-offs. Expenses under the
Professional fees category increased in the three and nine months
ended September 30, 1997 primarily because of higher reserves for
potential future contingency losses and litigation and settlement
expenses (especially the $.4 million NASD arbitration award to Steven
A. Rothstein, a former employee, in September 1997 and the $1.5
million NASD arbitration award to Michael Delaney, a former employee,
in June 1997 - see LEGAL PROCEEDINGS). Interest expense increased
$0.2 million, or 12.2%, during the three months ended September 30,
1997 compared to the same period last year due to the increase in
borrowings from Confia, S.A., Institucion de Banca Multiple, Abaco
Grupo Financiero ("Confia), an affiliated company of the Company's
majority stockholder, Abaco Casa de Bolsa, S.A. de C.V., Abaco Grupo
Financiero ("Abaco"), but decreased by $0.2 million, or 7.0%, for the
first nine months of 1997 compared to the first nine months of 1996.
This decrease was primarily a result of downsizing the Futures
business.
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets are substantially comprised of cash and cash
equivalents, receivables and securities inventory, all of which are
highly liquid. The principal sources of financing are notes payable
from an affiliate and other payables.
As a registered broker-dealer and futures commission merchant, Rodman
is required by the SEC and CFTC to maintain specific amounts of net
capital to meet its customer obligations. As of September 30, 1997,
Rodman's net capital, as defined, exceeded the minimum net capital
requirements.
During 1994 and 1995, the Company borrowed a total of $26.5 million
from Confia (the Loan). The Company needed the Loan in order to
continue to conduct its business because losses were eroding its net
capital. In the fourth quarter of 1996, $3.0 million of the Loan was
repaid. On December 3, 1996, the remaining balance of the Loan was
extended for an additional six month period ending June 3, 1997, at an
annual interest rate of 12%. On June 3, 1997, the Loan, plus the
accrued interest thereon, was further extended for an additional six
month period ending December 1, 1997. From January 1, 1997 through
September 30, 1997, Confia made new loans totaling $15.36 million (the
1997 Loans and together with the Loan hereinafter referred to
collectively as the Loans). The 1997 Loans were as follows: $3.0
million on March 26, 1997 due June 24, 1997 extended to September 22,
1997, $2.5 million on April 30, 1997 due July 29, 1997 (of which
$2.475 has been extended to November 4, 1997), $1.5 million on May 23,
1997 due August 21, 1997, $1.5 million on June 9, 1997 due September
8, 1997, $5.45 million on June 27, 1997 due September 29, 1997, and
$1.410 million on August 22, 1997 due February 18, 1998. The loans due
before September 30, 1997 and not yet extended are unpaid and
negotiations are taking place to extend these loans. Based upon
conversations with Confia representatives, management believes that it
is the intention of Confia to renew the Loans as they become due or
convert all or a portion of the Loans to equity pursuant to the Note
Conversion Agreement dated September 29, 1995 as amended November 10,
1995 and discussed in the Company's quarterly report on Form 10-Q for
the quarter ended March 31, 1997, subject to receipt of necessary
approvals from Mexican governmental authorities. Any renewal may be on
different terms than the then existing Loans, depending upon market
conditions, Confia's internal lending policies at the time of renewal
and other relevant factors discussed below under The Intervencion
Gerencial.
On February 9, 1996, the Company 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. The support referred to in the
February 9, 1996 letter could have included, with previous receipt of
requisite approvals from Mexican governmental authorities, infusions
of capital, conversion of short-term debt to long-term debt or
conversion of short or long-term debt to equity, if required, to
continue to sustain Rodman's operations and allow it to maintain the
required net capital pursuant to the SEC's Uniform Net Capital Rule
15c3-1. In February 1997, the Company received a new support letter
from Parent and Abaco covering the period up to and including March
31, 1999. Such letter states that it is the intention of Parent and
Abaco to continue to unconditionally support the Company and Rodman
for losses incurred in the ordinary course of business during such
period and that such support may include, with prior receipt of
requisite approvals from Mexican governmental authorities, infusions
of capital, conversion of short term debt to long term debt or
conversion of short or long term debt to equity. The Company is
dependent on Parent to cover its operating cash requirements. The
Parent generally has provided such cash through Confia, its bank
affiliate.
At September 30, 1997, the Company had subordinated loans outstanding
to Rodman, its broker-dealer subsidiary, in an aggregate amount of
$23.0 million. The subordinated loans have been funded by the
Company's borrowings from Confia discussed above. To the extent that
such subordinated borrowings are required for Rodman's continued
compliance with minimum net capital requirements, they may not be
repaid. In the event that any of the Loans are not renewed or
converted, Rodman would 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. No assurance can be given that it would be able
to do so to an extent and in a manner that would allow it to continue
operations and repay such debt.
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"). As of June 30, 1997 and July 31, 1997, the
debt/equity ratios were 68.1% and 62.8% respectively. In August 1997,
the Company borrowed from Confia $1.41 million, of which the entire
amount was contributed into Rodman as capital. As a result, the debt-
equity/ratio as of August 31, 1997 was 64.8%. As of September 30,
1997, the debt/equity ratio was 76.3%. On October 2, 1997, the
Company borrowed from Confia $2.0 million, of which the entire amount
was contributed into Rodman as capital. As a result, the debt/equity
ratio was reduced to 68.3%.
In the nine months ended September 30, 1997, the Company used cash and
cash equivalents of $23.9 million from operating activities primarily
related to the payments of accounts payable. In the nine months ended
September 30, 1996, the Company's operations provided $18.8 million of
cash, primarily related to the decrease in receivables from and
payables to customers, brokers, dealers and clearing organizations and
the sale of securities not yet purchased.
The Intervencion Gerencial
On August 27, 1997, the Mexican Comision Nacional Bancaria y de
Valores (the National Banking and Securities Commission or CNBV)
declared and announced an Intervencion Gerencial (a "Management
Intervention") with respect to Parent and its Mexican subsidiaries,
including Abaco and Confia, as a result of the ongoing financial
difficulties of the Parent and those subsidiaries. In the exercise of
its authority under the Ley de Instituciones de Credito (the Mexican
Banking Law), the CNBV has appointed Mr. Gustavo Vergara as the
Interventor Gerencial (the Management Interventor) for Parent. Under
the Mexican Banking Law, as of the date of the intervention, Mr.
Vergara has succeeded to the authority and assumed the powers of the
board of directors and chief executive officer of Parent, Abaco and
Confia. As of the date of the Management Intervention and until such
time as it is terminated by the CNBV, the elected board of directors
of Parent, Confia and Abaco have exercised, and will exercise, no
authority or control over the business and affairs of the Parent,
although they may continue to meet in order to discuss the business
and affairs of their respective companies and, if asked by the
Management Interventor, to comment on such matters as he may request.
The Management Interventor is not subject to the authority of
shareholders or the board of directors of Parent, Abaco or Confia.
The Company has been advised that the Management Intervention does not
result in a change in ownership of the Parent or any of its
subsidiaries.
In addition, on August 27, 1997, it was announced that an agreement in
principle had been reached for Citibank, N.A. to acquire 100%
ownership of Confia, the principal subsidiary of the Parent, in
consideration for a capital infusion in Confia and a payment to
Parent. Since such announcements were made, Confia has continued to
extend the maturity of loans and make additional loans to the Company
as described above with the approval of the Management Interventor.
No assurance can be given, however, that Confia will or will be able
to continue to do so, that Parent or Abaco will or will be able to
provide financial support to the Company in lieu of the loans from
Confia or that the Management Interventor will continue to grant the
necessary approvals. The Company is dependent upon the continuation
of the existing financial support from Confia, Parent and/or Abaco and
failure to continue to receive such support as necessary would have a
material adverse effect on the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not currently applicable to the Company.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
On April 4, 1997, an action entitled Feivel Gottlieb and
Kenneth Steiner, Plaintiffs v. Rodman & Renshaw Capital Group, Inc.,
Ernesto Arechavala, Alexander C. Anderson, Peter Boneparth, Eduardo
Camarena Legaspi, William C. Dennis, Jorge Lankenau Rocha, Rodrigo
Padilla, Federico Richardson Lamas, Joseph P. Shanahan, Abaco Casa de
Bolsa, S.A. de C.V., Abaco Grupo Financiero, R&R Capital Holdings,
Inc. and R&R Capital Acquisition Corp. was commenced in the Court of
Chancery of the State of Delaware in and for New Castle County. The
action is a purported class action brought on behalf of all holders
of the common stock of the Company other than the defendants and
persons affiliated with the defendants. The action relates to the
proposed series of transactions (the Transactions) announced by Abaco
on February 4, 1997 which would have the result of Abaco owning 100%
of the outstanding common stock of the Company. The plaintiffs allege
that the Transactions and the price to be paid for their shares of
common stock in connection therewith are unfair and entail breach of
fiduciary duties owed to the plaintiffs and the purported class.
Plaintiffs seek to preliminarily and permanently enjoin the
Transactions and to obtain a monetary recovery for any damages
sustained. Defendants, including the Company, have retained counsel
and believe they have good and meritorious defenses, which they
intend to vigorously assert. In light of the early stage of this
action, the Company cannot assess at this time whether it will have
any material adverse effect on the Company. The Transactions are
described in greater detail in the Company's Form 10-K Annual Report
for the fiscal year ended December 31, 1996.
On July 8, 1996, Michael Delaney, then an employee of Rodman,
initiated an NASD arbitration proceeding by means of a Statement of
Claim alleging breach of certain terms and conditions of his
employment agreement with Rodman, especially with respect to certain
override provisions as to institutional equity sales commissions. The
Statement of Claim alleged damages in excess of $2.0 million arising
from such breach. On September 6, 1996, Rodman filed its Answer to
Mr. Delaney's Statement of Claim denying Mr. Delaney's claim and
asserting various defenses. On October 11, 1996, Mr. Delaney
amended his Statement of Claim, primarily to include claims relating
to the termination of his employment with Rodman on July 29, 1996.
The Amended Statement of Claim alleged damages in excess of $2.0
million and requested punitive damages. On November 12, 1996, Rodman
submitted its Answer to the Amended Statement of Claim again denying
Mr. Delaney's claims and asserting various defenses. An arbitration
hearing on this matter was held in May 1997. During the hearing, Mr.
Delaney requested $2.8 million in compensatory damages plus punitive
damages. By notice dated June 18, 1997, the NASD advised that the
arbitration panel had awarded Mr. Delaney $1,519,638. Such amount was
paid to Mr. Delaney in July 1997.
Rodman commenced an NASD arbitration proceeding against Steven A.
Rothstein, a former Rodman employee, in April 1994 seeking recovery of
monetary advances made by Rodman to him and of sums due as a result of
his breach of two promissory notes from him held by Rodman. Mr.
Rothstein initially pursued other avenues in asserting certain claims
against Rodman but eventually asserted counterclaims in the NASD
arbitration commenced by Rodman. Such counterclaims alleged that
Rodman breached contractual obligations and duties, as well as oral
agreements and promises, and asserted that Rodman had not acted toward
him in good faith and had constructively discharged him. On September
11, 1997, the NASD Office of Dispute Resolution issued an award
finding Mr. Rothstein liable to Rodman for $190,259.29 as actual
damages and interest with respect to Rodman's claims against him but
finding Rodman liable to Mr. Rothstein for $607,794.00 with respect to
his claims against Rodman. The NASD directed that these amounts be
offset, resulting in a $417,534.71 payment to Mr. Rothstein which
Rodman made on October 14, 1997.
On June 17, 1997, Rodman commenced a New York Stock Exchange
arbitration proceeding against Tucker Anthony, Incorporated (Tucker
Anthony) and 10 former Rodman employees who had been members of
Rodman's Banking Services Group. All such former Rodman employees
left Rodman and joined Tucker Anthony in April 1997. Rodman's
Statement of Claim asserts that Tucker Anthony and the former Rodman
employees conspired to wrongfully misappropriate Rodman's confidential
and proprietary information and to use that information for the
benefit of Tucker Anthony and the former employees. Rodman's claim
further asserts that Tucker Anthony and/or the individual defendants
breached fiduciary duties owed to Rodman, were unjustly enriched by
those breaches, tortuously interfered with Rodman's business and
employment relations and unlawfully converted Rodman confidential and
proprietary information for their own use and benefit. Rodman's claim
seeks damages in excess of $3,000,000. On August 29, 1997 Tucker
Anthony and the individual defendants submitted a Statement of Answer
and Counterclaims denying Rodman's allegations and asserting
counterclaims by the individual defendants for Rodman's alleged breach
of business commitments to them in an amount alleged to exceed
$5,000,000. The arbitration hearing is expected to be held in early
1998.
Rodman is a defendant in a number of arbitrations initiated by
customers and former employees. These include:
Russell M. Hustead and Susan S. Hustead v. Rodman & Renshaw, Inc.
and Philip J. Langley. This is an NASD arbitration commenced on July
8, 1996 by former customers of Rodman's former Kansas City, Missouri
branch office. The Statement of Claim alleges breach of fiduciary
duty, negligence, fraud and breach of contract in the handling of the
claimants' brokerage account between 1991 and 1993, allegedly leading
to damages in excess of $1,000,000. The hearing is expected to be
held in April 1998.
Peter Stimson Brooks v. Carr Investments Inc., Rodman & Renshaw,
et al. This is a reparation complaint before the CFTC commenced on
July 23, 1996 alleging misrepresentation of material facts, breach of
fiduciary duty and the placing of unauthorized transactions in
complainants' account. Claimant alleges losses in excess of $450,000.
Carr Investments, Inc. served as the introducing broker for the
account and Rodman merely executed the transactions conveyed to it by
Carr Investments, Inc., which has an indemnification obligation to
Rodman.
Sharon Jean Dawson a/k/a Sharon Jean Brooks v. Carr Investments,
Inc., Rodman & Renshaw, Inc. et al. This is a companion case to the
above CFTC reparation proceeding brought at the same time by the wife
of the claimant in that proceeding. Claimant makes similar
allegations and alleges losses in excess of $627,400. Again, Carr
Investments, Inc. served as the introducing broker for the account and
Rodman merely executed the transactions conveyed to it by Carr
Investments, Inc., which has an indemnification obligation to Rodman.
John Todd v. Rodman & Renshaw, Inc., Rodman & Renshaw Capital
Group, Inc, and Abaco Casa de Bolsa, S.A. de C.V. This is an NASD
arbitration proceeding commenced on September 29, 1997 by a former
institutional salesperson. Mr. Todd alleges breach of contract and
age discrimination and seeks damages in excess of $500,000.
Item 2. CHANGES IN SECURITIES.
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION.
Mr. Joseph P. Shanahan resigned from his position as President
and Chief Executive Officer of the Company and Rodman as of October
15, 1997. Francis L. Kirby became interim President and Chief
Executive Officer of Rodman as of October 23, 1997. No such
appointment has been made at the Company to date.
In August and September 1997, it was announced
that Jorge Lankenau Rocha, formerly the Chairman and Chief Executive
Officer of Parent, Confia and Abaco and currently the Chairman of the
Board of Directors of the Company, had been placed under house arrest
in Mexico in connection with allegations of financial improprieties
involving Confia and a Mexican offshore investment fund. The Company
has been advised that Abaco is taking steps as majority stockholder to
cause the removal of Mr. Lankenau as a director of the Company as well
as the removal of the two remaining directors, Alexander C. Anderson
and Ernesto Arechavala, and to appoint a new board of directors.
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, 1997.
SIGNATURES
-----------
Pursuant to the requirements 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.
(Registrant)
Date: November 14, 1997 By: /s/Thomas G. Pinou
---------------------------------
Thomas G. Pinou
Chief Financial Officer
Date: November 14, 1997 By: /s/Francis L. Kirby
---------------------------------
Francis L. Kirby
Executive Vice President
EXHIBIT INDEX
ITEM NO. DESCRIPTION SEQUENTIALLY NO. PAGE
27.1 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 156,000
<RECEIVABLES> 2,165,000
<SECURITIES-RESALE> 1,500,000
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 5,914,000
<PP&E> 6,499,000
<TOTAL-ASSETS> 22,542,000
<SHORT-TERM> 40,255,000
<PAYABLES> 10,977,000
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 1,023,000
<LONG-TERM> 0
<COMMON> 598,000
0
0
<OTHER-SE> (29,713,000)
<TOTAL-LIABILITY-AND-EQUITY> 22,542,000
<TRADING-REVENUE> 10,335,000
<INTEREST-DIVIDENDS> 757,000
<COMMISSIONS> 11,536,000
<INVESTMENT-BANKING-REVENUES> 2,582,000
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 3,261,000
<COMPENSATION> 22,070,000
<INCOME-PRETAX> (21,865,000)
<INCOME-PRE-EXTRAORDINARY> (21,865,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,865,000)
<EPS-PRIMARY> (3.29)
<EPS-DILUTED> (3.29)
</TABLE>
