<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File No. 0-15521
September 27, 1996
NATIONAL SECURITIES CORPORATION
-------------------------------
(Exact Name of Registrant as specified in its charter)
WASHINGTON 91-0519466
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 Fourth Avenue, Suite 2200, Seattle, WA 98154
- ------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 206-622-7200
Securities registered pursuant to Section 12(b) of the Act:
None
----
Securities registered pursuant to Section 12(g) of the Act:
Common stock $.02 par value
---------------------------
(Title of class)
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 ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B (228.405) of this chapter 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-KSB or any amendment to this Form 10-KSB. [ ]
For the fiscal year ended September 27, 1996, the Company's revenues were
$34,899,000.
As of November 14, 1996, 652,148 shares of the Company's common stock were held
by non-affiliates, having an aggregate market value of $5,380,000.
Number of common shares outstanding as of November 14, 1996 was 859,452 at a
par value of $.02.
Transitional Small Business Disclosure Format:
Yes _______ No X
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PART I
ITEM 1 - BUSINESS
GENERAL
National Securities and Subsidiary (collectively "the Company") conducts a
national securities brokerage business through its main office in Seattle,
Washington and in 38 other offices located in 20 states. The Company's
business includes securities brokerage for individual and institutional
clients, market-making trading activities and corporate finance services. The
Company concentrates upon retail brokerage with an emphasis on personalized
service. The Company's executive office, which is also its largest sales
office, is located in Seattle, Washington. The majority of the Company's
transactions with the public involves solicited trades and approximately 70% of
these involve sales of securities to customers.
BROKERAGE SERVICES
Brokerage services to retail clients are provided through the Company's sales
force of Investment Executives which the Company believes is the key factor to
the success of its business. The Company is organized to meet the needs of its
Investment Executives and their clients. To foster individual service,
flexibility and efficiency, and to reduce the Company's fixed costs, Investment
Executives act as independent contractors responsible for providing their own
office facilities, sales assistants, telephone service, supplies and other
items of overhead. Investment Executives are given broad discretion to
structure their own practices and to specialize in different areas of the
securities market subject to the Company's supervisory procedures. In
addition, Investment Executives have direct access to the Company's research
materials, management, traders, and all levels of support personnel.
It is not the Company's policy to recommend particular securities to customers.
Recommendations to customers are determined by individual Investment Executives
based upon their own research and analysis, and subject to applicable NASD
customer suitability standards and Company supervision. Most Investment
Executives perform fundamental (as opposed to technical) analysis.
Solicitations may be by telephone, seminars or newsletters. Investment
Executives may request the Company to acquire an inventory position to
facilitate sales to customers (subject to the Investment Executive's own risk).
Customers receive confirmation disclosure that the Company may hold such
positions. Supervisory personnel review trading activity of inventory
positions to ensure compliance with applicable standards of conduct.
Salespersons in the brokerage industry are traditionally compensated on the
basis of set percentages of total commissions and mark-ups generated. Most
brokerage firms bear substantially all of the costs of maintaining their sales
forces, including providing office space, sales assistants, telephone service
and supplies. The average commission paid to the salespersons in the brokerage
industry generally ranges from 30% to 40% of total commissions generated.
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ITEM 1 - BUSINESS (CONTINUED)
BROKERAGE SERVICES (Continued)
Since the Company requires its Investment Executives to absorb their own
overhead and expenses, it is able to pay an average of 70% of commissions and
mark-ups generated by the Investment Executive. This arrangement also reduces
the Company's fixed costs and lowers risk of operational losses for
non-production.
The Company is registered as a broker/dealer with the Securities and Exchange
Commission ("SEC") and in 50 states, the District of Columbia and Puerto Rico.
The Company is also a member of the National Association of Securities Dealers,
Inc. ("NASD"), the Municipal Securities Rulemaking Board ("MSRB") the
Securities Investor Protection Corporation ("SIPC"), and the Chicago Stock
Exchange ("CSE"). New Investment Executives are required to take examinations
administered by the NASD and state securities authorities in order to be
registered.
CORPORATE FINANCE ACTIVITIES
During fiscal 1996, the Company provided substantial corporate finance and
investment banking services, including underwriting the sale of securities to
the public and arranging for the private placement of securities with
investors. The Company intends to expand its corporate finance operations to
provide a broader range of financial and corporate advisory services, including
mergers and acquisitions, project financing, capital structure and specific
financing opportunities. The Company has underwritten both equity securities
and convertible corporate bonds as initial or secondary public offerings.
The Company manages or co-manages underwritings of debt and equity
securities. In each such project, the Company will manage, underwrite and sell
the majority of the shares of each underwriting. The Company collects fees
from the underwriting proceeds for providing these services, including
non-accountable expenses. Additionally, the Company participates as an
underwriter of the syndicate group of other underwritings which it does not
manage. All of these activities require a substantial commitment of capital
and expose the Company to additional risk. Therefore, all such activities are
reviewed by members of the Board of Directors.
The Company's Corporate Finance department is headquartered in Chicago,
Illinois. This office includes Investment Executives, research analysts and
administrative employees. The office and the Company's Corporate Finance
department is run by the Company's Chairman Steven Rothstein. Additionally,
the Company opened a large branch office in New York, New York which includes
Investment Executives and research analysts. This New York office contributes
substantially to the Company's Corporate Finance activities.
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ITEM 1 - BUSINESS (CONTINUED)
PRINCIPAL AND AGENCY TRANSACTIONS
The Company buys and maintains inventories in equity securities as a "market
maker" for the sale of those securities to other dealers and to customers. The
Company also maintains inventories in corporate and municipal debt securities
for sale to customers. A staff of three traders and three assistants at its
Seattle headquarters, and two traders and one assistant in Spokane, Washington,
manage the Company's inventory of securities, and conduct market-making
activities. As of September 27, 1996, the Company made a market in
approximately 100 equity securities, the majority of which were quoted on the
NASDAQ system.
The Company's trading department activities require a substantial commitment of
capital. Most principal transactions place the Company's capital at risk.
Profits and losses are dependent upon the skill of the traders, price movement,
trading activity and the size of inventories. Because the Company's trading
activities occasionally may involve speculative and thinly capitalized stock,
including stabilizing the market for securities which it has underwritten, the
Company imposes position limits to reduce its potential for loss.
In executing customer orders to buy or sell a security in which the Company
makes a market, the Company may sell or purchase from customers at a price
which is substantially equal to the current inter-dealer market price plus or
minus a mark-up or mark-down. The Company may also act as agent and execute a
customer's purchase or sale order with another broker/dealer market-maker at
the best inter-dealer market price available and charge a commission. The
Company's mark-ups, mark-downs, and commissions are competitive based on the
services it provides to its customers. Inventories during the past year have
grown due to the increased customer base and substantial underwriting
activities. The following table sets forth for the years ended September 27,
1996 and September 29, 1995, the highest, lowest and average quarter-end
security positions owned by the Company by type of security.
<TABLE>
<CAPTION>
Year Ended Highest Lowest Average
September 27, 1996 Inventory Inventory Inventory
------------------ ----------- ----------- ----------
<S> <C> <C> <C>
Corporate stocks $ 3,229,000 $ 787,000 $1,659,000
Corporate obligations $ 5,000 $ 5,000 $ 5,000
State and municipal obligations $ 178,000 $ 115,000 $ 141,000
</TABLE>
<TABLE>
<CAPTION>
Year Ended Highest Lowest Average
September 29, 1995 Inventory Inventory Inventory
------------------ ---------- ---------- ----------
<S> <C> <C> <C>
Corporate stocks $ 964,000 $ 504,000 $ 697,000
Corporate obligations $ 10,000 $ 5,000 $ 7,000
State and municipal obligations $ 236,000 $ 57,000 $ 147,000
</TABLE>
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ITEM 1 - BUSINESS (CONTINUED)
PRINCIPAL AND AGENCY TRANSACTIONS (Continued)
In executing customers' orders to buy or sell listed and over-the-counter
securities in which it does not make a market, the Company generally acts as
agent and charges commissions which the Company believes are competitive based
on the services the Company provides to its customers.
OPERATIONS, CLEARINGS AND SYSTEMS
The Company's operations include execution of orders, processing of
transactions, receipt, identification and delivery of funds and securities,
custody of customer securities, internal financial controls and compliance with
regulatory and legal requirements.
The Company's data processing is supplied by an independent vendor on a
time-sharing basis to process orders, reports, confirmations and statements as
well as to maintain the Company's general ledger and files of customer, and
other market data. The Company owns other computers for word processing and
other office applications, the cost of which is allocated to Investment
Executives.
The volume of transactions handled by the operations staff fluctuates
substantially. The Company believes its operations staff is adequate to
service the number of transactions anticipated in the foreseeable future. The
following table sets forth the number of monthly purchase and sale transactions
processed for the periods indicated:
<TABLE>
<CAPTION>
Number of Monthly Transactions
------------------------------
Fiscal Year Ended High Low Average
----------------- ----- ---- -------
<S> <C> <C> <C>
September 27, 1996 19,000 12,000 16,000
September 29, 1995 15,000 6,000 10,000
September 30, 1994 11,000 7,000 9,000
September 24, 1993 12,000 7,000 9,000
September 25, 1992 9,000 5,000 7,000
September 27, 1991 9,000 4,000 6,000
</TABLE>
The Company has established internal controls and safeguards against securities
theft, including use of depositories and periodic securities counts. As
required by the NASD and other authorities, the Company carries fidelity bonds
in the amount of $500,000 covering loss or theft of securities, embezzlement
and forgery. This amount exceeds regulatory requirements by $88,000.
Subsequent to fiscal year end the Company increased the amount of the fidelity
bond to $2,000,000. This amount exceeds regulatory requirements by $1,588,000.
The Company clears approximately 80% of its own securities transactions and
posts its books and records daily, with the remaining 20% of the transactions
clearing through Bear Stearns Securities Corporation. Periodic reviews of
controls are conducted, and administrative and operations personnel meet
frequently with management to review operating conditions. Operations
personnel monitor compliance with applicable laws, rules, and regulations.
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ITEM 1 - BUSINESS (CONTINUED)
SUPERVISION
The Securities Exchange Act of 1934 and NASD Rules of Fair Practice require the
Company to supervise the activities of its Investment Executives. As part of
providing such supervision, the Company maintains an Operations and Procedures
Manual that all Investment Executives must read and sign. Compliance personnel
from the Company's main office conduct inspections of branch offices no less
frequently than annually to review compliance with the Company's procedures. A
registered principal provides continuous supervision at each of the Company's
larger offices (the Seattle home office and the eight largest branches). The
other offices (averaging two Investment Executives per office) are not required
by NASD rules to have a registered principal on site and are therefore
supervised by registered principals at the Seattle office. Traders and other
personnel review Investment Executive's order tickets to ensure compliance with
the NASD Rules of Fair Practice including mark-up guidelines. Although the
Company classifies its Investment Executives as independent contractors, this
treatment does not limit the Company's liability for Investment Executive's
violations of applicable securities laws.
EMPLOYEES
As of September 27, 1996, the Company had 256 employees and independent
contractors, 6 had executive and administrative responsibilities, 202 were
Investment Executives compensated primarily on a commission basis (independent
contractors), 56 were involved in operations trade processing and office
administration. Persons who have entered into independent contractor
agreements are not considered employees for purposes of determining the
Company's obligations for Federal and state withholding, unemployment and
social security taxes. The Company's independent contractor arrangements
conform with accepted industry practice. Therefore the Company does not
believe there is a material risk of an adverse determination from the tax
authorities which would have a significant effect on the Company's ability to
recruit and retain Investment Executives, or the Company's operations or
financial results of operations. No employees are covered by collective
bargaining agreements and the Company believes its employee relations are good.
COMPETITION
The Company is engaged in a highly competitive business. With respect to one
or more aspects of its business, its competitors include member organizations
of the New York Stock Exchange, Inc. and other registered securities exchanges
in the United States and Canada, and the members of the NASD. Many of these
organizations have substantially greater personnel and financial resources and
more sales offices than the Company. Discount brokerage firms affiliated with
commercial banks provide additional competition. In many instances, the
Company is also competing directly for customer funds with investment
opportunities offered by real estate, insurance, banking, and savings and loans
industries.
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ITEM 2 - PROPERTIES
The Company leases office space in Seattle and Spokane, Washington, and
Chicago, Illinois. The Company's other offices are leased by the Investment
Executives operating from those locations.
Leases expire at various times through December 2002. The Company believes its
rent is at current market rates. At current production levels, the Company
believes its leased space is suitable and adequate, however, increased activity
could require additional space to be leased.
ITEM 3 - LEGAL PROCEEDINGS
The Company is a defendant in various arbitration and administrative
proceedings, lawsuits and claims which arise in the normal course of business.
The Company believes it has substantial defenses to each of the actions and
also believes the final resolution of these matters will not have a material
adverse impact on the Company's financial position and results of operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 26, 1996 the Company's Board approved a restructuring plan
whereby, subject to stockholder approval, the Company would become the
wholly-owned subsidiary of a holding company to be named Olympic Cascade
Financial Corporation ("Olympic"), a corporation to be formed. Olympic would
have 10,000,000 authorized shares of common stock, and would also be authorized
to issue preferred stock. Stockholders of the Company would exchange shares of
Olympic on a one-for-one basis. The Company prepared an S-4 Registration
Statement detailing this plan, filed the Registration Statement with the
Securities and Exchange Commission ("SEC"), and presented the plan in the form
of a proxy statement which was forwarded to stockholders of record on October
31, 1996. Subsequently, the Company's stockholders approved this plan, and the
restructuring is to be accomplished pending final approval from the SEC.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's initial public offering of its common stock was completed
September 1986. From the initial offering to June 22, 1987, the Company's
common stock was traded over-the-counter and was not quoted in the National
Association of Securities Dealers Automated Quotation System ("NASDAQ").
Effective June 23, 1987, the Company's common stock became eligible to list on
NASDAQ. The Company's common stock trades on the NASDAQ Small-Cap Market using
the symbol NATS. As of September 27, 1996, the Company had approximately 400
shareholders of record. This amount includes those shareholders holding stock
in street name and trust accounts. Currently, there are five market makers in
the Company's stock, including the Company.
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ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS (CONTINUED)
Washington law authorizes the Board of Directors to declare dividends with
respect to the Company's common stock if, after giving effect to the payment of
the dividend, (i) the Company would be able to pay its debts as they become due
in the usual course of business, and (ii) the Company's total assets would
exceed the sum of its total liabilities plus the amount which would be needed
to satisfy any shareholder's preferential rights in liquidation were the
Company in liquidation at the time of the payment of the dividend. As of this
time, no shareholder holds preferential rights in liquidation. In determining
whether to declare dividends, the Board considers among other things, the
financial condition of the Company, future capital needs, and the capital
requirements established and enforced by the Securities and Exchange Commission
for brokers and dealers registered under the Securities Exchange Act of 1934.
The Company declared 5% stock dividends for all shareholders of record on June
4, 1996 and September 5, 1996.
High and low bid quotations from October 1, 1994 to September 27, 1996 have
been obtained from NASDAQ. The range of market prices for each quarter of
fiscal years ended September 27, 1996 and September 29, 1995 are as follows:
<TABLE>
<CAPTION>
Period High Low
- --------------------------------------- ------- ------
<S> <C> <C>
September 29, 1995/December 29, 1995 $4.88 $3.25
December 30, 1995/March 29, 1996 $4.62 $3.76
March 30, 1996/June 28, 1996 $7.88 $4.13
June 29, 1996/September 27, 1996 $9.25 $6.50
</TABLE>
<TABLE>
<CAPTION>
Period High Low
- --------------------------------------- ------- ------
<S> <C> <C>
October 1, 1994/December 31, 1994 $4.25 $3.00
January 1, 1995/March 31, 1995 $3.75 $3.00
April 1, 1995/June 30, 1995 $4.50 $3.50
July 1, 1995/September 29, 1995 $4.50 $3.50
</TABLE>
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ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995
The Company's fiscal year exhibited an exceptional increase in revenues and net
income as compared to the prior year. Net income grew to $1,735,000 from
$257,000 in 1995, an increase of 575%, while fully diluted earnings per share
grew to $1.68 in 1996 from $0.37 in 1995. Revenues increased $20,624,000, or
144% to a record $34,899,000 from $14,275,000. The increase in revenues was
largely the result of increased underwriting activity and increased commission
production from additional Investment Executives.
Revenues earned on commissions and trading inventory gains increased to
$17,741,000 from $11,631,000 or 53%. These increases were due to favorable
market conditions and the production by additional Investment Executives hired
during the fiscal year.
Revenues earned on underwritings had the most significant impact on the overall
increase in revenues. Because the Company began its Corporate Finance
department in the fourth quarter of 1995, related revenues for fiscal 1995 were
minimal. However, during fiscal 1996, the Company managed or co-managed 12
underwritings which generated the majority of this revenue. These
underwritings ranged in size from $3,000,000 of proceeds to over $40,000,000.
The fee revenue and concessions generated from underwritings aggregated to
$13,191,000 in 1996, up 3265% from 1995 revenues and concessions of $392,000.
Interest and dividend income increased $1,311,000 or 81% from $1,610,000 in
1995 to $2,921,000 in 1996. The Company realized net interest income (interest
income less interest expense) of $1,115,000 in 1996, almost doubling the
previous high of $564,000 in 1995. The Company earns the majority of this
interest from its investments in U.S. Government obligations and U.S.
Government agency obligations and interest received on customer margin debits.
The Company earns a spread between what it pays customers on free credit
balances and what it earns investing these balances. As a result of this
spread, as the overall customer debits and credits increase, the Company is
able to earn more interest income. Combined customer debits and credits
increased $14,639,000 to $64,560,000 in 1996, or 29%, from $49,921,000 in 1995.
Total securities transactions processed by the Company increased by 65% to
approximately 188,000 in 1996 from 114,000 in 1995. At the same time, the
average revenue per trade increased by $60 to $186 from $126. This increase is
the result of the growth in revenues from the Company's Corporate Finance
activities as well as the Company's continuing success in increasing its
average transaction size.
As anticipated, overall expenses increased dramatically. Total expenses
increased $18,464,000 from $13,892,000 in fiscal 1995 to $32,356,000 in fiscal
1996 or approximately 133%. The majority of the increase in expenses both in
dollars and as a percent was commission expense resulting from increased
underwriting activities.
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ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (Continued)
FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995 (Continued)
The Company pays commissions on brokerage transactions as well as on the fees
earned on underwritings. Commission expense amounted to $21,236,000 in 1996,
up $13,472,000 or 174%, from $7,764,000 in 1995. The Company's commission
payout as a percentage of commission generated revenue (this includes
commission revenue, net dealer inventory gains and underwriting revenue) grew
to approximately 69% in 1996, or 6%, from approximately 63% in 1995. The
Company's pay out varies with the type of product or transaction involved, and
therefore, this percentage increased as more mutual fund purchases and
underwritings (transactions with generally higher commission payouts) were
processed.
The remaining non-commission, non-interest expenses increased approximately 83%
from $5,082,000 in 1995 to $9,314,000 in 1996. Employee compensation and
benefits totaling $4,200,000 accounted for $2,344,000, or 59% of this increase.
Because of the substantial growth in 1996, the Company increased its number of
employees and Investment Executives. Additionally, since 1986 the Company has
paid employee bonuses as a percentage of the Company's profits. In fiscal
1996, employee bonuses increased by $972,000 due to the Company's increased
profits. Occupancy and equipment costs increased $645,000 to $1,730,000 in
1996, accounting for an additional 16% of the increase in expenses. The major
components relating to this increase were office rental expense, computer
services and office supplies. These increases were expected as a product of
the Company's significant growth.
The Company's financial success is greatly influenced by the strength of the
securities markets. During fiscal 1996, securities markets were strong, as was
retail trading activity and the market for initial public offerings. While
management is optimistic that the financial markets will remain healthy, a
downturn in these markets would have an adverse effect on future profitability.
Management believes a market downturn may provide the opportunity to acquire
additional sources of production at a reasonable cost. Management is hopeful
that the operational investments it made during the last fiscal year will allow
the Company to weather any downturn and make potential acquisitions accretive
to future earnings.
This document contains information that is based on management's belief and
assumptions, as well as information currently available to management.
Although the Company believes that such information is reasonable, it can give
no assurance that such expectations will prove to be correct. Such statements
are subject to certain risks, uncertainties and assumptions. Should one or
more of these risks or uncertainties materialize, or should the underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or expected.
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ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (Continued)
FISCAL YEAR 1995 COMPARED WITH FISCAL YEAR 1994
The Company underwent three significant changes during fiscal 1995. First, in
May, several investors purchased an aggregate of 48% of the Company's common
stock; 215,830 outstanding shares from two directors and 100,000 newly issued
shares from the Company, all at $5.00 per share. Second, in June the Company
negotiated terms under which approximately 60 new Investment Executives,
formerly affiliated with a Massachusetts broker-dealer, became affiliated with
the Company. And finally, the Company established a Corporate Finance
Department to underwrite and/or otherwise assist companies seeking to raise
capital. While the Company anticipates future benefits from these activities,
year-end results were adversely impacted by expenses of consummating these
events.
Although the Company's 1995 fiscal year exhibited a significant increase in
revenues as compared to the prior year, earnings declined. Net income fell
$253,000 or 50%, to $257,000 in 1995 from $510,000 in 1994, while earnings per
share fell to $0.40 in 1995 from $0.82 in 1994. The decrease in earnings was
largely the result of non-recurring obligations which the Company incurred
during fiscal 1995 due to the change in control and the acquisition of
additional Investment Executives. The Company estimates these expenses totaled
approximately $300,000.
Revenues increased $2,788,000, or 24% to $14,275,000 from $11,487,000. This
increase is due to both favorable market conditions and the acquisition of
additional Investment Executives. Revenues earned on securities transactions
also climbed, increasing by 17% to $11,631,000 in 1995 from $9,977,000 in the
prior year. The Company's interest revenue increased significantly, rising to
$1,610,000 in 1995 from $931,000 in 1994, a $679,000 or 73% increase over the
prior year. This increase was largely offset by higher interest expenses
incurred by the Company.
Total securities transactions processed by the Company increased by 5% to
approximately 114,000 in 1995 from 109,000 in 1994. At the same time, the
average revenue per trade increased by $21.00 to $126.00 from $105.00. This
increase is the result of the Company's continuing success in increasing its
average transaction size, as well as additional transactions related to
corporate finance.
Concurrent with the 24% increase in revenues, overall expenses grew by 29% or
$3,146,000. This significant rise in expenses was not unexpected. The primary
component of the Company's expenses is commission payout to brokers which
increased from $6,596,000 to $7,621,000, an increase of $1,025,000 or 16% over
the prior year.
More meaningful was the increase in the Company's non-commission, non-interest
expenses during the fiscal year. These expenses rose from $3,735,000 in fiscal
1994 to $5,225,000 in 1995, a 40% increase. Much of this increase is the
result of the Company's change in control and its acquisition of additional
Investment Executives. These increases are non-recurring and not typical to
the Company's operations. This also explains the jump in the Company's overall
cost per trade ticket which increased from $34.00 to $46.00.
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ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
As with most brokerage firms, a substantial portion of the Company's assets are
liquid, consisting mainly of cash or assets readily convertible into cash.
These assets are financed primarily by the Company's interest-bearing and
non-interest-bearing customer credit balances, loans of securities, other
payables and equity capital. Occasionally, the Company has utilized short-term
bank financing to supplement its ability to meet day-to-day operating cash
requirements. Such financings have been used to equalize cash flows and are,
therefore, regularly repaid. Additionally, the Company has increased its
operating line of credit with Seafirst Bank to $16,000,000 ($1,000,000
unsecured and $15,000,000 secured) from $2,000,000 in 1995 in order to finance
underwritings. These borrowings are short-term and have not extended beyond a
few days. The Company has no long-term cash borrowings.
The objective of liquidity management is to ensure the Company has ready access
to sufficient funds to meet commitments and future obligations, fund deposit
withdrawals and efficiently provide for the credit needs of customers. Cash
flow from operations and earnings contribute significantly to liquidity.
Liquidity is also partially obtained through utilizing interest bearing and
non-interest-bearing customer credit balances by maintaining assets that are
readily convertible to cash at minimal costs through maturities and sales under
agreements to repurchase.
The Company pays interest to customers on their funds held awaiting investment
in securities. At September 27, 1996, these customer credit balances increased
by approximately $11,575,000. The result of this increase in customer funds led
the Company to increase its investment in U.S. Treasury, GNMA and reverse
repurchase securities by approximately $7,611,000. The Company charges
interest to customers on balances in margin accounts which increased by
$3,064,000 during 1996.
In the normal course of business, the Company borrows securities to meet
customer purchase and sale needs. With respect to securities borrowed, the
cash collateral paid approximates the market value of the related securities
borrowed. Additionally, the Company maintains a net receivable from or payable
to its clearing corporation to meet normal settlement requirements of
securities transactions. At September 27, 1996, the net effect of these
transactions was a receivable or decrease in cash of approximately $347,000.
The Company believes its internally generated liquidity, together with access
to external capital and debt resources, will be sufficient to satisfy existing
commitments and plans, and to provide adequate financial flexibility to take
advantage of potential strategic business opportunities should they arise.
The Company requires its Investment Executives to be responsible for
substantially all of the overhead expenses associated with their sales efforts,
including office furniture, sales assistants, telephone service and supplies.
The Company does not maintain a high level of fixed assets.
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ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
The Company is subject to the net capital requirements of the Securities and
Exchange Commission which are designed to measure the general financial
soundness and liquidity of broker/dealers from a conservative view. As of
September 27, 1996, the Company's net capital exceeded the SEC's requirement of
$332,000 by $3,274,000.
INFLATION
The Company has determined that the effect of inflation on its assets,
consisting of cash, securities, office equipment, leasehold improvements, and
computers has not been significant over the last three years.
Whereas inflation has not had a materially adverse impact on the costs or the
operations of the Company, inflation does have an affect on the Company's
business. Increases in inflation are generally accompanied by increases in
precious metal prices. As a result, there is investor interest in precious
metal-related securities, which is a significant revenue source for the
Company. At the same time, however, increases in inflation may be accompanied
by increases in interest rates, both of which may adversely affect short-term
stock prices and performance and, thereby, adversely effect the Company's
performance. Additionally, as inflation increases the effect on Corporate
Finance activities may change dramatically. If the interest rates rise then
the demand for underwritings may decrease, however, other Corporate Financing
activities may become abundant, such as financial advisory services. It is,
therefore, difficult to predict the net impact of inflation on the Company.
ITEM 7 - FINANCIAL STATEMENTS
See part III, Item 13(a)(1) for a list of financial statements filed
as part of this report.
-13-
<PAGE> 14
INDEPENDENT AUDITORS' REPORT
To the Stockholders and
Board of Directors
National Securities Corporation
We have audited the accompanying consolidated statements of financial condition
of National Securities Corporation and Subsidiary as of September 27, 1996 and
September 29, 1995, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for each of the years in the
three-year period ended September 27, 1996. These consolidated 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 audits 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 financial position of National Securities
Corporation and Subsidiary as of September 27, 1996 and September 29, 1995, and
the results of their consolidated operations and their cash flows for each of
the years in the three-year period ended September 27, 1996, in conformity with
generally accepted accounting principles.
MOSS ADAMS LLP
Seattle, Washington
November 13, 1996,
except for Note 19 as
to which the date is
November 25, 1996
-14-
<PAGE> 15
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
CASH, subject to immediate withdrawal $ 2,727,000 $ 204,000
CASH, CASH EQUIVALENTS AND SECURITIES 33,005,000 25,394,000
DEPOSITS 777,000 179,000
RECEIVABLES
Brokers and dealers 879,000 1,156,000
Customers 16,172,000 13,108,000
Other 443,000 320,000
FEDERAL INCOME TAX RECEIVABLE - 40,000
SECURITIES HELD FOR RESALE, at market 3,367,000 829,000
FIXED ASSETS, net 534,000 414,000
DEFERRED COST - 154,000
OTHER ASSETS 51,000 93,000
-------------- --------------
$ 57,955,000 $ 41,891,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
PAYABLES
Brokers and dealers $ 87,000 $ 670,000
Customers 48,388,000 36,813,000
FEDERAL INCOME TAX PAYABLE 429,000 -
SECURITIES SOLD, BUT NOT YET PURCHASED, at market 1,337,000 195,000
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND
OTHER LIABILITIES 2,398,000 928,000
-------------- --------------
52,639,000 38,606,000
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 12 and 13)
ISSUABLE COMMON STOCK - 105,000
STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 5,000,000 shares authorized, 845,248 and
676,938 shares issued and outstanding, respectively 17,000 14,000
Additional paid-in capital 1,825,000 918,000
Retained earnings 3,474,000 2,248,000
-------------- --------------
5,316,000 3,180,000
-------------- --------------
$ 57,955,000 $ 41,891,000
============== ==============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
-15-
<PAGE> 16
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 29, 1995
AND SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES
Commissions $ 14,490,000 $ 9,014,000 $ 7,699,000
Underwriting 13,191,000 392,000 -
Net dealer inventory gains 3,251,000 2,617,000 2,278,000
Interest and dividends 2,921,000 1,610,000 931,000
Transfer fees and clearing services 576,000 401,000 400,000
Other 470,000 241,000 179,000
------------- ------------- -------------
34,899,000 14,275,000 11,487,000
------------- ------------- -------------
EXPENSES
Commissions 21,236,000 7,764,000 6,596,000
Employee compensation and related expenses 4,200,000 1,856,000 1,487,000
Clearance fees paid to nonbrokers 686,000 520,000 387,000
Communications 722,000 400,000 315,000
Occupancy and equipment costs 1,730,000 1,085,000 850,000
Interest 1,806,000 1,046,000 415,000
Professional fees 418,000 354,000 255,000
Taxes, licenses and registration 609,000 283,000 236,000
Other 949,000 584,000 205,000
------------- ------------- -------------
32,356,000 13,892,000 10,746,000
------------- ------------- -------------
INCOME BEFORE FEDERAL INCOME TAX 2,543,000 383,000 741,000
PROVISION FOR FEDERAL INCOME TAX (808,000) (126,000) (231,000)
------------- ------------- -------------
NET INCOME $ 1,735,000 $ 257,000 $ 510,000
============= ============= =============
EARNINGS PER SHARE OF COMMON STOCK
Primary $ 2.01 $ .37 $ .74
============= ============= =============
Fully-diluted $ 1.68 $ .37 $ .74
============= ============= =============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
-16-
<PAGE> 17
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 29, 1995
AND SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Common Stock Additional
------------------------------ Paid-In Retained
Shares Amount Capital Earnings Total
------------- ------------- ------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
BALANCE,
September 24, 1993 547,088 $ 11,000 $ 253,000 $ 1,672,000 $ 1,936,000
Exercise of stock options,
including $35,000
income tax benefit 106,725 2,000 260,000 - 262,000
Redemption of
common stock (56,125) (1,000) (113,000) (85,000) (199,000)
Net income - - - 510,000 510,000
----------- ----------- ----------- ----------- -----------
BALANCE,
September 30, 1994 597,688 12,000 400,000 2,097,000 2,509,000
Issuance of common stock 100,000 2,000 498,000 - 500,000
Exercise of stock options,
including $16,000
income tax benefit 25,750 1,000 69,000 - 70,000
Redemption and retirement
of common stock (46,500) (1,000) (49,000) (106,000) (156,000)
Net income - - - 257,000 257,000
----------- ----------- ----------- ----------- -----------
BALANCE,
September 29, 1995 676,938 14,000 918,000 2,248,000 3,180,000
Issuance of common stock
related to transfer of
registered representatives
and customer accounts
including $90,000 income tax
benefit 60,000 1,000 299,000 - 300,000
Exercise of stock options,
including $26,000
income tax benefit 32,586 - 101,000 - 101,000
Stock dividends 75,724 2,000 507,000 (509,000) -
Net income - - - 1,735,000 1,735,000
----------- ----------- ----------- ----------- -----------
BALANCE,
SEPTEMBER 27, 1996 845,248 $ 17,000 $ 1,825,000 $ 3,474,000 $ 5,316,000
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
-17-
<PAGE> 18
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 29, 1995
AND SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,735,000 $ 257,000 $ 510,000
Adjustments to reconcile net income to net
cash from operating activities
Depreciation and amortization 390,000 171,000 142,000
Loss on disposal of fixed assets - 68,000 -
Changes in assets and liabilities
Cash, cash equivalents and securities (7,611,000) (16,235,000) (2,147,000)
Deposits (598,000) (120,000) (2,000)
Receivables (2,910,000) (7,779,000) 2,072,000
Federal income tax receivable/payable 585,000 (39,000) (228,000)
Securities held for resale (2,538,000) (272,000) 123,000
Other assets 42,000 5,000 2,000
Payables 10,986,000 22,029,000 813,000
Securities sold, but not yet purchased 1,142,000 74,000 (134,000
Accounts payable, accrued expenses and other liabilities 1,476,000 411,000 (353,000)
------------- ------------- -------------
2,699,000 (1,430,000) 798,000
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (251,000) (324,000) (122,000)
Deferred cost payments - (100,000) -
------------- ------------- -------------
(251,000) (424,000) (122,000)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital lease payments - (11,000) (68,000)
Issuance of common stock - 500,000 -
Redemption and retirement of common stock - (156,000) (199,000)
Exercise of stock options 75,000 54,000 227,000
------------- ------------- -------------
75,000 387,000 (40,000)
------------- ------------- -------------
INCREASE (DECREASE) IN CASH 2,523,000 (1,467,000) 636,000
CASH BALANCE
Beginning of year 204,000 1,671,000 1,035,000
------------- ------------- -------------
End of year $ 2,727,000 $ 204,000 $ 1,671,000
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for
Interest $ 1,806,000 $ 1,046,000 $ 415,000
============= ============= =============
Federal income tax $ 223,000 $ 165,000 $ 459,000
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Deferred cost and issuable common stock $ 210,000 $ 105,000 $ -
============= ============= =============
Secured demand notes received for liabilities subordinated to
claims of general creditors $ - $ - $ 200,000
============= ============= =============
Tax effect of common stock issued and stock options exercised $ 116,000 $ 16,000 $ 35,000
============= ============= =============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
-18-
<PAGE> 19
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 1996, SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
NOTE 1 - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF BUSINESS - National Securities Corporation and Subsidiary
(collectively the Company) was incorporated in 1947 under the laws of the State
of Washington. Its primary business is to provide financial services and
products to the general public and to the financial community as a registered
broker-dealer in accordance with the Securities and Exchange Act of 1934. The
Company has offices throughout the United States with its principal office
located in Seattle, Washington.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of National Securities Corporation and its wholly-owned
subsidiary National Asset Management, Inc. All significant intercompany
accounts and transactions have been eliminated.
USE OF ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
ACCOUNTING METHOD - Customer security transactions and the related
commission income and commission expense are recorded on a settlement date
basis. The financial condition and results of operations using the settlement
date basis are not materially different from that of the trade date basis.
DEPRECIATION - Fixed assets are stated at cost and are depreciated
over their estimated useful lives of 3 to 5 years. Depreciation is computed
using the straight-line method.
EARNINGS PER SHARE - Primary earnings per common share is based
upon the net income for the year divided by the weighted average number of
common shares and common stock equivalents outstanding during the year. For
fiscal years ended 1996, 1995 and 1994, the number of shares used in the
primary earnings per share calculation was 862,053, 701,307 and 688,419,
respectively. The weighted average number of shares outstanding, assuming full
dilution, includes common stock equivalents which would arise from the exercise
of stock options and assumes that all have been converted to common shares
using the treasury stock method at the beginning of the year. For fiscal years
1996, 1995 and 1994, the number of shares used in the fully-diluted earnings
per share calculation was 1,034,150 701,307, and 688,419, respectively. All
shares primary and fully-diluted have been restated to show the effect of the
stock dividends as described in Note 17.
-19-
<PAGE> 20
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 1996, SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
(CONTINUED)
NOTE 1 - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
INCOME TAXES - The Company utilizes an asset and liability approach
to financial accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed annually for differences between the
financial statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on currently enacted tax laws
and rates. As of September 27, 1996 and September 29, 1995, the Company has
recorded no deferred tax asset or liability. State income taxes are expensed
as paid and are not significant.
FISCAL YEAR - The Company has a fifty-two or fifty-three week year,
ending on the last Friday in September.
CASH AND CASH EQUIVALENTS - For purposes of the statement of cash
flows, the Company considers only cash subject to immediate withdrawal. Cash,
cash equivalents and securities as discussed in Note 3 are not considered a
change in cash for this purpose.
RECLASSIFICATION - Certain balances for the year ended September
29, 1995 and September 30, 1994 on the accompanying consolidated statement of
financial condition, statement of operations, and cash flows have been
reclassified to conform to the September 27, 1996 presentation. These
reclassifications have no impact on the results of operations.
STOCK-BASED COMPENSATION - The Financial Accounting Standards Board
recently issued Statement of Financial Accounting Standards No. 123 (SFAS No.
123), Accounting for Stock-Based Compensation. This standard will become
effective for the year ending September 26, 1997, although earlier application
is permitted. The Company has decided to implement the standard in fiscal
1997. Under SFAS No. 123, a fair value method is used to determine
compensation cost for stock options or similar equity instruments.
Compensation is measured at the grant date and is recognized over the service
or vesting period. Under the current accounting standard, compensation cost is
the excess, if any, of the quoted market price of the stock at a measurement
date over the amount that must be paid to acquire the stock.
SFAS No. 123 allows the Company to continue to account for
stock-based compensation under the current method, with disclosure of the
effect of the new standard, or to adopt a fair value based method of
accounting. The Company has not yet decided which method will be utilized, nor
has it determined the impact, if any, that adoption of the new standard will
have on the financial condition and results of operations. However, management
believes implementation of the accounting standard will not have a significant
effect on the financial statements.
-20-
<PAGE> 21
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 1996, SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
(CONTINUED)
NOTE 2 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Substantially all of the Company's financial instruments are
carried at fair value. Assets, including cash, cash equivalents and
securities, deposits, certain receivables, securities held for resale and other
assets, are carried at fair value or contracted amounts which approximate fair
value. Similarly, liabilities, including certain payables and securities sold
but not yet purchased, are carried at fair value or contracted amounts
approximating fair value.
NOTE 3 - CASH, CASH EQUIVALENTS AND SECURITIES
Cash, cash equivalents, and securities have been segregated in
special reserve bank accounts for the exclusive benefit of customers under Rule
15c3-3 of the Securities and Exchange Commission and consist of:
<TABLE>
<CAPTION>
SEPTEMBER 27, September 29,
1996 1995
--------------- ---------------
<S> <C> <C>
U.S. Government and agency obligations $ 31,426,000 $ 23,323,000
Reverse repurchase agreement 1,579,000 2,071,000
--------------- ---------------
$ 33,005,000 $ 25,394,000
=============== ===============
</TABLE>
The United States Government and agency obligations mature at
various dates through November 2025 and are stated at current market values.
The reverse repurchase agreements are carried at cost which approximates market
value. The Company purchases these obligations at fixed, variable and
adjustable interest rates in order to reduce its exposure to interest rate
changes.
NOTE 4 - CUSTOMER RECEIVABLES AND PAYABLES
The Company seeks to protect itself from the risks associated with
customer activities by requiring customers to maintain margin collateral in
compliance with regulatory and its own internal guidelines, which are more
stringent than regulatory margin requirements. Margin levels are monitored
daily and additional collateral must be deposited as required. Where customers
cannot meet collateral requirements, the Company will liquidate underlying
financial instruments sufficient to bring the accounts in compliance.
-21-
<PAGE> 22
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 1996, SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
(CONTINUED)
NOTE 4 - CUSTOMER RECEIVABLES AND PAYABLES (CONTINUED)
Exposure to credit risk is impacted by the markets for financial
instruments, which can be volatile and may impair the ability of clients to
satisfy their obligations to the Company. Credit limits are established and
closely monitored for customers and broker-dealers engaged in transactions
deemed to be credit-sensitive.
Included in amounts receivable from and payable to customers are
balances in accounts of officers and directors totaling:
<TABLE>
<CAPTION>
SEPTEMBER 27, September 29,
1996 1995
--------------- ---------------
<S> <C> <C>
Receivable $ 28,000 $ 16,000
=============== ==============
Payables $ 558,000 $ 461,000
=============== ==============
</TABLE>
NOTE 5 - BROKER-DEALER RECEIVABLES AND PAYABLES
Amounts receivable from and payable to brokers and dealers include:
<TABLE>
<CAPTION>
SEPTEMBER 27, September 29,
1996 1995
--------------- ---------------
<S> <C> <C>
Deposits paid for securities borrowed $ 284,000 $ 858,000
Securities failed to deliver 248,000 298,000
Due from clearing organization 347,000 -
--------------- ---------------
Total receivable $ 879,000 $ 1,156,000
=============== ===============
Due to clearing organization $ - $ 48,000
Securities failed to receive 87,000 622,000
--------------- ---------------
Total payable $ 87,000 $ 670,000
=============== ===============
</TABLE>
Securities borrowed are recorded at the amount of cash collateral
advanced or received. The Company monitors the market value of securities
borrowed on a daily basis and obtains additional collateral from counterparties
as necessary.
-22-
<PAGE> 23
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 1996, SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
(CONTINUED)
NOTE 5 - BROKER-DEALER RECEIVABLES AND PAYABLES (CONTINUED)
The Company has receivables and payables for financial instruments
sold to and purchased from broker-dealers. The Company is exposed to risk of
loss from the inability of broker-dealers to pay for purchases or to deliver
financial instruments sold, in which case the Company would have to sell or
purchase the financial instruments at prevailing market prices.
NOTE 6 - SECURITIES HELD FOR RESALE AND SECURITIES SOLD, BUT NOT YET PURCHASED
Securities held for resale and securities sold, but not yet
purchased consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 27, 1996 September 29, 1995
------------------------------ ------------------------------
SOLD, BUT Sold, But
NOT YET Not Yet
OWNED PURCHASED Owned Purchased
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Government bonds $ 5,000 $ - $ - $ -
State and municipal
obligations 132,000 - 57,000 -
Corporate obligations 6,000 - 10,000 -
Corporate stocks 3,224,000 1,337,000 712,000 195,000
Certificate of deposit - - 50,000 -
------------- ------------- ------------- -------------
$ 3,367,000 $ 1,337,000 $ 829,000 $ 195,000
============= ============= ============= =============
</TABLE>
Securities held for resale and securities sold, but not yet
purchased are recorded at fair value. Fair value is generally based upon
quoted market prices. If quoted market prices are not available, or if
liquidating the Company's position is reasonably expected to impact market
prices, fair value is determined based upon other relevant factors, including
dealer price quotations, price activity of similar instruments and pricing
models. Pricing models consider the time value and volatility factors
underlying the financial instruments and other economic measurements.
Securities sold, but not yet purchased commit the Company to
deliver specified securities at predetermined prices. The transactions may
result in market risk since, to satisfy the obligation, the Company must
acquire the securities at market prices, which may exceed the values reflected
on the consolidated statement of financial condition.
-23-
<PAGE> 24
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 1996, SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
(CONTINUED)
NOTE 7 - DEFERRED COST AND ISSUABLE COMMON STOCK
During 1995, the Company entered into an agreement with a brokerage
firm and its principal stockholder. Under the terms of the agreement, the
principal stockholder assisted in causing the transfer of the registered
representatives and the customer accounts to the Company. The Company obtained
no assets, tangible or intangible, and assumed no liabilities, with the
exception of a short-term office lease. In exchange, the Company paid cash of
$100,000 and may issue up to 100,000 unregistered shares of the Company's stock
plus options to purchase an additional 50,000 shares. The shares and options
are contingent upon the stockholder meeting certain obligations and the
registered representatives meeting certain revenue criteria.
At September 29, 1995, substantially all requirements of the
contingency related to the $100,000 payment and issuance of 30,000 shares
common stock had been satisfied. Accordingly, the Company recorded the cash
payment and issuance of stock as a deferred cost which was amortized over
twelve months. The deferred cost of $154,000 on the balance sheet at September
29, 1995 was net of $51,000 related amortization. Additionally, the Company
recorded issuable common stock of $105,000, or $3.50 per share, which was
issued on June 30, 1996. No liability was recorded for the remaining shares of
stock and options as the related contingencies had not yet been satisfied.
At September 27, 1996, all requirements of the contingency related
to the $100,000 payment and issuance of 60,000 shares common stock had been
satisfied. During 1996, the Company amortized $259,000 related to the issuance
of the 60,000 shares and the cash payment. No liability has been recorded for
the remaining 40,000 shares of stock and 50,000 options, as the related
contingencies have not yet been satisfied.
NOTE 8 - FIXED ASSETS
Fixed assets, at cost, consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 27, September 29,
1996 1995
--------------- ---------------
<S> <C> <C>
Office machines $ 255,000 $ 245,000
Furniture and fixtures 500,000 429,000
Electronic equipment 892,000 735,000
Leasehold improvements 54,000 42,000
--------------- ---------------
1,701,000 1,451,000
Less accumulated depreciation and amortization 1,167,000 1,037,000
--------------- ---------------
</TABLE>
-24-
<PAGE> 25
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 1996, SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
(CONTINUED)
<TABLE>
<S> <C>
$ 534,000 $ 414,000
=============== ===============
</TABLE>
-25-
<PAGE> 26
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 1996, SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
(CONTINUED)
NOTE 9 - LINE OF CREDIT
The Company has a line of credit of up to $16,000,000 of which
$15,000,000 is secured by the Company's market value of margined securities.
The line is subject to renewal in March 1997. Borrowings bear interest at the
bank's prime rate. Interest is payable monthly. At September 27, 1996 and
September 29, 1995, the Company had no outstanding borrowings on the secured
line of credit.
NOTE 10 - FEDERAL INCOME TAX
The income tax provision varies from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 27, September 29, September 30,
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Statutory Federal rate $ 865,000 $ 130,000 $ 252,000
Other (57,000) (4,000) (21,000)
--------------- --------------- ---------------
Income tax expense $ 808,000 $ 126,000 $ 231,000
=============== =============== ===============
</TABLE>
NOTE 11 - NET CAPITAL REQUIREMENTS
The Company is subject to the Securities and Exchange Commission's
Uniform Net Capital Rule 15c3-1, which requires the maintenance of minimum net
capital. The Company has elected to use the alternative standard permitted by
the rule. This requires that the Company maintain minimum net capital equal to
the greater of $250,000 or 2% of aggregate debit balances. The net capital
amount and percentage for the Company is:
<TABLE>
<CAPTION>
SEPTEMBER 27, September 29,
1996 1995
--------------- ---------------
<S> <C> <C>
Net capital $ 3,606,000 $ 1,523,000
=============== ===============
Excess net capital $ 3,274,000 $ 1,244,000
=============== ===============
Percentage of net capital to aggregate
debit balances 22% 11%
=============== ===============
</TABLE>
-26-
<PAGE> 27
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 1996, SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
(CONTINUED)
NOTE 12 - COMMITMENTS
As of September 27, 1996, the Company is committed under operating
leases to future minimum lease payments as follows:
<TABLE>
<CAPTION>
Fiscal Year Ending
------------------
<S> <C>
1997 $ 604,000
1998 493,000
1999 390,000
2000 191,000
2001 157,000
Thereafter 94,000
--------------
$ 1,929,000
==============
</TABLE>
Rental expense for operating leases for the years ended September
27, 1996, September 29, 1995, and September 30, 1994 was $672,000, $369,000,
and $373,000, respectively.
During the year, the Company participated in underwriting
securities for private placements, initial and secondary public offerings. At
September 27, 1996 and September 29, 1995, the Company has no outstanding
commitments relating to underwriting transactions.
NOTE 13 - CONTINGENCIES
The Company is a defendant in various arbitration and
administrative proceedings, lawsuits and claims which arise in the normal
course of business. The Company believes it has substantial defenses to each
of the actions and also believes the final resolution of these matters will not
have a material adverse impact on the Company's financial position or its
results of operations.
-27-
<PAGE> 28
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 1996, SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
(CONTINUED)
NOTE 14 - CONCENTRATIONS OF CREDIT RISK
The Company is actively involved in securities underwriting,
brokerage, distribution and trading. These and other related services are
provided on a national basis to a large and diversified group of clients and
customers, including corporations, governments, financial institutions and
individual investors. The Company's exposure to credit risk associated with
the non-performance of these customers and counterparties in fulfilling their
contractual obligations can be directly impacted by volatile or illiquid
trading markets which may impair the ability of customers and counterparties to
satisfy their obligations to the Company.
Substantially all of the securities held for the exclusive benefit
of customers, pursuant to SEC Rule 15c3-3, consist of issues by the U.S.
Government or federal agencies, with principal and interest guaranteed by the
U.S. Government. The Company's most significant counterparty concentrations
are other brokers and dealers, commercial banks, institutional clients and
other financial institutions. This concentration arises in the normal course
of the Company's business.
NOTE 15 - STOCKHOLDERS' EQUITY
The Company has reserved 882,000 shares of common stock for issue
to key employees, investment executives, and registered representatives under
the Company's stock option plans. The following is a table of changes in stock
options outstanding:
<TABLE>
<CAPTION>
Number of Shares
------------------------------------------------- Price Per
Authorized Granted Available Share
----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Balance, September 30, 1994 407,390 107,953* 299,437 $1.96-$2.38
Issued - 229,000 (229,000) $4.76
Exercised (25,750) (25,750) - $1.96-$2.06
----------- ----------- ----------- -----------
Balance, September 29, 1995 381,640 311,203* 70,437 $1.96-$4.76
Creation of new plan 350,000 260,000 90,000 $4.32-$4.76
Exercised (32,586) (32,586) - $2.00-$4.76
----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 27, 1996 699,054 538,617* 160,437 $1.96-$4.54
=========== =========== =========== ===========
</TABLE>
*At September 27, 1996, September 29, 1995 and September 30, 1994,
options to purchase 385,898, 89,275 and 50,832 shares, respectively, were
exercisable.
-28-
<PAGE> 29
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 1996, SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
(CONTINUED)
NOTE 15 - STOCKHOLDERS' EQUITY (CONTINUED)
During 1995, a group of individuals acquired operational control of
the Company through the purchase of outstanding common shares.
Contemporaneously, the Company issued 100,000 shares to the group for
consideration of $500,000. Additionally, the group received 175,000 stock
options with an exercise price of $5.00 per share.
During 1996, the Board of Directors created a new incentive stock
option plan. In accordance with the plan, the Company authorized options to
purchase for a period of five years up to 350,000 shares of common stock with
exercise prices equal to at least its fair market value at the time such
options are granted. At September 27, 1996, 260,000 options had been granted.
NOTE 16 - EMPLOYEE BENEFITS
The Company has a 401(k) salary savings plan which covers
substantially all employees. Participants may contribute up to 25% of eligible
compensation, as defined in the plan. The Company's annual contributions are
made at the discretion of the Board of Directors. During fiscal years
September 27, 1996, September 29, 1995, and September 30, 1994, the Company
made no contribution to the plan.
NOTE 17 - COMMON STOCK DIVIDENDS
During fiscal year 1996, the Company issued two stock dividends to all
common stockholders. A 5% stock dividend was issued on June 4, 1996 and
another 5% stock dividend was issued on September 16, 1996. The stock dividend
increased the number of issued and outstanding shares by 75,724. All
references in the accompanying financial statements to earnings per share, the
number of common shares subject to options, and price per share amounts have
been restated to reflect the above dividends.
On January 13, 1994, the shareholders authorized a two-for-one stock
split for stockholders of record as of the close of business February 15, 1994.
The stock split increased the number of issued and outstanding common stock to
597,688 at September 30, 1994, and decreased the par value of each share from
$.04 to $.02. All references in the accompanying financial statements to the
number of common shares and per share amounts have been restated to reflect the
above stock split.
-29-
<PAGE> 30
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 1996, SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
(CONTINUED)
NOTE 18 - RELATED PARTY TRANSACTIONS
Included in other receivables are advances to employees of $78,000 and
a $53,000 advance to the chairman of the board. Also included are notes
receivable of $100,000 from a director and $50,000 from an officer, bearing
interest at 8.75% and maturing July 1997 and September 1997, respectively.
Additionally, $182,000 was paid to a current director/ stockholder of the
Company for legal services provided during fiscal year 1996.
NOTE 19 - SUBSEQUENT EVENT
On September 26, 1996 the Company's Board approved a restructuring
plan whereby, subject to stockholder approval, the Company would become the
wholly-owned subsidiary of a holding company to be named Olympic Cascade
Financial Corporation ("Olympic"), a corporation to be formed. Olympic would
have 10,000,000 authorized shares of common stock, and would also be authorized
to issue preferred stock. Stockholders of the Company would exchange shares of
Olympic on a one-for-one basis. The Company prepared an S-4 registration
Statement detailing this plan, filed the Registration Statement with the
Securities and Exchange Commission ("SEC"), and presented the plan in the form
of a proxy statement which was forwarded to stockholders of record on October
31, 1996. Subsequently, the Company's stockholders approved this plan, and the
restructuring is to be accomplished pending final approval from the SEC.
-30-
<PAGE> 31
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following sets forth the names and ages of all directors and executive
officers of the Company, all positions and offices with the Company held by
such persons and the principal occupations of each during the past five years.
All directors and executive officers are elected annually to serve one-year
terms until their successors are elected and qualified.
Steven A. Rothstein 46 Chairman
Mr. Rothstein became a member of the Company's Board in May 1995 and was
appointed Chairman on August 1, 1995. From 1979 through 1989, Mr. Rothstein
was a registered representative, and Limited Partner at Bear Stearns and
Company, Inc. in Chicago, Illinois and Los Angeles, California. From 1989 to
1992, Mr. Rothstein was a Senior Vice President in the Chicago office of
Oppenheimer and Company, Inc. In December 1992 he joined Rodman and Renshaw,
Inc., a Chicago-based broker/dealer serving as Managing Director, and joined
H.J. Meyers, Inc. in Beverly Hills, California, a New York Stock Exchange
member firm in March 1994. He resigned H.J. Meyers and Company in March 1995
to associate with National Securities. Mr. Rothstein is a 1972 graduate of
Brown University, Providence, Rhode Island. Mr. Rothstein is presently a
director of Sigmatron International, Gateway Data Sciences Corporation and New
World Coffee, Inc.
Robert I. Kollack 49 President, CEO and Director
Mr. Kollack was elected Chairman of the Board and Chief Executive Officer in
August 1987. From February 1981 to August 1987, Mr. Kollack acted as President
and a Director of the Company. He joined the Company as an Investment
Executive in 1972. From 1968 to 1972, he was an Investment Executive for
Foster & Marshall, Inc., which at that time was a Seattle-based brokerage firm.
On March 31, 1991, Mr. Kollack became President of the Company.
Jay W. Hanville 41 Chief Financial Officer,
Chief Accounting Officer and Treasurer
Mr. Hanville joined the Company as Chief Financial Officer in August 1987.
From 1983 to 1987, Mr. Hanville was a Senior Examiner with the National
Association of Securities Dealers. From 1980 to 1983, Mr. Hanville was
Accounting Manager at the regional brokerage firm of Hammerbeck & Co.
-30-
<PAGE> 32
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS (CONTINUED)
Alexander H. Slivka 36 Executive Vice President and Secretary
Mr. Slivka was elected Administrative Vice President in August 1987 and was
made Vice President in charge of compliance in October 1989. From January 1983
to August 1988, Mr. Slivka worked on the trading desk and acted as assistant to
the President.
Mark McCloskey 48 Executive Vice President and Chief Operating
Officer
Mr. McCloskey was appointed Executive Vice President and Chief Operating
Officer in November 1995. Between 1993 and 1995 he served as President of G.R.
Stuart & Co., Inc., a Massachusetts-based broker/dealer. Mr. McCloskey worked
as a broker at Tucker Anthony between August 1990 and May 1993, and as Manager
of Paine Webber's Newport, Rhode Island office from November 1987 to August
1990.
Joanne M. Salisbury 32 Chief Operations Officer
Ms. Salisbury joined the Company as a cashier in 1983, and has worked for the
Company ever since in various positions in the Company's back office. Ms.
Salisbury was promoted to the position of Assistant Operations Manager in 1986,
Operations Manager in 1989, and finally to Chief Operations Officer on August
1, 1995.
Norman S. Lynn 46 Director
Mr. Lynn became a director in May 1995. Mr. Lynn received his B.S. with high
honors in 1972 from the University of Illinois, and his J.D. in 1975 from
Northwestern University. He is and has been actively engaged in the private
practice of law in the Chicago area for the past 20 years. Since July 1991 he
has been a principal of the law firm of Siegel, Lynn & Capitel, Ltd. in
Northbrook, Illinois. Mr. Lynn also participates in various real estate
developments and other entrepreneurial ventures.
Mark Roth 35 General Counsel
Mr. Roth was appointed General Counsel in October 1995. He received his B.S.
in 1984 from the University of California, Irvine, and his J.D. in 1989 from
Pepperdine University School of Law. Mr. Roth began the private practice of
law in Southern California in 1989. Among other clients, he has represented
the Company in transactional and litigation matters since moving to Seattle in
September 1992.
-31-
<PAGE> 33
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS (CONTINUED)
Dave Williams 27 Controller
Mr. Williams, a Certified Public Accountant, joined the Company as Controller
in April 1996. From 1993 to 1996, Mr. Williams was employed by Moss Adams LLP
in Seattle, Washington, and from 1992 to 1993, by Coopers & Lybrand, in
Seattle, Washington.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The bylaws of the Company provide that each director and officer of the Company
who was, is or is threatened to be made a named defendant or respondent in a
proceeding shall be indemnified to the fullest extent permitted by the laws of
the State of Washington. At present, indemnification of officers and directors
of Washington corporations is governed by RCW 23A.08.025, which permits
indemnification if, among other things, the director or officer acted in good
faith with reasonable belief that the conduct was in, or at least not opposed
to, the best interests of the corporation, and in the case of a criminal
proceeding, with a reasonable belief that the conduct was not unlawful. The
Company is authorized to obtain insurance on behalf of any person who is or was
a director, officer, employee or agent of the Company or is or was serving at
the request of the Company as an officer, employee, or agent of another
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan, against any liability arising out of that person's status as
such, whether or not the Company would have the power to indemnify that person
against such liability.
ITEM 10 - EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company to
each of its most highly compensated officers during the fiscal year ended 1996,
1995, and 1994:
<TABLE>
<CAPTION>
Other
Name and Capacity Year Ended Salary Bonus Compensation*
- -------------------------------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Steven A. Rothstein
Chairman 1996 $ 24,000 $ 194,000 $ 1,775,000**
1995 $ 48,000 $ - $ 138,000
Robert I. Kollack
President, CEO and Director 1996 $ 150,000 $ 193,000 $ 495,000
1995 $ 170,000 $ 58,000 $ 27,000
1994 $ 108,000 $ 56,000 $ 85,000
Mark T. McCloskey
Chief Operating Officer 1996 $ 110,000 $ 78,000 $ 124,000
Alexander H. Slivka
Vice President, Compliance 1996 $ 84,000 $ 92,000 $ 55,000
1995 $ 80,000 $ 13,000 $ 11,000
1994 $ 72,000 $ 28,000 $ 8,000
</TABLE>
-32-
<PAGE> 34
ITEM 10 - EXECUTIVE COMPENSATION (CONTINUED)
<TABLE>
<CAPTION>
Other
Name and Capacity Year Ended Salary Bonus Compensation*
- -------------------------------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Jay W. Hanville
Chief Financial Officer, Chief
and Treasurer 1996 $ 90,000 $ 92,000 $ 22,000
1995 $ 79,000 $ 12,000 $ 20,000
1994 $ 56,000 $ 28,000 $ 21,000
Joanne Salisbury
Chief Operations Officer 1996 $ 55,000 $ 54,000 $ 1,000
Mark Roth
General counsel 1996 $ 120,000 $ 43,000 $ 9,000
</TABLE>
* Amounts relate to commissions earned in the normal course of business,
fees received for Corporate Finance services and profit from the sale of the
Company's stock obtained during the year through the exercise of stock options.
** This compensation paid to Rothstein by the Company represents a
percentage of business generated or supervised by Rothstein: he is paid 50% of
the commission generated on retail trades (compared to the 70% typically paid
to Company brokers), and 70% of the compensation collected by the firm
(including warrants) on corporate finance transactions which he introduces and
executes. Rothstein also collects an override on fees collected from all other
corporate finance transactions as well as on business he creates for the firm.
The Company has an executive and employee bonus program under which no bonuses
will be paid on the first $200,000 of pretax earnings. After that point, the
following percentages of pretax earnings would be placed in a "bonus pool" to
be divided among the executives and employees.
<TABLE>
<CAPTION>
Pretax Earnings Amount to Bonus Pool
------------------------------ --------------------
<S> <C> <C> <C>
$ 200,000 - 500,000 20%
$ 500,000 - 1,000,000 25%
$ 1,000,000 - 5,000,000 30%
</TABLE>
Bonuses of $1,025,000, $53,000 and $162,000 were granted under this plan for
fiscal year 1996, 1995 and 1994, respectively.
-33-
<PAGE> 35
ITEM 10 - EXECUTIVE COMPENSATION (CONTINUED)
The Company has granted options to certain officers, directors, employees, and
Investment Executives. The options granted to officers and directors are as
follows:
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Stock Options At Stock Options At
September 27, 1996 September 27, 1996
Officer Exercisable/Unexercisable Exercisable/Unexercisable
-------------------- ----------------------------- ------------------------
<S> <C> <C> <C>
Steven Rothstein 165,375 / - $ 589,000 / $ -
Robert Kollack 82,688 / - $ 276,000 / $ -
Norm Lynn 82,688 / - $ 288,000 / $ -
Mark McCloskey 22,050 / - $ 83,000 / $ -
Alex Slivka 1,654 / - $ 5,000 / $ -
</TABLE>
The options expire within five years from date granted or upon termination of
employment, whichever comes first. The options become vested either
immediately or over a three-year period beginning with the date of grant. The
market price of the stock on the date of the grant was less than the option
price.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
CERTAIN BENEFICIAL OWNERS
The following information is furnished as of November 14, 1996, as to any
person who the Company knows to be the beneficial owner of more than 5% of the
Company's common stock:
<TABLE>
<CAPTION>
Amount of
Name/Address of Beneficial Percent
Title of Class Beneficial Owner Ownership* of Class
---------------------- --------------------------- ----------------- -------------
<S> <C> <C> <C>
Common stock Steven A. Rothstein 179,444 20.87%
2737 Illinois Road
Wilmette, IL 60091
Common stock Maynard Mall Realty Trust 63,000 7.33%
95 Main Street
Maynard, MA
Common stock Larry Wells 55,125** 6.41%
10600 N. DeAnza Blvd.
Cupertino, CA 95014
Common stock A. Richard Rule 54,190 6.31%
7770 El Camino Real
Carlsbad, CA 92009
</TABLE>
* All securities are beneficially owned directly by the persons listed in
the table (except as otherwise indicated).
** Includes shares owned by Anacapa Venture Partners and Sundance Venture
Partners.
-34-
<PAGE> 36
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (CONTINUED)
MANAGEMENT
The following information is furnished as of November 14, 1996 as to each class
of equity securities of the Company beneficially owned by all directors and
officers of the Company as a group.
<TABLE>
<CAPTION>
Amount of
Beneficial Percent
Name and Title of Beneficial Owner Ownership of Class
- -------------------------------------------------------------- --------- ---------
<S> <C> <C>
Steven Rothstein - Chairman of the Board 179,444 20.87%
Norman Lynn - Director 11,025 1.28
Reed W. Smith - V.P. of Trading 13,636 1.58
Alexander H. Slivka - Executive V.P. and Secretary 1,654 .19
Joanne Salisbury - V.P. of Operations 1,545 .17
----------- -----------
All officers and directors of the Company as a group 207,304 24.09%
=========== ===========
</TABLE>
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following financial statements are included in Part II Item 7:
1. Financial Statements
Independent Auditors' Report
Consolidated Financial Statements
Financial Condition, September 27, 1996 and September 29, 1995
Operations, Years ended September 27, 1996, September 29, 1995
and September 30, 1994
Changes in Stockholders' Equity, Years ended September 27, 1996,
September 29, 1995 and September 30, 1994
Cash Flows, Years ended September 27, 1996,
September 29, 1995 and September 30, 1994
Notes to Financial Statements
2. Exhibits See Exhibit Index.
(b) Reports on Form 8-K
The Company filed Form 8-K on November 1, 1994 under Item 5 on Form
8-K. No financial statements were filed with the Form 8-K.
-35-
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(a) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
NATIONAL SECURITIES CORPORATION
(Registrant)
Date: December 17, 1996 By: Robert I. Kollack
Robert I. Kollack, President
Chief Executive Officer, and Director
Date: December 17, 1996 By: Jay W. Hanville,
Jay W. Hanville, Chief
Financial Officer,
Chief Accounting Officer, and
Treasurer
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.
Date: December 17, 1996 By: Robert I. Kollack
Robert I. Kollack, President,
Chief Executive Officer,
and Director
Date: December 17, 1996 By: Steven A. Rothstein
Steven A. Rothstein, Chairman
Date: December 17, 1996 By: Norman S. Lynn
Norman S. Lynn, Director
-36-
<PAGE> 38
EXHIBIT INDEX
3.1* The Company's Articles of Incorporation
3.2* The Company's Bylaws
3.3* Amendment to the Articles of Incorporation dated February 25, 1992
5.1* Opinion of legal counsel
10.1* Line of credit arrangements between the Company and Seattle-First
Bank dated May 1, 1989
10.2* Lease agreement between the Company and 1001 Fourth Avenue Associates
dated January 31, 1989
10.3* Lease agreement between the Company and Sixth Colonial Property
Investments, Inc. dated May 1, 1989
10.4* Lease agreement between the Company and United States Leasing
Corporation dated December 28, 1988
10.5* Agreement between the Company and Computer Research, Inc. dated
December 5, 1988
10.6* Agreement between the Company and Midwest Clearing Corporation dated
May 13, 1987
10.7* Agreement between the Company and Jeffrey Pritchard dated November 20,
1990
10.8* Secured demand note collateral agreement between Mary Judith Block and
the Company dated August 25, 1989
10.9* Secured demand note collateral agreement between Howard W. Jones Jr.
and the Company dated July 25, 1989
10.10* Secured demand note collateral agreement between Robert I. Kollack and
the Company dated July 25, 1989
10.11* Secured demand note collateral agreement between Jeffrey J. Pritchard
and the Company dated August 2, 1989
10.12* Master repurchase agreement between Seattle-First National Bank and the
Company
10.13* Secured demand note collateral agreement between Block Foundation, Inc.
and the Company dated September 20, 1991
10.14* Secured demand note collateral agreement between Esther I. Block and
the Company dated September 24, 1991
10.15* Extension of secured demand note collateral agreement between Block
Foundation, Inc. and the Company dated October 22, 1992
10.16* Extension of secured demand note collateral agreement between Esther I.
Block and the Company dated October 22, 1992
10.17* Lease agreement between the Company and Tucker Leasing - Capital
Corporation dated July 31, 1992
10.18* Agreement with G.R. Stuart
10.19 Contract dated March 15, 1995
10.20 Contract dated May 22, 1995
10.21 Contract dated October 27, 1995
10.22 Contract dated October 15, 1996
10.23 National Asset Management Articles of Incorporation
-37-
<PAGE> 39
EXHIBIT INDEX
(CONTINUED)
10.24 National Asset Management Bylaws
10.25 SeaFirst Bank amended line of credit
10.26* Olympic Cascade Financial Corporation S-4 filing
10.27 Office lease, Chicago, Illinois
10.28 Office lease, Spokane, Washington
10.29 Amended office lease, Chicago, Illinois
11. Computation of Earnings per Share
27. Financial Data Schedule
*Previously filed.
-38-
<PAGE> 1
NATIONAL SECURITIES CORPORATION
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into this
15th day of March, 1995, by and between NATIONAL SECURITIES CORPORATION, a
Washington corporation (the "Company"), and ROBERT I. KOLLACK, an individual
("Executive").
RECITALS
A. The Company desires to be assured of the association and services of
Executive for the Company.
B. Executive is willing and desires to be employed by the Company, and
the Company is willing to employ Executive, upon the terms, covenants and
conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinafter set forth, the parties hereto do hereby agree as
follows:
1. Employment. The Company hereby employs Executive as
President, subject to the supervision and direction of the Chief Executive
Officer and the Company's Board of Directors.
2. Term. The term of this Agreement shall be for a period of
five (5) years commencing on the date hereof, unless terminated earlier
pursuant to Section 7 below.
3. Compensation; Reimbursement.
3.1 Base Salary. For all services rendered by Executive under
this Agreement, the Company shall pay Executive a base salary of the greater of
$150,000 or the total of (i) 3% of the gross commissions generated by certain
existing brokers of the Company identified in Exhibit "A" appended hereto and
made a part hereof, plus (ii) 50% of the gross profits generated from
Executive's trading for the account of the Company and the commissions
generated from his own retail broker activities plus (iii) 3% of the gross
commissions generated by brokers who associate with the Company primarily as a
result of Executive's efforts (and who will be identified in Exhibits attached
to this Agreement from time to time as such brokers affiliate with the
Company)1 (the "Base Salary"). The amount of the Base Salary may be increased
at any time and from time to time by the Board of Directors of the Company. No
such change shall in any way abrogate, alter, terminate or otherwise effect the
other terms of this Agreement.
__________________________
1 This element of compensation shall, in any event, continue for
five years after any such broker affiliates with the Company. See section 3.5,
infra.
-1-
<PAGE> 2
3.2 Bonus Payment. In addition to the Base Salary, Executive
shall receive an annual bonus payment equal to 2% of the gross commissions
generated by the brokers identified in Exhibit "A" including those added
pursuant to Section 3.1(ii) hereof (the "Bonus Payment"); provided, however,
that the Company shall not be obligated to pay Executive the Bonus Payment if,
after giving effect to that payment, the Company's Net Income after Tax will be
less than $1.00. The Bonus Payment shall accrue monthly but the Company shall
not be obligated to remit any portion of the Bonus Payment more frequently than
annually. For purposes of this Section 3.2 net income shall be determined in
accordance with generally accepted accounting principles and calculated on a
basis consistent with the Company's prior calculations as presented in its Form
10KSB for Fiscal 1994. In determining net income, (i) extraordinary salary and
other benefit increases to officers and directors of the Company shall be
disregarded, and (ii) all compensation or fees to Messrs. Rothstein,
Lichtenfeld or any other person, firm or entity who have been employed or
retained by the Company at the direction of the Purchasers under that certain
Stock Purchase Agreement dated February __, 1995 between the Company and
certain Purchasers (the "Stock Purchase Agreement") shall be disregarded unless
and until the Company associates 30 additional registered representatives. In
the event existing operations of the Company are merged or consolidated with
another operation, a pro forma accounting of the net income of the Company's
operations as existing on the date of this Agreement shall be made to determine
whether the Bonus Payment may be paid.
3.3. Additional Benefits. In addition to the Base Salary and the
Bonus Payment, Executive shall be entitled to all other benefits of employment
now or hereafter provided to the other chairmen of the Company, its operating
divisions or subsidiaries, including but not limited to family health insurance
and on-premises parking.
3.4 Reimbursement. Executive shall be reimbursed for all
reasonable "out-of-pocket" business expenses including but not limited to
expenses for business travel and business entertainment incurred in connection
with the performance of his duties under this Agreement (1) so long as such
expenses constitute business deductions from taxable income for the Company and
are excludable from taxable income to the Executive under the governing laws
and regulations of the Internal Revenue Code (provided, however, that Executive
shall be entitled to full reimbursement in any case where the Internal Revenue
Service may, under any provision of the Internal Revenue Code, disallow to the
Company a deduction for any portion of meals, entertainment or other expenses);
and (2) to the extent such expenses do not exceed the amounts allocable for
such expenses in budgets that are approved from time to time by the Company or
approved on a special case basis by the Chief Executive Officer of the Company.
The reimbursement of Executive's business expenses shall be upon monthly
presentation to and approval by the Company of valid receipts and other
appropriate documentation for such expenses.
3.5 Continuing Obligations. All of the Company's compensation
obligations under this Section 3 shall continue through the term of this
Agreement. All such compensation obligations shall survive the merger, sale,
acquisition or reorganization of the Company, and shall be binding upon any
affiliate or successor of the Company. Additionally, the element of
compensation specified in section 3.1(iii) hereof shall continue for five years
after the date upon which a new broker affiliates with the Company. None of
the compensation obligations in this Section 3 shall terminate with Executive's
employment hereunder, nor be terminable by the Company for any reason
whatsoever, except in accordance with the terms of Section 7.2, infra.
-2-
<PAGE> 3
4. Scope of Duties.
4.1 Assignment of Duties. Executive shall have such duties as may
be assigned to him or her from time to time by the Company's Chief Executive
Officer or the Company's Board of Directors commensurate with his experience
and responsibilities in the position for which he is employed pursuant to
Section 1 above. Such duties shall be exercised subject to the control and
supervision of the Chief Executive Officer and the Board of Directors of the
Company.
4.2 General Specification of Duties. Executive's duties shall
include, but not be limited to, the duties and performance goals as follows:
(a) act as President of the Company and perform all duties,
functions and responsibilities generally associated with the President of such
a Company;
(b) execute on behalf of the Company, in his capacity as
President, all documents as requested by the Company;
(c) employ, supervise, discharge and cause to be paid all
employees of the Company, and determine all matters with regard to such
personnel, including, without limitation, compensation, bonuses and fringe
benefits, and otherwise operate the Company, all in accordance with the
direction of the Chief Executive Officer or the Board of Directors;
(d) establish procedures for implementing the policies established
by the Company; and
(e) cause to be prepared, as directed by the Company, financial
statements, tax returns and other similar items respecting the operation of the
Company.
The foregoing specifications are not intended as a complete itemization of the
duties which Executive shall perform and undertake on behalf of the Company in
satisfaction of his or her employment obligations under this Agreement.
4.3 Executive's Devotion of Time. Executive hereby agrees to
devote his full time, abilities and energy to the faithful performance of the
duties assigned to him and to the promotion and forwarding of the business
affairs of the Company, and subject to Section 4.1 hereof not to divert any
business opportunities from the Company to himself or to any other person or
business entity. Executive shall be entitled to not less than 5 weeks of
vacation during each fiscal year of the Company.
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<PAGE> 4
4.4 Conflicting Activities. For the term of this Agreement or
until Executive's employment hereunder terminates, whichever occurs first,
Executive hereby agrees to promote and develop all business opportunities that
come to his attention relating to current or anticipated future business of the
Company, in a manner consistent with the best interest of the Company and with
this duties under this Agreement. Should Executive discover a business
opportunity that does not relate to the current or anticipated future business
of the Company, he shall first offer such opportunity to the Company. Should
the Board of Directors of the Company not exercise its right to pursue this
business opportunity within a reasonable period of time, not to exceed thirty
(30) days, the Executive may develop the business opportunity for himself;
provided, however, that such development may in no way conflict or interfere
with the duties owed by Executive to the Company under this Agreement.
Further, Executive may develop such business opportunities only on his own
time, and may not use any service, personnel, equipment, supplies, facility, or
trade secrets of the Company in their development. As used herein, the term
"business opportunity" shall not include business opportunities involving
investment in publicly traded stocks, bonds or other securities, or other
investments which as to the Executive are of a personal nature and which do not
involve the active participation of Executive.
5. Severance. So long as this Agreement is in effect, Executive
shall at all times be entitled to severance benefits at least equal to those
provided to other chairmen of the Company, and the head of its operating
divisions or subsidiaries. These benefits shall include, without limitation,
the Company's maintenance at its cost of a $500,000 term life insurance policy
on Executive, renewable by Executive after termination of his employment
hereunder, and payable to Executive's legal representative or heirs as
designated by Executive. Additionally, and except as would be inconsistent
with Section 7.2 hereof, upon termination of Executive's employment, Executive
or Executive's beneficiary or heirs shall be entitled to all accrued but unpaid
Base Salary and Bonus Payment as provided in Section 3 of this Agreement.
Notwithstanding any other provision of this Agreement to the contrary, for
purposes of this Section 5, Base Salary and Bonus Payments shall be accrued to
the date of termination of employment.
6. Confidentiality of Trade Secrets and Other Materials. Other
than in the performance of his duties hereunder, Executive agrees not to
disclose, either during the term of his employment by the Company or at any
time thereafter, to any person, form or corporation any information concerning
the business affairs, the trade secrets or the customer lists or similar
information of the Company. Any technique, method, process, technology or
customer compilation or list used by the Company shall be considered a "trade
secret" for the purposes of this Agreement. Notwithstanding the foregoing, the
names and other information relating to the retail brokerage customers of
Executive who have been assigned Executive's A/E number shall not be considered
as "confidential information" for purposes of this Section 6 or any other
provision of this Employment Agreement.
7. Termination.
7.1 Bases for Termination.
(a) Executive's employment hereunder may be terminated at any
time and upon such terms and conditions as shall be mutually agreed in writing
by Executive and the Company.
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<PAGE> 5
(b) Executive's employment hereunder shall automatically terminate
on the last day of the month in which Executive dies or becomes permanently
incapacitated. "Permanent incapacity" as used herein shall mean mental or
physical incapacity, or both, reasonably determined by the Company's Board of
Directors based upon a certification of such incapacity by, in the discretion
of the Company's Board of Directors, either Executive's regularly attending
physician or a duly licensed independent physician selected by the Company's
Board of Directors, rendering Executive unable to perform substantially all of
his duties hereunder and which in the opinion of such physician appears
reasonably certain to continue for at least six consecutive months without
substantial improvement. Executive shall be deemed to have "become permanently
incapacitated" on the date the Company's Board of Directors has determined that
Executive is permanently incapacitated and so notifies Executive in writing.
(c) Executive may terminate his employment hereunder by giving the
Company 60 days prior written notice, which termination shall be effective on
the 60th day following such notice.
(d) Executive's employment may not be terminated by the Company
against his will without a written finding, by an impartial third person or
panel, of fraud, theft or defalcation. In the event that the Company and the
Executive cannot agree on the third party to make the necessary inquiry and
finding as required by this section 7.1(d) each of the Company and the
Executive shall select one member of the panel and the two persons so selected
shall, in turn, select the third member of the panel. All costs and expenses
of the panel including fees paid to panel members shall be paid by the Company.
7.2 Compensation Continues. All of the Company's compensation
obligations to Executive, as defined in Section 3 hereof, shall survive the
termination of Executive's employment, subject to the following three
exceptions: (i) Executive shall not be entitled to any additional Base Salary
or Bonus compensation following his death or the termination of his employment
pursuant to Section 7.1(d); (ii) Executive shall cease accruing the Bonus
Payment as defined in Section 3.2 hereof following his permanent incapacity, as
defined in Section 7.1(b), provided, however, that in this circumstance all
other compensation payable to Executive hereunder shall continue; and (iii) all
compensation or other benefits from the Company pursuant to this Agreement
shall cease on the last day of the thirteenth month following the date of
termination of his employment pursuant to Section 7.1(a) or 7.1(c) hereof.
8. Noncompete. Executive covenants and agrees that during the
term of his employment hereunder and for a period of one (1) year thereafter
(the "Noncompetition Period"), Executive will not own, manage, or operate any
registered broker/dealer as a proprietor, partner, director or officer anywhere
within the United States of America. During the Noncompetition Period,
Executive shall not, directly or indirectly recruit, solicit or otherwise
induce any officer or employee of the Company to discontinue such relationship
with the Company. During the Noncompetition Period, Executive shall hold in
confidence and shall not disclose to anyone, or use or otherwise exploit for
his own benefit or the benefit of any person or entity, any confidential or
proprietary information of the Company, including, without limitation, customer
and vendor lists, financial statements and information, trade secrets or
marketing arrangements and plans, unless directed to do so by order of any
court; provided, however, that the terms of this Section 8 shall not restrict
Executive from becoming associated with another broker/dealer as a registered
representative and continuing to do business with any Company customer who has
been assigned Executive's A/E number.
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<PAGE> 6
9. Miscellaneous.
9.1 Transfer and Assignment. This Agreement is personal as to
Executive and shall not be assigned or transferred by Executive without the
prior written consent of the Company. This Agreement shall be binding upon and
inure to the benefit of all of the parties hereto and their respective
permitted heirs, personal representatives, successors and assigns.
9.2 Severability. Nothing contained herein shall be construed to
require the commission of any act contrary to law. Should there by any
conflict between any provisions hereof and any present or future statute, law,
ordinance, regulation, or other pronouncement having the force of law, the
latter shall prevail, but the provision of this Agreement affected thereby
shall be curtailed and limited only to the extent necessary to bring it within
the requirements of the law, and the remaining provisions of this Agreement
shall remain in full force and effect.
9.3 Governing Law. This Agreement is made under and shall be
construed pursuant to the laws of the State of Washington.
9.4 Counterparts. This Agreement may be executed in several
counterparts and all documents so executed shall constitute one agreement,
binding on all of the parties hereto, notwithstanding that all of the parties
did not sign the original or the same counterparts.
9.5 Entire Agreement. This Agreement constitutes the entire
agreement and understanding of the parties with respect to the subject matter
hereof and supersedes all prior oral or written agreements, arrangements, and
understandings with respect thereto. No representation, promise, inducement,
statement or intention has been made by any party hereto that is not embodied
herein, and no party shall be bound by or liable for any alleged
representation, promise, inducement or statement not so set forth herein.
9.6 Modification. This Agreement may be modified, amended,
superseded, or canceled, and any of the terms, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by the party or parties to be bound by any such modification,
amendment, supersession, cancellation, or waiver.
9.7 Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or breach thereof, shall, at the option of either
party hereto, be settled by arbitration before and pursuant to the Commercial
Rules of the American Arbitration Association. Anything in the Commercial
Rules to the contrary notwithstanding, the parties may conduct limited
discovery of documents, propound not more than 35 written interrogatories,
including subparts, and conduct not more than three depositions, all such
discovery to be conducted in accordance with the Federal Rules of Civil
Procedure applicable to discovery of this type and under the supervision of the
arbitrator(s) who may expand, modify or revise the permitted discovery upon
application of either party and for good cause shown. Such arbitration shall
be binding on the parties and shall occur in King County, Washington, and
judgment upon the arbitration award may be entered in any court of competent
jurisdiction. This arbitration agreement shall not apply to any party seeking
preliminary or temporary injunctive relief and either party may pursue such
preliminary or temporary injunctive relief before any court of competent
jurisdiction as is appropriate under circumstances.
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<PAGE> 7
9.8 Attorneys' Fees and Costs. In the event of any dispute
arising out of the subject matter of this Agreement the prevailing party shall
recover, in addition to any other damages assessed, its attorneys' fees and
court costs incurred in litigating or otherwise settling or resolving such
dispute whether or not an action is brought or prosecuted to judgment. In
construing this Agreement, none of the parties hereto shall have any term or
provision construed against such party solely by reason of such party having
drafted the same.
9.9 Waiver. The waiver by either of the parties, express or
implied, of any right under this Agreement or any failure to perform under this
Agreement by the other party, shall not constitute or be deemed as a waiver of
any other right under this Agreement, or of any other failure to perform under
this Agreement by the other party whether of a similar or dissimilar nature.
9.10 Cumulative Remedies. Each and all of the several rights and
remedies provided in this Agreement, or by law or in equity, shall be
cumulative, and no one of them shall be exclusive of any other right or remedy,
and the exercise of any one of such rights or remedies shall not be deemed a
waiver of, or an election to exercise, any other such right or remedy.
9.11 Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning and interpretation of this Agreement.
9.12 Notices. Any notice under this Agreement must be in writing,
may be telecopied, sent by express 24-hour guaranteed courier, or
hand-delivered, or may be served by depositing the same in the United States
mail, addressed to the party to be notified, postage-prepaid and registered or
certified with a return receipt requested. The addresses of the parties for
the receipt of notice shall be as follows:
If to the Company: National Securities Corporation
1001 Fourth Avenue
Suite 2200
Seattle, Washington 98154
Attn: Chief Executive Officer
If to Executive: Robert I. Kollack
National Securities Corporation
1001 Fourth Avenue
Suite 2200
Seattle, Washington 98154
with copy to: Donald A. Berg, Esq.
Goldsmith & Berg
1760 Market Street, Suite 1310
Philadelphia, PA 19103
Each notice given by registered or certified mail shall be deemed delivered and
effective on the date of delivery as shown on the return receipt, and each
notice delivered in any other manner shall be deemed to be effective as of the
time of actual delivery thereof. Each party may change its address for notice
by giving notice thereof in the manner provided above.
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<PAGE> 8
9.13 Fees and Expenses. Fees and expenses incurred by Executive in
connection with the negotiation and execution of this Agreement shall be paid
by the Company.
9.14 Effective Date. This Agreement shall become effective as of
the date set forth on page 1 after the happening of the following events: (i)
this Agreement is signed by Executive and the Company; (ii) closing of the
transactions contemplated by the Stock Purchase Agreement; (iii) the adoption
of the resolution of the Board of Directors of the Company granting to
Executive nonqualified stock options as described in Section 4.1(h) of said
Stock Purchase Agreement; and (iv) closing of the transaction by which certain
purchasers shall purchase the stock of the Company owned by Robert I. Kollack
pursuant to that certain Stock Purchase Agreement dated February _, 1995 by and
between Robert I Kollack and certain purchasers. If any of these events have
not occurred by March 31, 1995, this Agreement shall be deemed to have not
become effective and shall thereafter be null and void and neither the Company
nor Executive shall have any obligation or liability hereunder except for the
obligation of the Company under Section 9.13 which shall survive this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be executed as of the date first set forth above.
"Executive" NATIONAL SECURITIES CORPORATION
____________________________ By:____________________________
Robert I. Kollack , President
Attest: ______________________
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<PAGE> 1
EXHIBIT 10.20
NATIONAL SECURITIES CORPORATION
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into this
22nd day of May, 1995, by and between NATIONAL SECURITIES CORPORATION, a
Washington corporation (the "Company"), and STEVEN A. ROTHSTEIN, an individual
("Executive").
RECITALS
A. The Company desires to be assured of the association and
services of Executive for the Company.
B. Executive is willing and desires to be employed by the
Company, and the Company is willing to employ Executive, upon the terms,
covenants and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinafter set forth, the parties hereto do hereby agree as
follows:
1. Employment. The Company hereby employs Executive as Chairman,
subject to the supervision and direction of the Company's Board of Directors.
2. Term. The term of this Agreement shall be for a period of
five (5) years commencing on the date hereof, unless terminated earlier
pursuant to Section 7 below.
3. Compensation; Reimbursement.
3.1 Base Salary. For all services rendered by Executive under
this Agreement, the Company shall pay Executive a base salary of the greater of
(i) $24,000 per annum; or (ii) 3% of the Company's commissions or other
revenues generated by certain brokers of the Company, or by the Company's
participation in business transactions, all of which brokers and transactions
shall be identified from time to time in Exhibit "A" appended hereto and made a
part hereof (the "Base Salary").
3.2. Additional Benefits. In addition to the Base Salary,
Executive shall be entitled to all other benefits of employment now or
hereafter provided to the other chairmen of the Company, its operating
divisions or subsidiaries, including but not limited to family health insurance
and on-premises parking.
3.3 Continuing Obligations. All of the Company's compensation
obligations under this paragraph 3 shall continue through the term of this
Agreement. All such compensation obligations shall survive the merger, sale,
acquisition or reorganization of the Company, and shall be binding upon any
affiliate or successor of the Company.
4. Scope of Duties.
4.1 Assignment of Duties. Executive shall have such duties as may
be assigned to him or her from time to time by the Company's Board of Directors
EMPLOYMENT AGREEMENT PAGE 1
<PAGE> 2
commensurate with his experience and responsibilities in the position for which
he is employed pursuant to Section 1 above. Such duties shall be exercised
subject to the control and supervision of the Board of Directors of the
Company.
4.2 Executive's Devotion of Time. Executive hereby agrees to
devote his full time, abilities and energy to the faithful performance of the
duties assigned to him or her and to the promotion and forwarding of the
business affairs of the Company, and not to divert any business opportunities
from the Company to himself or herself or to any other person or business
entity. Executive shall be entitled to not less than five (5) weeks of paid
vacation and not less than two (2) weeks of paid sick leave during each fiscal
year of the Company.
4.3 Conflicting Activities. For the term of this Agreement or
until Executive's employment hereunder terminates, whichever occurs first,
Executive hereby agrees to promote and develop all business opportunities that
come to his attention relating to current or anticipated future business of the
Company, in a manner consistent with the best interest of the Company and with
his duties under this Agreement. Should Executive discover a business
opportunity that does not relate to the current or anticipated future business
of the Company, he shall first offer such opportunity to the Company. Should
the Board of Directors of the Company not exercise its right to pursue this
business opportunity within a reasonable period of time, not to exceed thirty
(30) days, Executive may develop the business opportunity for himself;
provided, however, that such development may in no way conflict or interfere
with the duties owed by Executive to the Company under this Agreement.
Further, Executive may develop such business opportunities only on his own
time, and may not use any service, personnel, equipment, supplies, facility, or
trade secrets of the Company in their development. As used herein, the term
"business opportunity" shall not include business opportunities involving
investment in publicly traded stocks, bonds or other securities, or other
investments of a personal nature.
5. Severance. So long as this Agreement is in effect, Executive
shall at all times be entitled to severance benefits at least equal to those
provided to other chairmen of the Company, its operating divisions or
subsidiaries. Additionally, and except as would be inconsistent with paragraph
7.2, upon termination of Executive's employment, Executive or Executive's
designees or heirs shall be entitled to all accrued but unpaid Base Salary as
provided in paragraph 3 of this Agreement. Notwithstanding any other provision
of this Agreement to the contrary, for purposes of this paragraph 5, Base
Salary shall be accrued to the date of termination of employment.
6. Confidentiality of Trade Secrets and Other Materials. Other
than in the performance of his duties hereunder, Executive agrees not to
disclose, either during the term of his employment by the Company or at any
time thereafter, to any person, firm or corporation any information concerning
the business affairs, the trade secrets or the customer lists or similar
information of the Company. Any technique, method, process, technology or
customer compilation or list used by the Company shall be considered a "trade
secret" for the purposes of this Agreement. Notwithstanding the foregoing, the
names and other information relating to the retail brokerage customers of
Executive who have been assigned Executive's A/E number shall not be considered
as "confidential information" for purposes of this Section 6 or any other
provision of this Agreement.
EMPLOYMENT AGREEMENT PAGE 2
<PAGE> 3
7. Termination.
7.1 Bases for Termination.
(a) Executive's employment hereunder may be terminated at any time
by mutual agreement of the parties.
(b) Executive's employment hereunder shall automatically terminate
on the last day of the month in which Executive dies. If Executive becomes
permanently disabled and is unable to perform the essential duties defined in
paragraph 4 hereof (the "Duties") with or without accommodation, then
Executive's employment hereunder may be terminated. "Permanent disability" as
used herein shall mean mental or physical disability or both, evidenced by:
(i) a consecutive six month period of time during which
Executive is unable to perform the Duties with or without
accomodation; and
(ii) medical documentation from Executive's attending
physician or a duly licensed independent physician selected by
the Company's Board of Directors, stating that Executive is
physically and/or mentally disabled from performing the
essential Duties with or without accomodation and that the
disabling condition is permanent and will not substantially
change or improve.
(c) Executive may terminate his or her employment hereunder by
giving the Company 60 days prior written notice, which termination shall be
effective on the 60th day following such notice.
(d) Executive's employment may not be terminated by the Company
against his or her will without a finding, by an impartial third person or
panel, of fraud, theft or defalcation.
8. Noncompete. Executive covenants and agrees that during the
term of his employment hereunder and for a period of one (1) year thereafter
(the "Noncompetition Period"), Executive shall not, directly or indirectly
recruit, solicit or otherwise induce any officer or employee of the Company to
discontinue such relationship with the Company. During the Noncompetition
Period, Executive shall hold in confidence and shall not disclose to anyone, or
use or otherwise exploit for his own benefit or the benefit of any person or
entity, any confidential or proprietary information of the Company, including,
without limitation, customer and vendor lists, financial statements and
information, trade secrets or marketing arrangements and plans, unless directed
to do so by order of any court; provided, however, that the terms of this
paragraph 8 shall not restrict Executive with respect to any Company customer
who has been assigned Executive's A/E number.
9. Miscellaneous.
9.1 Transfer and Assignment. This Agreement is personal as to
Executive and shall not be assigned or transferred by Executive without the
prior written
EMPLOYMENT AGREEMENT PAGE 3
<PAGE> 4
consent of the Company. This Agreement shall be binding upon and inure to the
benefit of all of the parties hereto and their respective permitted heirs,
personal representatives, successors and assigns.
9.2 Severability. Nothing contained herein shall be construed to
require the commission of any act contrary to law. Should there by any
conflict between any provisions hereof and any present or future statute, law,
ordinance, regulation, or other pronouncement having the force of law, the
latter shall prevail, but the provision of this Agreement affected thereby
shall be curtailed and limited only to the extent necessary to bring it within
the requirements of the law, and the remaining provisions of this Agreement
shall remain in full force and effect.
9.3 Governing Law. This Agreement is made under and shall be
construed pursuant to the laws of the State of Washington.
9.4 Counterparts. This Agreement may be executed in several
counterparts and all documents so executed shall constitute one agreement,
binding on all of the parties hereto, notwithstanding that all of the parties
did not sign the original or the same counterparts.
9.5 Entire Agreement. This Agreement constitutes the entire
agreement and understanding of the parties with respect to the subject matter
hereof and supercedes all prior oral or written agreements, arrangements, and
understandings with respect thereto. No representation, promise, inducement,
statement or intention has been made by any party hereto that is not embodied
herein, and not party shall be bound by or liable for any alleged
representation, promise, inducement or statement not so set forth herein.
9.6 Modification. This Agreement may be modified, amended,
superseded, or cancelled, and any of the terms, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by the party or parties to be bound by any such modification,
amendment, supersession, cancellation, or waiver.
9.7 Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or breach thereof, shall, at the option of either
party hereto, be settled by arbitration before and pursuant to the Commercial
Rules of the American Arbitration Association. Anything in the Commercial
Rules to the contrary notwithstanding, the parties may conduct limited
discovery of documents, propound not more than 35 written interrogatories,
including subparts, and conduct not more than three depositions, all such
discovery to be conducted in accordance with the Federal Rules of Civil
Procedure applicable to discovery of this type and under the supervision of the
arbitrator(s) who may expand, modify or revise the permitted discovery upon
application of either party and for good cause shown. Such arbitration shall
be binding on the parties and shall occur in King County, Washington, and
judgment upon the arbitration award may be entered in any court of competent
jurisdiction. This arbitration agreement shall not apply to any party seeking
preliminary or temporary injunctive relief and either party may pursue such
preliminary or temporary injunctive relief before any court of competent
jurisdiction as is appropriate in the circumstances.
9.8 Attorneys' Fees and Costs. In the event of any dispute arising out
EMPLOYMENT AGREEMENT PAGE 4
<PAGE> 5
of the subject matter of this Agreement, the prevailing party shall recover, in
addition to any other damages assessed, its attorneys' fees and court costs
incurred in litigating or otherwise settling or resolving such dispute whether
or not an action is brought or prosecuted to judgment. In construing this
Agreement, none of the parties hereto shall have any term or provision
construed against such party solely by reason of such party having drafted the
same.
9.9 Wavier. The waiver by either of the parties, express or
implied, of any right under this Agreement or any failure to perform under this
Agreement by the other party, shall not constitute or be deemed as a waiver of
any other right under this Agreement, or of any other failure to perform under
this Agreement by the other party, whether of a similar or dissimilar nature.
9.10 Cumulative Remedies. Each and all of the several rights and
remedies provided in this Agreement, or by law or in equity, shall be
cumulative, and no one of them shall be exclusive of any other right or remedy,
and the exercise of any one of such rights or remedies shall not be deemed a
waiver of, or an election to exercise, any other such right or remedy.
9.11 Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning and interpretation of this Agreement.
9.12 Notices. Any notice under this Agreement must be in writing,
may be telecopied, sent by express 24-hour guaranteed courier, or
hand-delivered, or may be served by depositing the same in the United States
mail, addressed to the party to be notified, postage-prepaid and registered or
certified with a return receipt requested. The addresses of the parties for
the receipt of notice shall be as follows:
If to the Company: National Securities Corporation
1001 Fourth Avenue
Suite 2200
Seattle, Washington 98154
Attn: Chief Executive Officer
If to Executive: Steven A. Rothstein
2737 Illinois Road
Wilmette, Illinois 60091
with copy to: Norman S. Lynn, Esq.
Siegel, Lynn & Capitel, Ltd.
60 Revere Drive
Suite 800
Chicago, Illinois 60062
Each notice given by registered or certified mail shall be deemed delivered and
effective on the date of delivery as shown on the return receipt, and each
notice delivered in any other manner shall be deemed to be effective as of the
time of actual delivery thereof. Each party may change its address for notice
by giving
EMPLOYMENT AGREEMENT PAGE 5
<PAGE> 6
notice thereof in the manner provided above.
9.13 Fees and Expenses. Fees and expenses incurred by Executive in
connection with the negotiation and execution of this Agreement shall be paid
by the Company.
9.14 Effective Date. This Agreement shall become effective as of
the date set forth on page 1 after the happening of the following events: (i)
this Agreement is signed by Executive and the Company; and (ii) closing of the
transactions contemplated by that certain Stock Purchase Agreement dated
February 7, 1995 between the Company and certain purchasers. If any of these
events have not occurred by May 23, 1995, this Agreement shall be deemed to
have not become effective and shall thereafter be null and void and neither the
Company nor Executive shall have any obligation or liability hereunder except
for the obligation of the Company under paragraph 9.13 which shall survive this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be executed as of the date first set forth above.
"Executive" NATIONAL SECURITIES CORPORATION
_______________________ By:_______________________________
Steven A. Rothstein , President
EMPLOYMENT AGREEMENT PAGE 6
<PAGE> 1
EXHIBIT 10.21
NATIONAL SECURITIES CORPORATION
1001 FOURTH AVENUE, SUITE 2200
SEATTLE, WASHINGTON 98154-1100
October 27, 1995
Mr. Raymond L. Dirks
50 1/2 Barrow Street
New York, New York 10014
Dear Mr. Dirks:
National Securities Corporation, a Washington corporation, is
registered as a broker-dealer with the Securities and Exchange Commission
("SEC") and is a member organization of the National Association of Securities
Dealers, Inc. ("NASD"). This letter agreement ("Agreement") sets forth the
terms on which National has agreed to engage Raymond L. Dirks ("Dirks") and
other individuals recruited by Dirks to serve and act as independent
contractors and registered representatives of National (all of whom are, with
Dirks, collectively called "Dirks Group Members"). A list of the initial Dirks
Group Members is attached hereto as Exhibit A.
1. National shall establish a division of National called "Ray
Dirks Research" ("Dirks Research") for the purpose of conducting the research,
advisory, and brokerage business heretofore conducted by Dirks and the Dirks
Group Members at other firms. Dirks shall be designated as a Managing Director
of Dirks Research, and all of the activities rendered by all of the Dirks Group
Members pursuant to this Agreement shall be in their capacity as registered
representatives of Dirks Research. Dirks Research shall engage in the
business, and only in such business, in which National is authorized by virtue
of its registrations with the SEC and the NASD, and in accordance with all
applicable laws, rules, and regulations to which National is subject. In all
of these activities pursuant to this Agreement, all Dirks Group Members shall
identify themselves, and any material transmitted by them to any present or
potential customer shall identify them, as members of "Ray Dirks Research, a
Division of National Securities Corporation." National agrees that it will
make appropriate references to Dirks Research in its communications with
customers and the investment community at large. Nothing in this
<PAGE> 2
Mr. Raymond L. Dirks
October 27, 1995
Page 2
Agreement shall obligate Dirks Research to maintain the engagement of any or
all the Dirks Group Members; and Dirks Research shall be free to terminate the
engagement of any Dirks Group Member, and to engage new registered
representatives, at any time or times with the prior consent of National, which
consent shall not be unreasonably withheld.
2. Dirks acknowledges that in addition to registrations of
National, the business in which Dirks Research will engage will require initial
registration or the transfer of existing registrations under federal or state
law of various Dirks Group Members. Dirks shall supply to National on a timely
basis a list of the states in which registration of National or any Dirks Group
Member is required for the business in which Dirks Research will engage, and
the status of such registrations, if any. Dirks agrees that neither Dirks
Research nor any Dirks Group Member shall perform any act in any jurisdiction
on behalf of Dirks Research until all applicable registration requirements in
such jurisdiction have been satisfied. National shall promptly apply for such
registrations or transfers of registrations as shall be necessary to enable
Dirks Research to conduct the business contemplated by this Agreement, and
shall use its best efforts to cause such registrations and transfers of
registration to become, and to remain, effective. The cost of such
registrations and transfers shall be borne by Dirks Research.
3. (a) The expenses of operation of Dirks Research shall be borne
by Dirks Research and National as follows:
(i) Dirks Research shall be responsible for rent for
office space, telephone services, and electronic quotation services; monthly
printing, handling, and postage charges arising out of the distribution of
printed research materials by Dirks Research to its customers; the costs of
registration and transfers of registration; and the salary and related expenses
arising from the employment of Ms. Jessy Dirks ("JD's Salary").
<PAGE> 3
Mr. Raymond L. Dirks
October 27, 1995
Page 3
(ii) Dirks Research shall also be responsible for all
salaries and related charges including but not limited to withholding taxes and
social security taxes and full employee benefits (such as health and insurance
benefits) for any and all employees of Dirks Research, and all costs arising
from travel and entertainment on business of Dirks Research; all monthly
printing, handling, and postage charges arising out of the distribution of
printed research materials by the Dirks Research; and the cost of registrations
and transfers of registration to the extent provided in Paragraph 3 hereof.
(iii) National shall be responsible for the costs,
handling, and postage charges arising out of the distribution of printed
research materials by Dirks Research to customers of National. In addition,
during the first six months of this Agreement, National shall pay Dirks
Research $25.000 per month in order to reimburse Dirks Research for the cost of
the preparation of printed research materials. On or before November 30, 1995,
Dirks and National shall set a benchmark for monthly revenues, which if
achieved by the Dirks Group will require National to continue the purchase of
such printed research materials beyond such six month period. Assuming such
benchmarks are met, then from May 1, 1996 through October 31, 1996, National
shall pay Dirks Research $10,000 per month as reimbursement for such costs.
(iv) National understands that Dirks Research will be
leasing office space and computer equipment and procuring telephone and
quotation services in the New York City area. In consideration for National's
agreement to obtain such leases and services in its name, Dirks and Dirks
Research hereby agree to indemnify and hold harmless National against any and
all claims, expenses, and liabilities (including, but not limited to,
reasonable attorneys' fees and expenses), as and when incurred, arising from
such leases and services. As security for such indemnification obligation,
Dirks shall pledge to National such number and kind of securities as reasonably
requested from time to time by National.
<PAGE> 4
Mr. Raymond L. Dirks
October 27, 1995
Page 4
(b) The profit and income items arising from the operations of Dirks
Research shall be allocated between National and Dirks Research as follows:
(i) OTC and NASDAQ Trading: If during the term of this
Agreement a trader is stationed at the office of Dirks Research the profits and
losses from such OTC and NASDAQ trading shall be determined by agreement
between the parties.
(ii) Fee Income: 85% of fees (including fees for acting
as a placement agent in a private placement and syndicate designation
introduced or arranged by Dirks Research), after deduction of expenses directly
attributable to the transaction from which such fee income is derived in each
case, shall be allocated to Dirks Research and 15% to National. Payment of any
such fee income shall be made as soon as practicable but in no event later than
the 15th day of the month following the receipt thereof.
(iii) Commissions: National shall be entitled to receive
30% of commissions (including selling commissions in underwritings) and the
balance shall be allocated to Dirks Research. Payment of the portion of
commissions due to Dirks Research shall be made on the payment dates generally
applicable to agents of National. In addition, Dirks Research shall be paid
commissions in accordance with the Commission Schedule set forth in Addendum A
attached hereto.
(iv) Underwritings: Dirks Research shall be entitled to
receive 70% of all management and underwriting fees (net of syndication fees to
others and subject to National's customary charges) and net expense allowances
from underwritings originated by Dirks Research, and National shall be entitled
to the remainder; and all other profit or loss from underwriting activities
other than selling commissions and trading profits which shall be allocated as
set forth in paragraph 3(b)(iii) shall be divided 70% to Dirks Research and 30%
to National. In the event that any underwriting, private placement, or other
engagement gives rise
<PAGE> 5
Mr. Raymond L. Dirks
October 27, 1995
Page 5
to the delivery of warrants or other non-cash consideration, 80% thereof shall
allocable to Dirks Research and 20% to National. Consulting or other fees
arising directly or indirectly from underwritings introduced by Dirks Research
shall be allocated as provided in paragraph 3(b)(ii). Payment to Dirks
Research of any amount attributable to underwritings shall be made as promptly
as practicable after receipt thereof by National.
(c) National acknowledges that Dirks Research proposes to
employ Ms. Jessy Dirks at a salary of $120,000 per annum, all of which shall be
chargeable to Dirks Research, together with all related costs.
4. National agrees that it will make markets in such securities as
shall be determined by agreement between National and Dirks Research. National
shall have authority to oversee, and to determine position limits, in market
making transactions.
5. National shall cause its stock option committee to issue to
Dirks, options to acquire 80,000 shares of National at an exercise price of
$5.00 per share, which options shall vest in five equal amounts (of 16,000
shares each) at the end of the first, second, third, fourth, and fifth
anniversaries of the date of issuance; provided, however, that such options
shall not vest if Dirks is not employed by, or affiliated with, National on the
date of vesting.
6. In no event shall Dirks Research or any Dirks Group Member make
any expenditure or commitment to any third party in excess of $5,000 for which
National is responsible under this Agreement without the prior consent of
National (which consent shall not be unreasonably withheld); and Dirks Research
shall advise National on a current basis of all expenditures in excess of
$5,000 incurred by Dirks Research for which Dirks Research is responsible under
this Agreement. No member of Dirks Research shall conduct any business outside
of Dirks Research, and all of the business of Dirks Research shall be conducted
in accordance with rules
<PAGE> 6
Mr. Raymond L. Dirks
October 27, 1995
Page 6
and regulations applicable to independent contractors of National generally, or
as may be prescribed by National specifically for employees of Dirks Research.
Dirks Research shall not accept business from any customer or otherwise conduct
business in any fashion, except in accordance with the terms of National's
Compliance Manual, a copy of which has been previously furnished to Dirks. In
all matters relating to compliance, the decision of the cognizant officer of
National shall be final. All decisions to participate in underwritings, as
underwriter, shall be made jointly.
7. In the event that the operations of Dirks Research shall require
commitments of capital or other expenditures by National not expressly provided
for in this Agreement, the parties hereto shall endeavor to negotiate in good
faith on the terms of such commitment or expenditure, but nothing herein shall
require National to commit to any capital or make any expenditure without its
consent.
8. Dirks represents that he is not, and no Dirks Group Member at
the time of his employment by Dirks Research will be, the subject of any
proceeding, existing or pending, whether civil (as it relates to the securities
industry) or regulatory, in any jurisdiction, except as disclosed in the Form
U-4's. In the event of any such proceeding in the future involving Dirks
Research or any Dirks Group Members, and arising out of the activities
contemplated by this Agreement (in contradiction to activities arising out of
the prior employment of any Dirks Group Member) the cost of such proceeding
(including but not limited to reasonable legal fees and expenses) shall be
borne by National and the Dirks Group in proportion to their respective
interests in the profits from the activity giving rise to the proceeding.
Dirks represents and warrants to National that (a) neither he nor any Dirks
Group Member is under any contractual or other restriction or obligation which
is inconsistent with the execution of this Agreement, the performance of his or
their obligations hereunder, or the other rights of the National hereunder
<PAGE> 7
Mr. Raymond L. Dirks
October 27, 1995
Page 7
and (b) neither he nor any Dirks Group Member is under any physical or mental
disability that would hinder his or their performance of his or their
obligations under this Agreement.
9. Dirks shall indemnify and hold harmless National and its
directors, shareholders officers, and employees against any and all claims,
expenses, and liabilities (including but not limited to reasonable attorneys'
fees and expenses) which may arise out of any claim by the present or former
employer of Dirks against National or that the arrangements contemplated by
this Agreement involve any violation of fiduciary duty owed by Dirks or any
Dirks Group Member to such employer.
This Agreement shall continue in effect until terminated by either party
on not less than 60 days' prior written notice, or until terminated by mutual
consent of the parties. Termination shall not relieve any party to this
Agreement of any obligation arising prior to the date of termination, but if a
notice of termination is given by either party, the Dirks Group Members may not
undertake any obligation in the period prior to the date of termination outside
of the normal course of business as previously conducted; and any income
received or profits earned after such notice from activities begun but not
completed after such notice shall be allocated between the parties in the
proportions that would have been applicable if such notice had not been given.
In the event of termination, National shall not solicit any agent of Dirks
Research to remain with National, but nothing in this Agreement shall preclude
National from continuing the engagement of any agent of Dirks Research who
shall solicit National to continue such engagement. In the event that Dirks
Group shall terminate this Agreement prior to the date on which operations are
to begin, any costs paid or incurred by National for the purpose of providing
facilities or services to Dirks Research shall be borne by Dirks.
<PAGE> 8
Mr. Raymond L. Dirks
October 27, 1995
Page 8
11. As used herein, all references to Dirks Group Members shall
include all independent contractors and registered representatives of National
at any time serving as agents of Dirks Research.
12. Any dispute between the parties arising out of this Agreement
shall be settled by arbitration in New York City in accordance with the rules
of the NASD and any decision or judgment rendered in any such arbitration may
be entered in any court of competent jurisdiction. In any such arbitration
each party shall pay its own expenses and the cost and expenses of the
arbitrator shall be divided equally between the parties.
If the foregoing conforms to your understanding, please sign and return
the enclosed copy of this document to National, whereupon it shall constitute a
binding agreement between you and us.
Sincerely yours,
NATIONAL SECURITIES CORPORATION
------------------------------------
By:
Name:
Title:
CONFIRMED:
- -------------------------------
Raymond L. Dirks
<PAGE> 1
EXHIBIT 10.22
NATIONAL SECURITIES CORPORATION
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into
this 15th day of October, 1996, by and between NATIONAL SECURITIES CORPORATION,
a Washington corporation (the "Company"), and STEVEN A. ROTHSTEIN, an
individual ("Executive").
RECITALS
A. The Company desires to be assured of the association
and services of Executive for the Company.
B. Executive is willing and desires to be employed by
the Company, and the Company is willing to employ Executive, upon the terms,
covenants and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual terms, covenants
and conditions hereinafter set forth, the parties hereto do hereby agree as
follows:
1. Employment. The Company hereby employs Executive as
Chairman and Director of Corporate Finance, subject to the supervision and
direction of the Company's Board of Directors. This Agreement supersedes an
earlier Employment Agreement, dated May 22, 1995 between the Company and
Executive.
2. Term. The term of this Agreement shall be for a
period of five (5) years commencing on the date hereof, unless terminated
earlier pursuant to Section 7 below.
3. Compensation; Reimbursement.
3.1 Base Salary. For all services rendered by Executive
under this Agreement, the Company shall pay Executive a base salary ("Base
Salary") of $24,000 per annum. The Base Salary is subject to increases from
time to time at the discretion of the Compensation of the Board of Directors of
the Company.
3.2 Brokerage Commissions. The Company shall pay
Executive 50% of the gross amount of commissions earned by the Company on
brokerage customers of Executive.
3.3 Investment Banking Fees. The Company shall pay
Executive 70% of all revenue (net of expenses associated with such revenue)
earned by the Company on investment banking activities initiated by Executive
("Banking Fees"). Additionally, Executive shall receive 80% of any warrants
issued the Company with respect to investment banking activities initiated by
Executive.
<PAGE> 2
3.4 Firm Expansion. The Company acknowledges that since
the commencement of his employment, Executive has assisted in the growth of the
Company through the acquisition of additional firms and individuals and groups
of brokers. Accordingly, the Company shall pay Executive 3% of the Company's
commissions or other revenues generated by brokers of the Company brought into
the Company by Executive, or by the Company's participation in business
transactions, as identified from time to time in Exhibit "A" appended hereto
and made a part hereof (the "Override"), as amended by the Company's Board of
Directors.
3.5 Additional Benefits. In addition to that provided in
paragraphs 3.1, 3.2, 3.3 and 3.4 above, Executive shall be entitled to all
other benefits of employment now or hereafter provided to the other executives
of the Company, its operating divisions or subsidiaries, including but not
limited to individual health insurance, disability insurance and on-premises
parking. The Company shall also provide Executive with automobile
reimbursement and life insurance coverage in amounts determined by the Board of
Directors.
3.6 Nominee for Director. For the term of this Agreement
or until Executive's employment hereunder terminates, whichever comes first,
the Company shall cause Executive (or his assignee) to be nominated as a
director of the Company.
3.7 Options. It is contemplated that from time to time
Executive shall be granted options to acquire common stock of the Company.
3.8 Continuing Obligations. All of the Company's
compensation obligations under this paragraph shall continue through the term
of this Agreement.
4. Scope of Duties.
4.1 Assignment of Duties. Executive shall have such
duties as may be assigned to him from time to time by the Company's Board of
Directors commensurate with his experience and responsibilities in the position
for which he is employed pursuant to Section 1 above. Such duties shall be
exercised subject to the control and supervision of the Board of Directors of
the Company.
4.2 Executive's Devotion of Time. Executive hereby
agrees to devote his full time, abilities and energy to the faithful
performance of the duties assigned to him and to the promotion and forwarding
of the business affairs of the Company, and not to divert any business
opportunities from the Company to himself or to any other person or business
entity. Executive shall be entitled to not less than five (5) weeks of paid
vacation and not less than two (2) weeks of paid sick leave during each fiscal
year of the Company.
4.3 Conflicting Activities. For the term of this
Agreement or until Executive's employment hereunder terminates, whichever
occurs first, Executive hereby agrees to promote and develop all business
opportunities that come to his attention relating to current or anticipated
future business of the Company, in a manner consistent with the best interest
of the Company and with his duties under this Agreement. Should Executive
discover a business opportunity that
<PAGE> 3
does not relate to the current or anticipated future business of the Company,
he shall first offer such opportunity to the Company. Should the Board of
Directors of the Company not exercise its right to pursue this business
opportunity within a reasonable period of time, not to exceed thirty (30) days,
Executive may develop the business opportunity for himself; provided, however,
that such development may in no way conflict or interfere with the duties owed
by Executive to the Company under this Agreement. Further, Executive may
develop such business opportunities only on his own time, and may not use any
service, personnel, equipment, supplies, facility, or trade secrets of the
Company in their development. As used herein, the term "business opportunity"
shall not include business opportunities involving investment in publicly
traded stocks, bonds or other securities, or other investments of a personal
nature.
5. Severance. So long as this Agreement is in effect,
and except as would be inconsistent with paragraph 7, upon termination of
Executive's employment, Executive or Executive's designees or heirs shall be
entitled to a lump sum payment of $500,000 (the "Severance Payment"); provided,
however, that, the Company shall not be obligated to pay of Executive any or
all of the Severance Payment if, after giving effect to that payment, the
Company's net capital will be less than $3,500,000.00 at the end of the broker
month during which Executive's employment was terminated. Notwithstanding any
other provision of this Agreement to the contrary, for purposes of this
paragraph 5, all compensation payable pursuant to paragraph 3 hereof shall be
accrued to the date of termination of employment.
6. Confidentiality of Trade Secrets and Other Materials.
Other than in the performance of his duties hereunder, Executive agrees not to
disclose, either during the term of his employment by the Company or at any
time thereafter, to any person, firm or corporation any information concerning
the business affairs, the trade secrets or the customer lists or similar
information of the Company. Any technique, method, process, technology or
customer compilation or list used by the Company shall be considered a "trade
secret" for the purposes of this Agreement. Notwithstanding the foregoing, the
names and other information relating to the retail brokerage customers of
Executive who have been assigned Executive's A/E number shall not be considered
as "confidential information" for purposes of this Section 6 or any other
provision of this Agreement.
7. Termination.
7.1 Bases for Termination.
(a) Executive's employment hereunder may be terminated at
any time by mutual agreement of the parties.
(b) Executive's employment hereunder shall automatically
terminate on the last day of the month in which Executive dies. If Executive
becomes permanently disabled and is unable to perform the essential duties
defined in paragraph 4 hereof (the "Duties") with or without accommodation,
then Executive's employment hereunder may be terminated. "Permanent
disability" as used herein shall mean mental or physical disability or both,
evidenced by:
<PAGE> 4
(i) a consecutive six month period of time during which
Executive is unable to perform the Duties with or without
accommodation; and
(ii) medical documentation from Executive's attending
physician or a duly licensed independent physician selected by
the Company's Board of Directors, stating that Executive is
physically and/or mentally disabled from performing the
essential Duties with or without accommodation and that the
disabling condition is permanent and will not substantially
change or improve.
Executive may terminate his or her employment hereunder by
giving the Company 60 days prior written notice, which termination shall be
effective on the 60th day following such notice.
(d) Executive's employment may not be terminated by the
Company against his or her will without a finding, by an impartial third person
or panel, of fraud, theft or defalcation.
8. Noncompete. Executive covenants and agrees that
during the term of his employment hereunder and for a period of one (1) year
thereafter (the "Noncompetition Period"), Executive shall not, directly or
indirectly recruit, solicit or otherwise induce any customer, officer or
employee of the Company to discontinue such relationship with the Company.
During the Noncompetition Period, Executive shall hold in confidence and shall
not disclose to anyone, or use or otherwise exploit for his own benefit or the
benefit of any person or entity, any confidential or proprietary information of
the Company, including, without limitation, customer and vendor lists,
financial statements and information, trade secrets or marketing arrangements
and plans, unless directed to do so by order of any court; provided, however,
that the terms of this paragraph 8 shall not restrict Executive with respect to
any Company customer who has been assigned Executive's A/E number.
9. Miscellaneous.
9.1 Transfer and Assignment. This Agreement is personal
as to Executive and shall not be assigned or transferred by Executive without
the prior written consent of the Company. This Agreement shall be binding upon
and inure to the benefit of all of the parties hereto and their respective
permitted heirs, personal representatives, successors and assigns.
9.2 Severability. Nothing contained herein shall be
construed to require the commission of any act contrary to law. Should there
by any conflict between any provisions hereof and any present or future
statute, law, ordinance, regulation, or other pronouncement having the force of
law, the latter shall prevail, but the provision of this Agreement affected
thereby shall be curtailed and limited only to the extent necessary to bring it
within the requirements of the law, and the remaining provisions of this
Agreement shall remain in full force and effect.
9.3 Governing Law. This Agreement is made under and
shall be construed pursuant to the laws of the State of Washington.
<PAGE> 5
9.4 Counterparts. This Agreement may be executed in
several counterparts and all documents so executed shall constitute one
agreement, binding on all of the parties hereto, notwithstanding that all of
the parties did not sign the original or the same counterparts.
9.5 Entire Agreement. This Agreement constitutes the
entire agreement and understanding of the parties with respect to the subject
matter hereof and supersedes all prior oral or written agreements,
arrangements, and understandings with respect thereto. No representation,
promise, inducement, statement or intention has been made by any party hereto
that is not embodied herein, and not party shall be bound by or liable for any
alleged representation, promise, inducement or statement not so set forth
herein.
9.6 Modification. This Agreement may be modified,
amended, superseded, or canceled, and any of the terms, covenants,
representations, warranties or conditions hereof may be waived, only by a
written instrument executed by the party or parties to be bound by any such
modification, amendment, supersession, cancellation, or waiver.
9.8 Attorneys' Fees and Costs. In the event of any
dispute arising out of the subject matter of this Agreement, the prevailing
party shall recover, in addition to any other damages assessed, its attorneys'
fees and court costs incurred in litigating or otherwise settling or resolving
such dispute whether or not an action is brought or prosecuted to judgment. In
construing this Agreement, none of the parties hereto shall have any term or
provision construed against such party solely by reason of such party having
drafted the same.
9.9 Wavier. The waiver by either of the parties, express
or implied, of any right under this Agreement or any failure to perform under
this Agreement by the other party, shall not constitute or be deemed as a
waiver of any other right under this Agreement, or of any other failure to
perform under this Agreement by the other party, whether of a similar or
dissimilar nature.
9.10 Cumulative Remedies. Each and all of the several
rights and remedies provided in this Agreement, or by law or in equity, shall
be cumulative, and no one of them shall be exclusive of any other right or
remedy, and the exercise of any one of such rights or remedies shall not be
deemed a waiver of, or an election to exercise, any other such right or remedy.
9.11 Headings. The section and other headings contained
in this Agreement are for reference purposes only and shall not in any way
affect the meaning and interpretation of this Agreement.
9.12 Notices. Any notice under this Agreement must be in
writing, may be telecopied, sent by express 24-hour guaranteed courier, or
hand-delivered, or may be served by depositing the same in the United States
mail, addressed to the party to be notified, postage- prepaid and registered or
certified with a return receipt requested. The addresses of the parties for
the receipt of notice shall be as follows:
<PAGE> 6
If to the Company: National Securities Corporation
1001 Fourth Avenue
Suite 2200
Seattle, Washington 98154
Attn: Chief Executive Officer
If to Executive: Steven A. Rothstein
2737 Illinois Road
Wilmette, Illinois 60091
with copy to: Camhy Karlinsky & Stein
1740 Broadway, 16th Floor
New York, New York 10019-4315
Attn: Alan I. Annex, Esq.
Each notice given by registered or certified mail shall be deemed delivered and
effective on the date of delivery as shown on the return receipt, and each
notice delivered in any other manner shall be deemed to be effective as of the
time of actual delivery thereof. Each party may change its address for notice
by giving notice thereof in the manner provided above.
IN WITNESS WHEREOF, the parties hereto have caused this
Employment Agreement to be executed as of the date first set forth above.
"Executive" NATIONAL SECURITIES CORPORATION
_______________________ By:_______________________________
Steven A. Rothstein , President
<PAGE> 1
EXHIBIT 10.23
ARTICLES OF INCORPORATION
OF
NATIONAL ASSET MANAGEMENT, INC.
FIRST: The name of this corporation is:
NATIONAL ASSET MANAGEMENT, INC.
SECOND: (a) The corporation is authorized to issue two
classes of shares, designated respectively "Common Stock" and "Preferred
Stock." 1,000,000 shares of Common Stock may be issued. 100,000 shares of
Preferred Stock may be issued.
(b) The board of directors may divide the Preferred
Stock into any number of series. The board shall fix the designation and
number of shares of each such series. The board may determine and alter the
rights, preferences, privileges and restrictions granted to and imposed upon
any wholly unissued series of the Preferred Stock. The board of directors
(within the limits and restrictions of any resolution adopted by it, originally
fixing the number of shares of any series) may increase or decrease the number
of shares of any such series after the issue of shares of that series, but not
below the number of then outstanding shares of such series.
THIRD: The street address of the corporation's initial registered
office and the name of its initial registered agent at that office is National
Securities Corporation, 1001 Fourth Avenue, Suite 2200, Seattle, Washington
98154.
FOURTH: The name and address of the sole incorporator of the
corporation is Alexander H. Slivka, 1001 Fourth Avenue, Suite 2200, Seattle,
Washington 98154.
FIFTH: The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under Washington
law.
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Incorporation this ___th day of June, 1994.
____________________________
Alexander H. Slivka
1
<PAGE> 1
EXHIBIT 10.24
BYLAWS
OF
NATIONAL ASSET MANAGEMENT, INC.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICES. The board of directors shall fix the
location of the principal executive office of the corporation at any place
within or outside the State of Washington. The corporation shall maintain a
registered office in the State of Washington, at such place as may be fixed
from time to time by the board of directors.
Section 2. OTHER OFFICES. The board of directors may at any time
establish branch or subordinate offices at any place or places.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held
at any place within or outside the State of Washington designated by the board
of directors. In the absence of any such designation, shareholders' meetings
shall be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING. The annual meeting of shareholders shall be
held each year on a date and at a time designated by the board of directors. At
each annual meeting directors shall be elected, and any other proper business
within the power of the shareholders may be transacted.
Section 3. SPECIAL MEETING. A special meeting of the shareholders may
be called at any time by the board of directors, or by the chairman of the
board, or by the president or vice president, or by one or more shareholders
holding shares in the aggregate entitled to cast not less than ten percent of
the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of
such meeting and the general nature of the business proposed to be transacted,
and shall be
NATIONAL ASSET MANAGEMENT, INC.
BYLAWS - PAGE 1
<PAGE> 2
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board, the president, any vice
president, or the secretary of the corporation. The officer receiving the
request shall cause notice to be promptly given to the shareholders entitled to
vote, in accordance with the provisions of Section 4 and 5 of this Article II,
that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than thirty five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, the person or persons requesting the
meeting may give the notice. Nothing contained in this paragraph of this
Section 3 shall be construed as limiting, fixing, or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
Section 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings
of shareholders shall be sent or otherwise given in accordance with Section 5
of this Article II not less than ten (10) nor more than sixty (60) days before
the date of the meeting. The notice shall specify the place, date and hour of
the meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted, or (ii) in the case of the annual meeting, those
matters which the board of directors, at the time of giving the notice, intends
to present for action by the shareholders. The notice of any meeting at which
directors are to be elected shall include the name of any nominee or nominees
whom, at the time of the notice, management intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, (ii) an amendment of the articles of incorporation, (iii) a
reorganization of the corporation, (iv) a voluntary dissolution of the
corporation, or (v) a distribution in dissolution other than in accordance with
the rights of outstanding preferred shares, the notice shall also state the
general nature of that proposal.
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
shareholders' meeting shall be given either personally or by first class mail
or telegraphic or other written communication, charges prepaid, addressed to
the shareholder at the address of that shareholder appearing on the books of
the corporation or given by the shareholder to the corporation for the purpose
of notice. If no such address appears on the corporation's books or has been so
given, notice shall be deemed to have been given if sent to that shareholder by
first class mail or telegraphic or other written communication to the
corporation's principal executive office, or if published at least once in a
newspaper of general circulation in the county where that office is located.
Notice shall be deemed to have been given at the time when delivered
personally, deposited in the mail, delivered to a common carrier for
transmission to the recipient, actually transmitted by electronic means to the
recipient by the person giving the notice, or sent by other means of written
communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, all
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future notices or reports shall be deemed to have been duly given without
further mailing if these shall be available to the shareholder on written
demand of the shareholder at the principal executive office of the corporation
for a period of one year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting may be executed by the secretary, assistant secretary, or
any transfer agent of the corporation giving the notice, and filed and
maintained in the minute book of the corporation.
Section 6. QUORUM. The presence in person or by proxy of the holders
of a majority of the shares entitled to vote at any meeting of shareholders
shall constitute a quorum for the transaction of business. The shareholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum, if any action taken (other
than adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 7. ADJOURNED MEETING; NOTICE. Any shareholders' meeting,
annual or special, whether or not a quorum is present, may be adjourned from
time to time by the vote of the majority of the shares represented at that
meeting, either in person or by proxy, but in the absence of a quorum, no other
business may be transacted at that meeting, except as provided in Section 6 of
this Article II.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at a meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed, or unless the adjournment is for more than forty five (45) days from the
date set for the original meeting, in which case the board of directors shall
set a new record date. Notice of any such adjourned meeting, if required, shall
be given to each shareholder of record entitled to vote at the adjourned
meeting in accordance with the provisions of Sections 4 and 5 of this Article
II. At any adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting.
Section 8. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of Section
11 of this Article II, subject to the provisions of RCW Section 23B.07.210 of
the Washington Business Corporation Act. The shareholders' vote may be by
voice vote or by ballot, provided, however, that any election for directors
must be by ballot, if demanded by any shareholder before the voting has begun.
On any matter other than the election of directors, any shareholder may vote
part of the shares in favor of the proposal and refrain from voting the
remaining shares or vote them against the proposal, but, if the shareholder
fails to specify the number of shares which the shareholder is voting
affirmatively, it will be conclusively presumed that the shareholders'
approving vote is with respect to all shares that the shareholder is entitled
to vote. If a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on any matter (other
than the election of directors) shall be the act of the shareholders, unless
the vote of a greater number or voting by classes is required
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by Washington Business Corporation Act or by the articles of incorporation.
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
transactions of any meeting of shareholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum is present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, who was not present in person or by proxy, signs a written
waiver of notice or a consent to a holding of the meeting, or an approval of
the minutes. The waiver of notice or consent need not specify either the
business to be transacted or the purpose of any annual or special meeting of
shareholders, except that if action is taken or proposed to be taken for
approval of any of those matters specified in the second paragraph of Section 4
of this Article II, the waiver of notice or consent shall state the general
nature of the proposal. All such waivers, consents, or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except
that attendance at a meeting is not a waiver of any right to object to the
consideration of matters required by law to be included in the notice of the
meeting, but not so included, if that objection is expressly made at the
meeting.
Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Any action which may be taken at any annual or special meeting of shareholders
may be taken without a meeting and without prior notice, if a consent in
writing, setting forth the action so taken, is signed by all the holders
entitled to vote on the action. All such consents shall be filed with the
secretary of the corporation and shall be maintained in the corporate records.
Any shareholder giving a written consent, or the shareholder's proxy holder, or
a transferee of the shares or a personal representative of the shareholder or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of
shares required to authorize the proposed action have been filed with the
secretary.
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING
CONSENTS. For the purposes of determining the shareholders entitled to notice
of any meeting or to vote or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days or less than ten (10) days before
the date of any such meeting or more than sixty (60) days before any such
action without a meeting, and in this event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the
Washington Business Corporation Act.
If the board of directors does not so fix a record date:
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(a) The record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day on which notice is given or, if notice
is waived, at the close of business on the business day next preceding the day
on which the meeting is held.
(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action of the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
Section 12. PROXIES. Every person entitled to vote for directors or on
any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the shareholder or the
shareholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by
a writing delivered to the corporation stating that the proxy is revoked, or by
a subsequent proxy executed by, or attendance at the meeting and voting in
person by, the person executing the proxy, or (ii) written notice of the death
or incapacity of the maker of that proxy is received by the corporation before
the vote pursuant to that proxy is counted, provided, however, that no proxy
shall be valid after the expiration of eleven (11) months from the date of the
proxy, unless otherwise provided in the proxy. The revocability of a proxy that
states on its face that it is irrevocable shall be governed by the provisions
of section 23B.07.220 of the Washington Business Corporation Act.
Section 13. INSPECTORS OF ELECTION. Before any meeting of
shareholders, the board of directors may appoint any persons other than
nominees for office to act as inspectors of election at the meeting or its
adjournment. If no inspectors of election are so appointed, the chairman of the
meeting may, and on the request of any shareholder or a shareholder's proxy
shall, appoint inspectors of election at the meeting. The number of inspectors
shall be either one (1) or three (3). If inspectors are appointed at a meeting
on the request of one or more shareholders or proxies, the holders of a
majority of shares or their proxies present at the meeting shall determine
whether one (1) or three (3) inspectors are to be appointed. If any person
appointed as inspector fails to appear or fails or refuses to act, the chairman
of the meeting may, and upon the request of any shareholder or a shareholder's
proxy shall, appoint a person to fill that vacancy. These inspectors shall:
(a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, and the
authenticity, validity, and effect of proxies;
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(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the Washington
Business Corporation Act and any limitations in the articles of incorporation
and these bylaws relating to action required to be approved by the shareholders
or by the outstanding shares, the business and affairs of the corporation shall
be managed and all corporate powers shall be exercised by or under the
direction of the board of directors.
Without prejudice to these general powers, and subject to the same
limitations, the board of directors shall have the power to:
(a) Select and remove all officers, agents, and employees of the
corporation, prescribe any powers and duties for them that are consistent with
law, with the articles of incorporation, and with these bylaws, fix their
compensation, and require from them security for faithful service.
(b) Change the principal executive office or the principal business
office in the State of Washington from one location to another, cause the
corporation to be qualified to do business in any other state, territory,
dependency, or country and conduct business within or without the State of
Washington, and designate any place within or without the State of Washington
for the holding of any shareholders' meeting or meetings, including annual
meetings.
(c) Adopt, make, and use a corporate seal, prescribe the forms of
certificates of stock; and alter the form of the seal and certificates.
(d) Authorize the issuance of shares of stock of the corporation on
any lawful terms, in consideration of money paid, labor done, services actually
rendered, debts or securities cancelled, or tangible or intangible property
actually received.
(e) Borrow money and incur indebtedness on behalf of the corporation,
and
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cause to be executed and delivered for the corporation's purposes, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations, and other evidences of debt and securities.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized
number of directors of the corporation shall be no more than five. An
indefinite number of directors may be changed, or the definite number changed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the number or
the minimum number of directors to less than five cannot be adopted if the
votes cast against its adoption at a meeting of the shareholders, or the shares
not consenting in the case of action by written consent, are equal to more than
16-2/3 percent of the outstanding shares entitled to vote. No amendment may
change the stated maximum number of authorized directors to a number greater
than two times the stated minimum number of directors minus one.
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall
be elected at each annual meeting of the shareholders to hold office until the
next annual meeting. Each director, including a director elected to fill a
vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
Section 4. VACANCIES. Vacancies in the board of directors may be
filled by a majority of the remaining directors whether or not less than a
quorum, or by a sole remaining director, except that a vacancy created by the
removal of a director by the vote or written consent of the shareholders or by
court order may be filled only by the vote of a majority of the shares entitled
to vote represented at a duly held meeting at which a quorum is present, or by
the written consent of holders of a majority of the outstanding shares entitled
to vote. Each director so elected shall hold office until the next annual
meeting of the shareholders and until a successor has been elected and
qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist in the event of the death, resignation, or removal of any director, or if
the board of directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, or if the authorized number of directors is increased, or if the
shareholders fail at any meeting of shareholders at which any director or
directors are elected to elect the number of directors to be voted for at that
meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary, or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the registration of a director is effective at a future time, the
board of directors
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may elect a successor to take office when the resignation becomes effective.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
Section 5. PLACE OF MEETING AND MEETINGS BY TELEPHONE. Regular
meetings of the board of directors may be held at any place within or outside
the State of Washington that has been designated from time to time by the
board. In the absence of such a designation, regular meetings shall be held at
the principal executive office of the corporation. Special meetings of the
board shall be held at any place within or outside the State of Washington that
has been designated in the notice of the meeting or, if not stated in the
notice or there is not notice, at the principal executive office of the
corporation. Any meeting, regular or special, may be held by conference
telephone or similar communication equipment, as long as all directors
participating in the meeting can hear one another, and all such directors shall
be deemed to be present in person at the meeting.
Section 6. ANNUAL MEETING. Immediately following each annual meeting
of shareholders, the board of directors shall hold a regular meeting at the
place that the annual meeting of shareholders was held or at any place that
shall have been designated by the board of directors, for the purpose of
organization, any desired election of officers, and the transaction of other
business. Notice of this meeting shall not be required.
Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the board
of directors shall be held without call at such time as shall from time to time
be fixed by the board of directors. Such regular meetings may be held without
notice.
Section 8. SPECIAL MEETINGS. Special meetings of the board of
directors for any purpose or purposes may be called at any time by the chairman
of the board or the president, any vice president, the secretary, or any two
directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first class mail or
telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. In case the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the meeting. In case the notice is delivered personally, or
by telephone or telegram, it shall be delivered personally or by telephone or
to the telegraph company at least forty-eight (48) hours before the time of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director to whom the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose of the meeting, nor need
it specify the place if the meeting is to be held at the principal executive
office of the corporation.
Section 9. QUORUM. A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to adjourn as
provided in Section 11 of this Article III. Every act or decision done or made
by a majority of the directors present at a meeting duly held at which a quorum
is
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present shall be regarded as the act of the board of directors. A meeting at
which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved by
at least a majority of the required quorum for that meeting.
Section 10. WAIVER OF NOTICE. The transactions of any meeting of the
board of directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum is present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding
the meeting, or an approval of the minutes. The waiver of notice or consent
need not specify the purpose of the meeting. All such waivers, consents, and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Notice of a meeting shall also be deemed duly given to
any director who attends the meeting without protesting, before or at its
commencement, the lack of notice to that director.
Section 11. ADJOURNMENT. A majority of the directors present, whether
or not constituting a quorum, may adjourn any meeting to another time and
place.
Section 12. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given, unless the meeting is adjourned
for more than twenty-four hours, in which case notice of the time and place
shall be given before the time of the adjourned meeting, in the manner
specified in Section 8 of this Article III, to the directors who were not
present at the time of the adjournment.
Section 13. ACTION WITHOUT MEETING. Any action required or permitted
to be taken by the board of directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
that action. Such action by written consent shall have the same force and
effect as a unanimous vote of the board of directors. Such written consent or
consents shall be filed with the minutes of the proceedings of the board.
Section 14. FEES AND COMPENSATION OF DIRECTORS. Directors and members
of committees may receive such compensation, if any, for their services, and
such reimbursement of expenses, as may be fixed or determined by resolution of
the board of directors. This Section 14 shall not be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for those services.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF DIRECTORS. The board of directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors, to
serve at the
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pleasure of the board. The board may designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of the committee. Any committee, to the extent provided in the
resolution of the board, shall have all the authority of the board, except with
respect to:
(a) The approval of any action which, under the Washington Business
Corporation Act, also requires shareholders' approval or approval of the
outstanding shares;
(b) The filling of vacancies on the board of directors or on any
committee;
(c) The fixing of compensation of the directors for serving on the
board or on any committee;
(d) The amendment or repeal of bylaws or the adoption of new bylaws;
(e) The amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) A distribution to the shareholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the board of
directors; or
(g) The appointment of any other committees of the board of directors
or the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, Section 5 (place of meetings), 7
(regular meetings), 8 (special meetings and notice), 9 (quorum), 10 (waiver of
notice), 11 (adjournment), 12 (notice of adjournment), and 13 (action without
meeting), with such changes in the context of those bylaws as are necessary to
substitute the committee and its members for the board of directors and its
members, except that the time of regular meetings of committees may be
determined either by resolution of the board of directors or by resolution of
the committee; special meetings of committees may also be called by resolution
of the board of directors; and notice of special meetings of committees shall
also be given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a
president, a secretary, and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more vice
presidents, one or more assistant secretaries, one or more assistant
treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 3 of
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this Article V. Any number of offices may be held by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article V, shall be chosen by the board of
directors, and each shall serve at the pleasure of the board, subject to the
rights, if any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The board of directors may appoint,
and may empower the president to appoint, such other officers as the business
of the corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in the bylaws or as
the board of directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the
rights, if any, of an officer under any contract of employment, any officer may
be removed, either with or without cause, by the board of directors, at any
regular or special meeting of the board, or, except in case of an officer
chosen by the board of directors, by any officer upon whom such power of
removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be
filled in the manner prescribed in these bylaws for regular appointments to
that office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such
an officer is elected, shall, if present, preside at meetings of the board of
directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the board of directors or prescribed by the
bylaws. If there is no president, the chairman of the board shall in addition
be the chief executive officer of the corporation and shall have the powers and
duties prescribed in Section 7 of this Article V.
Section 7. PRESIDENT. Subject to such powers, if any, as may be given
by the bylaws or board of directors to the chairman of the board, if there is
such an officer, the president shall be the general manager and chief executive
officer of the corporation and shall, subject to the control of the board of
directors, have general supervision, direction, and control of the business and
the officers of the corporation. He shall preside at all meetings of the
shareholders and, in the absence of the chairman of the board, or, if there is
none, at all meetings of the board of directors. He shall have the general
powers and duties of management usually vested in the office of president of a
corporation, and shall have such other powers and duties as may be prescribed
by the board of directors or the bylaws.
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Section 8. VICE PRESIDENTS. In the absence or disability of the
president, the vice presidents, if any, in order of their rank as fixed by the
board of directors, or, if not ranked, a vice president designated by the board
of directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by
the board of directors or the bylaws, and the president, or the chairman of the
board if there is no president.
Section 9. SECRETARY. The secretary shall keep or cause to be kept, at
the principal executive office or such other place as the board of directors
may direct, a book of minutes of all meetings and actions of directors,
committees of directors, and shareholders, with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice given,
the names of those present at directors' meetings or committee meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the board of directors, a record of
shareholders, or a duplicate record of shareholders, showing the names of all
shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates issued for the same, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary or assistant secretary, or if they are absent or unable
to act or refuse to act, any other officer of the corporation, shall give, or
cause to be given, notice of all meetings of the shareholders, of the board of
directors, and of committees of the board of directors, required by the bylaws
or by law to be given. The secretary shall keep the seal of the corporation if
one is adopted, in safe custody, and shall have such other powers and perform
such other duties as may be prescribed by the board of directors or by the
bylaws.
Section 10. TREASURER. The treasurer shall keep and maintain, or cause
to be kept and maintained, adequate and correct books and records of accounts
of the properties and business transactions of the corporation, including
accounts of its assets, liabilities, receipts, disbursements, gains, losses,
capital, retained earnings, and shares. The books of account shall at all
reasonable times be open to inspection by any director.
The treasurer shall deposit all moneys and other valuables in the name
and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as treasurer and of the financial condition of the corporation,
and shall have other powers and perform such other duties as may be prescribed
by the board of directors or the bylaws.
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ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
The corporation shall, to the maximum extent permitted by the
Washington Business Corporation Act, have power to indemnify each of its agents
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact any such person is or was an agent of the corporation, and shall have
power to advance to each such agent expenses incurred in defending any such
proceeding to the maximum extent permitted by that law. For purposes of this
Article, an "agent" of the corporation includes any person who is or was a
director, officer, employee, or other agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust, or other
enterprise, or was a director, officer, employee, or agent of a corporation
which was a predecessor corporation of the corporation or of another enterprise
at the request of such predecessor corporation.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF RECORD OF SHAREHOLDERS. The
corporation shall keep at its principal executive office, or the office of its
transfer agent or registrar, if either be appointed and as determined by
resolution of the board of directors, a record of its shareholders, giving the
names and addresses of all shareholders and the number and class of shares held
by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of shareholders, names and
addresses and shareholdings during usual business hours on five days' prior
written demand on the corporation, and (ii) obtain from the transfer agent of
the corporation, on written demand and on the tender of such transfer agent's
usual charges for such list, a list of the shareholders' names and addresses,
who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
This list shall be made available to any such shareholder or shareholders by
the transfer agent on or before the later of five (5) days after the demand is
received or the date specified in the demand as the date as of which the list
is to be compiled. The record of shareholders shall also be open to inspection
on the written demand of any shareholder or holder of a voting trust
certificate at any time during usual business hours, for a purpose reasonably
related to the holder's interests as a shareholder or as the holder of a voting
trust certificate. Any inspection and copying under this Section I may
NATIONAL ASSET MANAGEMENT, INC.
BYLAWS - PAGE 13
<PAGE> 14
be made in person or by an agent or attorney of the shareholder or holder of a
voting trust certificate making the demand.
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall
keep at its principal executive office, or if its principal executive office is
not in the State of Washington, at its principal business office in this state,
the original or a copy of the bylaws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during office hours. If
the principal executive office of the corporation is outside the State of
Washington and the corporation has no principal business office in this state,
the Secretary shall, upon the written request of any shareholder, furnish to
that shareholder a copy of the bylaws as amended to date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The
accounting books and records and minutes of proceedings of the shareholders and
the board of directors and any committee or committees of the board of
directors shall be kept at such place or places designated by the board of
directors, or, in the absence of such designation, at the principal executive
office of the corporation. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form. The minutes and
accounting books and records shall be open to inspection upon the written
demand of any shareholder or holder of voting trust certificate, at any
reasonable time during usual business hours, for a purpose reasonably related
to the holder's interests as a shareholder or as the holder of a voting trust
certificate. The inspection may be made in person or by an agent or attorney,
and shall include the right to copy and make extracts. These rights of
inspection shall extend to the records of each subsidiary corporation of the
corporation.
Section 4. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the corporation and each
of its subsidiary corporations. This inspection by a director may be made in
person or by an agent or attorney and the right of inspection includes the
right to copy and make extracts of documents.
Section 6. FINANCIAL STATEMENTS. A copy of any annual financial
statement and any income statement of the corporation for each quarterly period
of each fiscal year, and any accompanying balance sheet of the corporation as
of the end of each such period, that has been prepared by the corporation shall
be kept on file in the principal executive office of the corporation for twelve
(12) months and each such statement shall be exhibited at all reasonable times
to any shareholder demanding an examination of any such statement or a copy
shall be mailed to any such shareholder.
If a shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation make a written
request to the corporation for an income statement of the corporation for the
three-month, six-month, or nine-month period of the current fiscal year ended
more than thirty (30) days before the date of the request, and a balance sheet
of the corporation as of the end of that period, the chief financial officer
shall cause that
NATIONAL ASSET MANAGEMENT, INC.
BYLAWS - PAGE 14
<PAGE> 15
statement to be prepared, if not already prepared, and shall deliver personally
or mail that statement or statements to the person making the request within
thirty (30) days after the receipt of the request. If the corporation has not
sent the shareholders its annual report for the last fiscal year, this report
shall likewise be delivered or mailed to the shareholder or shareholders within
thirty (30) days after the request.
The corporation shall also, on the written request of any shareholder,
mail to the shareholder a copy of the last annual, semi-annual, or quarterly
income statement which it has prepared, and a balance sheet as of the end of
that period.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
ARTICLE VIII
GENERAL CORPORATE MATTERS
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For
purposes of determining the shareholders 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 other lawful action (other than action by
shareholders by written consent without a meeting), the board of directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
before any such action, and in that case only shareholders of record on the
date so fixed are entitled to receive the dividend, distribution or allotment
of rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date so
fixed, except as otherwise provided in the Washington Business Corporation Act.
If the board of directors does not so fix a record date, the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
drafts, or other orders for payment of money, notes, or other evidences of
indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time
to time, shall be determined by resolution of the board of directors.
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
board of directors, except as otherwise provided in these bylaws, may authorize
any officer or officers, agent or agents, to enter into any contract or execute
any instrument
NATIONAL ASSET MANAGEMENT, INC.
BYLAWS - PAGE 15
<PAGE> 16
in the name of and on behalf of the corporation, and this authority may be
general or confined to specific instances, and, unless so authorized or
ratified by the board of directors or within the agency power of an officer, no
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 to render
it liable for any purpose or for any amount.
Section 4. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of the capital stock of the corporation shall be issued to each
shareholder when any of these shares are fully paid, and the board of directors
may authorize the issuance of certificates or shares as partly paid provided
that these certificates shall state the amount of the consideration to be paid
for them and the amount paid. All certificates shall be signed in the name of
the corporation by the chairman of the board or vice chairman of the board or
the president or vice president and by the chief financial officer or an
assistant treasurer or the secretary or any assistant secretary, certifying the
number of shares and the class or series of shares owned by the shareholder.
Any or all of the signatures on the certificate may be facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed on a certificate shall have ceased to be that
officer, transfer agent, or registrar before that certificate is issued, it may
be issued by the corporation with the same effect as if that person were an
officer, transfer agent, or registrar at the date of issue.
Section 5. LOST CERTIFICATES. Except as provided in this Section 5, no
new certificates for shares shall be issued to replace an old certificate
unless the latter is surrendered to the corporation and cancelled at the same
time. The board of directors may, in case any share certificate or certificate
for any other security is lost, stolen, or destroyed, authorize the issuance of
a replacement certificate on such terms and conditions as the board may
require, including provision for indemnification of the corporation secured by
a bond or other adequate security sufficient to protect the corporation against
any claim that may be made against it, including any expense or liability, on
account of the alleged loss, theft, or destruction of the certificate or the
issuance of the replacement certificate.
Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
chairman of the board, the president, or any vice president, or any other
person authorized by resolution of the board of directors or by any of the
foregoing designated officers, is authorized to vote on behalf of the
corporation any and all shares of any other corporation or corporations,
foreign or domestic, standing in the name of the corporation The authority
granted to these officers to vote or represent on behalf of the corporation any
and all shares held by the corporation in any other corporation or corporations
may be exercised by any of these officers in person or by any person authorized
to do so by a proxy duly executed by these officers.
Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in
the Washington Business Corporation Act shall govern the construction of these
bylaws. without limiting the generality of this provision, the singular number
includes
NATIONAL ASSET MANAGEMENT, INC.
BYLAWS - PAGE 16
<PAGE> 17
the plural, the plural number includes the singular, and the term "person"
includes both a corporation and a natural person.
Section 8. REIMBURSEMENT. If all or part of the salary or other
compensation, interest or rent paid to, or entertainment expense incurred by,
an employee, officer, or director of the corporation is finally determined not
to be allowable as a federal or state income tax deduction, the employee,
officer or director shall repay to the corporation the amount disallowed. The
board of directors shall enforce repayment of each such amount disallowed.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or
these bylaws may be amended or repealed by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote, except as
otherwise provided by law, these bylaws, or the articles of incorporation,
provided, however, that if the articles of incorporation of the corporation set
forth the number of authorized directors of the corporation, the authorized
number of directors may be changed only by an amendment of the articles of
incorporation.
Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the
shareholders as provided in Section 1 of this Article IX, bylaws, other than a
bylaw or an amendment of a bylaw changing the authorized number of directors,
may be adopted, amended, or repealed by the board of directors.
SECRETARY'S CERTIFICATE OF ADOPTION OF BYLAWS
I hereby certify that I am the duly elected and acting Secretary of
NATIONAL ASSET MANAGEMENT, INC., a Washington corporation, and that
the foregoing Bylaws, comprising 20 pages, constitute the Bylaws of
said corporation as duly adopted at a meeting of the Board of
Directors thereof held on September 26, 1994.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed
seal of said corporation on September 26, 1994.
(Corporate Seal) ____________________________
JAY W. HANVILLE, Secretary
NATIONAL ASSET MANAGEMENT, INC.
BYLAWS - PAGE 17
<PAGE> 1
EXHIBIT 10.25
BUSINESS LOAN AGREEMENT
THIS BUSINESS LOAN AGREEMENT ("AGREEMENT") IS MADE BETWEEN BANK OF AMERICA NW,
N.A. DBA SEAFIRST BANK ("BANK") AND NATIONAL SECURITIES CORPORATION
("BORROWER") WITH RESPECT TO THE FOLLOWING:
PART A
Subject to the terms of this Agreement, Bank will make loans to Borrower under
the following provisions.
CREDIT LINE:
Facility #1 $15,000,000
Facility #2 $1,000,000
GUARANTOR: None
LOAN PURPOSES:
Facility #1 For intraday loans to fund the underwriting of
new security issues.
Facility #2 Cover cash shortfalls caused by stock/bond
trading activity and client money market
withdrawals. If outstanding balance exceeds 3
days, balance to transfer to Facility # 1.
INTEREST RATE: Bank of America NW, NA dba Seafirst Bank
prime rate plus zero percent of principal per
annum, changed on the day of any Bank of
America NW, NA. dba Seafirst Bank prime rate
change. All interest will be calculated at
the per annum rate based on a 360 day year and
applied to the actual number of days elapsed.
REPAYMENT: The principal balance outstanding shall be
due in full on March 1, 1997. Interest
payments shall be paid monthly on the first
day of each month.
ADVANCE RATE: Maximum advance rate of 90% on marketable
securities.
SECURITY:
Facility #1 Marketable securities. Also, collateral
securing other loans with Bank may secure this
loan.
Facility #2 Unsecured. Also, collateral securing other
loans with Bank may secure this loan.
AVAILABILITY/EXPIRATION: This revolving facility is available for
advances until March 1, 1997, and any advances
are to mature no later than March 1, 1997. If,
however, advances are made and/or new
promissory notes executed after this date,
such advances will extend and be subject to
this commitment until repaid in full, unless a
written statement signed by
<PAGE> 2
the Bank and Borrower provides otherwise, or a
subsequent mutually satisfactory loan
agreement is executed.
<PAGE> 3
BUSINESS LOAN AGREEMENT
PART B
1. PROMISSORY NOTE(S). All loans shall be evidenced by promissory notes
in a form and substance satisfactory to Bank.
2. CONDITIONS TO AVAILABILITY OF LOAN/LINE OF CREDIT. Before Bank is
obligated to disburse/make any advance, or at any time thereafter
which Bank deems necessary and appropriate, Bank must receive all of
the following, each of which. must be in form and substance
satisfactory to Bank ("loan documents"):
2.1 Original, executed promissory note(s);
2.2 Original executed security agreement(s) and/or deed(s) of
trust covering the collateral described in Part A;
2.3 All collateral described in Part A in which Bank wishes to
have a possessory security interest;
2.4 Financing statement(s) executed by Borrower;
2.5 Such evidence that Bank may deem appropriate that the security
interests and liens in favor of Bank are valid, enforceable,
and prior to the rights and interests of others except those
consented to in writing by Bank;
2.6 Evidence that the execution, delivery, and performance by
Borrower of this Agreement and the execution, delivery, and
performance by Borrower and any corporate guarantor or
corporate subordinating creditor of any instrument or
agreement required under this Agreement, as appropriate, have
been duly authorized;
2.7 Any other document which is deemed by the Bank to be required
from time to time to evidence loans or to effect the
provisions of this Agreement;
2.8 If requested by Bank, a written legal opinion expressed to
Bank, of counsel for Borrower as to the matters set forth in
sections 3.1 and 3.2, and to the best of such counsel's
knowledge after reasonable investigation, the matters set
forth in sections 3.3, 3.5, 3.6, 3.7, 3.8 and such other
matters as the Bank may reasonably request;
2.9 Pay or reimburse Bank for any out-of-pocket expenses expended
in making or administering the loans made hereunder including
without limitation attorney's fees (including allocated costs
of in-house counsel);
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Bank, except as Borrower has disclosed to Bank in writing, as of the
date of this Agreement and hereafter so long as credit granted under
this Agreement is available and until full and final payment of all
sums outstanding under this Agreement and promissory notes that:
3.1 Borrower is duly organized and existing under the laws of the
state of its organization as a Corporation. Borrower is
properly licensed and in good standing in each state in which
<PAGE> 4
NATIONAL SECURITIES CORPORATION
BUSINESS LOAN AGREEMENT - PART B
PAGE 4
Borrower is doing business and Borrower has qualified under,
and complied with, where required, the fictitious or trade
name statutes of each state in which Borrower is doing
business, and Borrower has obtained all necessary government
approvals for its business activities; the execution,
delivery, and performance of this Agreement and such notes and
other instruments required herein are within Borrower's
powers, have been duly authorized, and, as to Borrower and any
guarantor, are not in conflict with the terms of any charter,
bylaw, or other organization papers of Borrower, and this
Agreement, such notes and the loan documents are valid and
enforceable according to their terms;
3.2 The execution, delivery, and performance of this Agreement,
the loan documents and any other instruments are not in
conflict with any law or any indenture, agreement or
undertaking to which Borrower is a party or by which Borrower
is bound or affected;
3.3 Borrower has title to each of the properties and assets as
reflected in its financial statements (except such assets
which have been sold or otherwise disposed of in the ordinary
course of business), and no assets or revenues of the Borrower
are subject to any lien except as required or permitted by
this Agreement, disclosed in its financial statements or
otherwise previously disclosed to Bank in writing;
3.4 All financial information, statements as to ownership of
Borrower and all other statements submitted by Borrower to
Bank, whether previously or in the future, are and will be
true and correct in all material respects upon submission and
are and will be complete upon submission insofar as may be
necessary to give Bank a true and accurate knowledge of the
subject matter thereof;
3.5 Borrower has filed all tax returns and reports as required by
law to be filed and has paid all taxes and assessments
applicable to Borrower or to its properties which are
presently due and payable, except those being contested in
good faith;
3.6 There are no proceedings, litigation or claims (including
unpaid taxes) against Borrower pending or, to the knowledge of
the Borrower, threatened, before any court or government
agency, and no other event has occurred which may have a
material adverse effect on Borrower's financial condition:
3.7 There is no event which is, or with notice or lapse of time,
or both, would be, an Event of Default (as defined in Section
7) under this Agreement;
3.8 Borrower has exercised due diligence in inspecting Borrower's
properties for hazardous wastes and hazardous substances.
Except as otherwise previously disclosed and acknowledged to
Bank in writing:
(a) during the period of Borrower's ownership of Borrower's
properties, there has been no use, generation, manufacture,
storage, treatment, disposal, release or threatened release of
any hazardous waste or hazardous substance by any person in,
on, under or about any of Borrower's properties; (b) Borrower
has no actual or constructive knowledge that there has
<PAGE> 5
NATIONAL SECURITIES CORPORATION
BUSINESS LOAN AGREEMENT - PART B
PAGE 5
been any use, generation, manufacture, storage, treatment,
disposal, release or threatened release of any hazardous waste
or hazardous substance by any person in, on, under or about
any of Borrower's properties by any prior owner or occupant of
any of Borrower's properties; and (c) Borrower has no actual
or constructive notice of any actual or threatened litigation
or claims of any kind by any person relating to such matters.
The terms "hazardous waste(s)," hazardous substance(s),"
"disposal," "release," and "threatened release" as used in
this Agreement shall have the same meanings as set forth in
the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et
seq., the Superfund Amendments and Reauthorization Act of
1986, as amended, Pub. L. No. 99-499, the Hazardous Materials
Transportation Act, as amended, 49 U.S. C. Section 1801, et
seq., the Resource Conservation and Recovery Act, as amended,
49 U.S.C. Section 6901, et seq., or other applicable state or
federal laws, rules or regulations adopted pursuant to any of
the foregoing.
4. AFFIRMATIVE COVENANTS. So long as credit granted under this Agreement
is available and until full and final payment of all sums outstanding
under this Agreement and promissory note(s) Borrower will:
4.1 Use the proceeds of the loans covered by this Agreement only
in connection with Borrower's business activities and
exclusively for the following purposes: to cover cash
shortfalls caused by stock/bond trading activity and client
money market withdrawals.
4.2 Maintain current assets in an amount at least equal to 1.1
times current liabilities, and not less than $2,500,000.
Current assets and current liabilities shall be determined in
accordance with generally accepted accounting principles and
practices, consistently applied;
4.3 Maintain a tangible net worth of at least $3,500,000 and net
capital in excess of SEC minimum requirement and not permit
Borrower's total indebtedness which is not subordinated in a
manner satisfactory to Bank to exceed 14 times Borrower's
tangible net worth. "Tangible net worth" means the excess of
total assets over total liabilities, excluding, however, from
the determination of total assets (a) all assets which should
be classified as intangible assets such as goodwill, patents,
trademarks, copyrights, franchises, and deferred charges
(including unamortized debt discount and research and
development costs), (b) treasury stock, (c) cash held in a
sinking or other similar fund established for the purpose of
redemption or other retirement of capital stock, (d) to the
extent not already deducted from total assets, reserves for
depreciation, depletion, obsolescence or amortization of
properties and other reserves or appropriations of retained
earnings which have been or should be established in
connection with the business conducted by the relevant
corporation, and (e) any revaluation or other write-up in book
value of assets subsequent to the fiscal year of such
corporation last ended at the date of this Agreement;
4.4 Promptly give written notice to Bank of: (a) all litigation
and claims made or threatened affecting Borrower where the
amount is $1,000,000 or more; (b) any substantial dispute
which may exist between Borrower and any governmental
regulatory body or law enforcement authority; (c) any Event of
Default under this Agreement or any other
<PAGE> 6
NATIONAL SECURITIES CORPORATION
BUSINESS LOAN AGREEMENT - PART B
PAGE 6
agreement with Bank or any other creditor or any event which
become an Event of Default; and (d) any other matter which has
resulted or might result in a material adverse change in
Borrower's financial condition or operations;
4.5 Borrower shall as soon as available, but in any event within
90 days following the end of each Borrower's fiscal years and
within 60 days following the end of each quarter provide to
Bank, in a form satisfactory to Bank (including audited
statements if required at any time by Bank), such financial
statements and other information respecting the financial
condition and operations of Borrower as Bank may reasonably
request;
4.6 Borrower will maintain in effect insurance with responsible
insurance companies in such amounts and against such risks as
is customarily maintained by persons engaged in businesses
similar to that of Borrower and all policies covering property
given as security for the loans shall have loss payable
clauses in favor of Bank. Borrower agrees to deliver to Bank
such evidence of insurance as Bank may reasonably require and,
within thirty (30) days after notice from Bank, to obtain such
additional insurance with an insurer satisfactory to the Bank;
4.7 Borrower will pay all indebtedness taxes and other obligations
for which the Borrower is liable or to which its income or
property is subject before they shall become delinquent,
except any which is being contested by the Borrower in good
faith;
4.8 Borrower will continue to conduct its business as presently
constituted, and will maintain and preserve all rights,
privileges and franchises now enjoyed, conduct Borrower's
business in an orderly, efficient and customary manner, keep
all Borrowers properties in good working order and condition,
and from time to time make all needed repairs, renewals or
replacements so that the efficiency of Borrower's properties
shall be fully maintained and preserved;
4.9 Borrower will maintain adequate books, accounts and records
and prepare all financial statements required hereunder in
accordance with generally accepted accounting principles and
practices consistently applied, and in compliance with the
regulations of any governmental regulatory body having
jurisdiction over Borrower or Borrower's business;
4.10 Borrower will permit representatives of Bank to examine and
make copies of the books and records of Borrower and to
examine the collateral of the Borrower at reasonable times;
4.11 Borrower will perform, on request of Bank, such acts as may be
necessary or advisable to perfect any lien or security
interest provided for herein or otherwise carry out the intent
of this Agreement;
4.12 Borrower will comply with all applicable federal, state and
municipal laws, ordinances, rules and regulations relating to
its properties, charters, businesses and operations, including
compliance with all minimum funding and other requirements
related to any of Borrower's employee benefit plans;
<PAGE> 7
NATIONAL SECURITIES CORPORATION
BUSINESS LOAN AGREEMENT - PART B
PAGE 7
4.13 Borrower will permit representatives of Bank to enter onto
Borrower's properties to inspect and test Borrower's
properties as Bank, in its sole discretion, may deem
appropriate to determine Borrower's compliance with section
5.8 of this Agreement; provided however, that any such
inspections and tests shall be for Bank's sole benefit and
shall not be construed to create any responsibility or
liability on the part of Bank to Borrower or to any third
party.
5. NEGATIVE COVENANTS. So long as credit granted under this Agreement is
available and until full and final payment of all sums outstanding
under this Agreement and promissory note(s):
5.1 Borrower will not, during any fiscal year, expend or incur in
the aggregate more than $500,000 for fixed assets, nor more
than $250,000 for any single fixed asset whether or not
payable that fiscal year or later under any purchase agreement
or lease;
5.2 Borrower will not, without the prior written consent of Bank
purchase or lease under an agreement for acquisition, incur
any other indebtedness for borrowed money, mortgage, assign,
or otherwise encumber any of Borrower's assets, nor sell,
transfer or otherwise hypothecate any such assets except in
the ordinary course of business. Borrower shall not guaranty,
endorse, co-sign, or otherwise become liable upon the
obligations of others, except by the endorsement of negotiable
instruments for deposit or collection in the ordinary course
of business. For purposes of this paragraph, the sale or
assignment of accounts receivable, or the granting of a
security interest therein, shall be deemed the incurring of
indebtedness for borrowed money;
5.3 Borrower will not, without Bank's prior written consent,
declare any dividends on shares of its capital stock, or apply
any of its assets to the purchase, redemption or other
retirement of such shares, or otherwise amend its capital
structure;
5.4 Borrower will not liquidate or dissolve or enter into any
consolidation, merger, pool, joint venture, syndicate or other
combination, or sell, lease, or dispose of Borrower's business
assets as a whole or such as in the opinion of Bank constitute
a substantial portion of Borrower's business or assets;
5.5 Borrower will not engage in any business activities or
operations substantially different from or unrelated to
present business activities or operations; and
5.6 Borrower, and Borrower's tenants, contractors, agents or other
parties authorized to use any of Borrower's properties, will
not use, generate, manufacture, store, treat, dispose of, or
release any hazardous substance or hazardous waste in, on,
under or about any of Borrower's properties, except as
previously disclosed to Bank in writing as provided in section
3.8; and any such activity shall be conducted in compliance
with all applicable federal, state and local laws, regulations
and ordinances, including without limitation those described
in section 3.8.
6 WAIVER, RELEASE AND INDEMNIFICATION. Borrower hereby:(a) releases and
waives any claims against Bank for indemnity or contribution in the
event Borrower becomes liable for cleanup or other costs
<PAGE> 8
NATIONAL SECURITIES CORPORATION
BUSINESS LOAN AGREEMENT - PART B
PAGE 8
under any of the applicable federal, state or local laws, regulations
or ordinances, including without limitation those described in section
3.8, and (b) agrees to indemnify and hold Bank harmless from and
against any and all claims, losses, liabilities, damages, penalties
and expenses which Bank may directly or indirectly sustain or suffer
resulting from a breach of (i) any of Borrower's representations and
warranties with respect to hazardous wastes and hazardous substances
contained in section 3.8, or (ii) section 5.8. The provisions of this
section 6 shall survive the full and final payment of all sums
outstanding under this Agreement and promissory notes and shall not be
affected by Bank's acquisition of any interest in any of the
Borrower's properties, whether by foreclosure or otherwise.
7. EVENTS OF DEFAULT. The occurrence of any of the following events
("Events of Default") shall terminate any and all obligations on the
part of Bank to make or continue the loan and/or line of credit and,
at the option of Bank, shall make all sums of interest and principal
outstanding under the loan and/or line of credit immediately due and
payable, without notice of default, presentment or demand for payment,
protest or notice of non payment or dishonor, or other notices or
demands of any kind or character, all of which are waived by Borrower,
and Bank may proceed with collection of such obligations and
enforcement and realization upon all security which it may hold and to
the enforcement of all rights hereunder or at law:
7.2 Borrower shall fail to comply with the provisions of any other
covenant, obligation or term of this Agreement for a period of
fifteen (15) days after the earlier of written notice thereof
shall have been given to the Borrower by Bank or Borrower or
any Guarantor has knowledge of an Event of Default or an event
that can become an Event of Default:
7.3 Borrower shall fail to pay when due any other obligation for
borrowed money, or to perform any term or covenant on its part
to be performed under any agreement relating to such
obligation or any such other debt shall be declared to be due
and payable and such failure shall continue after the
applicable grace period;
7.4 Any representation or warranty made by Borrower in this
Agreement or in any other statement to Bank shall prove to
have been false or misleading in any material respect when
made;
7.5 Borrower makes an assignment for the benefit of creditors,
files a petition in bankruptcy, is adjudicated insolvent or
bankrupt, petitions to any court for a receiver or trustee for
Borrower or any substantial part of its property, commences
any proceeding relating to the arrangement, readjustment,
reorganization or liquidation under any bankruptcy or similar
laws, or if there is commenced against Borrower any such
proceedings which remain undismissed for a period of thirty
(30) days or, if Borrower by any act indicates its consent or
acquiescence in any such proceeding or the appointment of any
such trustee or receiver;
7.6 Loss of any required government approvals, and/or any
governmental regulatory authority takes or institutes action
which, in the opinion of Bank, will adversely affect
Borrower's condition, operations or ability to repay the loan
and/or line of credit;
<PAGE> 9
NATIONAL SECURITIES CORPORATION
BUSINESS LOAN AGREEMENT - PART B
PAGE 9
7.7 Failure of Bank to have a legal, valid and binding first lien
on, or a valid and enforceable prior perfected security
interest in, any property covered by any deed of trust or
security agreement required under this Agreement;
7.8 Borrower dies, becomes incompetent, or ceases to exist as a
going concern;
7.9 Occurrence of an extraordinary situation which gives Bank
reasonable grounds to believe that Borrower may not, or will
be unable to, perform its obligations under this or any other
agreement between Bank and Borrower; or
7.10 Any of the preceding events occur with respect to any
guarantor of credit under this Agreement, or such guarantor
dies or becomes incompetent, unless the obligations arising
under the guaranty and related agreements have been
unconditionally assumed by the guarantor's estate in a manner
satisfactory to Bank.
8. SUCCESSORS; WAIVERS. Notwithstanding the Events of Default above, this
Agreement shall be binding upon and inure to the benefit of Borrower and
Bank, their respective successors and assigns, except that Borrower may
not assign its rights hereunder. No consent or waiver under this
Agreement shall be effective unless in writing and signed by the Bank and
shall not waive or affect any other default, whether prior or subsequent
thereto, and whether of the same or different type. No delay or omission
on the part of the Bank in exercising any right shall operate as a waiver
of such right or any other right.
9. ARBITRATION.
9.1 At the request of either Bank or Borrower any controversy or claim
between the Bank and Borrower, arising from or relating to this
Agreement or any Loan Document executed In connection with this
Agreement or arising from any alleged tort shall be settled by
arbitration in King County Washington. The United States
Arbitration Act will apply to the arbitration proceedings which
will be administered by the American Arbitration Association under
its commercial rules of arbitration except that unless the amount
of the claim(s) being arbitrated exceeds $5,000,000 there shall be
only one arbitrator. Any controversy over whether an issue is
arbitrable shall be determined by the arbitrator(s). Judgment
upon the arbitration award may be entered in any court having
Jurisdiction. The institution and maintenance of any action for
Judicial relief or pursuit of a provisional or ancillary remedy
shall not constitute a waiver of the right of either party,
including plaintiff, to submit the controversy or claim to
arbitration if such action for judicial relief is contested.
For purposes of the application of the statute of limitations the
filing of an arbitration as provided herein is the equivalent of
filing a lawsuit and the arbitrator(s) will have the authority to
decide whether any claim or controversy is barred by the statute
of limitations, and if so, to dismiss the arbitration on that
basis. The parties consent to the joinder in the arbitration
proceedings of any guarantor, hypothecator or other party having
an interest related to the claim or controversy being arbitrated.
<PAGE> 10
NATIONAL SECURITIES CORPORATION
BUSINESS LOAN AGREEMENT - PART B
PAGE 10
9.2 Notwithstanding the provisions of Section 9.1, no controversy
or claim shall be submitted to arbitration without the consent
of all parties if at the time of the proposed submission, such
controversy or claim arises from or relates to an obligation
secured by real property;
9.3 No provision of this Section 9 shall limit the right of the
Borrower or the Bank to exercise self-help remedies such as
setoff, foreclosure or sale of any collateral, or obtaining
any ancillary provisional or interim remedies from a court of
competent jurisdiction before, after or during the pendency of
any arbitration proceeding. The exercise of any such remedy
does not waive the right of either party to request
arbitration. At Bank's option foreclosure under any deed of
trust may be accomplished by exercise of the power of sale
under the deed of trust or judicial foreclosure as a mortgage.
10. COLLECTION ACTIVITIES, LAWSUITS AND GOVERNING LAW. Borrower agrees to
pay Bank all costs and expenses (including reasonable attorney's fees
and the allocated cost for in-house legal services incurred by Bank),
to enforce this Agreement, any notes or any Loan Documents pursuant to
this Agreement, whether or not suit is instituted. If suit is
instituted by Bank to enforce this Agreement or any of these
documents, Borrower consents to the personal jurisdiction of the
Courts of the State of Washington and Federal Courts located in the
State of Washington. Borrower further consents to the venue of this
suit, being laid in King County, Washington. This Agreement and any
notes and security agreements entered into pursuant to this Agreement
shall be construed in accordance with the laws of the State of
Washington.
11. ADDITIONAL PROVISIONS. Borrower agrees to the additional provisions
set forth immediately following this Section 11 or on any "Exhibit A"
attached to and hereby incorporated into Agreement. This Agreement
supersedes all oral negotiations or agreements between Bank and
Borrower with respect to the subject matter hereof and constitutes the
entire understanding and Agreement of the matters set forth in this
Agreement.
11.1 If any provision of this Agreement is held to be invalid or
unenforceable, then (a) such provision shall be deemed
modified if possible, or if not possible, such provision shall
be deemed stricken, and (b) all other provisions shall remain
in full force and effect.
11.2 If the imposition of or any change in any law, rule, or
regulation guideline or the interpretation or application of
any thereof by any court of administrative or governmental
authority (including any request or policy whether or not
having the force of law) shall impose or modify any taxes
(except U.S. federal, state or local income or franchise taxes
imposed on Bank), reserve requirements, capital adequacy
requirements or other obligations which would: (a) increase
the cost to Bank for extending or rnaintaining any loans
and/or line of credit to which this Agreement relates, (b)
reduce the amounts payable to Bank under this Agreement, such
notes and other instruments, or (c) reduce the rate of return
on Bank's capital as a consequence of Bank's obligations with
respect to any loan and/or line of credit to which this
Agreement relates, then Borrower agrees to pay Bank such
additional amounts as will compensate Bank therefor, within
five (5) days after Bank's written demand for such payment,
which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of
the additional amounts payable by Borrower, which explanation
and calculations shall be conclusive. absent manifest error.
<PAGE> 11
NATIONAL SECURITIES CORPORATION
BUSINESS LOAN AGREEMENT - PART B
PAGE 11
11.3 Bank may sell participations in or assign this loan in whole
or in part without notice to Borrower and Bank may provide
information regarding the Borrower and this Agreement to any
prospective participant or assignee. If a participation is
sold or the loan is assigned the purchaser will have the right
of set off against the Borrower and may enforce its interest
in the Loan irrespective of any claims or defenses the
Borrower may have against the Bank.
12. NOTICES. Any notices shall be given in writing to the opposite
party's signature below or as that party may otherwise specify in
writing.
13. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY. EXTEND CREDIT. OR
TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE
UNDER WASIIINGTON LAW.
This Business Loan Agreement (Parts A and B) executed by the parties on
_____________, 1996 Borrower acknowledges having read all of the provisions of
this Agreement and Borrower agrees to its terms.
SEAFIRST BANK NATIONAL SECURITIES CORPORATION
Metropolitan Commercial Banking Team 5
By:_________________________________ By:_________________________________
G. Paul Grohe, Vice President
Title:______________________________
Address: 1001 Fourth Avenue, 4th Floor Address: 1001 Fourth Avenue,
Seattle, Washington 98154 Suite 2200
Seattle, Washington 98l54
Phone: 206-358-0858 Phone: (206) 622-7200
Fax: 206-358-0019 Fax: (206)
<PAGE> 12
BUSINESS LOAN AGREEMENT
EXHIBIT A
At all times prior to expiration of this Commitment. you agree:
FINANCIAL INFORMATION: You will provide to us the following financial exhibits
at the following times:
Description Times
- ----------- -----
Audited fiscal year-end financial statement. Annually within 90 days of
year-end.
Interim financial statements and Focus Reports. Quarterly within 20 days of
quarter-end.
Monthly statements as available.
OTHER: You agree to maintain the following:
Seafirst collateral account maintained at DTC.
<PAGE> 1
EXHIBIT 10.27
LEASE
JOHN HANCOCK CENTER
TENANT: NATIONAL SECURITIES CORPORATION
DATE: MAY 1, 1996
<PAGE> 2
TABLE OF CONTENTS
Article 1 Demised Premises; Term . . . . . . . . . . . . . 1
Article 2 Base Rent . . . . . . . . . . . . . . . . . . . 1
Article 3 Additional Charges . . . . . . . . . . . . . . 2
Article 4 Use . . . . . . . . . . . . . . . . . . . . . . 6
Article 5 Services . . . . . . . . . . . . . . . . . . . 7
Article 6 Possession . . . . . . . . . . . . . . . . . . 8
Article 7 Condition of Premises . . . . . . . . . . . . . 9
Article 8 Repairs . . . . . . . . . . . . . . . . . . . . 9
Article 9 Alterations . . . . . . . . . . . . . . . . . . 10
Article 10 Covenant Against Liens . . . . . . . . . . . . 12
Article 11 Damage or Destruction by Fire or Casualty . . . 12
Article 12 Insurance . . . . . . . . . . . . . . . . . . . 13
Article 13 Liability Insurance . . . . . . . . . . . . . . 13
Article 14 Condemnation . . . . . . . . . . . . . . . . . 14
Article 15 Waiver of Claims/Indemnity . . . . . . . . . . 14
Article 16 Nonwaiver . . . . . . . . . . . . . . . . . . . 15
Article 17 Landlord's Remedies . . . . . . . . . . . . . . 15
Article 18 Surrender of Possession . . . . . . . . . . . . 16
Article 19 Holding Over . . . . . . . . . . . . . . . . . 17
Article 20 Costs, Expenses and Attorneys' Fees . . . . . . 17
Article 21 Compliance with Laws . . . . . . . . . . . . . 18
Article 22 Certain Rights Reserved By Landlord . . . . . . 18
Article 23 Estoppel . . . . . . . . . . . . . . . . . . . 19
Article 24 Rules and Regulations . . . . . . . . . . . . . 19
Article 25 Miscellaneous . . . . . . . . . . . . . . . . . 19
Article 26 Right to Change Location of the Premises . . . 20
Article 27 Assignment and Subletting . . . . . . . . . . . 21
Article 28 Notice . . . . . . . . . . . . . . . . . . . . 22
Article 29 Security Deposit . . . . . . . . . . . . . . . 23
Article 30 Default Under Other Lease/License . . . . . . . 24
Article 31 Conveyance by Landlord . . . . . . . . . . . . 24
<PAGE> 3
Article 32 Subordination of Lease . . . . . . . . . . . . 24
Article 33 Rights of Designated Third Parties . . . . . . 25
Article 34 Brokers . . . . . . . . . . . . . . . . . . . . 25
Article 35 Exculpation . . . . . . . . . . . . . . . . . . 25
Article 36 Covenant of Quiet Enjoyment . . . . . . . . . . 25
Article 37 Option to Terminate . . . . . . . . . . . . . . 25
Article 38 Options to Expand Premises . . . . . . . . . . 26
EXHIBITS
Exhibit A Plan of Premises
Exhibit B HVAC Specifications
Exhibit C Janitorial Specifications
Exhibit D Rules and Regulations
Exhibit E Expansion Spaces
<PAGE> 4
LEASE
JOHN HANCOCK CENTER
THIS LEASE, made as of May 1, 1996, between JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY, a Massachusetts corporation, hereinafter called LANDLORD,
and NATIONAL SECURITIES CORPORATION, a Washington corporation, hereinafter
called TENANT.
W I T N E S S E T H:
ARTICLE 1
DEMISED PREMISES; TERM
Landlord does hereby demise and lease to Tenant, and Tenant hereby
accepts that certain space as shown and designated on the plan attached hereto
and made a part hereof as Exhibit A, commonly described as Suite 1560 located
on a portion of the fifteenth (15th) floor containing approximately 3,630
rentable square feet of area ("Premises") in the building known as John Hancock
Center ("Building"), at 875 North Michigan Avenue, in the City of Chicago,
Illinois ("Property") for a term commencing on the 1st day of June, 1996 and
ending on the 31st day of May, 2001 ("Term"), unless sooner terminated as
provided herein, subject to the terms, covenants and agreements herein
contained.
ARTICLE 2
BASE RENT
Tenant shall pay to Landlord or Landlord's agent at the office of
Landlord or at such other place as Landlord may from time to time designate,
annual Base Rent in equal monthly installments as follows:
<TABLE>
<CAPTION>
Period Rate Per Sq. Ft. Annual Base Rent Monthly Installment
<S> <C> <C> <C>
June 1, 1996 - $18.00 $65,340.00 $5,445.00
May 31, 1997
June 1, 1997 - $21.35 $77,500.50 $6,458.38
May 31, 1998
June 1, 1998 - $21.85 $79,315.50 $6,609.63
May 31, 1999
June 1, 1999 - $22.35 $81,130.50 $6,760.88
May 31, 2000
June 1, 2000 - $22.85 $82,945.50 $6,912.13
May 31, 2001
</TABLE>
Each such monthly installment shall be payable in advance on the first
day of each and every calendar month during the Term, subject to the terms of
Article 6 below, to the extent applicable. If the Term commences on a day
other than the first day of a calendar month, or ends on a day other than the
last day of a calendar month, then the Base Rent for such fractional month
shall be prorated on the basis of 1/365th of the annual Base Rent for each day
of such fractional month. Base Rent shall be payable without any prior demand
therefor and without any deductions or setoffs whatsoever, except as otherwise
expressly provided herein.
-1-
<PAGE> 5
ARTICLE 3
ADDITIONAL CHARGES
Landlord and Tenant agree that the following additional charges shall
be payable with respect to each calendar year of the Term, or portion thereof,
after the Base Year (which Base Year shall be 1996):
(A) If Ownership Taxes for any calendar year of the Term
(including the calendar year in which this lease terminates) after the Base
Year shall exceed Ownership Taxes for the Base Year, Tenant shall pay to
Landlord an amount equal to Tenant's Proportionate Share of the amount by which
the Ownership Taxes for such calendar year exceed the Ownership Taxes for the
Base Year. Tenant's Proportionate Share of such Ownership Taxes for any
calendar year shall be 0.3324%, representing the percentage resulting from
dividing the total rentable area of the Premises by the total rentable area,
expressed in square feet, of that portion of the Building in which the Premises
have been included as part of the tax assessment, which as of the date of this
Lease is 1,092,108 square feet.
Ownership Taxes shall mean all taxes of every kind and nature which
Landlord shall pay or become obligated to pay in respect of a calendar year
because of or in connection with the ownership, operation, leasing and
management of the Building and the Property, subject to the following:
(i) the amount of ad valorem real and personal property
taxes against Landlord's real and personal property to be included
shall be the amount shown by the latest available tax bills on the
last day of the calendar year in respect of which Ownership Taxes are
being determined. The amount of any tax refunds shall be deducted
from Ownership Taxes in the year they are received by Landlord;
(ii) the amount of special taxes or special assessments to
be included shall be limited to the amount of the installments (plus
any interest, other than penalty interest, payable thereon) of such
special tax or special assessment required to be paid during the
calendar year in respect of which Ownership Taxes are being
determined;
(iii) there shall be included in Ownership Taxes all taxes
based upon leases or the receipt of rent which either in whole or in
part supplement, are in addition to or are in lieu of any item
described in subparagraph (i) above, except that such taxes shall be
based solely on the rents and other income received by Landlord from
the Building and shall not be calculated on rents and income payable
from any other property owned by Landlord;
(iv) there shall be excluded from Ownership Taxes all
income taxes (except rent taxes which may be included pursuant to
subparagraph (iii) above), excess profits taxes, franchise, capital
stock, and inheritance or estate taxes;
(v) Ownership Taxes shall also include Landlord's costs
and expenses (including reasonable attorneys' fees) in contesting or
attempting to reduce any Ownership Taxes for any calendar year.
(B) If Office Operating Expenses for any calendar year of the Term
(including the calendar year in which this Lease terminates) after the Base
Year shall exceed Office Operating Expenses for the Base Year, Tenant shall pay
to Landlord an amount equal to Tenant's Proportionate Share of the amount by
which Office Operating Expenses for such calendar year exceed Office Operating
Expenses for the Base Year.
-2-
<PAGE> 6
Tenant's Proportionate Share of Office Operating Expenses for any
calendar year shall be 0.4432%, representing the percentage resulting from
dividing the number of square feet of rentable area included in the Premises by
the number of square feet of rentable area designated by Landlord for office
uses in the Building, hereinafter referred to as the Office Section, (which is
819,118 rentable square feet).
Office Operating Expenses shall be the sum of the following:
(i) those Operating Expenses incurred solely in
connection with the ownership, management, and operation of the Office
Section during such calendar year; and
(ii) the Office Section's proportionate share, as
reasonably determined by Landlord, of those Operating Expenses
incurred in connection with the ownership, management, maintenance and
operation of the Building which cannot be attributed to one single
portion of the Building.
Operating Expenses for any calendar year shall mean all expenses,
costs and disbursements (other than Ownership Taxes) of every kind and nature
which Landlord shall pay or become obligated to pay in respect of a calendar
year because of or in connection with the ownership, management, and operation
of the Building and the Property, except the following:
(i) costs of alterations of tenant spaces;
(ii) costs of capital improvements, except for such costs
including interest thereon, as reasonably determined and amortized by
Landlord, where (a) one of the purposes of such capital improvements
was to reduce Operating Expenses, or (b) such capital improvement was
required due to any rule, regulation, ordinance or statute of any
applicable governmental body enacted, adopted or modified after the
date of execution of this Lease (it being agreed that the costs of any
capital improvements required due to any rule, regulation, ordinance
or statute of any applicable governmental body enacted, adopted or
modified prior to commencement of the Term of this Lease shall be
excluded from Operating Expenses, including without limitation any
improvements to the public areas of the Building required in order to
comply with the provisions of the Americans with Disabilities Act of
1990, 42 U.S.C. Section Section 12- 101 et seq., as enacted prior to
the date of execution of this Lease);
(iii) depreciation, interest and principal payments on
mortgages, and other debt costs, if any;
(iv) real estate brokers' leasing commissions or
compensation;
(v) payments to affiliates of the Landlord for goods
and/or services in excess of what would be paid to non-affiliated
parties for such goods and/or services in an arm's length transaction;
(vi) costs or other services or work performed for the
singular benefit of another tenant or occupant (other than for common
areas of the Building);
(vii) legal, space planning, construction, and other
expenses incurred in procuring tenants for the Building or renewing or
amending leases with existing tenants or occupants of the Building;
(viii) costs of advertising and public relations and
promotional costs and attorneys' fees associated with the leasing of
the Building;
-3-
<PAGE> 7
(ix) any fines or penalties incurred due to the violation
by Landlord of any governmental rule or authority;
(x) any expense for which Landlord actually receives
reimbursement from insurance, condemnation awards, other tenants or
any other source;
(xi) costs incurred in connection with the sale,
financing, refinancing, mortgaging, or other change of ownership of
the Building;
(xii) costs, fines, interest, penalties, legal fees or
costs of litigation incurred due to the late payment of taxes, utility
bills and other costs incurred as a result of Landlord's failure to
make such payments when due, so long as Tenant has been timely in the
payment of its bills to Landlord;
(xiii) costs incurred in connection with the removal of
asbestos-containing materials from any floor of the Building and the
substitution therefor of other fire retardant materials;
(xiv) costs of management fees in excess of customary fees
charged in the majority of similar sized first-class office buildings
in the downtown Chicago area;
(xv) all expenses in connection with the installation,
operation and maintenance of any observatory, broadcasting facilities,
luncheon club, athletic or recreation club, cafeteria, dining
facility, or other facility not strictly related to the operation of
the Office Section or generally available to all office tenants of the
Building, including Tenant;
(xvi) expenses for sculptures, paintings or other artwork
located within the Building (except that there shall not be excluded
the costs of maintaining such objects in the public areas of the
Building nor shall there be excluded the costs of repairing and
insuring such objects); and
(xvii) salaries and wages and other benefits paid to or on
behalf of employees above the level of Property Manager of the
Building.
In the event the Office Section is not fully occupied during any
calendar year, the variable Operating Expenses for that year shall be equitably
adjusted to reflect the Operating Expenses as though the Office Section were
fully occupied.
(C) For the purposes of this Lease, rentable area shall be
computed by measuring to the inside finish exterior glass panels and shall
include all areas within such glass panels excluding public stairs, elevator
shafts, flues, stacks, pipe shafts and vertical ducts with their enclosing
walls and shall include:
(i) with respect to each single tenancy floor, toilets,
air conditioning rooms, fan rooms, janitor closets and electrical
closets within and serving only such floor; or
(ii) with respect to each multiple tenancy floor, the
Premises' proportionate share of the areas described in the preceding
subsection (i).
(D) In order to provide for current payments of Tenant's
Proportionate Share of any increases over the Base Year in Office Operating
Expenses and Ownership Taxes for each calendar year of the Term, Tenant agrees
to pay, as additional rent, Tenant's Proportionate Share of any such increases
in Office Operating Expenses and Ownership Taxes due for any calendar year, as
reasonably estimated by Landlord from time to
-4-
<PAGE> 8
time, in twelve (12) monthly installments, each in an amount equal to l/12th of
the amount estimated by Landlord commencing on the first day of the month
following the month in which Landlord notifies Tenant of the amount of such
estimated Tenant's Proportionate Share of Office Operating Expenses and
Ownership Taxes. The installment of estimated additional charges payable for
each month of the current calendar year prior to the date of the receipt of
Landlord's estimate shall be due and payable within thirty (30) days after
receipt of such estimate. If, as finally determined (whether in the succeeding
calendar year at the time of delivery of the annual report provided for in
subparagraph (E) hereof, or in the current calendar year when the final amount
of any portion of Ownership Taxes for a calendar year becomes known to
Landlord), Tenant's Proportionate Share of any such increases in Office
Operating Expenses and Ownership Taxes for the calendar year in question over
the Base Year shall be greater than or be less than the aggregate of all
installments so paid on account to the Landlord (and which are applicable to
such calendar year) prior to receipt of an invoice from Landlord, then Tenant
within thirty (30) days after receipt of such invoice shall pay to Landlord the
amount of such underpayment, or the Landlord shall credit Tenant for the amount
of such overpayment (or, in the event the Term of this Lease has expired and
Tenant is not in default thereunder, refund such overpayment to Tenant), as the
case may be. It is the intention hereunder to estimate Tenant's Proportionate
Share of increases in Office Operating Expenses and Ownership Taxes from time
to time for each year over the Base Year and then to adjust such estimate from
time to time based on actual Ownership Taxes and Office Operating Expenses for
such calendar year.
(E) Landlord agrees to keep books and records showing the Office
Operating Expenses in accordance with a system of accounts and accounting
practices consistently maintained on a year-to-year basis in compliance with
such provisions of this Lease as may affect such accounts.
Landlord shall deliver to Tenant as soon as reasonably possible after
the close of each calendar year (including the calendar year in which this
Lease terminates), a report certified by an officer or agent of Landlord. The
report shall contain the following:
(i) a statement that the books and records covering the
operation of the Office Section have been maintained in accordance
with the requirements in this subparagraph (E);
(ii) the amount by which the Office Operating Expenses for
such calendar year exceed the Office Operating Expenses for the Base
Year; and
(iii) the amount by which the Ownership Taxes for such
calendar year exceed the Ownership Taxes for the Base Year.
In the event that any additional charge results in a net increase in
the rent due Landlord, Tenant shall and hereby agrees to pay to Landlord within
thirty (30) days following Tenant's receipt of an invoice from time to time
from Landlord an amount equal to such rent adjustment for such prior calendar
year, or portion thereof. Failure or delay in delivering any such statement or
invoice, or failure or delay in computing the rent adjustments pursuant to this
Article 3, shall not be deemed a waiver by Landlord of its right to deliver
such items nor shall any such failure or delay be deemed a release of Tenant's
obligations with respect to any such statement or invoice, or constitute a
default hereunder. All rent adjustments payable hereunder shall be made
without any deductions or set-offs whatsoever.
(F) The obligation of the Tenant with respect to the payment of
Base Rent and additional charges due hereunder shall survive the expiration or
termination of this Lease. Any payment, refund, or credit made pursuant to
this Article shall be made without prejudice to any right of the Tenant to
dispute, or of the Landlord to correct, any items as billed pursuant to the
provisions hereof. In the event that this Lease shall have been in
-5-
<PAGE> 9
effect for less than the full calendar year immediately preceding Tenant's
receipt of the invoices provided for in subparagraphs (D) and (E) hereof, the
additional charge shall be pro rata. In no event shall any additional charge
result in a decrease in the Base Rent payable hereunder.
(G) Upon the written request of Tenant delivered to Landlord
within sixty (60) days after the delivery of Landlord's annual statement of
Office Operating Expenses and Ownership Taxes, Landlord shall give Tenant the
opportunity during normal office hours to thereafter review the books and
records of the Building related to such report on a line by line basis,
provided Tenant thereafter diligently and promptly completes such inspection,
and such inspection privilege shall not delay Tenant's obligation to pay on
account all sums due pursuant to any such report. Unless Tenant shall, by
written notice to Landlord, take exception to any item in any such report
within ninety (90) days after the furnishing of such report, such report shall
be conclusively binding upon Tenant and shall not be contestable by Tenant.
ARTICLE 4
USE
(A) Tenant shall use and occupy the Premises for general office
purposes and for no other use or purpose whatsoever. Tenant shall not use or
permit upon the Premises anything that will invalidate any policies of
insurance now or hereafter carried on the Building or that will increase the
rate of insurance on the Premises or on the Building. Tenant will pay all
extra insurance premiums which may be caused by the use which Tenant shall make
of the Premises. Tenant will not use or permit upon the Premises anything that
may be dangerous to life or limb. Tenant will not in any manner deface or
injure the Building or any part thereof or overload the floors of the Premises.
Tenant will not do anything or permit anything to be done upon the Premises in
any way tending to create a nuisance, or tending to disturb any other tenant in
the Building or the occupants of neighboring property or tending to injure the
reputation of the Building. Tenant will promptly and fully comply with all
governmental, health and police requirements and regulations respecting
Tenant's particular use of the Premises. Tenant will not use the Premises for
lodging or sleeping purposes or for any immoral or illegal purposes. Tenant
shall not conduct nor permit to be conducted on the Premises any business which
is contrary to any of the laws of the United States of America or of the State
of Illinois or which is contrary to the ordinances of the City of Chicago.
Tenant shall not at any time manufacture, sell, use or give away, and shall not
at any time permit the manufacture, sale, use or gift of any spirituous,
fermented, intoxicating or alcoholic liquors on the Premises. Tenant shall not
at any time sell, purchase or give away, or permit the sale, purchase or gift
of, food in any form by or to any of Tenant's agents or employees or any other
parties on the Premises.
(B) Tenant agrees that it will not use, handle, generate, treat,
store or dispose of, or permit the handling, generation, treatment, storage or
disposal of any Hazardous Materials (except insubstantial amounts of Hazardous
Materials customarily used in connection with general office Building uses,
provided such use and storage is in compliance with applicable laws) in, on,
under, around or above the Premises now or at any future time and will
indemnify, defend and save Landlord harmless from any and all actions,
proceedings, claims, costs, expenses and losses of any kind, including, but not
limited to, those arising from injury to any person, including death, damage to
or loss of use or value of real or personal property, and costs of
investigation and cleanup or other environmental remedial work, which may arise
in connection with the existence of Hazardous Materials introduced by Tenant
into the Premises during the Term hereof. The term "Hazardous Materials", when
used herein, shall include, but shall not be limited to, any substances,
materials or wastes that are regulated by the City of Chicago or any other
local governmental authority, the State of Illinois, or the United States of
America because of toxic, flammable, explosive, corrosive, reactive,
radioactive or other properties that may be hazardous to human health or the
environment, including asbestos and including any materials or substances that
are listed in the United States Department of Transportation Hazardous
Materials Table, as amended 49 C.F.R. 172.101, or
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in the Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. subsections 9601 et seq., or the Resources Conservation and
Recovery Act, as amended, 42 U.S.C. subsections 6901 et seq., or any other
applicable governmental regulation imposing liability or standards of conduct
concerning any hazardous, toxic or dangerous substances, waste or material, now
or hereafter in effect.
Tenant does hereby indemnify, defend and hold harmless the Landlord
and its agents and their respective officers, directors, beneficiaries,
shareholders, partners, agents and employees from all fines, suits, procedures,
claims and actions of every kind, and all costs associated therewith (including
attorneys' and consultants' fees) arising out of or in any way connected with
any deposit, spill, discharge or other release of Hazardous Materials that
occurs during the Term of this Lease, at or from the Premises, or which arises
at any time from Tenant's use or occupancy of the Premises, or from Tenant's
failure to provide all information, make all submissions, and take all steps
required by all applicable governmental authorities. Tenant's obligations and
liabilities under this paragraph shall survive the expiration of the Term of
this Lease.
ARTICLE 5
SERVICES
Landlord shall provide the following services on all days during the
Term of this Lease excepting Sundays, and holidays, unless otherwise stated:
(a) Heat and air conditioning for normal comfort in the
Premises in accordance with the HVAC specifications set forth on
Exhibit B attached hereto and made a part hereof from 8 a.m. to 6 p.m.
(and on Saturdays which are not a holiday from 8 a.m. to 1 p.m.).
Whenever heat-generating machines or equipment installed by Tenant
affect the temperature otherwise maintained by Landlord in the
Premises, or whenever the occupancy or electrical load exceeds the
air-conditioning standards set forth on Exhibit B, Landlord shall be
relieved of responsibility for maintaining such standards, and in such
event Landlord reserves the right at its option to (1) require Tenant
to discontinue use of such heat-generating machines or equipment, or
(2) install supplementary air conditioning units in the Premises, the
cost, installation, operation and maintenance of which shall be paid
by Tenant to Landlord at such rates as Landlord charges from time to
time in the Building. Tenant agrees that at all times it will
cooperate with Landlord and abide by all regulations and requirements
which Landlord may prescribe for the proper functioning of the
ventilating and air conditioning systems.
(b) Electricity for the Premises shall not be furnished
by Landlord but shall be furnished by the electric utility company
serving the Building. Tenant shall make all necessary arrangements
with the utility company for metering and paying for electric current
furnished by it to Tenant, and Tenant shall pay for all charges for
electric current consumed on the Premises during the Term of this
Lease. Tenant agrees to purchase from Landlord, or its agent,
Building-standard lamps, bulbs, ballasts and starters used in the
Premises, so long as the prices therefor are competitive. Tenant
agrees that in the event it purchases any of the foregoing from anyone
other than Landlord, all such items shall be of the same type as that
used generally in the Building.
(c) City water from the regular Building outlets for
drinking, lavatory and toilet purposes only. Tenant shall pay
Landlord at uniform rates fixed by Landlord for water furnished for
any other purposes (including, without limitation, condenser water).
Tenant shall not waste or permit the waste of water.
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(d) Janitor services Monday through Friday, holidays
excepted, in and about the Premises, comparable to the standard
janitor service furnished by first-class Chicago office buildings (and
as more fully described on Exhibit C attached hereto and made a part
hereof). No persons shall be employed by Tenant to do janitor work in
the Premises and no persons other than the janitors of the Building
shall clean the Premises unless Landlord shall give its written
consent thereto. Any person while in the Building, either inside or
outside of the Premises, who has been employed by Tenant with
Landlord's consent to do janitor work in the Premises shall be subject
to and under the direction of the manager of the Building (but not as
agent or servant of said manager or of Landlord).
(e) Window washing of all exterior windows in the
Premises both inside and out, weather permitting, at least three times
per year at intervals to be determined by Landlord.
(f) Adequate operatorless passenger elevator service at
all times, and freight elevator service during normal business hours
subject to scheduling by Landlord.
(g) Such additional services on such terms and conditions
as may be mutually agreed upon by Landlord and Tenant.
All charges for any such additional services shall be deemed rent
reserved under this Lease and shall be due and payable at the same time as the
installment of rent with which they are billed, or, if billed separately, shall
be due and payable within thirty (30) days after date of delivery (pursuant to
Article 28 hereof) of an invoice therefor. In the event Tenant shall fail to
make payment for such additional services Landlord may, in addition to all
other remedies which Landlord may have for the non-payment of rent and without
notice to Tenant, discontinue any or all such additional services, and such
discontinuance shall not be held or pleaded as an eviction or as a disturbance
in any manner whatsoever of Tenant's possession, or relieve Tenant from the
payment of rent when due, or vary or change any other provision of this Lease
or render Landlord liable for damages of any kind whatsoever.
Tenant agrees that neither Landlord nor any company, firm, or
individual operating, maintaining, repairing, managing or supervising the plant
or facilities furnishing any of the above services, nor any of their respective
agents or employees shall be liable to Tenant, or any of Tenant's employees,
agents, customers or invitees or anyone claiming through, by, or under Tenant,
for any damages, injuries, losses, expenses, claims or causes of action,
because of any interruption, delay, diminution, or discontinuance at any time
for any reason in the furnishing of any of the above services; nor shall any
such interruption or discontinuance be deemed an eviction or disturbance of
Tenant's use or possession of the Premises or any part thereof; nor shall any
such interruption, delay, diminution, or discontinuance relieve Tenant from
full performance of Tenant's obligations under this Lease. Notwithstanding the
foregoing, in the event that any interruption or discontinuance of services was
within the reasonable control of Landlord to prevent, and such interruption or
discontinuance continues beyond five (5) consecutive business days after
written notice to Landlord and materially and adversely affects Tenant's
ability to conduct business in the Premises, or any portion thereof, and on
account of such interruption or disturbance Tenant ceases doing business in all
or any portion of the Premises, Base Rent and additional charges shall abate
proportionately as Tenant's sole remedy for so long as Tenant remains unable to
conduct its business in the Premises or such portion thereof. Landlord agrees
to use reasonable efforts to restore any such interrupted or discontinued
service as soon as reasonably practicable.
ARTICLE 6
POSSESSION
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In the event Landlord's Work (as defined in Article 7 below) in the
Premises shall not be completed on or before the date above fixed for the
commencement of the Term of this Lease, this Lease shall nevertheless continue
in full force and effect, and no liability shall arise against Landlord out of
any such delay beyond the abatement of rent until the Premises are ready for
occupancy; provided, however, there shall be no abatement of rent if the space
is not ready for occupancy because of the failure to complete the installation
of special equipment, fixtures or materials ordered by Tenant or due to any
fault or delay of Tenant. If Tenant shall enter possession of all or any part
of the Premises prior to the date fixed above for the first day of the Term,
all of the covenants and conditions of this Lease shall be binding upon the
parties hereto in respect of such possession the same as if the first day of
the Term had been fixed as of the date when Tenant entered such possession and
Tenant shall pay to Landlord as rent for the period prior to the first day of
the Term of this Lease a proportionate amount of the rent set forth in Article
2.
ARTICLE 7
CONDITION OF PREMISES
The Tenant's taking possession of any portion of the Premises shall be
conclusive evidence as against the Tenant that such portion of the Premises
were in good order and satisfactory condition when the Tenant took possession,
except as to (a) latent defects (which exception shall be effective for a one
(1) year period following the date the Premises are ready for occupancy,
excluding items of damage caused by Tenant, its agents, contractors and
suppliers), and (b) except to the extent otherwise provided in a "punchlist" to
be prepared by Landlord and Tenant immediately prior to Tenant's taking
occupancy of the Premises. No promise of the Landlord to alter, remodel,
repair or improve the Premises or the Building and no representations
respecting the condition of the Premises or the Building have been made by
Landlord to the Tenant, other than as may be contained herein. Notwithstanding
the foregoing, Tenant agrees to accept the Premises in an "as is" condition
existing as of the date of execution of this Lease, provided however that
Landlord at Landlord's sole cost and expense shall prior to commencement of the
Term of this Lease complete in the Premises the following work ("Landlord's
Work") in a good and workmanlike manner in compliance with applicable codes:
(a) Paint all interior walls of the Premises with one
coat of latex paint in Building standard colors as selected by Tenant.
(b) Reinstall pocket door between two offices.
(c) Rewire electrical switching.
(d) Provide access from reception area into storage room.
(e) Install building standard passage door (without lock)
in interior corridor.
ARTICLE 8
REPAIRS
Tenant shall, at its sole expense, keep the Premises in good order and
repair and tenantable condition at all times during the Term, and Tenant shall
promptly arrange with Landlord at Tenant's sole cost and expense for the repair
of all damages not caused by Landlord, its contractors, agents or employees to
the Premises and for the replacement or repair of all damaged or broken glass,
fixtures and appurtenances within any reasonable period of time specified by
Landlord, provided, however, that Tenant shall not be required to repair or
replace broken or
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damaged exterior window glass unless such replacement or repair is necessitated
by the act, failure to act, or neglect of Tenant, its servants, employees,
agents, invitees or guests. If Tenant does not promptly make such
arrangements, Landlord may, but need not, make such repairs and replacements
and the costs paid or incurred by Landlord for such repairs and replacements
shall be deemed additional rent reserved under this Lease due and payable
forthwith. Landlord may, but shall not be required so to do, enter the
Premises at all reasonable times to make any repairs, alterations, improvements
or additions, including, but not limited to, ducts and all other facilities for
heating and air conditioning service, as Landlord shall desire or deem
necessary for the safety, maintenance, repair, preservation or improvement of
the Building, or as Landlord may be required or requested to do by the City of
Chicago or by the order or decree of any court of competent jurisdiction or by
any other proper authority.
In the event Landlord or its agents or contractors shall elect or be
required to make repairs, alterations, improvements or additions to the
Premises or the Building (including, without limitation, the program in effect
as of the date hereof of installing a sprinkler system in the Premises and
other parts of the Building), Landlord shall be allowed to take into and upon
the Premises all material that may be required to make such repairs,
alterations, improvements or additions and, during the continuance of any of
said work, to temporarily close doors, entryways, public space and corridors in
the Building and to interrupt or temporarily suspend any services and
facilities without being deemed or held guilty of an eviction of Tenant or for
damages to Tenant's property, business or person, and the rent reserved herein
shall in no way abate while said repairs, alterations, improvements or
additions are being made, and Tenant shall not be entitled to maintain any
set-off or counterclaim for damages of any kind against Landlord by reason
thereof. Tenant hereby specifically agrees to fully cooperate with Landlord in
connection with installation of the above-described sprinkler system and any
other renovation program desired by Landlord for the Building in the Premises
and other parts of the Building. Landlord may, at its option, make all such
repairs, alterations, improvements or additions in and about the Building and
the Premises during ordinary business hours, but if Tenant desires to have the
same done at any other time, Tenant shall pay for all overtime and additional
expenses resulting therefrom. Landlord agrees to give Tenant reasonable notice
(except in cases of an emergency) prior to its entry into the Premises for the
purpose of making any such repairs, alterations, improvements or additions, and
Landlord agrees to use reasonable efforts not to interfere with the conduct by
Tenant of its business in the Premises or Tenant's access to the Premises
during ordinary business hours in connection with any such work by Landlord.
Landlord shall, at Landlord's expense (subject to inclusion of such
expenses in Operating Expenses to the extent permitted by Article 3 hereof),
keep in good order, repair and condition and maintain in compliance with all
applicable laws at all times during the Term, all structural elements of the
Building, including floor and ceiling slabs, the exterior walls and windows,
the roof, common Building mechanical, plumbing, electrical and HVAC systems,
the elevators, the washrooms, the lobby of the Building and all other common
areas of the Building to the extent such systems or common areas service or are
of benefit to the Premises.
ARTICLE 9
ALTERATIONS
Tenant shall not, without the prior written consent of Landlord in
each instance obtained, make any repairs, replacements, alterations,
improvements or additions to the Premises (which consent by Landlord shall not
be unreasonably withheld or delayed so long as the structure and any Building
systems will not be affected by any such alterations, improvements, or
additions, and which consent will not be required for picture hanging,
painting, wallpapering or similar minor items of a decorative, non-permanent
nature). In the event Tenant desires to make any alterations, improvements or
additions pursuant to this Article 9, or any repairs or replacements pursuant
to Article 8 of this Lease, Tenant shall prior to commencing any such work:
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(a) Submit to Landlord for review by it and its engineers
plans and specifications showing such work in reasonable detail and
obtain Landlord's prior written approval (Tenant shall pay to Landlord
all out-of-pocket costs incurred by Landlord to third parties in
connection with such review of such plans and specifications);
(b) In the event Landlord permits Tenant to engage its
own contractors to perform any such work, furnish Landlord with the
names and addresses of all contractors and copies of all contracts
with such contractors and obtain Landlord's prior written approval
(Landlord expressly reserves the right to require that Landlord's
contractors shall perform any part or all of such work affecting
Building systems or the Building structure as may be desired by Tenant
from time to time); all contractors and suppliers engaged by Tenant
shall work in harmony and not interfere with the performance of any
other work in the Building by Landlord, its contractor, other tenants
or occupants of the Building (whether or not the terms of the
respective leases have commenced) or their contractors;
(c) Provide Landlord, at Tenant's sole cost and expense,
with such security as Landlord may require, as well as all necessary
permits evidencing compliance with all ordinances and regulations of
the City of Chicago or any department or agency thereof, and with the
requirements of all statutes and regulations of the State of Illinois
or any department or agency thereof:
(d) Provide Landlord with certificates of insurance in
forms and amounts satisfactory to Landlord naming Landlord as an
additional insured where required by Landlord; and
(e) Comply, at Tenant's sole cost and expense, with such
other requests as Landlord may reasonably make in connection with such
work.
All such work shall, at Landlord's election, be subject to the
supervision by Landlord, and Tenant shall promptly pay Landlord the reasonable
cost of all such supervision.
Tenant acknowledges that Landlord has heretofore adopted and put into
operation throughout the Building an asbestos operations and maintenance
program ("O & M Program"), a copy of which will be made available to Tenant for
its review upon its request, which provides for periodic air testing and which
also sets forth certain procedures to be followed in connection with any
repairs, alterations or improvements to be made in the Building, in order to
prevent disturbance to the sprayed-on asbestos fireproofing located on certain
structural beams and in the mechanical rooms and garage area of the Building
and to better protect the health and safety of all occupants of the Building.
Tenant hereby expressly agrees to cause its agents, employees and contractors
to comply at all times with the O & M Program (as amended from time to time) in
connection with any repairs, alterations or improvements to the Premises to
which the O & M Program may apply.
Except to the extent caused by Landlord, its contractors, agents and
employees, Tenant hereby agrees to protect, defend, indemnify and hold
Landlord, the Building and the Property harmless from and against any and all
liabilities of every kind and description which may arise out of or in
connection with such repairs, replacements, alterations, improvements or
additions. Tenant's obligations and liabilities under this paragraph shall
survive the expiration of the Term of this Lease.
Upon completing any of such repairs, replacements, alterations,
improvements or additions, Tenant shall furnish Landlord with plans
satisfactory to Landlord showing such work as completed, and with contractors'
affidavits, sworn statements and full and final waivers of lien and receipted
bills covering all labor and material expended and used. All repairs,
replacements, alterations, improvements and additions shall comply with all
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insurance requirements and with all ordinances and regulations of the City of
Chicago or any department or agency thereof and with the requirements of all
statutes and regulations of the State of Illinois or of any department or
agency thereof. All repairs, replacements, alterations, improvements and
additions shall be constructed in a good and workmanlike manner and only good
grades of material shall be used. At all times Tenant shall cause contractors
and others performing any work for Tenant to work in harmony with the
contractors, agents and employees performing work in the Building for Landlord
or others.
All alterations, improvements, additions, repairs, or replacements,
whether temporary or permanent in character, including, without limitation,
wall coverings, carpeting and other floor coverings, special lighting
installations, built-in or attached shelving, cabinetry, and mirrors, made by
Landlord or Tenant in or upon the Premises shall become Landlord's property and
shall remain upon the Premises at the termination of this Lease by lapse of
time or otherwise without compensation to Tenant (excepting only Tenant's
movable office furniture, trade fixtures, and office equipment); provided,
however, that Landlord shall have the right to require Tenant to remove such
alterations, improvements, additions, repairs or replacements at Tenant's sole
cost and expense in accordance with the provisions of Article 18 of this Lease,
if Landlord at the time of consenting to the installation thereof and in
response to the specific written request of Tenant advised Tenant that Landlord
would require any such alterations to be removed upon expiration of the Term
hereof.
ARTICLE 10
COVENANT AGAINST LIENS
Nothing contained in this Lease shall authorize or empower Tenant to
do any act which shall in any way encumber Landlord's title to the Building,
Property, or Premises, nor in any way subject Landlord's title to any claims by
way of lien or encumbrance whether claimed by operation of law or by virtue of
any expressed or implied contract of Tenant, and any claim to a lien upon the
Building or Premises arising from any act or omission of Tenant shall attach
only against Tenant's interest and shall in all respects be subordinate to
Landlord's title to the Building, Property, and Premises. If Tenant has not
removed any such lien or encumbrance or provided Landlord with a title
indemnity or bond or other security reasonably satisfactory to Landlord within
fifteen (15) days after written notice to Tenant by Landlord, Landlord may pay
the amount necessary to remove such lien or encumbrance, without being
responsible for making any investigation as to the validity thereof, and the
amount so paid shall be deemed additional rent reserved under this Lease due
and payable forthwith.
ARTICLE 11
DAMAGE OR DESTRUCTION BY FIRE OR CASUALTY
If the Premises or the Building (including machinery and equipment
used in its operation) shall be destroyed or damaged by fire or other casualty
and if the Premises or Building may be repaired and restored within one hundred
twenty (120) days (plus such additional time during which Landlord may be
prevented from completing the repairs for causes beyond its reasonable control)
after such damage then Landlord shall have the option to: (a) repair and
restore the same with reasonable promptness; or (b) elect to demolish the
Building, cease its operation, or cease operation of the Office Section, in
which event this Lease shall automatically be canceled and terminated as of the
date of such damage. In the event any such damage is not caused by the act or
neglect of Tenant, its agents, servants, employees, guests, licensees or
invitees and renders the Premises untenantable, and if this Lease shall not be
canceled and terminated by reason of such damage, then rent shall abate during
the period beginning with the date of such fire or other casualty and ending
with the date when the Premises are again rendered tenantable, such abatement
to be in an amount bearing the same ratio to the total amount of rent
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for such period as the untenantable portion of the Premises bears to the entire
Premises. Landlord shall have no duty to repair or restore Tenant's fixtures
or tenant improvements, including, but not limited to, special wall and floor
coverings, special lighting fixtures, built-in cabinets and bookshelves.
If (a) such damage renders the Premises untenantable, in whole or in
part, and (b) if, in Landlord's judgment, such damage cannot reasonably be
repaired and restored within one hundred twenty (120) days (plus such
additional time during which Landlord may be prevented from completing the
repairs for causes beyond its reasonable control), or such damage occurs within
the last two (2) years of the Term, either party shall have the right to cancel
and terminate this Lease as of the date of such damage, provided, however, that
Tenant may not elect to terminate this Lease if such damage was caused by the
act or neglect of Tenant, its agents, servants, employees, guests, licensees or
invitees.
Any right to terminate or any other option provided for any party in
this Article 11 must be exercised by written notice to the other party served
within ninety (90) days after such damage shall have occurred.
ARTICLE 12
INSURANCE
In consideration of the leasing of the Premises at the rental stated
in Article 2, Landlord and Tenant agree to provide insurance and allocate the
risk of loss as follows:
Tenant, at its sole cost and expense but for the mutual benefit of
Landlord (when used in this Article the term "Landlord" shall include
Landlord's agents, servants and employees) and Tenant (when used in this
Article the term "Tenant" shall include Tenant's agents, servants and
employees), agrees to purchase and keep in force and effect during the Term
hereof, insurance under policies issued by insurers of recognized
responsibility on its fixtures and tenant improvements including, but not
limited to, special wall and floor coverings, special lighting fixtures,
built-in cabinets and bookshelves and on its merchandise, inventory, contents,
furniture, equipment or other personal property located in the Premises
protecting Landlord and Tenant from damage or other loss caused by fire or
other casualty including, but not limited to, vandalism and malicious mischief,
perils covered by extended coverage, theft, sprinkler leakage, water damage
(however caused), explosion, malfunction or failure of heating and cooling or
other apparatus, and other similar risks in amounts not less than the full
insurable replacement value of such property. Such insurance shall provide
that it is specific and not contributory and shall name the Landlord as an
additional insured and shall contain a replacement cost endorsement and a
clause pursuant to which the insurance carriers waive all rights of subrogation
against the Landlord with respect to losses payable under such policies. At
Landlord's request, Tenant shall deliver to Landlord at Landlord's election
certificates of insurance evidencing such coverage or copies of policies
therefor upon execution hereof and thereafter not less than fifteen (15) days
prior to the expiration date of such policy.
Landlord agrees to purchase and keep in force and effect insurance on
the Office Section against fire and such other risks as may be included in
extended coverage insurance from time-to-time available in an amount not less
than the greater of 80% of the full insurable value of the Office Section or
the amount sufficient to prevent Landlord from becoming a co-insurer under the
terms of the applicable policies. Such policies shall contain a replacement
cost endorsement and a clause pursuant to which the insurance carriers waive
all rights of subrogation against the Tenant with respect to losses payable
under such policies.
By this section, Landlord and Tenant intend that the risk of loss or
damage as described above be borne by responsible insurance carriers to the
extent above provided, and Landlord and Tenant hereby agree to look solely to,
and to seek recovery only from, their respective insurance carriers in the
event of a loss of a type
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described above to the extent that such coverage is agreed to be provided
hereunder. For this purpose, any applicable deductible amount shall be treated
as though it were recoverable under such policies. Landlord and Tenant agree
that applicable portions of all monies collected from such insurance shall be
used toward the full compliance of the obligations of Landlord and Tenant under
this Lease in connection with damage resulting from fire or other casualty.
ARTICLE 13
LIABILITY INSURANCE
Tenant shall, at Tenant's expense, maintain during the Term commercial
general liability insurance, contractual liability insurance and property
damage insurance under policies issued by insurers of recognized
responsibility, with limits of not less than $3,000,000 for personal injury,
bodily injury, sickness, disease or death or for damage or injury to or
destruction of property (including the loss of use thereof) for any one
occurrence. Tenant's policies shall name Landlord, its agents, servants and
employees as additional insureds, and Tenant shall deliver to Landlord a
certificate of such insurance evidencing such coverage upon execution hereof
and thereafter not less than fifteen (15) days prior to the expiration date of
any such policy.
ARTICLE 14
CONDEMNATION
If the whole or any part of the Premises, Building, or Property shall
be taken or condemned by any competent authority for any public or quasi-public
use or purpose or if any adjacent property or street shall be condemned or
improved in such manner as to require the use of any part of the Premises or of
the Building, the Term, at the option of Landlord, shall end upon the date when
the possession of the part so taken shall be required for such use or purpose
and Landlord shall be entitled to receive the entire award without any payment
to Tenant, the Tenant hereby assigning to the Landlord the Tenant's interest
therein, if any. Current rent shall be apportioned as of the date of such
termination. Notwithstanding the foregoing, Tenant may to the extent permitted
by law, seek a separate award for the value of its trade fixtures and for
moving expenses so long as Tenant does not interfere with Landlord's
proceeding, and so long as Landlord's award is not diminished thereby.
ARTICLE 15
WAIVER OF CLAIMS/INDEMNITY
Tenant agrees that, except to the extent of the negligence of
Landlord, its servants, contractors, agents and employees (but subject to the
insurance provisions of Article 12 hereof) and except to the extent not
expressly prohibited by law, Landlord and its officers, agents, servants and
employees shall not be liable for (nor shall rent abate as a result of) any
direct or consequential damage (including damage claimed for actual or
constructive eviction) either to person or property sustained by Tenant, its
servants, employees, agents, invitees or guests due to the Building or any part
thereof or any appurtenances thereof becoming out of repair, or due to the
happening of any accident in or about said Building, or due to any act or
neglect of any tenant or occupant of said Building or of any other person.
This provision shall apply particularly (but not exclusively) to damage caused
by water, snow, ice, frost, steam, electricity, sewage, gas, sewer gas or odors
or by the bursting, leaking or dripping of pipes, faucets and plumbing fixtures
and windows, and -- except to the extent of the negligence of Landlord, its
servants, contractors, agents and employees (but subject to the insurance
provisions of Article 12 hereof) -- shall apply without distinction as to the
person whose act or neglect was responsible for the damage and whether the
damage was due to any of the causes specifically enumerated above or to some
other cause of an
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entirely different kind. Tenant further agrees that all of Tenant's personal
property in the Premises or the Building shall be at the risk of Tenant only
and that Landlord shall not be liable for any loss or damage thereto or theft
thereof.
Tenant agrees to protect, indemnify and save Landlord and its
officers, agents, servants and employees harmless from and against any and all
liabilities, costs, damages, claims, and expenses of whatever nature arising
from injury to persons or damage to property on the Premises or in or about the
Building arising out of or in connection with Tenant's use or occupancy of the
Premises or Tenant's activities in the Building, or arising from any act or
negligence of Tenant or its agents, contractors, servants, employees, or
invitees, except to the extent any such liabilities, damages, and expenses were
incurred as the result of the negligence of Landlord, or any employee, agent or
contractor of Landlord.
ARTICLE 16
NONWAIVER
No waiver of any condition expressed in this Lease shall be implied by
any neglect or delay of Landlord or Tenant to enforce any remedy on account of
the violation of such condition if such violation be continued or repeated
subsequently, and no express waiver shall affect any condition other than the
one specified in such waiver and that one only for the time and in the manner
specifically stated. No receipt of monies by Landlord from Tenant after the
termination in any way of the Term or of Tenant's right of possession hereunder
or after the giving of any notice shall reinstate, continue or extend the Term
or affect any notice given to Tenant prior to the receipt of such monies, it
being agreed that after the service of notice or the commencement of a suit or
after final judgment for possession of the Premises Landlord may receive and
collect any rent due, and the payment of said rent shall not waive or affect
said notice, suit or judgment.
ARTICLE 17
LANDLORD'S REMEDIES
If (a) default shall be made in the payment of the rent or any
installment thereof or in the payment of any other sum required to be paid by
Tenant under this Lease, or under the terms of any other agreement between
Landlord and Tenant, (and, only with respect to the first two of such defaults
within any twelve (12) month period, such default shall continue for ten (10)
days after written notice to Tenant), or (b) if default shall be made in the
full and prompt performance of any of the other covenants or conditions which
Tenant is required to observe and perform and such default shall continue for
thirty (30) days after written notice to Tenant (or, in the event such default
cannot reasonably be cured within such thirty (30) day period, within such
additional time -- not to exceed a total period of seventy-five (75) days from
the date of Landlord's notice -- as may be required for Tenant to effect such
cure, so long as Tenant promptly commences to cure such default within such
initial thirty (30) day period and thereafter diligently pursues such cure to
completion), or (c) if the interest of Tenant in this Lease shall be levied on
under execution or other legal process, or (d) if a default which involves a
hazardous condition is not cured by Tenant promptly and diligently upon written
notice to Tenant, or (e) if any petition shall be filed by or against Tenant to
declare Tenant a bankrupt or to delay, reduce or modify Tenant's debts or
obligations, or (f) if any petition shall be filed or other action taken to
reorganize or modify Tenant's capital structure, if Tenant be a corporation or
other entity, or (g) if Tenant be declared insolvent according to law or if any
assignment of Tenant's property shall be made for the benefit of creditors, or
(h) if a receiver or trustee is appointed for Tenant or his property or (i) if
Tenant shall abandon or vacate the Premises during the Term of this Lease and
cease paying rent, then Landlord may treat the occurrence of any one or more of
the foregoing events as a breach of this Lease, and thereupon at its option
may, without further notice or demand of any kind to
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Tenant or any other person, have any one or more of the following described
remedies in addition to all other rights and remedies provided at law or in
equity:
(i) Landlord may terminate this Lease and the Term
created hereby, in which event Landlord may forthwith repossess the
Premises and be entitled to recover forthwith as damages a sum of
money equal to the value of the Base Rent and additional charges
provided to be paid by Tenant for the balance of the stated Term of
the Lease, less the fair rental value (after taking into account all
concessions and all lease-up expenses) of the Premises for said
period, and any other sum of money and damages owed by Tenant to
Landlord.
(ii) Landlord may terminate Tenant's right of possession
and may repossess the Premises by forcible entry or detainer suit or
otherwise, without further demand or notice of any kind to Tenant and
without terminating this Lease, in which event Landlord shall to the
extent expressly required by law attempt to relet all or any part of
the Premises for the account of Tenant, for such rent and upon such
terms as shall be satisfactory to Landlord (including the right to
relet the Premises for a term greater or lesser than that remaining
under the Term of this Lease and the right to relet the Premises as a
part of a larger area and the right to change the character or use
made of the Premises). For the purpose of such reletting, Landlord is
authorized to decorate or to make any repairs, changes, alterations or
additions in or to the Premises that may be necessary or convenient,
and if Landlord shall fail to relet the Premises or if the Premises
are relet and a sufficient sum shall not be realized from such
reletting after paying all of the costs and expenses of such
decorations, repairs, changes, alterations and additions and the
expenses of such reletting and of the collection of the rent accruing
therefrom to satisfy the rent provided for in this Lease to be paid,
then Tenant shall pay to Landlord as damages a sum equal to the amount
of the Base Rent and additional charges reserved in this Lease for
such period or periods, or, if the Premises have been relet, Tenant
shall satisfy and pay any such deficiency upon demand therefor from
time to time, and Tenant agrees that Landlord may file suit to recover
any sums falling due under the terms of this paragraph and any other
sums due under this Lease from time to time and that no suit or
recovery of any portion due Landlord hereunder shall be any defense to
any subsequent action brought for any amount not theretofore reduced
to judgment in favor of Landlord. Tenant hereby agrees that to the
extent any of the foregoing notice periods provided for in this
Article 17 and elsewhere in this Lease are greater than the notice
periods required under the statutes of the State of Illinois, such
greater notice periods as are provided for herein shall substitute for
any such statutory notice periods, and any notices given pursuant to
the terms hereof shall be deemed the notice required by any such
statutes.
ARTICLE 18
SURRENDER OF POSSESSION
(A) On or before the date this Lease and the Term hereby created
terminates, or on or before the date Tenant's right of possession terminates,
whether by lapse of time or at the option of Landlord, Tenant shall:
(i) restore the Premises to the same condition as they
were in at the commencement of the Term (except for ordinary wear and
tear, and except as otherwise provided in Article 9 and Article 11 of
this Lease) and remove (and properly dispose of) those alterations,
improvements or additions installed for or during Tenant's occupancy,
whether installed by Landlord or Tenant, which Landlord shall in
accordance with Article 9 request Tenant to remove or which include or
incorporate any materials then deemed unsafe or hazardous by any and
all governmental authorities having jurisdiction thereof;
(ii) remove from the Premises and the Building all of
Tenant's personal property; and
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(iii) surrender possession of the Premises to Landlord in a
clean condition free of all rubbish and debris.
(B) If Tenant shall fail or refuse to restore the Premises to the
above-described condition on or before the above-specified date, Landlord may
enter into and upon the Premises and put the Premises in such condition and
recover from Tenant Landlord's cost of so doing. Without limiting the
generality of the foregoing, Tenant agrees to pay Landlord, upon demand, the
cost of restoring the walls, ceilings and floors of the Premises to the same
condition that existed prior to the date of the commencement of any
alterations, improvements, or additions made by or for Tenant's occupancy (or a
prior tenant's occupancy if such alterations, improvements or additions were
acquired by Tenant from a former tenant) of the Premises. If Tenant shall fail
or refuse to comply with Tenant's duty to remove all personal property from the
Premises and the Building on or before the above-specified date, the parties
hereto agree and stipulate that Landlord may enter into and upon the Premises
and may, at its election:
(i) treat such failure or refusal as an offer by Tenant
to transfer title to such personal property to Landlord, in which
event title thereto shall thereupon pass under this Lease as a bill of
sale to and vest in Landlord absolutely without any cost either by
set-off, credit, allowance or otherwise, and Landlord may retain,
remove, sell, donate, destroy, store, discard, or otherwise dispose of
all or any part of said personal property in any manner that Landlord
shall choose;
(ii) treat such failure or refusal as conclusive evidence,
on which Landlord or any third party shall be entitled absolutely to
rely and act, that Tenant has forever abandoned such personal
property, and without accepting title thereto, Landlord may, at
Tenant's expense, retain, remove, store, destroy, discard or otherwise
dispose of all or any part thereof in any manner that Landlord shall
choose without incurring liability to Tenant or to any other person.
In no event shall Landlord ever become or accept or be charged with
the duties of a bailee (either voluntary or involuntary) of any
personal property, and the failure of Tenant to remove all personal
property from the Premises and the Building shall forever bar Tenant
from bringing any action or from asserting any liability against
Landlord with respect to any such property which Tenant fails to
remove. If Tenant shall fail or refuse to surrender possession of the
Premises to Landlord on or before the above-specified date, Landlord
may forthwith re-enter the Premises and repossess itself thereof as of
its former estate and remove all persons and effects therefrom, using
such force as may be necessary, without being guilty of any manner of
trespass or forcible entry or detainer.
ARTICLE 19
HOLDING OVER
Tenant shall pay to Landlord double the Base Rent plus double the
additional charges then applicable for each month or portion thereof Tenant
shall retain possession of the Premises or any part thereof after the
termination of this Lease, whether by lapse of time or otherwise, and also
shall pay all damages sustained by Landlord, whether direct or consequential,
on account thereof. The provisions of this Article shall not operate as a
waiver by Landlord of any right of re-entry hereinbefore provided. At the
option of Landlord, expressed in a written notice to Tenant and not otherwise,
in the event such holding over continues for more than thirty (30) days, such
holding over shall constitute a renewal of this Lease for a period of one (1)
year at the rental rates then prevailing for similar space in the Building.
ARTICLE 20
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COSTS, EXPENSES AND ATTORNEYS' FEES
In case Landlord shall, without fault on its part, be made a party to
any litigation commenced by or against Tenant, then Tenant shall pay all costs,
expenses and reasonable attorneys' fees incurred or paid by Landlord in
connection with such litigation. Tenant shall also pay all costs, expenses and
reasonable attorneys' fees that may be incurred or paid by Landlord in
enforcing any of Tenant's covenants and agreements in this Lease. In case
Tenant shall, without fault on its part, be made a party to any litigation
commenced by or against Landlord, then Landlord shall pay all costs, expenses
and reasonable attorneys' fees incurred or paid by Tenant in connection with
such litigation. Landlord shall also pay all costs, expenses and reasonable
attorneys' fees that may be incurred or paid by Tenant in enforcing any of
Landlord's covenants and agreements in this Lease.
ARTICLE 21
COMPLIANCE WITH LAWS
Tenant and Landlord shall operate the Premises and Building
respectively in compliance with all applicable federal, state, and municipal
laws, ordinances and regulations and shall not knowingly, directly or
indirectly, make any use of the Premises or Building which is prohibited by any
such laws, ordinances or regulations.
ARTICLE 22
CERTAIN RIGHTS RESERVED BY LANDLORD
Landlord shall have the following rights, exercisable without notice
and without liability to Tenant for damage or injury to property, person or
business and without effecting an eviction, constructive or actual, or
disturbance of Tenant's use or possession or giving rise to any claim for
set-off or abatement of rent:
(a) To change the Building's name or street address.
(b) To install, affix and maintain any and all signs on
the exterior and/or interior of the Building.
(c) To designate and/or approve, prior to installation,
all types of window shades, blinds, drapes, awnings, window
ventilators and other similar equipment, and to control all internal
lighting that may be visible from the exterior of the Building.
(d) To reserve to Landlord the right to reasonably
designate, limit, restrict and/or control any business and any service
in or to the Building and its tenants.
(e) To show the Premises upon reasonable prior notice to
prospective tenants at reasonable hours during the last twelve (12)
months of the Term and if vacated during such period to prepare the
Premises for re-occupancy without affecting Tenant's obligation to pay
rent.
(f) To retain at all times, and to use in appropriate
instances, keys to all doors within and into the Premises. No locks
shall be changed without the prior written consent of Landlord, which
shall not be unreasonably withheld or delayed.
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(g) Subject to the last sentence of Article 8 hereof, to
decorate or to make repairs, alterations, additions, or improvements,
whether structural or otherwise, in and about the Building, or any
part thereof, and for such purposes to enter upon the Premises, and,
during the continuance of any of said work, to temporarily close
doors, entryways, public space and corridors in the Building and to
interrupt or temporarily suspend Building services and facilities, all
without abatement of rent or affecting any of Tenant's obligations
hereunder, so long as the Premises are reasonably accessible.
(h) To have and retain a paramount title to the Premises
free and clear of any act of Tenant purporting to burden or encumber
it.
(i) To grant to anyone the exclusive right to conduct any
business or render any service in or to the Building, provided such
exclusive right shall not operate to exclude Tenant from the use
expressly permitted herein.
(j) To approve the weight, size and location of safes and
other heavy equipment and bulky articles in and about the Premises and
the Building (so as not to overload the floors of the Premises), and
to require all such items and furniture and similar items to be moved
into and/or out of the Building and Premises only at such times and in
such manner as Landlord shall direct in writing. Any damages done to
the Building or Premises or to other tenants in the Building by taking
in or putting out safes, furniture and other articles, or from
overloading the floor in any way, shall be paid by Tenant. Furniture,
boxes, merchandise or other bulky articles shall be transported within
the Building only upon or by vehicles equipped with rubber tires and
shall be carried only in the freight elevators and at such times as
the manager of the Building shall require. Movements of Tenant's
property into or out of the Building and within the Building are
entirely at the risk and responsibility of Tenant, and Landlord
reserves the right to require permits before allowing any such
property to be moved into or out of the Building.
(k) To prohibit the placing of vending or dispensing
machines of any kind in or about the Premises without the prior
written permission of Landlord.
(l) To have access for the Landlord and other tenants of
the Building to any mail chutes located on the Premises according to
the rules of the United States Post Office.
(m) To change the arrangement or location of entrances,
passageways, doors and doorways, corridors, stairs, toilets and other
public service portions of the Building not contained within the
Premises or any part thereof, so long as the Premises are reasonably
accessible.
(n) To close the Building after regular working hours and
on Saturdays, Sundays and legal holidays subject, however, to Tenant's
right to admittance, under such regulations as Landlord may prescribe
from time to time, which may include by way of example but not of
limitation, that persons entering or leaving the Building identify
themselves to a watchman by registration or otherwise and that said
persons establish their right to enter or leave the Building.
Landlord may enter upon the Premises and may exercise any or all of
the foregoing rights hereby reserved without being deemed guilty of an eviction
or disturbance of Tenant's use or possession and without being liable in any
manner to Tenant (provided, however that Landlord agrees to use all reasonable
efforts to minimize any interference with Tenant's use and enjoyment of the
Premises in connection with its exercise of any of the foregoing rights
reserved pursuant to this Article 22).
ARTICLE 23
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ESTOPPEL
The Tenant agrees that from time to time upon not less than ten (10)
days' prior request by Landlord, Tenant or Tenant's duly authorized
representative having knowledge of the following facts, will deliver to
Landlord a statement in writing certifying (a) that this Lease is unmodified
and in full force and effect (or if there have been modifications that the
Lease as modified is in full force and effect); (b) the date of initial
occupancy of the Premises by Tenant; (c) the dates to which the rent and other
charges have been paid; (d) that all work required to be performed in the
Premises by Landlord and by Tenant has been completed; (e) that neither
Landlord nor Tenant is in default under any provision of this Lease, or, if in
default, the nature thereof in detail; (f) that there are no offsets or
defenses to the payment of Base Rent, additional charges or any other sums
payable under this Lease or, if there are any such offsets or defenses,
specifying such in detail; and (g) such other matters as Landlord or its lender
may reasonably request. The failure to deliver such statement within the time
required hereunder shall, at the option of Landlord, be a default under this
Lease, or be conclusive evidence, binding upon Tenant that this Lease is in
full force and effect, without modification except as may be represented by the
Landlord, that not more than one month's rent has been paid in advance, that
all work required to be performed in the Premises by Landlord has been
completed, and Tenant shall in such instance be estopped from asserting any
defaults known to it at that time.
ARTICLE 24
RULES AND REGULATIONS
Tenant agrees to observe the reservations to Landlord in Article 22
hereof and agrees, for itself, its employees, agents, servants, clients,
customers, invitees, licensees and guests to observe and comply at all times
with the rules and regulations set forth in Exhibit D attached hereto and made
a part hereof, and with such reasonable modifications thereof and additions
thereto as Landlord may from time-to-time make for the Building, and that
failure to observe and comply with such reservations, rules and regulations
shall constitute a default under this Lease.
ARTICLE 25
MISCELLANEOUS
Landlord and Tenant further covenant with each other that:
(a) All rights and remedies of Landlord under this Lease
shall be cumulative and none shall exclude any other rights and
remedies allowed by law.
(b) All payments becoming due under this Lease or under
any work order or other agreement relating to the Premises shall be
considered as rent, and if unpaid when due shall bear interest at the
rate of two percent (2%) per annum in excess of the corporate base
rate in effect from time to time at The First National Bank of Chicago
(unless a lesser rate shall then be the maximum rate permissible by
law with respect thereto, in which event such lesser rate shall be
charged) until paid.
(c) The word "Tenant" wherever used herein shall be
construed to mean Tenants in all cases where there is more than one
Tenant, and the necessary grammatical changes required to make the
provisions hereof apply either to corporations or individuals, men or
women, shall in all cases be assumed as though in each case fully
expressed.
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(d) Each of the provisions of this Lease shall extend to
and shall, as the case may require, bind or inure to the benefit, not
only of Landlord and of Tenant, but also of their respective heirs,
legal representatives, successors and assigns, provided this clause
shall not permit any assignment contrary to the provisions of Article
27 hereof.
(e) All of the representations and obligations of
Landlord are contained herein, and no modification, waiver or
amendment of this Lease or of any of its conditions or provisions
shall be binding upon the Landlord unless in writing signed by
Landlord or by a duly authorized agent of Landlord empowered by a
written authority signed by Landlord.
(f) Submission of this instrument for examination shall
not bind Landlord in any manner, and no lease or obligation on
Landlord shall arise until this instrument is signed and delivered by
Landlord and Tenant.
(g) No rights to light or air over any property, whether
belonging to Landlord or any other person, are granted to Tenant by
this Lease.
(h) Sectional headings in this Lease are solely for
convenience of reference and shall not in any way limit or amplify the
terms and provisions hereof.
(i) The laws of the State of Illinois shall govern the
validity, performance and enforcement of this Lease. The invalidity
or unenforceability of any provision of this Lease shall not offset or
impair any other provision. If any provision of this Lease is capable
of two constructions, one of which would render the provision invalid
and the other of which would make the provision valid, then the
provision shall have the meaning which renders it valid.
(j) Landlord and Tenant each shall and hereby does waive
trial by jury in any action, proceeding or counterclaim brought by
Landlord against Tenant or by Tenant against Landlord on any matters
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the
Premises or any claim of injury or damage.
(k) Landlord's title is and always shall be paramount to
the title of Tenant. Nothing herein contained shall empower Tenant to
commit or engage in any act which can, shall or may encumber the title
of Landlord.
(l) Neither this Lease, nor any memorandum, affidavit or
other writing with respect thereto, shall be recorded by Tenant or by
anyone acting through, under or on behalf of Tenant, and the recording
thereof in violation of this provision shall make this Lease null and
void at Landlord's election.
(m) Nothing contained in this Lease shall be deemed or
construed by the parties hereto or by any third party to create the
relationship of principal and agent, partnership, joint venture or any
association between Landlord and Tenant, it being expressly understood
and agreed that neither the method of computation of rent nor any act
of the parties hereto shall be deemed to create any relationship
between Landlord and Tenant other than the relationship of landlord
and tenant.
(n) Landlord shall have the right to apply payments
received from Tenant pursuant to this Lease (regardless of Tenant's
designation of such payments) to satisfy any obligations of Tenant
hereunder, in such order and amounts, as Landlord in its sole
discretion, may elect.
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(o) All indemnities, covenants and agreements of Tenant
contained herein which inure to the benefit of Landlord shall be
construed to also inure to the benefit of Landlord's partners, if any
from time to time, and their respective officers, agents and
employees, and shall survive the expiration of the Term of this Lease.
(p) Tenant agrees that upon written request of Landlord
from time to time in connection with the proposed sale or financing by
Landlord of the Building, Tenant shall provide to Landlord a copy of
the financial statement of Tenant for the preceding fiscal year.
ARTICLE 26
RIGHT TO CHANGE LOCATION OF THE PREMISES
At any time and from time to time hereafter, Landlord may substitute
for the Premises other premises (herein referred to as "the New Premises")
provided the New Premises shall in the reasonable judgment of Tenant be similar
to the Premises in area and use for Tenant's purposes, and shall be located on
the fifteenth (15th) floor or higher in the Office Section. If Tenant is
already in occupancy of the Premises, then in addition:
(a) Landlord shall pay all reasonable expenses of Tenant
for moving from the Premises to the New Premises (including without
limitation the cost of the move, costs of reasonable amounts of new
stationery and telephone installation and such other reasonable costs
as are directly related to such relocation) and improving the New
Premises so that they are substantially similar to the Premises;
(b) Such move shall be made during evenings, weekends, or
otherwise so as to incur the least inconvenience to Tenant;
(c) Landlord shall first give Tenant at least ninety (90)
days' notice before making such change.
ARTICLE 27
ASSIGNMENT AND SUBLETTING
Tenant shall not, without the prior written consent of Landlord, (i)
assign, convey, mortgage, pledge or otherwise transfer this Lease, or any part
thereof, or any interest hereunder; (ii) permit any assignment of this Lease,
or any part thereof, by operation of law; (iii) sublet the Premises or any part
thereof; or (iv) permit the use of the Premises, or any part thereof, by any
parties other than Tenant, its agents and employees. Tenant shall, by notice
in writing, advise Landlord of its intention from, on and after a stated date
(which shall not be less than thirty (30) days after the date of Tenant's
notice), to assign this Lease, or any part thereof, or to sublet any part or
all of the Premises for the balance or any part of the Term. Tenant's notice
shall include all of the terms of the proposed assignment or sublease (whether
contained in such assignment or sublease or in separate agreements) and shall
state the consideration therefor. In such event, Landlord shall have the right
to be exercised by giving written notice to Tenant within thirty (30) days
after receipt of Tenant's notice, to recapture the space described in Tenant's
notice and such recapture notice shall, if given, cancel and terminate this
Lease with respect to the space therein described as of the date stated in
Tenant's notice. Tenant's notice shall state the name and address of the
proposed assignee or subtenant and a true and complete and fully-executed copy
of the proposed assignment or sublease and any and all other agreements
relating thereto shall be delivered to Landlord with Tenant's notice. If
Tenant's notice shall cover all of the Premises, and Landlord shall have
exercised its
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foregoing recapture right, the Term of this Lease shall expire and end on the
date stated in Tenant's notice as fully and completely as if that date had been
herein definitely fixed for the expiration of the Term. If, however, this
Lease be canceled with respect to less than the entire Premises, Base Rent and
additional charges reserved herein shall be adjusted on the basis of the number
of square feet retained by Tenant in proportion to the number of square feet
contained in the Premises, as described in this Lease, and this Lease as so
amended shall continue thereafter in full force and effect.
If Landlord, upon receiving Tenant's notice with respect to any such
space, shall not exercise its right to recapture as aforesaid, Landlord will
not unreasonably withhold its consent to Tenant's assignment of the Lease or
subletting such space to the party identified in Tenant's notice, provided,
however, that in the event Landlord consents to any such assignment or
subletting, and as a condition thereto, Tenant shall pay to Landlord
seventy-five per cent (75%) of all income derived by Tenant from such
assignment or subletting. For purposes of the foregoing, income shall be
deemed to include, but shall not be limited to, the amount paid or payable to
Tenant to effect or to induce Tenant to enter into any such transaction, in
excess of the Base Rent, and additional charges, payable by Tenant under this
Lease, after deducting therefrom any brokerage commissions, rent concessions
and tenant improvement allowances, and reasonable expenses or other concessions
directly related thereto, amortized on a straight-line basis over the term of
any such assignment or sublease. If a part of the consideration for such
assignment or subletting shall be payable other than in cash, the payment to
Landlord of its share of such non-cash consideration shall be in such form as
is satisfactory to Landlord.
Tenant shall and hereby agrees that it will furnish to Landlord upon
request from Landlord a complete statement, certified by the chief financial
officer of Tenant, setting forth in detail the computation of all income
derived and to be derived from such assignment or subletting, such computation
to be made in accordance with generally accepted accounting principles. Tenant
agrees that Landlord or its authorized representatives shall be given access at
all reasonable times to the books, records and papers of Tenant relating to any
such assignment or subletting, and Landlord shall have the right to make copies
thereof. The percentage of Tenant's income due Landlord hereunder shall be
paid to Landlord within seven (7) days of receipt by Tenant of all payments
made from time to time by such assignee or sublessee to Tenant.
For purposes of the foregoing, any change in the partners of Tenant,
if Tenant is a partnership, or, if Tenant is a corporation, any transfer of any
or all of the shares of stock of Tenant (by sale, assignment, operation of law
or otherwise) resulting in a change in the present control of such corporation
by the person or persons owning a majority of such shares as of the date of
this Lease, shall be deemed to be an assignment within the meaning of this
Article 27.
Any subletting or assignment hereunder shall not release or discharge
Tenant of or from any liability, whether past, present or future, under this
Lease, and Tenant shall continue fully liable thereunder. Any subtenant or
subtenants or assignee shall agree in a form satisfactory to Landlord to comply
with and be bound by all of the terms, covenants, conditions, provisions and
agreements of this Lease to the extent of the space sublet or assigned, and
Tenant shall deliver to Landlord promptly after execution, an executed copy of
each such sublease or assignment and an agreement of compliance by each such
subtenant or assignee.
Tenant agrees to pay to Landlord, on demand, all reasonable costs
incurred by Landlord (including fees paid to consultants and attorneys) in
connection with any request by Tenant for Landlord to consent to any assignment
or subletting by Tenant.
Any sale, assignment, mortgage, transfer, or subletting of this Lease
which is not in compliance with the provisions of this Article shall be of no
effect and void.
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<PAGE> 27
Notwithstanding anything in this Article 27 to the contrary, Tenant
may at any time or times without the prior consent of Landlord (and without
Landlord having the right to recapture the Premises as described above in this
Article 27), assign or sublet a portion or portions of the Premises to any
Affiliate of Tenant, provided that (I) Tenant continues to be fully liable
hereunder, (2) Tenant is not in default under this Lease at the time of giving
notice thereof or at the effective date of such sublet or assignment, (3) such
Affiliate has a net worth reasonably satisfactory to Landlord, (4) Tenant
delivers to Landlord all documents relating to such assignment or sublease and
information establishing that the proposed assignee or sublessee is an
Affiliate at least fifteen (15) days prior to the effective date of the
proposed assignment or sublease, and (5) Tenant notifies Landlord in writing
thereof and prior thereto in the manner set forth in this Article 27 and other
vise complies herewith. For purposes of the foregoing, "Affiliate" shall mean:
(I) any subsidiary of Tenant; (2) any parent corporation of Tenant; or (3) any
entity which directly or indirectly controls or is controlled by or is under
common control with Tenant. The term "control" (including the terms
"controlling", "controlled by" and "under common control with") shall mean the
possession, direct or indirect, of the power to direct or cause the direction
of the management and policies of an entity, whether through the ownership of
voting securities, by contract or otherwise. Tenant shall notify Landlord of
any transactions described in this paragraph prior to the effective date
thereof and shall deliver to Landlord copies of any operative documents
effecting such transactions.
ARTICLE 28
NOTICE
All notices to be given by one party to the other under this Lease
shall be in writing, delivered personally or by nationally- recognized air
courier service or mailed by United States certified or registered mail, return
receipt requested, as follows:
(a) To Landlord: John Hancock Mutual Life Insurance Company
John Hancock Place
200 Clarendon Street
53rd Floor
Boston, Massachusetts 02117
Attn: Real Estate Investment Group (B-l9)
and
Office of the Building
Suite 3460
John Hancock Center
875 North Michigan Avenue
Chicago, Illinois 60611
and
John Hancock Mutual Life Insurance Company
John Hancock Place
200 Clarendon Street
Boston, Massachusetts 02117
Attn: Law Department
or to such other person at such other address designated by notice sent to
Tenant.
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(b) To Tenant: At National Securities Corporation
1001 4th Avenue
Suite 2200
Seattle, Washington 98154
and after the commencement of the Term at the Premises or to such
other address designated by notice to Landlord.
Mailed notices shall be deemed to have been given upon posting in the
United States mails. Notices sent by air courier shall be deemed given the
following day.
ARTICLE 29
SECURITY DEPOSIT
As additional security for the full and prompt performance by Tenant
of all Tenant's obligations hereunder, Tenant has upon execution of this Lease
paid to Landlord the sum of Twelve Thousand One Hundred and No/100 Dollars
($12,100.00) which sum may be used, retained, or applied, in whole or in part,
by Landlord for the purpose of curing any default or defaults of Tenant under
this Lease. If Tenant has not defaulted hereunder or if Landlord has not used,
retained or applied this security deposit to any defaults, then this security
deposit or any portion thereof not so applied by Landlord shall be paid in cash
to Tenant at the termination of this Lease or any extensions or renewals
thereof. If the whole or any part of said security deposit is used, retained
or applied for the curing of any defaults, Tenant shall immediately deposit
with Landlord an amount of cash equal to the amount so used, retained or
applied so that Tenant shall at all times have on deposit with Landlord an
amount equal to such original deposit as security as aforesaid. The use,
application or retention of the security deposit, or any part thereof, by
Landlord shall not prevent Landlord from exercising any other right or remedy
provided by this Lease or by law and shall not operate as a limitation on any
recover to which Landlord may be entitled.
If, as of May 31, 1997, Tenant has not defaulted hereunder or if
Landlord has not as of such date used retained or applied the security deposit
to any defaults, Landlord shall upon receipt of written request of Tenant
return to Tenant within thirty (30) days thereafter one-half (1/2) of the
security deposit amount, such that from and after such date, the security
deposit described in this Article 29 shall be the sum of Six Thousand Fifty and
No/100 Dollars ($6,050.00).
ARTICLE 30
DEFAULT UNDER OTHER LEASE/LICENSE
If the term of any other lease or license made by Tenant for any
premises or uses in the Building shall be terminated after the making of this
Lease because of any default by Tenant under such other lease or license, such
default shall be deemed a default under this Lease and in such instance
Landlord, at its option, may terminate this Lease by written notice to Tenant.
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ARTICLE 31
CONVEYANCE BY LANDLORD
In case Landlord or any successor owner of the Property or the
Building shall convey or otherwise dispose of any portion thereof which
includes the Office Section, to another person, such other person who shall
become owner of the Office Section (as separate and apart from the Property if
ownership of the Property and Office Section should not be in the same person)
shall thereupon be and become Landlord hereunder and shall assume fully in
writing and be liable upon all liabilities and obligations of this Lease to be
performed by Landlord which first arise after the date of conveyance, and such
original Landlord or successor owner shall, from and after the date of
conveyance, be free of all liabilities and obligations not then incurred.
ARTICLE 32
SUBORDINATION OF LEASE
The rights of the Tenant under this Lease shall be and are subject and
subordinate at all times to all ground leases and underlying leases, if any,
now or hereafter in force against the Property, and to the lien of any
mortgages or deeds of trust now or hereafter in force against such leases, the
Property or the Building, or all of them, and to all advances made or hereafter
to be made upon the security thereof, and to all renewals, modifications,
amendments, consolidations, replacements and extensions thereof. This Article
is self-operative and no further instrument of subordination shall be required.
Any mortgagee or beneficiary under a deed of trust may, however, elect to have
this Lease be superior to its mortgage or deed of trust. At Landlord's
request, Tenant shall within fifteen (15) days thereafter execute a document in
recordable form confirming that this Lease is subordinate (or at the
mortgagee's or beneficiary's election, superior) to any mortgage or deed of
trust. In the event Tenant fails to execute and deliver such document within
such 1 5-day period, Tenant hereby irrevocably appoints Landlord as
attorney-in-fact for Tenant with full power and authority to execute and
deliver in the name of Tenant any such documents. Tenant, at the option of any
mortgagee or beneficiary under a deed of trust, agrees to attorn to such
mortgagee or beneficiary in the event of a foreclosure sale or deed in lieu
thereof.
ARTICLE 33
RIGHTS OF DESIGNATED THIRD PARTIES
In the event of any default by Landlord which would give Tenant the
right to terminate this Lease or to claim a partial or total eviction from the
Premises, Tenant shall not exercise any right at law or in equity (a) until it
has notified in writing the Trustee under any Deed of Trust, and the Mortgagee
under any Mortgage (if the name and address of such entity shall previously
have been furnished by written notice to Tenant) of such act or omission, and
(b) until a reasonable period for remedying such act or omission shall have
elapsed following the giving of such notice, and the Trustee under such Deed of
Trust or Mortgagee under such Mortgage shall not with reasonable diligence have
commenced and continued to remedy such act or omission or to cause the same to
be remedied.
ARTICLE 34
BROKERS
Tenant represents and warrants to Landlord that neither it nor its
officers or agents nor anyone acting on its behalf has dealt with any real
estate broker other than U.S. Equities Realty, Inc. and Ecker PM Realty Group
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in the negotiation or making of this Lease, and Tenant agrees to indemnify and
hold harmless Landlord from the claim or claims of any other broker or brokers
claiming to have interested Tenant in the Building or Premises or claiming to
have caused Tenant to enter into this Lease.
ARTICLE 35
EXCULPATION
Any obligation of Landlord, or its agent, under or with respect to
this Lease or the Building shall be enforceable only against and payable out of
Landlord's interest in the Building and Property, and Tenant hereby agrees that
neither Tenant nor any other person shall have or may assert any right,
recourse, or remedy to or against Landlord or its agent or any assets of
Landlord, except to the extent (if any) of their respective interests in the
Building and the Property; and no officer, shareholder, director, employee,
partner, trustee or beneficiary of Landlord or its agent assumes or shall have
any personal liability of any kind whatsoever hereunder.
ARTICLE 36
COVENANT OF QUIET ENJOYMENT
Landlord agrees that Tenant, on paying the Base Rent, additional rent
and other charges and payments herein reserved and on keeping, observing and
performing all of the other terms, covenants, conditions, provisions and
agreements herein contained on the part of Tenant to be kept, observed and
performed, shall, during the Term of this Lease, peaceably and quietly have,
hold and enjoy the Premises subject to the terms, covenants, conditions,
provisions and agreements hereof, free from hindrance by Landlord or any other
person claiming by, through, or under Landlord.
ARTICLE 37
OPTION TO TERMINATE
Tenant shall have and is hereby granted the one-time option to
terminate this Lease effective on June 1, 1999 by:
(i) Delivering written notice to Landlord of its exercise
of such termination option on or before August 1, 1998; and
(ii) Paying to Landlord concurrently with the delivery of
such termination notice a termination fee in the amount of Twenty-five
Thousand Five Hundred Twenty-two and 33/100 Dollars ($25,522.33).
If Tenant has theretofore exercised either or both of the First
Expansion Option or Second Expansion Option pursuant to Article 38 below,
Tenant further agrees to pay to Landlord at the time of delivery of such
termination notice the costs incurred by Landlord to reinstall the demising
walls separating Suites 1555 and 1553 from Suite 1560 if the existing demising
walls are removed in whole or in part by Tenant.
Tenant's exercise of the foregoing option to terminate this Lease is
further subject to the condition that Tenant is not in default under any of the
terms, covenants or conditions of this Lease at the time that Tenant notifies
Landlord of the exercise of this termination option or upon the effective date
of such option. Tenant shall deliver the Premises to Landlord on or before the
effective termination date in accordance with the terms
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and conditions of this Lease the same as if such termination date were the
original expiration date of the Term of this Lease.
The foregoing option to terminate is personal to National Securities
Corporation and may not be exercised by or for the benefit of any other party.
ARTICLE 38
OPTIONS TO EXPAND PREMISES
A. The Tenant shall have and is hereby granted the option (the
"First Expansion Option") to add to the Premises Suite 1555 containing
approximately 1,222 rentable square feet of additional rentable area as shown
and designated on the plan attached hereto and made a part hereof as Exhibit E
("Expansion Space No. 1"), effective on June 1, 1997 (the "First Expansion
Date"), on all of the terms, covenants and conditions of this Lease except for
the payment of rent. Tenant shall notify Landlord in writing no later than
January 31, 1997 of Tenant's exercise of Tenant's option to add Expansion Space
No. I to the Premises.
B. The Tenant shall have and is hereby granted the further and
independent option (the "Second Expansion Option") to add to the Premises Suite
1553 containing approximately 848 rentable square feet of additional rentable
area as shown and designated on the plan attached hereto and made a part hereof
as Exhibit E ("Expansion Space No. 2"), effective on March 1, 1998 (the "Second
Expansion Date"), on all of the terms, covenants and conditions of this Lease
except for the payment of rent. Tenant shall notify Landlord in writing no
later than October 31, 1997 of Tenant's exercise of Tenant's option to add
Expansion Space No. 2 to the Premises. Tenant's right to exercise the Second
Expansion Option is independent of and not conditioned upon Tenant's having
exercised the First Expansion Option.
C. The Base Rent per rentable square foot for Expansion Space No.
1 and Expansion Space No. 2 shall be the lesser of (i) the same annual Base
Rental rates from time to time payable pursuant to Article 2 of this Lease, or
(ii) the rate at which Landlord is then offering "as is" space in the Office
Section. Upon written request of Tenant delivered to Landlord no later than
December 31, 1996 as to the First Expansion Option and no later than September
30, 1997 as to the Second Expansion Option, Landlord shall advise Tenant within
ten (10) business days of receipt of Tenant's request of the rental rate
described in clause (ii) of the preceding sentence.
D. Tenant's Proportionate Share of Ownership Taxes and Tenant's
Proportionate Share of Office Operating Expenses as set forth in Article 3
hereof shall be increased to reflect the addition, as the case may be, of
Expansion Space No. I and Expansion Space No. 2 to the Premises.
E. It shall be a condition of Tenant's right to exercise Tenant's
options to add Expansion Space No. I and Expansion Space No. 2 to the Premises
that Tenant is not in default under any of the terms, covenants or conditions
of this Lease at the time that Tenant notifies Landlord of the exercise of each
such option or upon the respective Expansion Date. In the event Tenant
exercises either or both of Tenant's options under this Article 38, Tenant
agrees in each such case to enter into a Lease amendment setting forth the
terms of such option within thirty (30) days after exercise of such option by
Tenant.
F. Notwithstanding anything in this Lease to the contrary, Tenant
agrees to accept each Expansion Space in an "as is" condition as existing on
the date such space is added to the Premises.
G. Notwithstanding anything in Article 27 to the contrary, in the
event Tenant shall sublet Expansion Space No. I or Expansion Space No. 2 or in
the event Tenant shall assign this Lease as to Expansion
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Space No. I or Expansion Space No. 2, Tenant shall pay to Landlord one hundred
percent (100%) of any profit derived from such subletting or assignment, as
such profit is calculated in accordance with Article 27.
H. The foregoing First Expansion Option and Second Expansion
Option are personal to National Securities Corporation and may not be exercised
by or for the benefit of any other party.
LANDLORD:
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By: _____________________________________
John M. Nagle
Its Senior Investment Officer
TENANT:
NATIONAL SECURITIES CORPORATION
By: _____________________________________
(Print Name) ________________________
Its _________________________________
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CERTIFICATE
(If Tenant is a Corporation)
I, ___________________, Secretary of National Securities Corporation,
Tenant, hereby certify that the officer(s) executing the foregoing Lease on
behalf of Tenant was/were duly authorized to act in his/their capacities as
__________ and ____________, and his/their action(s) are the action of Tenant.
(Corporate Seal)
______________________________________
Secretary
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EXHIBIT 10.28
US BANK BUILDING
LEASE
THIS LEASE dated this 15th day of November, 1996, is between WEST RIVERSIDE
INVESTORS, a general partnership (the Owner) and NATIOINAL SECURITIES. a
Washington corporation (the Tenant).
1. PREMISES. Owner leases to Tenant and Tenant leases from Owner the
space (the Premises), known as Suite 1300, consisting of approximately 4.583
useable square feet (as per Floor Plan attached as Exhibit A) of the US Bank
Building located at West 422 Riverside Avenue, Spokane, Washington 99201.
The Premises are located on the following property (the Property):
Lot Six (6) and the West forty (40') feet of Lot Seven (7) in Block
Sixteen (16) of RESURVEY AND ADDITION TO SPOKANE FALLS (now Spokane),
all situate in the City of Spokane, County of Spokane, State of
Washington.
2. TERM. The term of this Lease shall be SIX- (6) years and ZERO (0)
months, commencing DECEMBER l, 19 96, and ending DECEMBER 31, 20 02 (the Term).
Acceptance by Owner of rent for a period after the end of the Term shall not
extend the Term, but shall evidence a month-to-month tenancy.
3. RENT. [Tenant agrees to pay Owner for the Premises in advance on the
first day of each calendar month of the Term, a minimum monthly rental of
___________ DOLLARS ($________) for the term of the Lease, together with any
adjustments as provided for below.]
Owner may, in its sole discretion, elect to increase the monthly rental
payable hereunder, subject to the percentage limitation set forth below. In
the event Owner so elects to increase the monthly rental payable hereunder,
Owner shall notify Tenant in writing of the adjusted rental to apply. Said
notice shall be given not less than thirty (30) days in advance of the calendar
month for which the new rental shall become effective. Said rental adjustment
shall be limited to not more than one (1) increase within any twelve (12) month
interval. The first rental adjustment shall not occur prior to ______________.
Each monthly rental adjustment as called for above shall be limited to
a maximum increase per each adjustment of (___%) ____ percent per month of the
minimum monthly rental for the month prior to adjustment. In no event shall
the monthly rental payable hereunder be decreased.
THE RENTAL SCHEDULE SHALL BE AS FOLLOWS:
<TABLE>
<S> <C>
MONTH 1 $0
MONTHS 2-13 $5,347.00/PER MONTH
MONTHS 14-25 $5,633.00/PER MONTH
MONTHS 26-37 $5,920.00/PER MONTH
MONTHS 38-49 $6,206.00/PER MONTH
MONTHS 50-61 $6,493.00/PER MONTH
</TABLE>
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MONTHS 62-73 $6.779.00/PER MONTH
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The rental shall be paid at the office of the Owner's agent, Kiemle &
Hagood Company, West 601 Main Avenue, Spokane. Washington 99201, or at such
other place as Owner may from time-to-time designate in writing.
Tenant acknowledges that late payment by Tenant to Owner of the fixed
minimum rent will cause Owner to incur costs not contemplated by this Lease,
the exact amount of such costs being extremely difficult and impracticable to
fix. Such costs include, without limitation, processing and accounting
charges, and late charges that may be imposed on Owner by the terms of any
encumbrance and note secured by any encumbrance covering the leased Premises.
Therefore, if any installment of rent due from Tenant is not received by Owner
by the 10TH day of each and every month, Tenant shall pay to Owner an
additional sum of FIVE PERCENT (5%) of the overdue minimum as a surcharge. The
parties agree that this surcharge represents a fair and reasonable estimate of
the costs that Owner will incur by reason of late payment by Tenant.
Acceptance of any surcharge shall not constitute a waiver of Tenant's default
with respect to the overdue amount, or prevent Owner from exercising any of the
other rights and remedies available to Owner.
4. BUSINESS PURPOSE. [The Premises are to be used for conducting therein
a SECURITIES SALES and for no other business or purpose without the prior
written consent of the Owner.]
TENANT SHALL USE AND OCCUPY THE PREMISES FOR TENANT'S AND TENANT'S
PERMITTED OCCUPANTS' EXECUTIVE, ADMINISTRATIVE, ACCOUNTING, PURCHASING, SALES
AND GENERAL OFFICES AND FOR ANY OTHER LAWFUL OFFICE USE INCIDENTAL TO THE
PRINCIPAL USE OF THE PREMISES AS A SECURITIES BROKER-DEALER AND FOR NO OTHER
PURPOSE.
5. ASSIGNMENT. Tenant may not assign this Lease nor sublet the Premises
nor any part thereof without the prior written approval of Owner. If Owner
should once approve an assignment or subletting, Owner shall not be barred from
thereafter refusing to consent to any further assignment or to subletting.
Owner shall not unreasonably withhold consent to assignment or to subletting.
NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS PARAGRAPH NO. 5 SHALL BE
CONSTRUED TO PROHIBIT TENANT FROM LICENSING SPACE IN THE PREMISES TO SECURITIES
BROKERS FOR THE CONDUCT OF TENANT'S BUSINESS.
6. SERVICES AND UTILITIES. As long as Tenant is not in default hereunder,
Owner shall furnish customary janitor service, electricity for lighting and
operation of [low power usage office machines] OFFICE MACHINES CUSTOMARILY USED
IN THE OPERATION OF A BROKER-DEALER, heat, normal office air conditioning and
elevator service, when they are reasonably necessary during the ordinary
business hours of the building. Owner shall not be liable for any loss or damage
caused or resulting from such services or utilities or any variation,
interruption or failure thereof due to any cause whatsoever. No temporary
interruption or failure of any such service or utility incident to the making of
repairs, alterations, or improvements, UNLESS SUCH INTERRUPTION OR FAILURE SHALL
CONTINUE FOR LONGER THAN SEVEN (7) DAYS AND IS THE PRODUCT OF OWNER'S
NEGLIGENCE, or due to accident or strike or other condition reasonably beyond
Owner's control shall be deemed as an eviction of Tenant or relieve Tenant from
any of its obligations hereunder.
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7. CARE OF PREMISES. Tenant has examined the Premises and, subject to
such alterations as may be specifically set forth herein, accepts them in their
present condition and will at all times keep and maintain the Premises neat,
clean and in a sanitary condition. If this Lease is entered into prior to
completion of specific improvements for Tenant, the acceptance of Premises by
Tenant shall be deferred until notice from Owner to Tenant of such completion.
Unless within thirty (30) days thereafter Tenant shall have inspected the
Premises and advised Owner in writing to the contrary, Tenant shall be deemed
to have accepted the Premises in their then condition. At the expiration or
earlier termination of this Lease, Tenant shall surrender the Premises to Owner
in their condition as accepted hereunder, or as they may be altered or improved
pursuant to Section 8, subject only to ordinary wear and tear and damage by act
of God OR BY ANY OTHER CAUSE WHICH IS NOT DUE TO THE FAULT OR NEGLECT OF TENANT
OR TENANT'S PERMITTED OCCUPANTS.
8. ALTERATIONS AND IMPROVEMENTS. Tenant shall not make any alterations,
additions or improvements to the Premises without the prior written consent of
Owner. Unless otherwise provided for, all such alterations, additions and
improvements shall be at the sole cost and expense of Tenant, and shall become
the property of Owner and shall remain as part of the Premises at the
termination or expiration of this Lease. Tenant agrees to save Owner harmless
from any damage arising out of any such work. Owner reserves the right to make,
from time-to-time, at its expense, such alterations and improvements to
Premises and Property as it deems appropriate.
9. INSURANCE AND WAIVER OF SUBROGATION.
A. Tenant. Tenant shall, at its sole cost and expense, cause
to be placed in effect immediately upon commencement of the terms of this
Lease, and shall maintain in full force and effect during such term:
(i) A fire and extended coverage insurance policy covering all
Tenant's improvements, and its fixtures, equipment, furniture and inventory in
the Premises, on a full replacement cost basis (no deductions for
depreciation), insuring against risks covered by an extended coverage form
policy;
(ii) Bodily injury and property damage comprehensive public
liability insurance for the combined single limit coverage of not less than
$1,000,000.00.
Tenant shall deliver to Owner a duplicate original of each such
policy, or in lieu thereof, a certificate evidencing such coverage issued by
the Tenant's insurer. Each such policy or certificate shall provide that the
same shall not be canceled without at least ten (10) days prior written notice
to Owner, and shall name Owner and Owner's designee as an additional insured
thereunder.
B. Owner. Owner shall cause to be placed in effect immediately
upon commencement of the term of this Lease, and shall maintain in full force
and effect during such term:
(i) A fire and extended coverage insurance policy covering all
improvements, structures and contents in the entire property of which the
Premises are a part, but not including Tenant's leasehold improvements,
equipment, fixtures, furniture and inventory, on a basis satisfactory to
Owner's permanent lender or the holder of the first lien mortgage or deed of
trust on the Land and Building, insuring against risks covered by an extended
coverage form policy;
(ii) Bodily injury and property damage comprehensive public
liability insurance for the combined single limit coverage of not less than
$1,000,000.00.
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C. Owner and Tenant hereby release each other from responsibility
for and waive their entire claim of recovery for any insured loss or damage to
the property of either located in or about the Premises, including the Property
and Premises, arising out of the occurrence of any of the perils which are
covered by the fire and extended coverage insurance in effect at the time
thereof, and (b) insured loss resulting from business interruption at Premises
or loss of rental income from the Property, arising out of the occurrence of
any such peril.
10. ACCIDENTS. Tenant shall save and hold Owner harmless from all loss,
damage and liability resulting from any injury to any person or any loss of or
damage to any property, including the Property and Premises, caused by or
resulting from any act or omission of Tenant or any officer, agent, employee,
guest, invitee, or visitor of Tenant in or about the Premises or Property. Owner
shall not be liable for any loss or damage to person or property sustained by
Tenant or any other person, which may be caused by the Premises [or Property] or
any part thereof being out of repair, or by the bursting or leakage or
malfunction of any apparatus, equipment or pipe, or by theft or by any act or
neglect of any person or any other cause of whatsoever nature unless caused by
the [willful act of Owner] NEGLIGENCE OF OWNER OR ANY EMPLOYEE OR AGENT OR
CONTRACTOR OF OWNER.
11. ACCESS. Owner shall have the right to inspect the Premises at all
reasonable times UPON REASONABLE ADVANCE NOTICE (EXCEPT IN CASE OF ANY SUCH
ENTRY FOR EMERGENCY REPAIRS) and to THEN enter the same for the purpose of
cleaning, repairing, altering or improving the PREMISES. [same on the Property,
but nothing contained in this Lease shall be construed as to require Owner to
make any repairs, alterations, or improvements.]
12. SIGNS OR ADVERTISING. Tenant shall not inscribe any inscription or
post, place, or in any manner display any sign, notice, or any advertising
matter whatsoever anywhere in or about the Premises or Property without first
obtaining Owner's written consent thereto. NOTWITHSTANDING THE FOREGOING,
OWNER CONSENTS TO TENANT'S PLACEMENT OF ITS CORPORATE LOGO IN THE RECEPTION
AREA OF THE PREMISES.
13. UNLAWFUL USE. Tenant will not disturb other occupants of the Property
and will not do nor permit to be done in or about the Premises or Property
anything which is illegal or which may be dangerous to life or limb or will
increase any insurance rate upon Property or Premises. Tenant will comply with
all governmental rules, orders, regulations, or requirements relating to the
use and occupancy of the premises.
14. SUCCESSORS. All the covenants, agreements, terms and conditions of
this Lease shall bind Owner and Tenant and their respective heirs, executors,
administrators, successors and assigns.
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15. POSSESSION. If Owner is unable to deliver possession of Premises or
any part thereof at the time of commencement of this Lease, Owner shall not be
liable for any damage nor shall this Lease become void or voidable, nor shall
the term be in any way extended, but in such event Tenant shall nor be liable
for any rental, or in the event of inability to deliver possession of part of
the Premises, for the appropriate pro- rata part of the rental, until such time
as Owner can deliver possession. Should Tenant accept the Premises prior to
commencement of the Lease, Tenant shall be bound by all the provisions of the
Lease during such prior period and shall pay rental at the above prescribed
monthly rate prorated for such period.
16. NOTICES. All notices under this Lease shall be in writing and
delivered in person or sent by United States mail to Owner at the same place
rent payments are made, and to Tenant at the leased Premises. Owner and Tenant
may hereafter designate any change of address as each may wish. Notices mailed
shall be deemed given on the date of mailing.
17. LIENS AND INSOLVENCY. Tenant shall keep the Premises free from any
liens or other encumbrances arising out of any work performed, materials
furnished, or obligations incurred by Tenant. In the event Tenant becomes
insolvent, or if a receiver, assignee or other liquidating officer is appointed
for the business of Tenant or the Premises, Owner may cancel this Lease at its
option.
18. DEFAULT AND REENTRY. If Tenant fails to pay rent as herein required
or to perform any other covenant of this Lease, Owner may renter and take
possession of the Premises and shall have all the rights of a landlord under
the laws of the State of Washington. Notwithstanding such retaking of
possession by Owner, Tenant shall remain liable for the rental for the balance
of the term and without terminating this Lease, Owner may relet all or any part
of the Premises upon such terms and conditions as Owner may deem advisable, in
which event the rents received shall be applied first to the expenses of
reletting and collection, including necessary renovation and alteration of the
Premises, reasonable attorneys' fees and real estate commissions paid, and
thereafter to all sums to become due hereunder, and Tenant shall pay Owner
monthly any deficiency resulting therefrom.
19. REMOVAL OF PROPERTY. In the event of reentry or taking possession of
the Premises, Owner shall have the right, but not the obligation, to remove
therefrom all property located therein and may store the same in any place
selected by Owner, including, but not limited to, a public warehouse at the
expense and risk of Tenant, with the right to sell such property without notice
to Tenant after it has been stored for a period of thirty (30) days. The
proceeds of such sale shall be applied first to the cost of sale, second to the
payment of storage charges, and third to the payment of any other sums which
may then be due to Owner from Tenant, with any balance to be paid to Tenant.
20. HOLDOVER. If Tenant shall, with written consent of Owner, holdover
after the expiration of this Lease, such shall be a month-to-month tenancy for
an indefinite period of time, which tenancy may be terminated as provided by
the laws of the State of Washington. During such tenancy, Tenant agrees to pay
Owner the same rental as set forth herein and to be bound by all the terms,
covenants and conditions of this Lease.
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21. ATTORNEYS' FEES. In the event of any action at law or in equity
between Owner and Tenant to enforce any of the provisions, rights or
obligations hereunder, the unsuccessful party to such litigation agrees to pay
to the successful party all costs and expenses, including reasonable attorneys'
fees, incurred therein by the successful party, and if such successful party
shall recover judgment in any such action or proceeding, such costs and
expenses and attorneys' fees shall be included in and as a part of such
judgment. Venue shall be in Spokane County, Washington.
22. NON-WAIVER OF BREACH. The failure of Owner to insist upon strict
performance of any of the covenants or terms of this Lease or to exercise any
option or right herein conferred shall not be construed as a waiver of any such
right to so act in the future, but the same shall remain in full force and
effect.
23. SUBORDINATION. Tenant agrees that this Lease shall be subordinate to
any mortgage or deed of trust now existing or hereafter placed upon the
Property or the Premises created by or under the direction of the Owner, and to
any or all advances to be made thereunder, and to interest thereon and all
modifications, renewals and replacements or extensions thereof. Tenant agrees
to execute any documents required by Owner from time-to-time to evidence
Tenant's subordination of Tenant's interest under Tenant's Lease to any
existing or future security interests. In the event of the enforcement of a
security interest by the secured party or by the trustees for the secured party
by the use of any remedies provided for by law or by documents evidencing the
debt and the security interest, the Tenant will, if requested by the secured
party or by any persons succeeding to the interest of the Owner as a result of
that enforcement, automatically become the Tenant of any successor in interest,
without any change in the terms and other provisions of the respective Lease;
provided, however, that the successor in interest shall not be bound by (a) any
payment of rent or additional rent for more than one month in advance, except
prepayment in the nature of security for the performance by the Tenant of its
obligation under the Lease not in excess of an amount equal to one month's
rental, or (b) any amendment or modification of the Lease made without consent
of beneficiary or any successor in interest. Upon request by the successor in
interest, the Tenant shall execute and deliver an instrument or instruments
confirming its attornment.
24. BUILDING RULES AND REGULATIONS. Tenant agrees to be bound by all
rules and regulations which Owner may from time to time promulgate with respect
to the entire Property, and acknowledges receipt of a copy of the present rules
and regulations.
25. ENTIRE AGREEMENT. This Lease contains all covenants and agreements
between Owner and Tenant relating in any manner to the leasing, use and
occupancy of the Premises and other matters set forth in this Lease. No prior
agreements or understandings pertaining to the same shall be valid or of any
force or effect and the covenants and agreements of this Lease shall not be
altered, modified or added to except in writing signed by Owner and Tenant.
26. SEVERABILITY. Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provision hereof and the remaining provisions hereof shall nevertheless remain
in full force and effect.
-7-
<PAGE> 8
27. ESTOPPEL CERTIFICATES. Tenant shall, from time to time, upon written
request of Owner, execute, acknowledge and deliver to Owner or its designee a
written statement stating: The date this Lease was executed and the date it
expires; the date the term commenced and the date Tenant accepted the Premises;
the amount of minimum monthly rent and the date to which such rent has been
paid; and certifying: That this Lease is in full force and effect and has not
been assigned, modified, supplemented or amended in any way (or specifying the
date and terms of agreement so affecting this Lease); that this Lease
represents the entire agreement between the parties as to this leasing; that
all conditions under this Lease to be performed by the Owner have been
satisfied, including, but without limitation, that any required contributions
by Owner to Tenant on account of Tenant's improvements have been received; that
on this date there are no existing claims, defenses or offsets which the Tenant
has against the enforcement of this Lease by the Owner; that no rent has been
paid more than one month in advance; and that no security has been deposited
with Owner (or, if so, the amount thereof). It is intended that any such
statement delivered pursuant to this paragraph may be relied upon by a
prospective purchaser of Owner's interest or any holder or assignee of any
mortgage upon Owner's interest in the Property. If Tenant shall fail to
respond within ten (10) days of receipt by Tenant of a written request by Owner
as herein provided, Tenant shall be deemed to have given such certificate as
above provided without modification and shall be deemed to have admitted the
accuracy of any information supplied by Owner to a prospective purchaser or
mortgagee and that this Lease is in full force and effect, that there are no
uncured defaults in Owner's performance, that any security deposit is as stated
in the Lease, and that not more than one month's rent has been paid in advance.
28. TAX ON RENTALS. Should there presently be in effect or should there
be enacted during the term of this lease any law, statute or ordinance levying
any tax (other than Federal or State income taxes) upon rents or the income
from real estate or rental property, or increasing any such tax, Tenant shall
reimburse Owner monthly and at the same time as fixed minimum rental payments
are due hereunder, for the actual amount of all such taxes paid, as additional
consideration for the execution of this lease.
29. REAL ESTATE LICENSE DISCLOSURE. Tenant acknowledges that Edward W.
Kiemle and Gerald L. Hagood are partners of the managing partnership within the
partnership that own the subject property, and that they are licensed real
estate Brokers in the State of Washington.
30. BROKER REPRESENTATION / LEGAL ADVICE. Tenant acknowledges that KIEMLE
& HAGOOD COMPANY, Leasing Agent(s), represented the Owner in this transaction.
Each party signing this document confirms that prior oral and/or written
disclosure of agency was provided to him/her in this transaction.
This Lease has been prepared for submission to your attorney for
his/her approval. No representation or recommendation is made by KIEMLE &
HAGOOD COMPANY or its agents or employees as to the legal sufficiency, legal
effect or tax consequences of this Lease.
THE TENANT AND OWNER ACKNOWLEDGE THAT JEFF K. JOHNSON OF KIEMLE &
HAGOOD COMPANY REPRESENTED THE SOLE INTERESTS OF THE TENANT IN THIS LEASE
NEGOTIATION. THE TENANT AND OWNER ADDITIONALLY ACKNOWLEDGE AND APPROVE THAT
KIEMLE & HAGOOD COMPANY HAS ACTED AS A DUAL AGENT IN THIS LEASE NEGOTIATION.
-8-
<PAGE> 9
31. RIDERS. A copy of the Building Rules and Regulations and Exhibit "A"
have been added and made a part of this Lease hereto. Paragraph Nos. 3, 4, 5,
6, 7, 10, 11 and 30 have been modified and made a part of this Lease hereto.
Paragraph Nos. 33, 34 and 35 have been added in their entirety and made a part
of this Lease hereto.
32. APPROVAL OF TENANT FINANCIAL CONDITION. Tenant acknowledges that
acceptance of this Lease by Owner is subject to Owner's financial status and
condition and Owner's approval thereof. Approval shall be deemed as having been
granted upon Owner's execution of this document. Should Owner not grant
approval of tenant's financial condition, all sums paid by Tenant to Owner as
security or rental payments shall be immediately returned and this Lease shall
become null and void, with neither party having any further liability to the
other.
33. ALTERATIONS AND IMPROVEMENTS. The Owner shall construct the
improvements as preliminarily outlined on the floor plan form Northwest
Architectural Company dated August 19, 1996 and attached hereto as Exhibit "B"
and letter of estimates outlining the scope of work from Construction
Associates dated September 13, 1996. The Owner shall provide a carpet allowance
of $12.00 per square yard for the cost of carpet, including taxes. The Owner
shall also switch the existing men's and women's restrooms on the 13th floor.
34. EXPANSION OPTION. The Tenant shall have the option to lease any
unleased adjoining vacant space on the 13th floor by providing thirty (30) days
written notice to Owner. In addition, if the Owner has an interested party to
lease said adjoining space, the Owner will notify Tenant, in writing, and
Tenant will have five (5) business days to notify the Owner of their intent to
occupy the adjoining space. In the event of further expansion, the Lease shall
be amended to incorporate the new Premises and the rental for the Expansion
Premises shall be based upon the then per square foot rent being paid by
Tenant. The Owner shall provide an Improvement Allowance commensurate with that
provided on the original Lease and if Tenant expands, the Lease shall be
extended to have a minimum of five (5) years remaining.
35. CANCELLATION OPTION. Provided that Tenant is not in default of any of
the terms herein, Tenant shall have the one-time right to terminate this Lease
on December 31, 2001 by providing one hundred eighty (380) days prior written
notice to the cancellation date and paying a cancellation fee of seventy
thousand ($70,000.00) dollars.
IN WITNESS THEREOF, the parties hereto have executed this Lease the day and
year first above written.
OWNER: TENANT:
WEST RIVERSIDE INVESTORS NATIONAL SECURITIES,
a general partnership a Washington corporation
By: KHR Investment Company By:______________________________
Managing Partner Robert I. Kollack, President
By:______________________________ By:______________________________
-9-
<PAGE> 10
Partner
-10-
<PAGE> 1
EXHIBIT 10.29
FIRST LEASE AMENDMENT
This instrument made as of this 1st day of September, 1996 by and between JOHN
HANCOCK MUTUAL LIFE INSURANCE COMPANY, a Massachusetts corporation
("Landlord"), and NATIONAL SECURITIES CORPORATION, a Washington corporation
("Tenant").
RECITALS:
A. By instrument dated as of May 1, 1996 ("the Lease"), Landlord
demised and leased to Tenant certain premises located on a portion of the
fifteenth (15th) floor commonly known as Suite 1560 ("the Premises"), as shown
on Exhibit A attached to the Lease, in that certain building known as John
Hancock Center ("the Building") located at 875 North Michigan Avenue, Chicago,
Illinois for a term expiring May 31, 2001.
B. Landlord is willing to lease to Tenant and Tenant is willing
to lease from Landlord certain additional space in the Building containing
approximately 1,573 rentable square feet located on a portion of the fifteenth
(15th) floor of the Building and commonly known as Suite 1545, on the terms and
conditions hereinafter provided.
C. Landlord and Tenant desire to amend the Lease as hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and for other good and valuable consideration,
receipt whereof is hereby acknowledged, Landlord and Tenant covenant and agree
as follows:
1. Effective on the earlier of October 15, 1996 or the date or
the date of occupancy thereof for the purpose of doing business therein ("the
Effective Date"), Article 1 of the Lease shall be and hereby is amended by
adding to the demises initially demised thereby that certain additional area
("the Additional Space") containing rentable square feet and commonly known as
Suite 1545 located on a portion of the fifteenth (15th) floor of the Building
as shown on Exhibit A-1 attached hereto and made a part hereof, on all of the
terms, covenants and conditions of the Lease, except as set forth herein.
2. Tenant agrees to accept the Additional Space in an "as-is"
condition existing as of the date hereof.
3. Effective as of the Effective Date, Article 2 of the Lease
shall be and hereby is amended by adding thereto the following:
<PAGE> 2
"In addition to the Base Rent set forth above, Tenant shall pay to
Landlord with respect to the Additional Space, as such term is defined
in that certain First Lease Amendment dated as of September 1, 1996 by
and between Landlord and Tenant (the "First Lease Amendment")
additional Base Rent (the "Additional Base Rent") in equal monthly
installments at the same time and in the same manner as provided above
for the payment of Base Rent, as follows:
<TABLE>
<CAPTION>
Annual
Period Rate Per Additional Monthly
Sq. Ft. Base Rent Installment
-----------------------------------------------------------------------
<S> <C> <C> <C>
Effective Date* - $21.00 $33,033.00 $2,752.75
May 31, 1997
June 1, 1997 - $21.35 $33,583.55 $2,798.63
May 31, 1998
June 1, 1998 - $21.85 $34,370.05 $2,864.17
May 31, 1999
June 1, 1999 - $22.35 $35,156.55 $2,929.71
May 31, 2000
June 1, 2000 - $22.85 $35,943.05 $2,995.25
May 31, 2001
</TABLE>
*as defined in the First Lease Amendment.
Notwithstanding anything herein to the contrary, Additional
Base Rent shall abate in full and Tenant shall have no liability
therefor for the initial thirty (30) day period after occupancy of the
Additional Space by Tenant.
4. Effective on the Effective Date, the second full paragraph of
Article 3(A) of the Lease shall be and hereby is amended by deleting it in its
entirety and by substituting in lieu thereof the following:
"If Ownership Taxes for any calendar year of the Term
(including the calendar year in which this lease terminates) after the
Base Year shall exceed Ownership Taxes for the Base Year, Tenant shall
pay to Landlord all amount equal to Tenant's Proportionate Share of
the amount by which the Ownership Taxes for such calendar year exceed
the Ownership Taxes for the Base Year. Tenant's Proportionate Share
of such Ownership Taxes for any calendar year shall be 0.4764%,
representing the percentage resulting from dividing the total rentable
area of the Premises by the total rentable area, expressed in square
feet, of that portion of the Building in which the Premises have been
included as part of the tax assessment, which as of the date of this
Lease is 1,092,108 square feet."
<PAGE> 3
5. Effective on the Effective Date, the second full paragraph of
Article 3(B) of the Lease shall be and hereby is amended by deleting it in its
entirety and by substituting in lieu thereof the following:
"Tenant's Proportionate Share of Office Operating Expenses for
any calendar year shall be 0.6352%, representing the percentage
resulting from dividing the number of square feet of rentable area
included in the Premises by the number of square feet of rentable area
designated by Landlord for office uses in the Building, hereinafter
referred to as the Office Section, (which is 819.118 rentable square
feet)."
6. Effective on the date hereof, Article 29 of the Lease shall be
and hereby is amended by increasing the amount of the security deposit set
forth therein by the sum of Two Thousand Seven Hundred Fifty-two and 75/100
Dollars ($2,752.75, and Tenant shall pay to Landlord contemporaneously with the
execution and delivery of this instrument the sum of Two Thousand Seven Hundred
Fifty-two and 75/100 Dollars ($2,752.75) representing the balance of such
security deposit due and owing to Landlord.
7. Effective on the date hereof, Article 37 of the Lease shall be
and hereby is amended by adding to the termination fee set forth in clause (ii)
thereof the additional sum of Twenty-five Thousand Six Hundred Forty-six and
No/100 Dollars ($25,646.00) relating to Suite 1545, so that the aggregate
termination fee payable by Tenant in connection with its exercise of the option
set forth in Article 37 shall as of the date hereof be the sum of Fifty-one
Thousand One Hundred Sixty-eight and 33/100 Dollars ($51,168.33).
8. Tenant represents and warrants to Landlord that neither Tenant
nor Tenant's officers or agents nor anyone acting on Tenant's behalf has dealt
with any real estate broker other than U.S. Equities Realty, Inc. in the
negotiation or making of this First Lease Amendment, and Tenant agrees to
indemnify and hold harmless Landlord from the claim or claims of any other
broker or brokers claiming to have caused Tenant to enter into this First Lease
Amendment.
9. Except as expressly amended hereby, all of the terms, covenants
and conditions of the Lease are hereby ratified and confirmed.
IN WITNESS THEREOF, Landlord and Tenant have executed this instrument
as of the day and year first above written.
<PAGE> 4
LANDLORD:
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By: _____________________________________
John M. Nagle
Its Senior Investment Officer
TENANT:
NATIONAL SECURITIES CORPORATION
By: _____________________________________
Its: ________________________________
<PAGE> 1
EXHIBIT 11
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
PRIMARY
<TABLE>
<CAPTION>
SEPTEMBER 27, September 29, September 30,
1996 1995 1994
----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Net income for primary earnings
per share $ 1,735,000 $ 257,000 $ 510,000
================= ================= =================
Weighted average number of
common shares outstanding
during the year 767,638 667,875 661,496
Add common equivalent shares
upon exercise of stock options 94,415 33,432 26,923
---------------- ----------------- -----------------
Weighted average number of
shares used in calculation
of primary earnings per share 862,053 701,307 688,419
================= ================= =================
Primary earnings per share $ 2.01 $ .37 $ .74
================= ================= =================
FULLY-DILUTED
Weighted average number of
shares used in calculating
primary earnings per share 862,053 701,307 688,419
Add additional shares issuable
upon exercise of stock options 172,097 * *
----------------- ----------------- -----------------
Weighted average number of
shares used in calculation
of fully-diluted earnings per share 1,034,150 701,307 688,419
================= ================= =================
Fully-diluted earnings per share $ 1.68 $ .37 $ .74
================= ================= =================
</TABLE>
*No effect given to common stock equivalents, as their effect would increase
the income per share.
-39-
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-27-1996
<PERIOD-START> SEP-30-1995
<PERIOD-END> SEP-27-1996
<CASH> 2,727
<RECEIVABLES> 17,494
<SECURITIES-RESALE> 3,367
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 33,005
<PP&E> 534
<TOTAL-ASSETS> 57,955
<SHORT-TERM> 0
<PAYABLES> 51,302
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 1,337
<LONG-TERM> 0
0
0
<COMMON> 17
<OTHER-SE> 5,299
<TOTAL-LIABILITY-AND-EQUITY> 57,955
<TRADING-REVENUE> 3,251
<INTEREST-DIVIDENDS> 2,921
<COMMISSIONS> 14,490
<INVESTMENT-BANKING-REVENUES> 13,191
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 1,806
<COMPENSATION> 25,436
<INCOME-PRETAX> 2,543
<INCOME-PRE-EXTRAORDINARY> 2,543
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,735
<EPS-PRIMARY> 2.01
<EPS-DILUTED> 1.68
</TABLE>
